In 2017 is when recreational cannabis became legal in Nevada.

And data from the Nevada Department of Taxation shows that in the first few years after, retail revenue in the state grew steadily.

But starting in 2021, rapidly falling cannabis prices led to the reversal of that trend, at least temporarily.

That's according to a report from the UNLV Cannabis Policy Institute.

And here to elaborate on its findings is the report's author, Robin Goldstein, Director of the UC Davis Cannabis Economic Group; and Riana Durret, Director of the UNLV Cannabis Policy Institute.

Robin and Riana, thank you for joining Nevada Week.

-Thank you.

-Robin, I'd like to start with you.

Inflation and high cost of seemingly everything dominates headlines right now and, in recent years, yet the cost of cannabis is falling?

How can that even be?

(Robin Goldstein) Well, when you first legalize cannabis after a century of prohibition, you are setting up a new industry and companies start out small and figure out their way.

So one thing that happens is just as companies get bigger, the industry gets more competitive.

Technology comes in and prices fall naturally.

-Is this nationally, or just in Nevada, Riana?

(Riana Durrett) Nationally.

Prices are falling nationally.

-Okay.

So then is this cause for concern, do you think, for the Nevada cannabis industry, Riana?

-It is to be expected that prices will go down after a new industry is created.

Like Dr. Goldstein said, there's competition.

There are other factors.

Cost of goods eventually go down, but so it is an uncomfortable reality that every state does need to confront and make plans based on those prices falling.

-Well, and having been in this space for how many years now, Riana, particularly in Nevada?

-Ten.

-Do you think that lawmakers were aware that the prices would be dropping like this?

-You know, there was some understanding that prices would go down.

What was not understood at the time was how entrenched the illegal market would be, how much competition would be presented by the illegal market, and also states-- this was a good new source of tax revenue, right?

So states place heavy tax burdens, and it made sense, because the purpose of legalization was to was to protect public health by having these products made on a legal licensed market, not an illegal market, but the heavy tax burdens, heavy regulation, plus ever-present illegal market is not a formula for success for the market.

-And, Robin, you do write in this report that retailers are perhaps--well, you tell me.

I don't want to put words in your mouth, but--in a little bit of trouble in Nevada, is that true and why?

-Well, I mean, it's tough out there when you're getting falling prices.

So the willingness to pay is coming down, and the wholesale prices haven't been falling as much as the retail prices.

So that's squeezing some retailers.

But when you look at the industry as a whole and you see slightly falling annual revenue, including tax revenue, that's a result of an increase in quantity times a falling price.

So actually, the amount of cannabis being sold that's legal, as opposed to illegal, is increasing, meaning the regulations are working.

It's just that the prices are falling even more.

It's become-- legal is becoming more competitive with illegal.

That's good for the industry, but it's not always good for individual businesses who get squeezed.

-How big of a factor is that that prices are falling in order to remain competitive with the illegal market?

And will you talk about that, because when I hear "illegal market," I'm thinking, so people are still buying from drug dealers, for example?

-Yeah.

The Cannabis Compliance Board itself, the board that governs the industry, commissioned a report that estimates that sales on the legal market are about 21 to 30, up to 33% statewide through the illegal market.

So almost a third of sales are being done through the illegal market, according to the state's own estimates, which is at least $30 million in tax revenue being lost to the illegal market.

-And is it because of prices?

The illegal market is cheaper?

-That's one big reason.

Another big reason is access.

So when you have retail restrictions, for example, legal cannabis can't be sold in retailers near the Strip.

It can't be sold in certain environments without getting special local permissions.

And in some places, it's just prohibited.

So every time you take away a place or a time that a legal retailer can offer products, you hand that chunk of the market to the illegal dealers instead.

-Riana, I know this is a topic that you feel passionately about, the gaming industry and regulations around where cannabis can be sold.

What do you think needs to happen?

-Well, I think first we just need to have the discussions, have an assessment.

Cannabis delivery to the Strip corridor is prohibited, so that could be an area where there-- where the illegal market is flourishing because consumers don't know the difference between the illegal market and the legal market in some cases.

You can go online, you can order delivery, and it appears to be like any other operator.

It appears to be a legal operator.

So we have many tourists coming into the state who likely don't even know that they're buying illegal product, so we're kind of putting them at risk.

