Nevada Faces a Regulatory Dilemma

In a recent message to the gaming community, the Nevada Gaming Control Board formally acknowledged the inherent problem with Nevada’s newly adopted medical marijuana regulations: possession, sale and/or use of marijuana for any purpose is a federal crime. In light of this reality, the board has now made it clear to licensees and potential licensees that as far as Nevada gaming regulators are concerned, marijuana, even state-sanctioned medical marijuana, and gaming do not mix. This article summarizes the history of medical marijuana in Nevada, discusses the federal-state conflict that led to the board’s recent guidance to licensees and applicants and offers some thoughts on what the future might hold for this challenging problem.

The Legalization of Medical Marijuana in Nevada
In 2000, after a successful initiative petition, the Constitution of the State of Nevada was amended to legalize marijuana use for certain medical purposes and to require the Nevada Legislature to provide a legal system for such use.1 It wasn’t until 2013, however, that the Legislature finally passed, and Gov. Brian Sandoval signed a bill creating a system for the creation and regulation of medical marijuana dispensaries.2 The new law required the Division of Public and Behavioral Health within the Nevada Department of Health and Human Services to write and adopt regulations necessary to realize the constitutional mandate. In April of this year, final regulations were adopted allowing local jurisdictions throughout the state of Nevada to accept applications for licenses for the cultivating, testing and dispensing of marijuana for medical purposes.3 So far, only Clark County, which includes Las Vegas, has started this process.4

The Criminalization of Marijuana under Federal Law
As the licensing process has begun to move forward, one not-so-little problem has emerged: Even though the Nevada Constitution now legalizes marijuana for certain medical uses, the Nevada Legislature has created a legal regime for the dispensing of medical marijuana and the largest counties and cities in Nevada are poised to consider applications for licenses to test, cultivate and sell medical marijuana, federal law prohibits all of the above. The federal Controlled Substances Act (CSA)5, enacted in 1970 and amended several times since, makes marijuana cultivation, sale, possession and use for any purpose a federal crime, even in states such as Nevada that have legalized such activity under state law. Indeed, the White House Office of National Drug Control Policy (ONDCP) makes it clear on its website that “[t]he [Obama] Administration steadfastly opposes legalization of marijuana … .”6

As for the Obama Administration’s position on state medical marijuana laws, the ONDCP website reminds Americans that “Congress has determined that marijuana is a dangerous drug and that the illegal distribution and sale of marijuana is a serious crime.”7 Clearly then, at least at the federal level, it is the position of both Congress and the executive branch that state medical marijuana operations, even if legal under state law, violate federal law.

Department of Justice’s Position
Further complicating this federal-state dichotomy is the confusing way in which this issue has been addressed by the U.S. Department of Justice. Proponents of Nevada’s new medical marijuana law are quick to point to the Justice Department’s supposed “hands off” approach to marijuana possession and distribution. However, Justice Department’s actual policy, by way of a memorandum8 sent last August from Deputy Attorney General James M. Cole to the 93 U.S. Attorneys (the Cole Memo), is not quite the “get-out-of-jail-free card” that some suggest it is.

First, it is important to note that the Cole Memo confirms that “Congress has determined that marijuana is a dangerous drug and that the illegal distribution and sale of marijuana is a serious crime… .”9 The Cole Memo goes on to list the Justice Department’s enforcement priorities with respect to marijuana-related crimes, including preventing distribution of marijuana to minors, preventing violence and the use of firearms in the cultivation and distribution of marijuana, and preventing marijuana possession or use on federal property. The Memo advises that federal prosecutors should continue to review marijuana cases on a “case-by-case” basis.10 The Cole Memo further clarifies that its guidance “does not alter in any way the Department’s authority to enforce federal law, including federal laws relating to marijuana, regardless of state law.”11 Finally, the memo specifically includes the following warning: “Neither the guidance herein nor any state or local law provides a legal defense to a violation of federal law, including any civil or criminal violation of the CSA. Even in jurisdictions with strong and effective regulatory systems, evidence that particular conduct threatens federal priorities will subject that person or entity to federal enforcement action, based on the circumstances.”12

What the Cole Memo clearly does not say is that a state medical marijuana business is immune from federal prosecution just because it is legal under state law. Thus, the guidance offered by Justice Department leadership to the U.S. Attorneys is not that they cannot prosecute CSA violations that might be legal under relevant state law, but rather that prosecutors should evaluate violations on a case-by-case basis, mindful of the Justice Department’s overall priorities. In other words, the U.S. Attorneys, including Nevada’s, have been told to do what they always do, whatever the subject matter of the crime, i.e. use their best discretion and judgment in making charging decisions.

The Board’s Notice to Licensees
It is against this backdrop that the board recently issued guidance on this topic to gaming licensees and applicants. Although this federal-state conflict was the subject of robust debate during the 2013 legislative session, there was no discussion of how this issue might complicate the gaming regulatory process.13 Nevertheless, as the state began the rule-making process in the fall of last year, concerns were raised by gaming lawyers and others who saw a problem.

