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IN-DEPTH 3 December 2019
Will Nevada be the US' greenest state?

Oliver Lovat assesses how marijuana legalisation could impact Las Vegas casinos.

Nevada has always taken societal stands that have been outside the social norms across the US. Back in the 1930s, 'quickie' divorces were established, allowing a no-fault divorce for those that spent six weeks as residents of the state. Many divorcees stayed.

In 1931, Nevada legalised gambling with the famous Assembly Bill 98, which was to define the state forevermore, despite the tiny population at that time. This was to prove pivotal, as federal forces and moral forces cracked down on illegal gambling across the US; Nevada was a bold outlier and built the state’s economy on gaming and tourism.

Today, the hot issue is marijuana. Nevada wasn’t the first. Nebraska decriminalised use in 1978, but it wasn’t until 2014 when recreational use was legalised in several west coast states and Nevada followed suit. On 1 January 2017, all aspects of marijuana production, supply and possession became legal. However, it is not as simple as light up, sit back and chill out, as there are rules in place on use and consumption, which is where the problems currently sit.

Marijuana in Nevada

While this article is not advocating for the legalising of marijuana, the economic benefits have been pronounced. RCG Economics has reported the economic benefits of marijuana amount to more than $1bn per annum. Nearly 10,000 jobs have been created and nearly $150m is taken in annual tax receipts as a result of legalisation.

However, the benefits have not been merely economic. With the industry moving from the shadows to the light, there has been an alleviation of pressure on the criminal justice system containing and prosecuting non-violent crime, thus allowing police to address more serious issues.

For the customer, dispensaries offer a range of product, regulated with guidelines on strength and effect to user. Clark County Commissioner Tick Segerblom, one of the architects of the policy, said recently at the Economic Club of Las Vegas event there had been no discernible downsides to the legalisation.

As in gaming legislation, regulation and oversight, Nevada has adopted best practice. All aspects of the industry have been segregated and licensed. There are separate guidelines for cultivation, testing, manufacturing, distribution and retailing, which has allowed specialisation in each of the various aspects.

Companies in Canada, a country which has legalised marijuana on a federal basis, have invested in and even acquired nascent Nevada cannabis businesses at huge levels. They understand the scope of the business, not just in terms of recreational or even medical use, but even speculating hemp could be one of the solutions to the future of sustainable bio-energy.

The conflict

Despite the fact 11 western US states have legalised recreational marijuana, it is still illegal federally, which causes real problems. Not only is it illegal for banks to process marijuana proceeds, it causes problems for other regulated business, in particular casinos and hotels.

While tourists can legally buy marijuanafrom any number of dispensaries, they may only consume their purchases in their own homes. By consuming elsewhere, they are committing a misdemeanour. A walk down the Strip, Fremont Street, and indeed any casino parking garage would suggest the current legislation is misaligned, as there are clearly plenty of misdemeanours taking place around the clock; many by tourists.

You have a situation where authorities could enforce the law, and therefore destroy marijuana tourism, anger many visitors, hotels and spend decades immerged in paperwork, or they let it go. They are letting it go. The conflict therefore sees the casinos and federal law enforcement on one side, and more or less, everyone else on the other, trying to find a happy balance.

For now, the Strip is excluded from the new guidelines and the state recently put an embargo on discussing marijuana use. However, the City of Las Vegas, which includes Downtown, will be the exception and will shortly see 'social use lounges' for marijuana; if the Strip doesn’t want to embrace the green dollar, Downtown certainly does.

In these lounges, the customer cannot buy weed or alcohol, but will be located to current dispensaries, so picking up a supply will not be an inconvenience. A total of 12 are already licensed, and 10 more are due to follow. Las Vegas could be the recreational marijuana Mecca.

The marijuana metaphor

The decision of the state to embrace marijuana is not just one of direct economic benefit, although the reasons to do so are evident. The main rationale is one of economic diversification, alongside industrial technology innovation and manufacturing, weaning Nevada’s economic reliance away from gaming and resort-based tourism.

There is a valuable lesson here on a micro-level for casino operators globally. Statewide, gaming was 54% of hotel department revenue in 1999, falling to 48% in 2009, and stood at 42% in 2018. The resorts have also sought different ways to diversify their revenue streams.

When we manage our casinos, the imperative moving forward is to realise that although gaming revenue is core to the business, an over-reliance on pure gaming is not sustainable. Competitors are emerging to challenge, whether through amenities such as spas, shows and entertainment, food and beverage, hotels, or something else completely. The next generation of properties being programmed in Japan will be acutely aware of this, with multiple revenue streams required for sustainable success.

Nevada’s leadership is aware of this and has taken steps to look to the future. What is the rest of the gaming industry doing?

Oliver Lovat leads the Denstone Group, which offers strategic advice and consultancy on customer-facing, asset-backed investment and development, with a focus on casino resorts. He is a Fellow of the Royal Institution of Chartered Surveyors and visiting faculty at Cass Business School in London. He lives in Las Vegas.

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