Since Nevada's recreational marijuana program launched in July, sales have dropped 20 to 30 percent as dispensaries struggle to meet the swell in demand, according to a report last week from the Nevada Department of Taxation.
A shortage of businesses able to deliver product to dispensaries has stunted the market, leaving dispensaries with a product selection that's been reduced by more than half, the report said.
Dispensaries insisted that they needed more product faster, and they needed at least nine to 11 deliveries per week with between 12 hours and five days notice. Currently, they're waiting closer to a week to two weeks.
"These (retail marijuana) businesses are struggling without a robust distribution system. Cultivators and producers have product sitting for days waiting to be delivered to stores while the quality of the product degrades. Retailers do not have the products their customers desire, products that are legal and should be available to them," said Deonne Contine, director of the Nevada Department of Taxation, in the report.
The report is based on surveys filled out by more than five dozen marijuana establishments and more than a dozen alcohol distributors, an effort that is the result of an emergency regulation passed last month. It's hoped to put to rest the issue of a distributors' shortage.
The state currently is required to rely solely on alcohol distributors for delivery of recreational marijuana to dispensaries, a mandate that could either be killed or continued on Thursday in a Carson City District Court hearing.
"“I would like to see the issue resolved quickly because it creates uncertainty in this new industry," said Gov. Brian Sandoval in an email to the Reno Gazette-Journal late Wednesday.
Carson City District Court Judge James Russell may determine whether the state's recent report is evidence enough that the state is in dire straits, or he may determine that the alcohol distributors still have exclusive rights to distribution.
Alcohol distributors were given those exclusive rights in the November ballot measure legalizing recreational marijuana, but the state last week determined in its report that there are not enough alcohol distributors qualified for the job at this time.
After passing an emergency regulation last month and releasing the report last week, the state planned to open the application process up to the more than 80 marijuana establishments that have expressed interest in distribution, but Russell asserted that the state had not given distributors ample opportunity to respond to the findings, according to an order filed soon after the report's release.
That means the entire industry will rest on the shoulders of just one distributor for a good while longer.
Crooked Wine is the only fully operational distributor, though six are licensed, largely because it partnered with a medical marijuana distributor, Blackbird, which already has the infrastructure and savvy to understand marijuana distribution. Crooked Wine holds the license, but Blackbird does all of the operations.
Blackbird, which delivers to dispensaries in Reno, Las Vegas and a handful of other areas, currently services 99 wholesalers and makes 100 to 150 deliveries a day, according to the state's report.
Blackbird is delivering to "every dispensary in the state, no joke," said Chad Strand, chief operations officer for the company, noting that company covered more than 10,000 miles in just a few weeks.
"We’re definitely carrying a lot of the weight. We’re happy about it, to be given this opportunity, to get this thing going because there’s such high demand, but everybody wants product and everyone wants it as soon as possible. All of it. Everybody wants everything. It’s all flying off the shelves," Strand told the Reno Gazette-Journal earlier this month.
Blackbird went from six employees to 30 just to meet the demand, the report said, and has been operating with 10 vehicles, though it owns another two and has purchased 10 more.
The company's CEO, Tim Conder, last week said that the state's retail program needs five more distributors of Blackbird's size to meet the current demand.
"The distribution is limping along. The facilities aren’t completely running out," said Riana Durett, spokeswoman for the Nevada Dispensary Association.
Edibles, primarily gummies and chocolate bars, have been running out the fastest, Durrett said, and products that have low levels of the psychoactive component THC also are hot items.
Ultimately, the program's floundering start could lead as well to a budget shortfall since Sandoval budgeted $70 million in state revenue from the fledgling industry over the next two years. The state will not be releasing revenue numbers until late September because businesses don't report their numbers until August.
“I’ve received no information to indicate that revenues have fallen behind original projections," Sandoval said.
Money from the 15 percent cultivation tax on all marijuana product in the state will go toward schools, and the 10 percent tax collected from recreational marijuana upon sale will go toward the state's rainy day fund.
"They aren’t selling as much product and we aren’t collecting as much in taxes. We don’t have any numbers so we can’t quantify yet," said Stephanie Klapstein, spokeswoman for the state taxation department.
Asked whether the state, aside from the distribution issue, had enough marijuana supply to meet the increased demand in Nevada, Klapstein said that there has not been enough delivery of marijuana to the dispensaries to even know at this point if there's ample product to go around.
"Because we’re stuck with a distribution problem, I don’t think we’d even be aware of that yet," she said.