Lessons from the Desert

What happens in Vegas, stays in Vegas… that takes on new meaning in this age of COVID-19 and our new normals.

While some businesses in the cannabis industry have seen record-setting sales as people prepared to isolate themselves, cannabis businesses in all areas aren’t enjoying the few positives side of statewide closures. Case in point, Las Vegas.

Nevada passed adult-use cannabis in 2016 and plans were put in place for the recreational world to be accessible in January of 2018.  Companies in Nevada, eager to get the program up and running, were operational a full year ahead of plan and began sales on July 1, 2018.

Marijuana tax revenues from July 2017 through April 2018 totaled about $56 million, 110 percent of what was projected for all of the fiscal year 2018. Through the first ten months of the 2018 fiscal year, total taxable sales — the taxes collected in Nevada were up $1.96 billion from the same period a year prior. Over the same period, marijuana-related sales were up $338 million. In other words, the launch of the adult-use industry accounted for a bit more than 17 percent of the overall growth in Nevada’s taxable sales base in 2018.

Needless to say, pot is profitable in the desert.

At least it’s profitable when tourism is in full force.

Unfortunately, in places like Las Vegas, COVID-19 has had a devastating impact on tourism – and with that – the decline of every type of business that depends on tourists in order to thrive, much less survive.  Nevada Governor Steve Sisolak announced the closure of “non-essential” businesses on March 17 of this year and although cannabis businesses were fortunate enough to be considered essential, it doesn’t mean that everyone could continue to operate normally.  The governor’s order required the shutdown of all casino games, including machines and tables, statewide. All restaurants and bars which serve food are able to remain open but are required to provide delivery or pick-up services only; dine-in is strictly prohibited.

For the marijuana industry in Vegas, this means not allowing lines or congregations of people outside, utilizing delivery or pick-up services when available, and following social distancing protocols.  Additionally, dispensaries were only able to cater to patients via delivery as a result of the March 20 order.  Starting on May 1, dispensaries are finally able to serve customers via curbside pick-up or drive-through services.

It’s not difficult to adhere to managing lines and people being too close together when there are no people. In a town where tourists outnumber locals, the absence of 43 million visitors is painfully obvious.  According to Jessica Velasquez of Indiva Advisors, LLP, and member of the Minority Cannabis Business Association (MCBA), people are in short supply.

    

“Vegas is a ghost town,” Velasquez said. ” There are ducks and geese walking all over Las Vegas Boulevard – there are ZERO cars. Ducks and geese walking right down the street in front of the Bellagio! Dispensaries who count on tourism and haven’t built a local customer base are hurting.  The smaller dispensaries who have built relationships with people who live here locally and have served mostly locals before the pandemic, are being rewarded with customer loyalty.”

Vertical operators, like Planet 13, are quickly attempting to pivot via offering discounts and loyalty programs to locals and attempting to build brand awareness among locals to compete for nearby customers.  In an interview with MJ Biz Daily, David Farris, vice president of sales and marketing for cannabis heavyweight Planet 13, said, “We want to handle this the right way so after this pandemic subsides we can keep those customers forever.”

But are they better served to do this after the fact versus the one-location dispensaries that have been cultivating long term relationships with locals primarily before COVID-19?

Without tourism, it might not be enough.  The state is bringing more licensees online and without the steady stream of Vegas visitors, there simply isn’t enough of a local market to support the large number of dispensaries that already exist, much less a run of new entrants.  Impacts on the Las Vegas economy have been catastrophic and according to Velasquez, officials have said, “Gaming losses alone will continue to impact us, experts are saying that it will take us until the end of 2021 to get back to our expected revenue levels.  2021!!!!”

Aside from the impact of COVID on marijuana sales and the importance of local customers, there are other lessons to be learned from our neighbors to the west.  Nevada is a limited license state, and rumors of questionable license award recipients and lack of transparency about applicant identities have been swirling around the Silver State since adult-use passed.  The recreational-only licenses were said to be open to any operators of marijuana cultivation or production facilities, or existing retail license holders. In the end, licenses were awarded to only 17 of the 127 companies that applied, accounting for 61 of 462 total applications. (Some companies were awarded licenses for more than one retail location.) Four of the 17 companies—Essence, The Source, Zenleaf, and Grassroots—received a combined 33 of the 61 licenses, meaning more than half of the new dispensary licenses for the entire state were given to just three percent of applicants.

While the cannabis industry claims to offer opportunities to diverse applicants, including minorities and underserved communities, in some states, that has members of such groups calling foul on such claims.  According to Velasquez, “The proof of massive capital in order to get licenses restricts minorities who aren’t already financially successful in the industry from entering the space.  Less than 5% of licensed operators in Vegas are considered diverse candidates.  With us fast-tracking recreational use by almost a year, those who had medical licenses were grandfathered and were able to get rec automatically.”

But aren’t there special social equity considerations for licenses in Nevada?  The actual scoring sheet for Nevada applicants contains wording that says “An excellent response would include the following:  The criteria response clearly demonstrates how the establishment intends to provide their local community with community benefits and mitigate any nuisance and/or negative impacts that the facility’s existence may cause, including any safety-related concerns.  Applicants demonstrate a commitment to the community and improving the quality of life of their neighbors through sustainable practices that can be maintained and supported over time.”

Velasquez says, “Fast-tracking the program by a year means no enforcement or accountability.  The Cannabis Control Commission will take over from DHSS and the Tax Commission and that might change.”  If the race to adult-use negatively impacts the state’s medical program and results in non-enforcement for things like social equity or community engagement, perhaps Missouri’s own quest for adult-use on the 2020 ballot being stymied by COVID-19 concerns will allow us to better ensure our existing program delivers on its proposed benefits before moving forward with recreational.

Time will tell for states like ours where we’re trying with all of our might to stand up and execute our medical program.  Two things are clear: 1) the importance of catering to local patients will be essential for Missouri, especially in a medical-only environment where visitors and tourists aren’t a marketing target and 2) for many Missouri voters, the execution of an effective and compliant medical marijuana program is essential, regardless of a recreational hopeful industry.