Las Vegas Review-Journal (Sunday)
RECREATIONAL MARIJUANA SALES A BUDDING BONANZA FOR STATE COFFERS, INDUSTRY AS WHOLE
Susan Bunce shed a white lab coat as she walked out of a marijuana laboratory’s testing area into a nearby conference room. She took a seat, placed her arms on the table and smiled softly. “You won’t see another industry like this,” she said. Bunce, 49, a business and marketing professional by trade who co-owns and operates DB Labs in the central Las Vegas Valley, is one of hundreds of marijuana industry entrepreneurs in Nevada to see their wealth and well-being skyrocket with the industry’s success during the first year of recreational sales. Like so many other pot entrepreneurs in the Silver State, Bunce never imagined working in the legal marijuana industry. Now, managing a testing laboratory with more than a dozen chemists is her full-time job, and she’s on her way to making more money than ever. Preliminary economic analyses of the Silver State’s fastest-growing industry estimate that legal recreational cannabis raked in about $305 million in sales from July 2017 to March and could contribute more than $70 million in tax revenue to state coffers in the industry’s first year, exceeding both state and independent projections by 40 percent.
More than 7,000 new jobs were generated by the marijuana industry, according to the most recent numbers available from the Nevada Dispensary Association in January, and more than $300 million was invested in real estate development statewide by pot companies. Those figures will almost certainly increase when a new report on the industry is released later this summer, said economic analyst John Restrepo.
Restrepo’s firm, RCG Economics, has conducted analyses for the dispensary association and pro-pot organizations, even before legal recreational weed was approved by voters in the 2016 election. A 2016 RCG study estimated a 15 percent state wholesale tax on marijuana shipments from cultivation and production facilities to dispensaries would generate $20 million in the first year of recreational sales in Nevada. If tax collections continue on the upward trajectory seen during the first nine months of available figures, actual totals would land at more than $22 million.
“The numbers are looking very strong,” Restrepo said. “The industry has gone through the roof in terms of sales.”
Perhaps the most visible sign of the industry’s success, licensed dispensaries in the Las Vegas Valley are changing hands for millions of dollars. Because the state capped the number of dispensary licenses per regulations outlined in Ballot Question 2, cannabis dispensaries have sold for as much as $10 million. Earlier this year, LA-based MedMen purchased the valley dispensary formerly known as Panacea, as well as two others, for more than $25 million.
MedMen spokesman Daniel Yi said the recent purchases were part of the company’s rush to join Nevada’s “exclusive” market.
As Nevada marks one year of recreational marijuana, access to the plant in the near future will be even easier for buyers across the state. Per Ballot Question 2, the Department of Taxation will open applications to issue potentially dozens of licenses for dispensaries, cultivation centers and production facilities by the end of the industry’s second full year of recreational sales in July 2019. The new marijuana licenses are available only to current license holders already running their own facilities.
The 2019 Legislature will decide if and when members of the general public will be able to obtain licenses to sell cannabis, similar to liquor stores. While owners of testing laboratories won’t immediately be offered additional licenses, Bunce said adding more dispensaries, cultivation and production facilities would be a much-needed boost for the labs, which charge between $300 and $500 to test marijuana flower, edibles or concentrates to state-mandated regulations. Ballot Question 2 writers, with the help of state officials, purposely delayed the growth of Nevada’s industry, opting for a more specialized and regulated pot industry than the open markets of Colorado and Oregon. In those states, dozens of weed facilities open, close and change hands monthly, undermining regulation and consistency in their industries, Yi said.
Laws and enforcement trends
After 15 years of service in the Navy, Jeff Krajnak returned to Las Vegas a hero in 2013 and was honorably discharged. Prescribed 11 pills to cope with severe post-traumatic stress from his war zone experiences, Krajnak turned to medical marijuana and legally obtained a stateissued medical card, smoking the plant each night before bed.
With cannabis, Krajnak, now 45, ditched all but two of the “zombie medicine” pills he was taking, saying the weed took away much of his anxiety.
“My doctor recommended marijuana, and it changed my life,” he said. “I felt human again.”
But Krajnak’s marijuana success story took an unfathomable turn for the worse. Driving to a tee-ball game this past year with his 6-year-old son, Krajnak ran a red light at the corner of Boulder Highway and U.S. Highway 95, T-boning the sedan of Peter Napoli, police said. Napoli, 53, was killed in the crash.
That afternoon, police interrogated Krajnak at Sunrise Hospital, drew his blood and then let him go home. Witnesses gave conflicting statements on which driver was at fault, and police determined at the time he had not run a red light after all.
