The City Council previously heard an agenda item regarding NNV Operations I Inc. dba Silver State Trading (Silver State Trading) at its February 25, 2019 meeting, at which it directed the City Manager and the City Attorney’s Office to institute proceedings to possibly revoke Silver State Trading’s marijuana cultivation and production business licenses. A formal Complaint was mailed to Silver State Trading on March 8, 2019 (the Complaint). Silver State Trading submitted a Response to the City’s Complaint on March 21, 2019 (the Answer). The Answer was submitted to the City Clerk within the timeframe set by the City Manager (as was previously authorized by the City Council). True and correct copies of the Complaint and Answer are attached to this staff report. Pursuant to SMC 5.80.110(C), the City Council must conduct a hearing and provide Silver State Trading with an opportunity to be heard prior to taking any action to revoke Silver State Trading's marijuana cultivation and production business licenses.  

In July and August of 2018, Silver State Trading began asserting that it only needed to pay licensing fees for sales that it to dispensaries located within the City of Sparks, while not reporting or paying licensing fees for sales to dispensaries located in other jurisdictions.  Based on this argument, Silver State Trading underreported its quarterly gross receipts for the second calendar quarter of 2018 and underpaid its quarterly licensing fees accordingly.

After months of discussion, the City Manager sent Silver State Trading a letter confirming that the City considered Silver State Trading’s second quarter filings to be deficient and that failure to correct the underreported and underpaid gross receipts filings by October 31, 2018 would result in the City beginning the process to revoke Silver State Trading’s marijuana cultivation and production business licenses.  On October 30, 2018, Silver State Trading submitted third quarter gross receipts filings based on the same interpretation that limited gross receipts to sales made to dispensaries located within Sparks.  The next day, Silver State Trading agreed that its prior interpretation of its quarterly gross receipts obligation was incorrect.  Based on that admission, Silver State Trading agreed to submit amended quarterly filings for the second and third quarters of 2018 and agreed to pay all outstanding licensing fees, with all applicable late penalties, by November 30, 2018.  Silver State Trading also agreed that it would, in the future, report its full gross receipts based on all sales and would pay the proper corresponding quarterly licensing fees on time. The City Manager informed Silver State Trading that any failure to comply with these terms would result in the City taking the necessary steps to bring the matter before the City Council for proceedings to consider whether Silver State Trading’s cultivation and production business licenses should be revoked. 

Silver State Trading submitted revised quarterly filings for the second and third quarters of 2018 and paid all outstanding licensing fees (including late fees) in November of 2018 as promised. However, when the City’s Business Licensing office called Silver State Trading in late January of 2019 to set up a time to process their fourth quarter 2018 license fees, Silver State Trading informed the Business Licensing office that it would be unable to pay the quarterly fees by the January 30, 2018 deadline.  

The City Manager informed Silver State Trading in writing on February 1, 2019, that in light of (1) its failure to pay any quarterly business license fees for the fourth quarter of 2018 by the January 30, 2019 due date, and (2) Silver State Trading’s prior agreement that it would pay all future quarterly fees in full and on time, that the City would bring the matter before the City Council for proceedings to consider whether Silver State Trading’s cultivation and production business licenses should be revoked. Silver State Trading reached out to the City Manager the same day and made itself available to pay its business license fees, plus applicable late penalties, during the week of February 4, 2019. Final payment was made on February 12, 2019 due to scheduling conflicts with the City personnel necessary to process payment. In summary, Silver State Trading is now current on all of its quarterly license fee obligations, including all applicable late fees, but has been late in paying its full business license fee obligations for each of the last three calendar quarters of 2018.

In response to the City’s Complaint, Silver State Trading’s CEO John Sutton has stated that he has read the Complaint and agrees with the business license fee payment history as set forth in the Complaint.  See attached Complaint and Answer.  Mr. Sutton states that he has instituted a process of escrowing funds to ensure that all business license fees will be paid in a timely manner going forward.  In summary, Mr. Sutton has acknowledged Silver State Trading’s prior oversight, but requests that the City Council consider the length of time that Silver State Trading has been a licensee of the City of Sparks as well as the fact that Silver State Trading’s business license fee obligations are, at the present time, fully paid, including all late fees.

Businesses licensed under SMC Chapter 5.80 (Licensing of Marijuana Establishments) are required to pay quarterly licensing fees based on the establishment’s quarterly gross receipts for the preceding quarter.  SMC 5.80.180, .190, .195.  These quarterly license fees are due no later than 30 days after the end of each calendar quarter.  SMC 5.80.180(C).  Pursuant to SMC 5.80.100, any marijuana establishment license may be revoked by the City Council if it appears to the satisfaction of a majority of its members that the licensee or an employee has (a) failed to pay any license fee, or (b) refused or neglected to comply with any of the provisions of SMC Chapter 5.80. 

The City Council is presented with the question of whether it believes – after consideration of the Complaint, Silver State Trading’s Answer, and all statements and documents presented at hearing – that Silver State Trading’s past quarterly business license fee payment history and other behaviors are sufficient grounds under SMC 5.80.100 to revoke Silver State Trading’s cultivation and production business licenses. 

The City Council may either (1) revoke Silver State Trading’s marijuana cultivation and production business licenses, or (2) decline to revoke Silver State Trading’s marijuana cultivation and production business licenses.

If the City Council chooses to revoke Silver State Trading’s business licenses, the motion should be stated as follows: I move, pursuant to Sparks Municipal Code Section 5.80.110, to revoke NNV Operations I Inc. dba Silver State Trading’s cultivation and production business licenses S080836Q-LIC and S080837Q-LIC.

If the City Council declines to revoke Silver State Trading’s business licenses, the motion should be stated as follows: I move to decline to revoke NNV Operations I Inc. dba Silver State Trading’s cultivation and production business licenses.