Nevada regulators warn illicit cannabis market is shrinking tax revenue; board and Taxation propose new enforcement tools

The Nevada Cannabis Compliance Board (CCB) and the Department of Taxation told the Senate Committee on Revenue and Economic Development that declines in fiscal 2024 cannabis revenues reflect both a maturing market and persistent illicit sales, and that new regulatory and statutory tools are needed to better capture tax revenue.

"The Nevada Cannabis Compliance Board governs Nevada's cannabis industry through strict regulation of all areas of its licensing and operations, protecting the public health and safety of our citizens and visitors while holding cannabis licensees to the highest ethical standards," CCB Executive Director James Humm said as he opened the agency's presentation to the committee.

The agencies provided figures showing taxable sales reported by adult-use retail stores and medical dispensaries of $829,225,194 in fiscal year 2024. Department of Taxation staff said the state received $43,737,147 in wholesale cannabis excise tax and $76,800,162 in the 10% state retail cannabis excise tax in fiscal 2024.

Why it matters: those excise revenues feed the Cannabis Compliance Board, local governments and the State Education Fund; the CCB distributes $5 million of wholesale excise receipts to local governments and transfers the remainder to the State Education Fund after deducting CCB operating costs. Legislators pressing the committee said reduced receipts could affect school funding and public programs.

CCB officials cited a market study the agency commissioned that estimates an illicit market of about $242,000,000 — roughly 21% of Nevada's total cannabis market. "That is an issue," Humm said, adding the CCB is coordinating with the Department of Public Safety and the governor's office to examine options to address the illicit market.

Department of Taxation Executive Director Shelley Hughes described statutory mechanics of the taxes: NRS 372.29 (15% wholesale excise, obligation of cultivators) and NRS 372A.290 (10% retail excise, obligation of retail cannabis stores and consumption lounges). She said the department files quarterly fair-market-value memos (based on Metrc data) to calculate the wholesale excise base and posts the values in advance for industry planning.

Taxation staff described how the department calculates fair market value from non‑affiliate wholesale transfers reported in Metrc, cleans the data to remove non‑arm's‑length transactions and outliers, standardizes prices by weight, and sets the fair market value as the median of the cleaned set. "The goal is to publish the new fair market value rates to the website by mid‑month prior to the effective date," Economist Erica Scott said.

Regulatory and legislative changes under consideration: the CCB described recent rule and statute changes (SB195, SB328, SB277, AB430) and said it is pursuing AB76 in the current session. Department of Taxation previewed Senate Bill 41 (SB41), which would require cannabis sellers to obtain a cannabis tax permit from the department in addition to other permits. Hughes said that permit would give Taxation administrative authority — including hearings and permit suspension — to prevent businesses that default on tax obligations from continuing to operate and accumulating further debt.

On enforcement and penalties, CCB and Taxation staff described a proposed reclassification of tax‑related regulatory violations. Yvonne Navaras Goodson of Taxation explained the CCB's proposed revisions would group failures to timely pay taxes or file returns into a new, lower‑level "category 7" violation with a progression of written warnings and reduced civil penalties, rather than the larger civil penalties and suspensions that had applied under higher categories.

Public safety and consumption lounges: senators asked about impaired driving and consumption lounges. "We are not personally tracking that information. I believe law enforcement might be doing that tracking," Kara Cronkite, CCB chief of health and safety, said, adding that consumption‑lounge rules require operators to adopt measures to deter intoxicated driving such as agreements with ride services and alternative‑transport policies.

On products outside CCB jurisdiction, the agencies said hemp‑derived products and synthetic cannabinoids often fall under other regulators until a product exceeds the 0.3% delta‑9 THC threshold and becomes cannabis. "As the plant is growing, that falls under the Nevada Department of Agriculture," Cronkite said; once a product exceeds the legal THC limit it becomes subject to CCB oversight and enforcement in coordination with local licensing.

What the agencies can (and cannot) do now: Humm and Hughes said the CCB can partner with local licensing to remove illegal products from shelves, and the CCB and Department of Public Safety are coordinating illicit‑market enforcement efforts, but both agencies said certain collection and administrative authorities would need statutory changes (such as SB41 and AB76) to give Taxation and the CCB explicit authority to assess fines or tax liabilities against illicit sellers and to tie tax compliance more directly to licensing.

Lawmakers asked about practical next steps. Humm said the CCB is pursuing AB76 to create tools for penalties and tax recovery related to illicit activity, and Hughes said SB41 is intended to allow Taxation to initiate permit suspension and compel compliance so the CCB can automatically suspend a cannabis license where a tax permit suspension is entered.

The presentations concluded with committee members asking for more data on historical illicit‑market trends and for counts of high‑category violations; both agencies agreed to provide supplemental information to the committee.

Ending note: no formal votes or motions were taken during the hearing; the session moved next to an agenda presentation from the Department of Motor Vehicles and the Regional Transportation Commission at a later meeting.

Sources: testimony and slides presented to the Nevada Senate Committee on Revenue and Economic Development by James Humm, Executive Director, Nevada Cannabis Compliance Board; Kara Cronkite, Chief of Health and Safety, Nevada Cannabis Compliance Board; Shelley Hughes, Executive Director, Nevada Department of Taxation; Yvonne Navaras Goodson, Chief Deputy Executive Director, Department of Taxation; Erica Scott, Economist, Department of Taxation.