So the Cannabis Policy Institute is just in a position where we would like to start these discussions, exploring what are better policies for everyone, for both industries, not just cannabis.

-And that is a crucial part of a bill that Assemblyman Max Carter is working on.

We shall see if that passes, but it would require the Cannabis Compliance Board and the Nevada Gaming Control Board to jointly prepare and submit a report concerning the relationship between the two industries.

So paint this picture for me: There are tourists who come into Las Vegas.

They're sitting in their hotel room.

They want cannabis and they, what, Google a number and find someone to call, and it appears legal?

-Yeah.

Somebody sent me recently in the number four listing on page one of their Google search results was an illegal operator that a tourist wouldn't be able to tell the difference between this particular one and a legal operator.

They're also able to push ads through social media.

You'll get a popup, and it will redirect you to a website to an illegal operator that is providing delivery, and a tourist wouldn't know the difference often.

-Robin, how does this strike you?

Just first of all, that tourists in Nevada cannot smoke or-- can you ingest marijuana in your hotel room legally?

I mean, what if you have an edible?

-I don't think there are specific rules.

Public consumption is not allowed, but, you know, it's-- -But you're not even supposed to smoke it in your room or in the hotel, for example.

Does that strike you as strange?

-Yeah, and it's something that's certainly not limited to Nevada.

We see it all over the country, these extreme rules against public consumption, but also private consumption in ways that tourists would naturally consume it.

In Las Vegas, in Nevada, where you have a huge tourist industry, it's particularly impactful.

You say you've legalized this product, but if people can't smoke it in the rooms they're renting and they can't smoke it in public, then where can they smoke it?

It's almost like it's not legal for visitors.

-Right.

The opposition to expanding points of consumption, what is it, Riana?

-Well, understandably, two reasons: One, businesses, they're not in the-- many businesses are not in the business of public consumption, so it may be difficult for them to offer an area for public consumption of cannabis, which has a strong smell.

The businesses would have to figure out how to accommodate that, and that may not be their main priority.

There's that, and then there is that public consumption, you know, it's not for everybody.

And so again, that's why I think a report is-- I appreciate that the assemblyman is proposing that, because let's start talking about it.

Let's start talking about being realistic, because people are consuming.

So let's be realistic about how we can, one, capture it through the legal market versus illegal, but, two, provide them safety and access.

-I mean, if you think of like, a bar, for example, people will go out on the patio and smoke a cigarette.

So why couldn't they do that with cannabis?

-Yeah.

It's an interesting case you raise, because one of the things about consumption lounges, which are much discussed as the place that you can go and socially consume in public, that's there's a clean separation between those and bars that serve alcohol.

And so when groups go out together, they're able to do one or the other in a place, but not both.

Or not-- groups can't choose one or the other among the group.

And so that's important, I think, in terms of limiting the potential for on-premise, what we call on-premise retail consumption, restaurants, bars, places like that.

They make a lot of their money selling alcohol, and so adding this to their offerings, there's big potential there.

But to ask an alcohol-- to ask a restaurant to say you can't serve alcohol anymore, you can only serve cannabis, or a bar is going to change to an all-cannabis consumption lounge, that's not an appealing business model for a lot of folks.

-And I think there also needs to be an understanding that smoke isn't the only option.

There are, like you said, edibles, and there are people consuming these already.

So, you know, it's just a matter of putting rules and guardrails around it, because people are already consuming them.

That and then there's a rising hemp beverage market throughout the United States, which has become wildly popular in some states.

-And I didn't want to bring that up, only because according to this report, it seems that Nevada has a good handle on the intoxicating hemp market, in keeping it out of stores, for example.

Did I interpret that correctly?

-It is prohibited in Nevada.

I think there's still a large illegal intoxicating hemp market in Nevada, and we might want to look at how other states are handling intoxicating hemp beverages, because some of them have a, have had a positive reception.

-Okay.

Another point you made in the report was about single sites of retail.

It doesn't make sense to just sell cannabis.

Most retail stores sell multiple items.

But is that a far-fetched idea?

-Yeah.

It's again, you see this all over the country.

In the legal cannabis systems, they set up the single-purpose retailer where it's just a cannabis store.

It's a little bit similar to liquor in some states, but it's a very anachronistic business model.