Krajnak, who had no previous criminal record, was at home playing video games a month later when officers knocked on the door of his Henderson residence, arrested him and booked him for driving under the influence in the crash that killed Napoli. His blood test results showed more than twice the legal amount of active THC and more than eight times the legal amount of marijuana metabolites present in his system.
Krajnak pleaded no contest to charges of reckless driving and misdemeanor DUI. He faces up to six years in prison when he’s sentenced in September.
Krajnak said he hadn’t smoked marijuana for more than 20 hours before the crash. Now he wants his example to serve as a wake-up call for marijuana users to educate themselves on the law.
“I think there needs to be more awareness,” he said. “Every time I go through town, there’s billboards for marijuana, but there’s nothing saying a user can (get a) DUI in this state even if they’re not impaired.
“I wish I had known that.”
A Metro Police spokesman said DUI busts like Krajnak’s are not unusual.
An active THC limit of two nanograms per milliliter and a metabolite count of five nanograms per milliliter has resulted in a greater number of Las Vegas drivers who aren’t likely impaired at the time of their arrests but test above the legal limit, Officer Larry Hadfield said.
Comparatively speaking, legal marijuana states Colorado and Washington have a five-nanogram-per-milliliter limit for active THC count. In California and Oregon, no blood test exists because of limited research on the still-federally illegal plant. Instead, police officers use their own discretion along with routine field sobriety tests to determine a driver’s level of impairment.
Sgt. Randy Dockery spent six years in Metro’s narcotics enforcement division, focusing exclusively on busting marijuana grow houses before briefly leaving the department. He returned last year and now oversees enforcement of illegal drug laws. Like marijuana DUIs, Dockery said illegal sales and marketing of pot have also skyrocketed since last July.
He estimated growth in the valley’s illegal pot market has tripled since legalization, with vendors entering through California for “pop-up party” sales at rented warehouses or banquet venues. That’s a change from previous years, where largescale pot dealers would peddle their illegal product mostly at popular local festivals — such as the High Times Cannabis Cup and Las Vegas HempFest.
“It’s not illegal for adults to buy marijuana, just to sell it without a license,” Dockery explained. “And a lot of times, people don’t know any better. Especially tourists.”
The new pop-up market model can consist of more than 20 pot and paraphernalia vendors who pose as legal sellers through ads on social media, Dockery said. He estimated that two to five such events each week still occur in the valley, earning the highest-selling vendors up to $15,000 a day before they “disappear” for weeks at a time.
Dockery’s unit has found more than 100 pounds of marijuana flower and concentrates left behind at pop-up events, largely because of a surplus of illegal pot in the “flooded” black markets in California. As illegal pot dealers skirt Nevada taxes and testing costs for their product, they’re able to undercut the legal market here by up to 50 percent, he said.
“We’ve opened Pandora’s box, and it has gotten out of control,” he said. “It was a mess in other states, and our results have been no different.”
Quality monitoring
Pro-pot politicians and advocates have long referred to Nevada’s industry as “the gold standard” for quality marijuana. That’s because stringent state regulations require all marijuana sold in Nevada’s 61 open dispensaries to first pass laboratory tests for 24 pesticides, five microbials — including yeast and mold — common myctotoxins and heavy metals.
About 90 percent of marijuana flower passes state requirements on the first test, according to three valley laboratory owners. Excessive mold and yeast lead to the majority of failed cannabis tests.
Marijuana concentrates and edibles have a near-perfect success rate, said Todd Denkin, owner of DigiPath Labs in the central valley. The small number of failed tests were all for gram-negative bacteria that comes from sneezing and unwashed hands.
“Unless something goes horribly wrong in the kitchen, it’s highly unlikely for an edible to fail,” Denkin said. “The failed tests were from things that should be absolutely preventable with good hygiene.”
Opened in May 2015, DigiPath operated for more than two years at a loss in Nevada’s medical marijuana program. But like Susan Bunce and DB Labs, Denkin’s company has seen its bottom line improve since recreational cannabis launched last year. With more than $1 million in lab equipment and a staff of about 15 chemists and microbiologists, DigiPath has served more than 85 percent of the state’s 115 marijuana cultivators.
Ben Chew, a Ph.D chemist working as the district manager of DB Labs, helps oversee one of DigiPath’s main Las Vegas competitors. To test for the four most commonly found heavy metals in Nevada soil—arsenic, cadmium, lead and mercury—Chew uses a $250,000 machine that combines argon gas and plasma. It forms an incubator with a temperature inside “as hot as the surface of the sun,” he said. That heat ionizes the metals into their atomic form, allowing the machine to measure heavy metal concentrations by their atomic weights.
