July 1, 2021, marked four years since Nevada launched its first adult-use cannabis sales, and the market has certainly seen its fair share of rapid growth and regulatory changes during that time, not to mention the unprecedented COVID-19 pandemic.
From July 2017 to June 2018, the state saw $529,851,245 in taxable medical and adult-use cannabis sales, a figure that has steadily increased to $719,216,651 during the current fiscal year, which includes sales data from July 2020 to March 2021, according to the Nevada Department of Taxation.
Flexibility is the name of the game for cannabis operators looking to cash in on this rapidly growing market, according to Layke Martin, executive director of the Nevada Dispensary Association (NDA).
“I think this industry is ever-changing, and our owners know that and are prepared for that,” Martin told Cannabis Business Times and Cannabis Dispensary. “They’re flexible and ready to pivot.”
The NDA launched roughly five years ago as an advocacy and trade association for the retail segment of the market but has recently expanded to include cannabis cultivators and distributors.
Nevada currently has 86 operational dispensaries, and the industry employs approximately 10,000 people, Martin said.
Reflecting on Lessons Learned
The Source pivoted to the adult-use market quickly, launching its first recreational sales at its Sahara location on July 1, 2017. The company’s Henderson store began serving the adult-use marketplace much later, in October 2017, due to delays in the rollout of local regulations, according to Brandon Wiegand, The Source’s chief commercial officer.
“We saw an immediate impact,” Wiegand said. “Going from medical to recreational, it was about a five-times increase in business. Then, it’s ebbed and flowed.”
When the first adult-use sales launched in 2017, The Source had roughly 50 employees, a number that has since grown to more than 260. The company also won three new retail licenses when the state opened up another licensing round in 2018, and has opened three new stores in Las Vegas, North Las Vegas and Reno.
In the past four years, The Source has adjusted its operations to accommodate the sharp increase in customers, and part of these adjustments include more robust consumer education.
“With recreational, there’s a much bigger knowledge gap,” Wiegand said. “Customers are coming in that either haven’t consumed cannabis in many, many years or may have never consumed cannabis, and so we focus on education, knowledge, [and] creating an environment that helps awareness and understanding of the product, the different methods of consumption [and] the effects of that consumption. … Our big focus as a team is, how do we dispel the myths and stereotypes around the product, and how do we help people find the experience they’re looking for?”
Wiegand said The Source has a “pretty liberal sample policy,” where dispensary employees are encouraged to try the products to help inform their discussions with customers.
“We encourage them to try and experience the product themselves so that they can talk about it from a first-person point of view,” he said.
The COVID-19 pandemic sparked a new set of challenges for the business, Wiegand said, and The Source had to quickly navigate the e-commerce space to offer curbside pickup and delivery services.
“E-commerce has probably been one of the most significant changes in the business over the last four years—getting our product online [and] developing a platform and experience and a way for our customers to shop,” he said. “That’s an area that we’ve continued to focus on and retool. I think we’re still working today on how to make that process cleaner, leaner [and] more efficient. We’ve seen a huge shift in customers going after e-commerce. Coming out of COVID, there are a lot of people who have changed the way they shop. They’re looking for convenience.”
Clearing Regulatory Hurdles
There are some onerous regulations that burden all cannabis operators, such as limited access to banking services and tax code 280E, and then there are state-specific regulatory hurdles that businesses face in each legal market. In Nevada, the most significant regulatory hurdle when adult-use sales launched in 2017 might have been language in the law that required businesses to have distribution licenses in order to deliver product.
“That had not been figured out when we launched recreational sales, and our biggest challenge going into rec sales was storing product,” Wiegand said. “We didn’t know when we were going to be able to get deliveries for recreational product. The state and the regulatory agency—at the time it was the Department of Taxation—had allowed us to one time turn our inventory. So, whatever we had July 1 at 12:01 a.m., we were allowed to use that as recreational inventory. So, all of us, all of the dispensaries in the state, stockpiled, not knowing when we were going to be able to get deliveries.”
