Here’s Why Nevada’s Marijuana Supply Can’t Keep up with Sales

Jul 12, 2017

Dispensaries in Nevada are facing a pot shortage and lost sales could result in less funding for the state’s schoolchildren.

Recreational pot is taxed at 33% to 38%, depending on local regulations. A 10% sales tax goes to the Nevada's rainy day fund, but a 15% cultivation tax on cannabis sales goes to the public education budget.

If the supply problem isn't remedied, it could take some serious bake sales to make up for the lost baked sales.

Nevada isn't alone in allocating some of its pot tax revenue to education. Of the other four states where recreational marijuana is legal, Colorado, Oregon, and Washington all direct some funds to schools.

  • Colorado has a 10% retail marijuana sales tax and a 15% retail excise tax. Marijuana tax revenue contributed more than $65 million to public education in the state over the last two years.
  • Oregon has a 17% state tax, with the option for municipalities to add up to 3% local tax. Forty percent of the tax revenue goes to the state’s Common School Fund.
  • Washington has a 15% tax on wholesale marijuana and an 8% state tax on retail sales prices as of this month, down from 10% before that. Nearly one third of marijuana tax revenue goes to the state’s general fund which can be used for education and other critical services.
  • In Alaska, the tax is $50 per ounce, or about a 20% effective tax rate on cultivators. Half of the tax revenue goes to the state’s general fund, half has been allocated to a criminal reform programs.

But Nevada is the only state with a grower to seller ratio that could undermine the industry's success, Joel Milton told the Reno Gazette Journal. He's CEO of Baker, a company that helps dispensaries with marketing and management.

"In Colorado, we have more than two-and-a-half times as many cultivators as dispensaries, and in Washington, there are one-and-a-half more. In Nevada, there is a lower ratio, it is about one to one. Based on these numbers, it will put a big strain on supply because demand is about to grow tremendously," he said.

It didn't take long for legalized marijuana to run into problems in Nevada. It's only been available since July 1, after the state was one of four to approve recreational pot use in November.

The industry has a lot of momentum and a projected worth of $50 billion by 2026, though anti-marijuana sentiments at the federal level could threaten that growth.

Despite the state's budding industry having only a precious few days to capitalize on that momentum, the Nevada Dispensary Association estimates it generated $3 million in sales and $1 million in state tax revenue between July 1 and July 4 alone. The association added that Nevada is on track to pull in $30 million in revenues by the end of the year.

"It's already affected business, not being able to re-stock. This is the game we play, but at least they let us play," Reno dispensary owner Jeff Grossman told USA Today.

The supply problem has little to do with wilting plants and a lot to do regulations that give alcohol wholesalers exclusive distributor rights. Although 47 dispensaries obtained licenses to sell cannabis in Nevada, regulators have yet to approve any wholesalers' distributor applications.

The Nevada Tax Commission is expected to vote Thursday on whether to expand the applicant pool beyond alcohol distributors, namely to those who already have clearance to distribute medical marijuana in the state.

But even if other distributors are approved, the way growers stagger their plants means that dispensaries will still have to wait for new inventory. Some growers are already selling their next harvests.

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