“Nevada’s water is not the cleanest,” Chew said. “The metals can get in the soil when the water is not purified properly.”
Stringent testing standards have also been challenging for the labs themselves. The Nevada Department of Taxation has temporarily suspended the licenses of four of the state’s nine testing facilities since recreational pot became legal. The suspensions — some lasting months — have since ended with the facilities reopening. Interviewed lab owners said their suspensions, while costly, helped them better understand “complicated” state regulations.
Las Vegas-based G3 Labs had its license suspended for more than 150 days after state inspectors discovered incorrect labeling and testing methods. The shutdown caused G3 to lose all of its clients and many of its 12 employees. Months later, the lab is just now recouping most of its business.
“The state regulates us, but they’ve also been asking us how to make the regulations,” said G3’s owner, who asked to remain anonymous. “It’s a complicated process, and it’s truly an industry in its infancy.”
Denkin’s lab also had its license suspended in January for performing tests “not authorized by the state.” He said the experience helped improve communication between the lab and state officials. He added DigiLabs now operated as if it was going to be inspected by state officials every day.
“We all want to be on the same page and we all want what’s best for the industry,” Denkin said. “Ultimately, if you buy cannabis in Nevada, it’s tested and it’s clean.”
High-level tech ahead
One of the valley’s newest cultivation breakthroughs comes in a comparatively small package. The 16,500-square-foot MMJ America cultivation facility, located in the central Las Vegas Valley and set to open in August, pales in size to some of its larger local competitors. But with a unique LED setup that illuminates plants from multiple angles, cannabis buds are nurtured to grow outward instead of upward.
The system, inspired by Nevada startup TriGrow, originated from technology used for growing vegetables, said David Kessler, the company’s vice president of horticulture. TriGrow inspired Colorado-based MMJ America to try it for the company’s first Nevada cultivation facility.
“Our deal was, we wanted to best use our facility to produce as much high-quality marijuana as possible,” MMJ America owner Marques Moore said. “We now think more in cubic feet, because we’re stacking more racks vertically.”
MMJ America’s new Las Vegas facility also will monitor plants’ growth and nutritional health via a wired connection from the soil to a digital system. Self-powered fertilizing and irrigation systems will reduce the manpower needed to evenly water and tend to the plants.
The facility has two separate rooms for cannabis growth: the “veg room,” where plants grow from their infancy as clippings for a few weeks; and a “grow room,” where the rest of their budding will take place. MMJ America also plans to open a smaller, similarly structured facility in Pahrump.
While just about all indoor grow facilities require at least eight weeks to harvest from the time a marijuana clone is first planted, Moore said MMJ America’s facility would allow growth to be complete in as few as six weeks.
“We keep the plants relatively small; they’re just bushier, thanks to the side LED lighting panels,” he said.
Building a cannabis empire
Perhaps the largest power shift in the Las Vegas marijuana landscape has already started. In the past three months, LA-based MedMen, which opened a mega-cultivation facility in Northern Nevada, has announced plans for three Las Vegas dispensaries by the end of summer. One of those — MedMen North Vegas on Arctic Spring Avenue — is already operating. The company paid $10 million to buy that dispensary, formerly known as Panacea, and transform it into an “Apple Store of weed.”
“We want to open stores in significant areas, like Las Vegas,” MedMen spokesman Daniel Yi said. “Nevada is important for cannabis, because governments at both the local and state levels have really embraced this industry. They’ve been more proactive and progressive than a lot of the rest of the country.”
MedMen was valuated at $1.6 billion at the beginning of June, when it went public on the Toronto-based Canadian Securities Exchange. It is the largest U.S. cannabis company to be publicly traded in Canada. The decision to go public, albeit not in the U.S., where the federal Controlled Substances Act technically still prohibits the cultivation, distribution and possession of marijuana, will help the company gain more financial backing for further expansion in Nevada and elsewhere, Yi said.
MedMen CEO Adam Bierman has said the company was focused exclusively on markets where stronger state regulations allowed MedMen “to be in the most pertinent markets to showcase our brand to a much wider audience.” For now, that includes Nevada, California, New York and, soon, Florida. Yi said MedMen was avoiding “saturated” states like Colorado and Oregon.
In cities like Los Angeles, where dispensary licenses are capped by local ordinance, the company has bought the legal number of dispensaries and “manages” stores for other owners under the MedMen name, Yi said. Doing so allows MedMen to continue to grow.
Andrew Jolley, president of the Nevada Dispensary Association, praised the expansion of the company in the Silver State, saying MedMen’s new operations demonstrate that cannabis is “creating for Nevada and our community.”