Several Companies in Nevada Now Own Multiple Cannabis Retailer Licenses. What Impact Will This Have on Wholesale Prices?
Nevada regulators recently awarded 61 conditional licenses for adult-use retailers, according to the Las Vegas Review-Journal. The report notes that there are currently 65 storefronts open for business in Nevada, while also pointing out that the newly-minted licenses could take up to a year to pass their final inspections and get up and running.
How additional retailers entering Nevada’s adult-use cannabis market will impact wholesale pricing remains to be seen and will be contingent on a number of factors. On a basic level, more wholesale buyers should increase demand in the supply side of the market, pushing wholesale pricing up. However, it must be noted that Nevada cultivators do not have limits on their production capacity and can expand as much as necessary to meet demand. New production is currently coming online and has been through this year.
Additionally, demand was strong out of the gate in Nevada, but sales figures have not seen the robust year-over-year growth numbers observed previously in states such as Colorado and Washington. New storefronts could bring additional, novel customers into the market by making access to the regulated system more convenient. However, if overall demand does not expand significantly, then it will be diluted among a greater number of retailers. If retailers see shrinking revenue, they may look to pressure producers to sell for lower prices in order to maintain their margins.
Whether the new stores are linked to commonly-owned cultivation and product manufacturing operations will also affect how the eventual retail expansion will impact the wholesale market. Currently, Nevada’s licensed cannabis system has a significant amount of vertical integration, which has led some standalone cultivators to complain that they are being shut out of the market, as many businesses are largely self-supplying. Two of the winners of multiple conditional licenses – Essence and Green Growth Brands – state in their press releases that they are already vertically integrated operations.
The Nevada Independent reported that an applicant that did not receive a new conditional retail license has sued state regulators. According to the report, the lawsuit seeks to have the state’s licensing decisions thrown out. Whether the suit will progress is unknown at this point, as is the timing of any decisions on the matter.
Furthermore, nine of the new conditional licenses in unincorporated Clark County may face hurdles to opening their new storefronts. The Las Vegas Sun reported this week that county Commissioners unexpectedly and unanimously voted to place an indefinite moratorium on local approval for the new licenses. However, the Sun also notes that three new County Commissioners will replace current ones come the new year, with at least two of those individuals considered friendly to the cannabis industry. As such, it appears possible that the moratorium could be reversed soon.
Finally, a separate report from the Independent called attention to efforts by NDOT to secure permission from license applicants to release their information and some details of their applications, including their scoring. NDOT has not revealed license winners or applicants, citing confidentiality rules, which has led to criticism from some that the process is overly opaque. The report also quotes an NDOT spokesperson as stating that the 61 conditional licenses were awarded to 17 separate businesses. Those companies may not ultimately utilize all of their licenses to open new shops and could possibly sell them to different entities. However, if the conditional license winners do retain and eventually open stores for the full number of permits that they were awarded, those entities with multiple shops could exercise bulk buying power to drive down wholesale rates.
Whether any of the legal or other challenges to Nevada’s latest round of licensing will slow the expansion of the state’s industry remains to be seen. NDOT previously faced legal pushback regarding the licensing of distributors at the outset of adult-use sales, in July of last year, but businesses were in that case allowed to proceed even as the lawsuit was ongoing.