Nevada officials should have conducted more thorough background checks on potential marijuana companies before handing out a round of dispensary licenses, a judge ruled Friday.
The order from District Judge Elizabeth Gonzalez means certain companies awarded licenses could be prevented from opening while a lawsuit over the licenses works its way through the court system.
In her decision, issued after testimony and arguments from marijuana companies and the state that took place over three months, the judge pointed to the state law approved by voters in 2016 that required background checks on “each prospective owner, officer, and board member” of a marijuana business.
“The (Department of Taxation’s) decision to not require disclosure on the application and to not conduct background checks of persons owning less than 5% prior to award of a conditional license is an impermissible deviation from the mandatory language of (ballot Question 2),” Gonzalez wrote.
The conditional licenses handed out in December were to last one year while the applicants sought approval from local governments before seeking final approval from the state to open a new pot business.
Officials with the Department of Taxation could not immediately be reached for comment Friday afternoon.
Attorney Dominic Gentile represents Serenity Wellness LLC, part of a group of companies that filed suit against the Department of Taxation, which was charged with handing out 61 new marijuana dispensary licenses last year.
“The judge did exactly what a judge is supposed to do,” he said. “She looked at the facts, and she crafted a remedy that she thought justice required. … I feel good about it, because when we started out we had no information” about the licensing process.
Alina Shell, a lawyer for Greenmart of Nevada LLC, which is owned by a publicly traded company, said the decision could affect the company’s ability to open a new dispensary within a year of being granted the license. Shell planned to challenge the decision with the Nevada Supreme Court.
“We are very disappointed in the court’s decision,” she said. “And we intend to take every step we can to protect our client’s interest in these very valuable licenses that they earned based on their merit.”
Throughout the court hearing, the value of each license was estimated at $10 million.
Several companies that were denied licenses sued the Nevada Department of Taxation, arguing that the state did not administer thorough background checks on applicants and conducted inaccurate and improper scoring to award new business licenses worth millions of dollars.
Steve Shevorski, head of complex litigation with the Nevada attorney general’s office, argued last week that state officials conducted an impartial review of each of the 462 applications for 61 new licenses awarded late last year.
In the lawsuit filed earlier this year, losing bidders accused state tax officials of failing to disclose how they selected companies for new pot dispensaries.
State law transferred licensing and registration for marijuana businesses from the Division of Public and Behavioral Health to the Taxation Department.