What started out as an investigation over late or unpaid taxes mushroomed into a laundry list of misdeeds culminating into one of the largest fines levied against a cannabis company since the industry was legalized in Nevada. The new Nevada regulator, the Cannabis Compliance Board, signed off on the agreement with CWNevada LLC, whose majority owner is attorney Brian Padgett this past Tuesday. As a result of the settlement, CWNevada will pay $1.5 million in back taxes, $1.25 million in fines, lose six licenses and must sell its remaining eight licenses.
Padgett has been replaced by a receiver, Dotan Melech, who signed off on the agreement. In addition to the fines and back taxes, CWNevada also owes $300,000 in back pay to employees.
The following six CW Licenses/Certificates shall be revoked:
a. Ali Baba Medical Cultivation Certificate (C009);
b. Ali Baba Recreational Cultivation License (RC009);
c. Oxbow Medical Production Certificate (P010);
d. Oxbow Recreational Production License (RP010);
e. Oakridge Distribution License (T022); and
f. Oakridge Medical Cultivation License (C011).
The Receiver agrees to use his best efforts to sell the following eight CW Licenses/Certificates within six (6) months of the Effective Date of this Stipulation and Order subject to approval by the Receivership Court:
a.Blue Diamond Medical Dispensary Certificate (D010);
b. Blue Diamond Recreational Dispensary License (RD010);
c. Highland Medical Cultivation Certificate (C010);
d. Highland Recreational Cultivation License (RC010);
e. Ali Baba Distribution License (T021);
f. Ali Baba Medical Production Certificate (P009);
g. Ali Baba Recreational Production License (RP009); and
h. Oakridge Recreational Cultivation License (RC011).
Tax Man Cometh
The investigation began in 2018 over unpaid taxes according to the case filed by the State of Nevada. It escalated when inspectors showed up on March 18, 2019 and found employees were working with marijuana products in an unapproved area, which was the breakroom. The company was told to quarantine the product until further notice, but employees said they returned the product to the cultivation facility. Again, the state said not to move the product. On video two of the quarantined boxes were shown to have been delivered to a dispensary.
METRC data showed that some of the product was repackaged at the cultivation facility. On April 12, 2019, the Department put an administrative hold on all Clark products which would have prevented marijuana products from the Clark NMSD dispensary from being legally transferred. On May 8, 2019 another inspection took place. Auditors also discovered 89 groups, a total of 1,342 units, of untagged marijuana products.
May 9, 2019, the Department’s inspectors conducted an inspection of CWNevada’s cultivation facility located at 9680 Oakridge Ave, Pahrump, Nevada 89048 and discovered the following transfers of marijuana from Clark NMSD dispensary to the Oakridge cultivation facility when none of the marijuana originated from the Oakridge cultivation facility. In addition to this, the company couldn’t provide video surveillance as required. Between March 21, 2019 and June 7, 2019, CWNevada sold 1,924 marijuana products where the point of sale data did not match the marijuana products identified in METRC.
Padgett when notified he needed to pay his taxes, continued to say he would pay the taxes, but then never did. In addition to unpaid taxes, CWNevada incurred expenses and debts that resulted in a Final Award in favor of one of its creditors, 4Front Advisors, LLC in the amount of $4,987,092.29. Employees were also moving money from the company to various bank accounts for Padgett. On June 13, a receiver was appointed.
Burn It Down
According to the court documents, on February 27, 2020, the Department ordered the destruction of the untagged marijuana and marijuana products discovered at the dispensary located at 6540 Blue Diamond Road, Las Vegas, Nevada 89139 on or about May 8, 2019, the cultivation facility located at 9680 Oakridge Ave, Pahrump, Nevada 89048 on or about May 9, 2019 and February 6, 2020, and all untagged marijuana and marijuana product observed by the Department at the cultivation and production location at 4145 Ali Baba Lane, Las Vegas, Nevada 89048.
On March 30, Padgett was found guilty of contempt for violating court orders of the receivership.