Judge finds fault with state Department of Taxation in marijuana lawsuit but offers no remedy

The state Department of Taxation overstepped its authority in a number of areas, Judge Elizabeth Gonzalez determined in  an order issued Thursday dealing with an epic lawsuit over marijuana licencing.

But she can’t do anything about it, except for the so-called five percent rule, in which regulators determined they didn’t have to complete background investigations on shareholders with less than five percent interest.

The ruling puts licenses on hold for several companies — Helping Hands, Greenmart, and Lone Mountain — and for others who accepted a settlement in which they receive licenses from some of the affected companies.

“The DoT acted beyond its scope of authority when it arbitrarily and capriciously
replaced the mandatory requirement of BQ2 (Ballot Question 2) for the background check of each prospective owner, officer and board member with the 5 percent or greater standard in NAC 453.255(1),” Gonzalez wrote in granting in part the plaintiffs’ claim for declaratory relief.  “This decision by the DoT was not one they were permitted to make as it resulted in a modification of BQ2 in violation of Article 19, Section 2(3) of the Nevada Constitution.”

No remedy was offered by the judge, but many of the licensees who took part in a settlement benefited from the five percent rule, which was declared arbitrary and capricious by the judge. The fate of the settlement could be in question, since licenses granted by affected companies to plaintiffs as part of the agreement cannot be exercised.

At a news conference Thursday, Gov. Steve Sisolak noted he was on the Clark County Commission at the time of the rule change and said there were “a lot of questions about the process.”

Sisolak said he’ll read Judge Gonzalez’ decision and “take her advice” but offered no suggestions for remedying the licensing disparities.

Although Judge Gonzalez identified extensive shortcomings, Attorney General Aaron Ford said the ruling upholds the state’s licensing process.

“It will enable retail marijuana stores to open and generate much needed tax revenue and employment for Nevadans in this unprecedented time in our State’s history. The Court also declined to award monetary damages to those who filed suit,” Ford said in a statement.  

 This story will be updated.

Note: The original version of this story stated licenses for Nevada Organic Remedies had been placed on hold.  That is incorrect.  The Current regrets the error.