Statement of Emergency: Nevada Marijuana Supply

With product moving fast in its first weeks of sale, the state faced a supply chain bottleneck that threatened dispensaries' operations.

The supply chain bottleneck giving dispensaries a hard time.
The supply chain bottleneck giving dispensaries a hard time.

Recreational marijuana went on sale in Nevada on July 1, 2017, and there was plenty of product in the state. So why were dispensaries running low just two weeks in?

The answer lies in the stipulations of the ballot measure, illustrating that: (1) regulatory verbiage can have a big impact, and (2) adequate distribution must be planned for.

Bottleneck

The state’s measure stipulated that, for the first 18 months of legal sales, only alcohol distributors have the right to transport marijuana. Sounds good, right? They’re already capable of distribution?

Unfortunately for dispensaries, the alcohol distributors were not ready to move product. As of last week, only two alcohol distributors had received licenses to transport marijuana (none were ready by July 1). Another five had submitted applications that were incomplete.

This means that dispensaries could sell what they had, but couldn’t restock supplies. The first four days of legal sales generated an estimated $3 million in sales revenue, so marijuana has been moving fast.

Rolling Stone reported that even dispensaries with attached grow operations were stuck: “As Riana Durrett of the Nevada Dispensary Association puts it, they can't carry goods from ‘one side of a room to the other.’”

Statement of emergency

The Nevada Department of Taxation attempted to prevent this scenario before legal sales began by trying to allow businesses involved in medical marijuana to apply for licenses. That effort was stopped by a lawsuit from alcohol distributors.

Nevada Governor Brian Sandoval endorsed a "statement of emergency" (different from a “state of emergency” used in natural disasters) to allow the Department of Taxation to consider other applicants for distribution licenses. New emergency regulation was passed to address the shortage last week, which will open the application process to those who have been operating in the medical marijuana sector.

There may be legal battles ahead from the liquor industry, but for now, two licenses have been granted, and the distribution licensing process has been opened to a larger pool of applicants. The first licensee, Blackbird Logistics Corporation, began shipping to dispensaries almost immediately to replenish dwindling supplies.

It’s a reminder of the important role that distribution and its regulation play in supply chain shortages.

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