Recently, as the medical marijuana license application process got underway in Clark County, news reports indicated that several individuals who hold a Nevada gaming license were among the applicants.14 Several days later, the board issued a “Notice to Licensees” making it clear that the state of Nevada’s most important gaming regulatory body does not consider the medical marijuana business to be compatible with the gaming business.15 In the May 6, 2014, notice16 from Board Member Terry Johnson, the board acknowledged that it had received inquiries about whether a person who has received a gaming license or who has applied for a gaming license “may invest in or otherwise participate in medical marijuana establishments approved under Nevada laws and regulations.”17 We now know that the board’s answer to such questions is an unambiguous “No.”18

The board explained its position by stating,“… unless the federal law is changed, the Board does not believe investment or any other involvement in a medical marijuana facility or establishment by a person who has received a gaming approval or has applied for a gaming approval is consistent with the effective regulation of gaming. Further, the Board believes that any such investment or involvement by gaming licensees or applicants would tend to reflect discredit upon gaming in the State of Nevada.”19 It is difficult to imagine a more clear answer to the questions raised than the one provided in this notice.

All things considered, it seems that the board has done the right thing. One can easily understand and appreciate the board’s dilemma. On one hand, under Nevada law, it is now legal for one to be in the medical marijuana business, assuming one has the required license(s). On the other hand, under federal law, any medical marijuana business, even if legal under Nevada law, is still considered a criminal enterprise. This conflict is one that the board simply could not ignore.

Nevada gaming regulators have long taken immense pride in the “gold standard” reputation that Nevada enjoys in the eyes of the rest of the gaming world. Part of that image is derived from the fact that it is and has always been very difficult to get a gaming license in Nevada. The investigatory process is a grueling one, designed to uncover any information that would deem an applicant unsuitable to hold the privilege of being in the gaming business in our state.20 Similarly, existing licensees are held to a very high standard and understand that certain conduct can result in the loss of their privileged status. Traditionally, of course, evidence that an applicant or licensee is involved in an ongoing federal criminal enterprise would guarantee the denial of an application or loss of a license. Therefore, it is unsurprising that the board, given the impossible situation it now confronts, would believe it necessary to issue its recent guidance in order to preserve Nevada’s preeminent status among the world’s gaming jurisdictions.

What Happens Next?
Until and unless Congress changes the CSA to remove marijuana from the statute’s Schedule 1 list of controlled substances, it is hard to envision how the board can resolve this dilemma in favor of licensees or applicants who want to pursue the medical marijuana business. How could the board justify looking the other way if a gaming licensee or applicant is discovered to be (or admits to) violating the federal law? If the board were to decide that it is okay to violate one federal law, why not others? Granted, while the particular conduct at issue here is no longer illegal under state law, there are plenty of other federal crimes that also have no counterpart under Nevada law. Should violations of those federal laws now be of no concern to the board? It is very difficult to imagine the board adopting such a policy going forward. For now, and the foreseeable future, it seems that the board has resolved this dilemma, as it always does, with the best interests of the “gold standard” in mind.

1 See Nevada Constitution at Article 4, Section 38,
2 SB 374 amended Nevada Revised Statutes (NRS) section 453A.010 et seq.,
3 See NAC 453A.010 et seq.,; see also NRS 453A.010 et seq.,
4 Prospective medical marijuana establishments must submit an application to the Nevada Division of Public Health (the “Division”). See NRS 453A.322. Each application must include, among other things: (1) an application fee (see NRS 453A.344 for fee amounts); (2) the legal name of the proposed medical marijuana establishment; (3) the physical address where the establishment will be located; (4) evidence that the applicant controls not less than $250,000 in liquid assets to cover initial expenses; (5) evidence that the applicant owns the property on which the proposed establishment will be located, or has written permission to operate the establishment at the proposed location; and (6) fingerprints for each proposed owner, officer or board member and an authorization to the Division to use such fingerprints for an FBI background check. For a complete list of requirements see NRS 453A.322. Additionally, the Division may only issue registration certificates to a limited number of medical marijuana dispensaries: 40 dispensaries for a county with a population of 700,000 or more (currently only Clark County); 10 dispensaries for a county whose population is 100,000 or more, but less than 700,000; 2 for a county whose population is less than 100,000, but more than 55,000; and 1 certificate for a county with less than 55,000 people.
5 See 21 U.S.C. § 801, et seq.
6 See Office of National Drug Control Policy,
7 See Office of National Drug Control Policy, Answers to Frequently asked Questions about marijuana,….
8 See Memorandum from James M. Cole, Deputy Attorney General, on Guidance Regarding Marijuana Enforcement (August 29, 2013),
9 See id. at 1.
10 See id. at 3.
11 See id. at 4.
12 See id. at 4.
13 Minutes of the Senate Committee on Judicary, 2013 Leg., 77th Sess. 28( Nv. 2013) (statement of Sen. Greg Brower),….
14 See, e.g., David Ferrara and James Dehaven, Las Vegas heavy hitters vie for medical marijuana licenses, Las Vegas Review Journal, May 3, 2014,….
15 See Notice to Licensees from Terry Johnson, Board Member, on Medical Marijuana Establishments (May 6, 2014),
16 See Notice to Licensees.
17 See id.
18 On May 22, 2014, the Nevada Gaming Commission voted to uphold the Board’s Notice to Licensees, and affirmed the Board’s rejection of gaming licensee involvement with the medical marijuana industry. See Howard Stutz, Medical Pot Sales by Gaming Licensees? Nevada Commission Just Says No, Las Vegas Review Journal, May 22, 2014,….
19 See Notice to Licensees.
20 See NRS 463.1405 (“The Board shall investigate the qualifications of each applicant under this chapter before any license is issued…and shall continue to observe the conduct of all licensees and other persons having a material involvement directly or indirectly with a licensed gaming operation or registered holding company to ensure that licenses are not issued or held by…unqualified, disqualified or unsuitable persons, or persons whose operations are conducted in an unsuitable manner …”).

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