Pot of Gold: How Will Legal Weed Affect Nevada Gaming?

For decades, Nevada and particularly Las Vegas have built a business on sin. As the federal government inches closer to the legalization of cannabis, how will the new “vice” industry intersect with the old one—gambling?

Pot of Gold: How Will Legal Weed Affect Nevada Gaming?

On April 1, the U.S. House of Representatives passed the Marijuana Opportunity, Reinvestment and Expungement Act by a 220-204 vote. If passed in the Senate, the MORE Act would take pot off the federal list of controlled substances and allow states to grow their cannabis industries—both medicinal and recreational—without fear of federal intervention. (The “expungement” part refers to the possible resentencing of people with cannabis convictions.)

Could the MORE Act bring together Nevada gaming and the budding pot industry? The two recreational businesses may seem complementary, but are now strictly separate, on order of the state Gaming Control Board.

The Rollout

Cannabis became legal for medicinal use in Nevada in 2000, with recreational use approved in 2017. To no one’s surprise, weed has been a moneymaker. In the most recent fiscal year, Nevada saw more than $1 billion in retail sales, which generated $160 million in tax revenue. One study has projected taxes of $1 billion in the industry’s first seven years, with most of the receipts earmarked for education.

Pot has undeniable appeal for businesspeople, including some in the Nevada gaming industry. In 2014, when Clark County began to take applications for distribution rights in southern Nevada, several licensees already had a toehold in the business. Among the most prominent were M Resort CEO Anthony Marnell III, who owned the lion’s share of pot company Clear River LLC; Troy Herbst, a partner in slot route operator JETT Gaming, who held a stake in a pot company called the Clinic; and Armen Yemenidjian, then vice president of casino marketing and operations at Tropicana, who owned a piece of Integral Associates, which applied for five distribution licenses (Yemenidjian was one of High Times’ “100 Most Influential People in Cannabis” in 2018).

The Gaming Control Board quickly drew the line. Board member Terry Johnson wrote that “investment or other involvement in a medical marijuana facility or establishment” by licensed individuals or applicants would be incompatible with regulations, and “tend to reflect discredit upon gaming in the state of Nevada.”

Marnell disagreed, telling commissioners, “There’s nobody that I can think of that is more qualified to operate what I see as a very highly regulated industry other than a gaming licensee. We are the most investigated, vetted people in the state of Nevada. I have held several security clearances at the federal level … and none of them were as strenuous or as difficult or as thorough as the Nevada Gaming Control Board’s process.”

Nevada attorney Dennis Gutwald, partner in the Gaming & Administrative Law Group of McDonald Carano, tends to agree that the new “vice” industry could take a lot of lessons from the old one.

High Standard

“The gaming industry in the state of Nevada is held to a very high standard, so despite the fact that cannabis sales and use are legal, until they’re legal at the federal level, gaming licensees have to stay out of it completely: they can’t be a lender to it, they can’t be a landlord to it or own even a very, very small percentage of it,” Gutwald said. “And of course they can’t own a cannabis establishment.”

But pot is such a growth industry, a number of licensees “made the choice to pursue marijuana” and forfeit their gaming bona fides, he added. Maybe one day they won’t have to make the decision.

“The gaming industry is very good at looking at what works throughout the world and adopting it—for instance, restaurants,” Gutwald said. “A long time ago, casinos had buffets, a nice steakhouse, maybe one nice restaurant in a hotel, but they weren’t focused. Then they looked around the rest of the world, they saw these celebrity chefs and five-star restaurants and copied that. They may not get it perfect, but a lot of times, they actually do it better.”

At the dawn of the recreational pot business, license applicants had to have $250,000 in liquidity to qualify, “essentially $250,000 in cash that was doing nothing,” Gutwald continued. “That’s not surprising in Nevada—our regulatory process very much wants to understand where the money is coming from before a business is established. They want to make sure the right people are coming in. And when I say the right people, I mean people with resources of their own,” who won’t be beholden to outside influences.