Another significant regulatory change was creation of the Cannabis Compliance Board (CCB) to oversee the industry, which had previously been regulated by the Nevada Department of Taxation.
The CCB, modeled after the state’s Gaming Control Board, launched in July 2020, and Martin said she and many of the NDA’s members are happy with how the board has operated over the past year.
“They’ve been great to work with, and it’s excellent having a dedicated regulatory body for the industry,” she said. “It makes it easier to comply. … They’re transparent. … When they were working on regulations, for instance, they [sought] industry guidance so stakeholders were able to provide guidance on what the regulations should look like.”
The CCB recently created a Cannabis Advisory Commission, Martin added, which is made up of industry stakeholders, legislators and government agencies who will ultimately make recommendations to the full board.
“There’s a subcommittee on social equity, one on public health, one on public safety, and one on the cannabis industry and market stability,” Martin said. “Each of those subcommittees will research, analyze and make recommendations to the board. … They just met for the first time this week, so we’re really excited to see where that goes.”
Planning for the Future
During the 2021 legislative session, the Nevada Legislature passed a bill to create a new consumption lounge license, the first new license type since adult-use was legalized. The CCB is currently going through the rulemaking process to draft regulations for these new businesses, and Martin anticipates seeing the first operational lounges in the early part of 2022.
Existing dispensaries can each apply for a license to open one lounge, which must be attached or adjacent to their existing facilities.
“Some of our [dispensary members] … are located near the tourist corridor, [and they] are very excited about the opportunity to have lounges to give tourists, for example, a place to try cannabis products legally,” Martin said.
The Source will pursue a license to create a consumption lounge, Wiegand said, adding, “There’s a whole world of experiences that can be created with the product, and I’m really excited to see what comes out of that and very proud of the fact that Nevada took a stand and will be part of something that will be the next evolution of the industry.”
The NDA will continue to evolve with the industry, Martin said, and the organization is already planning its priorities for the next legislative session, which will take place in 2023.
One of these priorities will likely be reforming state regulations on packaging and labeling, Martin said.
“A lot of our regulations and statutes related to packaging and labeling have evolved, and it’s become … somewhat duplicative, a little bit onerous, and we are taking cues from a couple of other states that have gone back and reformed their packaging and labeling regulations,” she said. “How can we streamline … our packaging and labeling requirements to be more consumer-friendly [and] provide the information, but perhaps in a different way?”
The Source’s upcoming goals focus on running a more efficient dispensary, Wiegand said.
“One area we’ve focused on pretty heavily over the past few years is understanding the customer—understanding buying behavior, understanding product and proper merchandise planning and allocation,” he said. “How do we get the right products in the right volumes at the right times, so we’re not overstocked in some SKUs and understocked in others? How do we make sure that the product our customer is looking for is kept in stock?”
Customer preferences are starting to evolve, he added, and consumers are starting to purchase products based on terpenes rather than potency.
“We spent a lot of time and a lot of effort educating customers about the entourage effect and terpenes and really understanding that there’s a lot more to the experience of the product beyond just the THC percentage,” Wiegand said. “In conversations with customers, there’s definitely a different level of knowledge and customers are seeking out terpenes they know and like and that bring them the benefits and the effects that they’re looking for.”
The Source has continued to scale to meet consumer demand and has converted to vertical cultivation to double its square footage without expanding the size of the building.
“Then, on top of that, we’ve bought a new distribution center, where we’re going to co-locate our production facility,” Wiegand said, adding that this will support The Source’s dispensaries as well as other retailers that buy The Source’s product wholesale.
“We scale up the business, we plateau and stabilize, and then we develop new products, … we see the demand go up, and we have to retool the business again,” Wiegand said. “I joke about the fact that it has been a sprint from day one, even going back to medical. I don’t know that we’ve had a year of stability. It’s always been something changing, something new, and that’s part of what I love about the business—it’s dynamic and exciting."