Marijuana poised to overtake mining in state tax revenue

By: - January 2, 2020 6:23 am

Top: Las Vegas cultivation center (photo by Ethan Miller/Getty Images). Bottom: Newmont’s Twin Creeks mine. Geomartin (CC BY-SA 3.0)

Nevada’s mining industry generated $7.7 billion dollars in gross sales in fiscal 2018 and paid $125 million in state and local taxes.     

By contrast, the state’s fledgling marijuana industry generated just $529.8 million in revenue but contributed $69.8 million to state and local coffers that same year — the first of legal recreational sales. 

By the next year, fiscal 2019, marijuana taxes amounted to just under $110 million, according to the state, on sales of $639 million. 

Marijuana tax revenue for the first three months of fiscal year 2020 is $29.9 million.  

At that pace, cannabis is in line to contribute as much if not more in state tax revenue than the mining industry.

The Silver State’s mining industry produced 72 percent of U.S. gold in 2017 and 5.6 percent of the gold produced worldwide, according to the Elko Daily Free Press.   But the precious metal fails to pull its weight when it comes to generating tax revenue.

“I think the contrast between how this state treats mining and cannabis reveals the outsize influence and crony capitalism of the mining industry,” says Patrick Donnelly, Nevada State Director for the Center for Biological Diversity. “While cannabis, an industry mostly domestic to our state, is taxed to the gills, mining, almost all profits of which end up out of state, enjoys a highly privileged tax status which doesn’t come close to compensating residents of Nevada for the environmental costs. Mining exacts a huge toll on our environment as compared to cannabis. And while Nevada cannabis consumers are on the hook for very high taxes, the fact that mining gets away with paying negligible taxes illustrates the unfair, preferential treatment our most environmentally destructive industry gets.”

While Nevada’s marijuana licensing scheme was designed to favor business interests with a history of local investment, licenses are being gobbled up by foreign and multi-national corporations, according to ownership records from the state.

According to a report released this year, global sales in regulated markets increased by 20 percent in 2018 and are projected to jump 36 percent to $14.9 billion in 2019 and shatter the $40 billion mark by 2024.

In 2011, mining made up 4.4 percent of Nevada’s GDP, but slipped to 1.9 percent in 2018.  

During the last decade, Nevada’s mining industry has paid an average of $152 million a year in taxes. That average has fallen to $124.4 million in the last five years.  

But even during the boom years, Nevada’s mining industry paid a paltry share of its earnings in taxes.

A formula written into the Nevada constitution at the dawn of statehood allows mining companies to deduct the costs of extraction and other expenses from the price of sales.  The difference – the net proceeds – is taxed, but capped at five percent. 

About half of the taxes derived from mining are returned to the counties where the extraction occurred.  The other half goes to the state’s general fund.  

Marijuana taxes go to the state’s emergency savings, to schools and to local governments to offset the cost of regulating the industry.   

A 15 percent wholesale tax paid by marijuana cultivators totaled $44 million in fiscal year 2019.  About $5 million of that went to local governments. The remainder of went to the state’s Distributive School Account, which funds education.  

Revenue generated by a 10 percent marijuana retail tax goes directly to the state’s Rainy Day fund, the savings account in Nevada’s general fund.

A 2014 ballot measure to remove mining’s tax protections from the state constitution barely failed to win approval from voters by less than one percentage point.

Efforts at the federal level to impose mineral royalties on mining, which are exempted under an 1872 law designed to spur gold mining, have also failed over the decades.

A bill currently before Congress would impose royalty fees between 8 and 12.5 percent on mining proceeds, with 25 percent of the money generated returned to the state.  

Presidential hopefuls have been hesitant to weigh in on the measure. 

Mining reform played a role in Nevada’s presidential caucuses in 2007, when a proposal that mining companies pay a 4 percent gross royalty on production on existing mines, and 8 percent on new mining operations passed the House.  

“What’s clear to me is that the legislation that’s been proposed places a significant burden on the mining industry and could have a significant impact on jobs, given the difficulty the industry is already having in maintaining its operations,” then-candidate Barack Obama told Nevada reporters.

The measure died in the Senate with the help of then-Majority Leader Harry Reid.  

Nevada’s current congressional delegates have likewise been reluctant to take on the mining industry.  None have signed on to bills before Congress. 

The disappearing mining oversight panel

Meanwhile, efforts to establish oversight of mining industry regulation in the state have withered. 

The Mining Oversight and Accountability Commission (MOAC), created in 2011 and shepherded by then-State Senate Majority Leader Steven Horsford, has no members and has not met since 2015. Horsford, now a Democratic congressman, did not respond to requests for comment. 

MOAC was “created to provide for a single administrative body to oversee the activities of the various state agencies that have responsibility for the taxation, operation, safety and environmental regulation of mines and mining in this State,” says the Department of Taxation website. The commission can also order audits.  