Planet 13 in Las Vegas, for example (which bills itself as “the largest cannabis superstore and entertainment complex on planet earth”), was co-founded by former Henderson mayor Robert Groesbeck and former Vegas councilman Larry Scheffler. It boasts its local roots in Las Vegas, “the entertainment capital of the world,” and now has a second dispensary in Santa Ana, California.

Joint Enterprise

While there’s still a law against pot-smoking in public in Nevada, it may be more honored in the breach. Stroll the Linq promenade on a given day, and you may get a contact high. “If I walked into a Walmart parking lot and didn’t smell it, I’d be disoriented,” Gutwald said. “And (pot smoke) is part of the Fremont Street Experience.”

Right now, Canadian companies are getting in on Nevada’s new gold rush; cannabis became legal across the board in Canada in 2018.

“These (pot) businesses were started by Nevadans, and now large Canadian firms are buying them up aggressively, paying very large amounts,” said Gutwald. “From a legal standpoint and from a future-of-the-business standpoint, probably the most significant consideration is that once it becomes legal at the federal level, now your U.S. publicly traded companies, your U.S. banks and your U.S. lenders and private equity companies can dive in.” Once that happens, “you’re going to see a flurry of sales involvement and investment in that business.”

There are other hurdles to overcome. Federal restrictions, together with Nevada’s restrictions regarding marijuana use in public places (except for cannabis lounges) has forced gaming licensees to ensure marijuana is not consumed within their establishments or risk their licenses. Regulators may not allow pot to be consumed in casinos, even after federal legalization. But passage of the MORE Act could precipitate a push by liquor and gaming establishments to open more places for marijuana use, and possibly compete for cannabis lounge licenses.

Currently, Nevada also prohibits cannabis businesses within 1,500 feet of nonrestricted casinos, so that’s another law that would have to be changed before cannabis lounges can come to big resorts, even after a change in the federal law.

Though the sweet smell of pot may never be welcome on the gaming floor, dayclubs and nightclubs might be a better fit, said Gutwald. It’s almost a moot point, as there are ways to ingest pot (vaping, gummies) that are undetectable.

Americans Want MORE

Meanwhile, public support for legal pot is at an all-time high. According to a November Gallup poll, more than two-thirds of Americans support the legalization of pot for recreational purposes. That support is broad-based: the survey found that 83 percent of Democrats, 71 percent of independents and 50 percent of Republicans back legalization. But the bill faces an uphill battle in the Senate due to continuing unease about substance abuse among Republicans and Democrats alike.

“It’s a rapidly evolving world, and whether (the MORE Act) passes the Senate this time or not, it’s going to happen at some point—marijuana will ultimately be removed from the list of controlled substances at the federal level,” said Gutwald. “The federal government isn’t enforcing it, and it would be very hard to go back at this point.”

He thinks legal pot could eventually be intertwined in some way with the Silver State’s gaming industry. In 2019, Riana Durrett, executive director of the Nevada Dispensary Association, suggested the same when she told the Nevada Independent, “You see the people who used to be in gaming bring their influence, and pretty much when they say this is how you do it in gaming, everyone listens.”

Las Vegas got its nickname, Sin City, by throwing out prohibitions against gambling and prostitution. And one travel site, in a list of the best places to smoke weed, named Las Vegas alongside Amsterdam, Vancouver and Seattle.

Now that recreational drugs are in the mainstream in Nevada, the level of strict oversight that governs casinos in the state is being applied to the pot biz. The question is, who will run the show?

Articles by Author: Marjorie Preston

Marjorie Preston is managing editor of Global Gaming Business. She is a writer, editor, author and expat Pennsylvanian who now considers herself a New Jerseyan. Based on Brigantine Island north of Atlantic City, Preston has been writing about the gaming industry since 2007, when she joined the staff of Global Gaming Business as managing editor of Casino Connection.