In the 1800s, you have stores that sell only dairy or whatever.

But the business model that works in the modern world for retailers is to sell a big variety of products.

And so as stores will be able to integrate cannabis into larger offerings, it's going to make the stores more efficient and better able to stay in business.

-Okay.

When you did a separate report, a survey of stakeholders in Nevada, they told you their number one issue is competing with the illegal market.

So they expressed, Hey, there needs to be more enforcement.

Is that plausible?

Is there the money to pay officers to go around and, I mean, what, because if you're getting it from a drug dealer, that's-- -Yeah.

I think along the lines of, not moving away from the single-purpose stores we have, because some of these are tourist destinations in and of themselves in Nevada.

But in addition to that, there's the possibility of expanding delivery options.

This is a society where we get everything delivered to our doorstep now, right?

So I think making delivery more accessible in this state is an opportunity that we're currently not embracing.

And then as far as the illegal market, yes, there are things that can be done to bolster enforcement efforts.

It's very-- you have to be very careful when doing it to ensure that you're not just reimplementing the war on drugs and targeting certain populations who've been disproportionately impacted by the war on drugs.

But there does need to be enforcement towards these larger, very sophisticated operations that are operating seemingly sometimes with impunity.

There's not really anything stopping them.

There have been many discussions among the agencies that could and would be responsible for how to coordinate their efforts.

And I think this legislative session, some of those conversations can culminate in potentially funding, also designating who is responsible, because there are multiple agencies involved in governing cannabis and involved in normal police activities.

But who is responsible for enforcement against illegal market?

That needs to be determined.

-Yeah.

I would add that when you look at the opportunity for legal cannabis in Nevada, which is huge, I see it centering around things that illegal dealers can't do.

I mean, Las Vegas does everything gloriously.

As Riana mentioned, the dispensaries that are here, some of them, the world's largest.

They're really impressive.

They're tourist destinations in themselves.

And so as-- I think as the industry becomes integrated with entertainment, the entertainment industry and tourism, you're going to see all these legal opportunities that will give them an advantage over the illegal.

But in the meantime, it's really important not to give them disadvantages through regulations where illegal people can sell and do things that they can't.

-I want to put this out there.

The report says that prices, in order to compete with the illegal market, have to go down from the current price of about $40 per eighth to closer to $5 an eighth?

When I read that, I wrote next to my notes, Whoa!

That's shocking to me.

Not shocking to you?

-Well, I'm looking a few years in the future when I say that I'm not-- that's not going to be 2025 prices, but I think you have to see a future of $5 eights in 2030.

In California, it's already approaching $10.

And so people have to be ready for that.

Anyone in the business who is not ready for $5 eighths is not ready for the marketplace in the future.

-And then, also, are part of those prices determined by the wholesale market in Nevada, which I believe operates-- I mean, the cultivation in Nevada, which is so much different than in places like California, for example, what is the potential threat there if interstate trade is allowed?

-Yeah.

So that will cause significant price compression as well, and our cultivation and production operations would be the most in trouble if interstate commerce became a reality, which-- -And why is that?

-Because other states would be more equipped to grow cannabis in a less costly manner than Nevada.

We don't-- we're not a big agricultural state.

So the hope and belief of many operators is that they will have a boutique operation.

If all of a sudden you could export and import throughout the United States, and that's entirely plausible, but I think a lot of the cultivators and production facilities need to be aware that unless they're that boutique niche brand, then they would have a very difficult time.

-Yeah.

-Yeah.

I think where Nevada has the biggest disadvantage is in outdoor growing.

We can't grow outdoors in Nevada, really.

And California has large fields with a favorable climate for that.

So on the very low end of flower, cannabis flower, you have tough to be competitive, but in manufacturing and in other stages of the business, like people who might make beverages or gummies, let's say, Nevada has some advantages, especially advantages over California.

Lower costs, lower land, lower labor costs and electricity costs, and so forth.

And so an advantageous distribution spot in the Southwest, big airport too.

In an interstate market-- actually, in my next upcoming report, which is about interstate commerce, I say Nevada is actually really well positioned, not in every segment, but no state will be perfect for every segment.

-Robin, Riana, thank you for joining Nevada Week.

-Thank you.

-Thank you so much.