UNR Professor Glenn Miller testified in 2011 in support of MOAC’s creation.

“This Commission will be able to ask the hard questions that need answers as you have done with the auditing function,” Miller said, according to legislative minutes. “The following questions would be answered by the Commission: why are there no audits from the Department of Taxation, what is the best method for developing information on how the industry should be taxed, and what is reasonable for taxing the net proceeds.”

“I was supposed to serve a two-year term,” says Las Vegan Melissa Clary, who was appointed to MOAC by Gov. Brian Sandoval  “I’ve never had a meeting. I reached out to staff. Under Gov. Sisolak I was supposed to have a term. Now, it’s up in January.” 

“It’s the mining industry, is my suspicion,” Clary says of the why the commission stopped meeting. 

Nevada Mining Association President Dana Bennett did not respond to requests for comment. 

Legislative minutes indicate the commission has long suffered from a lack of members.  

“Vice Chairman (Kyle) Davis asked if there was any indication if there were ever going to be any other members appointed to this committee,” according to minutes from November 2015. “He said by statute, it is supposed to be seven and now it is down to four.” 

Davis was told by Taxation Deputy Executive Director Terry Rubald “that when there is a vacancy, the Governor’s Office is contacted to let them know there is a vacancy and that it is open for appointment. She has also previously been in touch with LCB but has not received any indication from those organizations.”

Gov. Steve Sisolak has also been challenged to appoint members, according to his spokesman. 

The Mining, Oversight, and Accountability Commission (MOAC) does not have quorum to meet at this time, and the Governor is awaiting appointment recommendations, as outlined in statute,” spokesman Ryan McInerny said in an email. “The Governor has two appointments for which he is directly responsible. Before making those appointments, applicants must be reviewed against the eventual list of recommended applicants provided by the Legislature to ensure that no more than two members have a direct or indirect financial interest in the mining industry. The Governor is awaiting recommendations from legislative leadership for the five other appointments, as required by statute, and he looks forward to working closely with the Legislature to identify and qualified and experienced commission members.”

Speaker Jason Frierson, Majority Leader Nicole Cannizzaro, and Minority Leader James Settelmeyer did not respond to requests for comment. 

Miller, the now retired UNR professor, says qualified professionals are reluctant to serve on such oversight or advisory commissions because they have no teeth and are held in low regard by state regulators.

“These agencies do not want to have a group of people making decisions,” says Miller.  “But if lawmakers are going to form these commissions there ought to be some authority given to them.”

When Miller testified in favor of MOAC at the 2011 Legislature, he thought it would serve a valuable purpose, until he saw the membership list.

“It was a typical Nevada committee where the people who are making the decisions are the people who benefit from the rules.  It’s a perfunctory means of satisfying legislative desires without giving it any teeth,” he says.

Under the 2011 law that created MOAC, administrative regulations are not valid until reviewed by the commission.

A bill passed by the 2019 Legislature suspended MOAC’s provisions through June of 2020 to allow regulatory changes to proceed outside the commission’s oversight.  

An official from the Division of Industrial Relations says the department has passed no regulations during MOAC’s hiatus.  Likewise, the Department of Taxation said through a spokeswoman that it has not passed any regulations.  Other regulatory agencies contacted by the Current, including the Department of Environmental Protection, did not say whether they’ve passed regulations without MOAC’s review.

The mining industry, which provides some of the highest-paying jobs in the state, easily muscles out marijuana in the employment category.  

Nevada’s mining industry employs 11,200, according to the Nevada Mining Association. The cannabis industry directly employs 6,000, says the Nevada Dispensary Association.  

The Nevada Mining Association estimates 2019 mining salaries at $1,879 a week. The Department of Employment pegs the average weekly wage in Nevada at $930.    

While Nevada added 36,900 jobs through November, the Department of Employment reports mining and logging employment was down 6.16 percent in November compared with last year.  

Unemployment statewide was 4 percent in November, down from the previous year.

This story was updated with comment from the Department of Taxation. 

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Dana Gentry
Dana Gentry

Dana Gentry is a native Las Vegan and award-winning investigative journalist. She is a graduate of Bishop Gorman High School and holds a Bachelor's degree in Communications from the University of Nevada, Las Vegas. Gentry began her career in broadcasting as an intern at Channel 8, KLAS-TV. She later became a reporter at Channel 8, working with Las Vegas TV news legends Bob Stoldal and the late Ned Day. Gentry left her reporting job in 1985 to focus on motherhood. She returned to TV news in 2001 to launch "Face to Face with Jon Ralston" and the weekly business programs In Business Las Vegas and Vegas Inc, which she co-anchored with Jeff Gillan. Dana has four adult children, two grandsons, three dogs, three cats and a cockatoo named Casper.