Nevada’s cannabis industry has begun to shrink after years of growth, continuing to face stiff competition from the illicit market, according to new data released by the Cannabis Compliance Board (CCB), the state industry’s regulating body.

The state’s legal dispensaries logged $829 million in taxable sales in the fiscal year that ended in June, according to statistics released this month. Sales have fallen each year since peaking at just over a billion dollars in the fiscal year that ended in mid-2021.

Meanwhile, the illicit market makes $242 million to $370 million in sales annually (the exact number is difficult to pin down), representing a quarter to a third of of Nevada’s total cannabis sales, according to a state-produced market analysis published in late September, the first report of its kind since the possession of cannabis was legalized at the state level in 2017. 

Although medical marijuana has been legal in Nevada since 2000, it wasn’t until 2016 that voters legalized the recreational use of cannabis through a ballot measure. In 2015, the first medical dispensaries began to open up and, in 2021, the Legislature authorized consumption lounges — opening the doors for what regulators contend could be a booming industry that is safer for consumers than buying from illicit sources. 

But many on the regulating side of the industry say that lack of enforcement and public awareness campaigns have allowed the illicit market to flourish, taking away potential tax revenue that could go to schools and infrastructure. Legal sales are subject to a 10 percent excise tax in addition to the standard sales tax rate of about 8 percent, on top of a 15 percent wholesale tax paid at the cultivation level.

Although cannabis taxes can serve as a significant source of revenue for the state — $108 million was transferred to the state education fund out of the proceeds from the most recent fiscal year — the CCB report cautions that taxes may encourage some consumers to seek out more affordable illicit products. 

“We don't want to restart the war on drugs, but we do need to make sure that the businesses are following the law,” said Layke Martin, executive director of the Nevada Cannabis Association. “So it really is about using the civil tools that we have to enforce against unlicensed sales.”

The CCB report noted that some consumers distrust the legal market, finding the products less potent and more expensive, and did not connect increased government oversight to increased safety. Martin encouraged the creation of a targeted public awareness campaign that would emphasize the safety of the regulated dispensaries, as well as of the health risks of consuming unregulated cannabis, which can be laced with detergent or other drugs. 

Martin also noted that dispensaries are also currently banned from the Las Vegas Strip, which could encourage tourists to seek out delivery services, many of which are unlicensed. 

However, Adriana Guzmán, chair of the CCB, acknowledges that regulation can be difficult without bringing law enforcement in, especially given that most illicit sellers do not operate “brick and mortar” businesses. Although CCB does have inspectors, they mostly check the health standards of licensed businesses or those willing to attain one, and can’t physically shut down noncompliant operations. 

Right now, CCB also doesn’t have many avenues for civil enforcement available, with its ability to issue cease and desist orders to unlicensed businesses still pending. 

The eight POST-certified enforcement agents within the CCB focus on complaints about the legal industry, performing tasks such as quarantining potentially unsafe cannabis products, according to a 2023 report from the agency. They also assist in larger efforts to curb the illegal industry, but the CCB acknowledges that division needs more resources if it is to better address the illicit market. 

“Who is going to provide the enforcement?” Guzman said. “Because CCB doesn't have the enforcement to be able to do those crackdowns. I mean, you would have to do undercover rings and bust these people, right?”

The Las Vegas Metropolitan Police Department did not respond to requests for comment. 

Although the CCB report projects that the illicit market will decrease between now and 2030,  Martin disagrees with that forecast, especially if more isn’t done to stop the illegal activities. In 2022, the U.S. Drug Enforcement Administration eradicated nearly 11,471 illegal marijuana plants in Nevada, up from 5,686 plants in 2022. 

“Everything that we're seeing in the market is actually the opposite,” she said. “Until we're putting resources into enforcement to shut these businesses down, there's no reason these unlicensed sales are going to stop.”