General Assembly set to take up rival bills that would create retail market for cannabis

A Senate panel is set to weigh legislation on Thursday that would create a legal adult-use retail market for marijuana in Virginia and allow sales to begin as soon as 2025. 

Although Democrats three years ago legalized the possession of recreational marijuana in the commonwealth, the state has upheld a prohibition on regulated sales and purchases, effectively creating an illicit market that has skyrocketed from $1.8 billion a year to $2.4 billion in 2023, according to New Frontier, a group that studies the cannabis industry.

The newly re-created Senate Rehabilitation and Social Services Subcommittee on Cannabis will take up two proposals at its meeting. Both measures would task the Virginia Cannabis Control Authority with regulating and testing cannabis products for a marketplace that lawmakers hope would benefit not just the big pharmaceutical companies already operating in the statewide medical marijuana market, but eventually would spur the growth of small businesses and micro-growers, including those that are minority-owned.

Senate Bill 448, introduced by Sen. Aaron Rouse, D-Virginia Beach, would set up “a fair, Virginia based system that lowers barriers to access for small businesses,” said Greg Habeeb, a former Republican member of the House of Delegates from Salem and an attorney and lobbyist for a number of cannabis interests who has helped draft the legislation. 

“What our bill does is make sure that the pharmaceutical folks get licenses, they deserve those licenses and should be primary players in the market, but that shouldn’t be at the expense of the inclusion of other market participants,” Habeeb said in a recent interview. 

The fairly similar second proposal, Senate Bill 423, sponsored by Sen. Adam Ebbin, D-Alexandria, would legalize recreational sales beginning in July, with sales starting at existing medical marijuana facilities, followed by additional licenses for other businesses in 2025. “Our legislation prioritizes micro-businesses and supports entrepreneurs from over-policed communities,” Ebbin said at a news conference in Richmond last week.

Under current law, the possession of cannabis of up to an ounce has been legal in the commonwealth since 2021 for adults 21 and over. Virginians may also grow a limited number of marijuana plants for personal use and gift their homegrown cannabis products to others. However, cannabis remains the only legal commodity in Virginia without a commercial market. 

“It’s long past time that adults 21 and over can buy a safe, tested cannabis product that is regulated and taxed by the commonwealth. Virginia already has a very large, booming cannabis market, but we know that unfortunately it is controlled by cartels and organized crime,” said Ebbin, who also sponsored the 2021 legislation that legalized possession. 

In the past three years, instead of being reinvested in Virginia’s communities, tens of millions of unrealized dollars in tax revenue have been lining the pockets of organized crime, Ebbin said. “It’s long past time for us to seize control of that market and regulate it. My Senate bill represents the fastest path to a responsible regulated market.”

While a report by the Joint Legislative Audit and Review Commission from 2020 estimated that legal sales of adult-use cannabis in Virginia could “eventually produce substantial revenue” of up to $300 million in annual state tax revenue and create between 11,000 and 18,000 jobs, Gov. Glenn Youngkin in his first two years in office has made clear that cannabis legislation wasn’t among his priorities.

Youngkin’s position hasn’t changed even after Democrats took full control of both chambers of the General Assembly in November. When speaking to reporters after his State of the Commonwealth address at the state Capitol earlier this month, Youngkin doubled down on his indifference to the issue. “I’ve said before, this is an area that I really don’t have any interest in,” he said. 

And despite their recent legislative victories, Democrats don’t have sufficient votes to override a gubernatorial veto, although Ebbin remains optimistic that enough Republicans will join his effort. “We have designed a bill that in the past the Senate has passed with bipartisan vote at least twice,” he said. “This bill I believe should be as, if not more, attractive to Republicans than it’s been in the past, and we anticipate some Republican consideration and hope for support.”

Ebbin’s proposal would issue licenses needed to operate in the market to businesses that currently are not among the state-sanctioned sellers of medical cannabis. Under his legislation, up to five industrial hemp manufacturers would be eligible to receive licenses to operate in the recreational cannabis market by Jan. 1 of next year and “begin operations as soon as the authority is able to regulate such operations.” 

The legislation includes a so-called cannabis incubation program, under which medical cannabis operators would develop programs intended for minority and micro-businesses to help educate people who want to work in the industry and others who want to become entrepreneurs.

The bill also requires a significant portion of cannabis-related tax revenues to be reinvested in communities hardest hit by criminal justice practices, such as the war on drugs, which, according to civil rights groups like the American Civil Liberties Union, has disproportionately affected minorities. 

According to the 2020 JLARC study, between 2010 and 2019 the average arrest rate of Black individuals for marijuana possession in Virginia was 3.5 times higher than the arrest rate for white people — and significantly higher than arrest rates for other racial or ethnic groups. Black people were also convicted at a much higher rate — 3.9 times higher than white people, the study found.

Del. Paul Krizek, D-Alexandria, who sponsored the companion bill to Ebbin’s proposal in the House of Delegates, said that the measure would “create business opportunities for our communities of color and trying to redress some of the injustices” that were placed on these communities during the war on drugs. 

“It’s been a group effort to craft this bill. We’re proud of the equity and adversity conditions in this bill, including the incubation program, which I think is a pretty unique one, and it’s really going to expand our small and micro-growing businesses,” Krizek said at last week’s news conference. 

And Del. Dan Helmer, D-Fairfax, the co-sponsor of the House bill, added that addressing historical inequities in the expansion of Virginia’s marijuana marketplace remained an important part of the effort.

“We need to make sure that we are encouraging and driving small businesses to those communities that are the most impacted by the war on drugs, and we are going to create a safe and regulated cannabis market in Virginia that protects our children and also grows our communities that have been disadvantaged by this war,” Helmer said.

Chris Obenshain. Courtesy of the candidate.

Among those Republicans who have been outspoken supporters of a regulated cannabis market is Del. Chris Obenshain, R-Montgomery County, who during a candidate forum hosted by Cardinal News in Blacksburg in October said that rolling back legal possession of cannabis in Virginia is no longer an option.

“Personally, I really don’t have a problem if responsible adults want to use marijuana in their own home, and they aren’t harming anyone. I don’t think we need to roll back that aspect of the law,” Obenshain, a Montgomery County prosecutor, said at the time.

And his position on adult cannabis use hasn’t changed, Obenshain said in a text message Wednesday. 

“I favor clear regulations that include protections for public safety and more resources for mental health services. I think there’s more work to do on this issue during the session, but I appreciate the efforts that are being made to find consensus.”

But the proposed social equity provision remains a sticking point for some Republicans, who have expressed concern that race-based license preferences may be unconstitutional, with several states that are trying to implement such provisions facing legal blowback. 

In Connecticut, a group of Stamford residents are asking a court to strike down the state’s legal cannabis law, alleging that the policy’s social equity provisions are discriminatory and “riddled” with racial distinctions. 

Phillip Thompson, an attorney from Loudoun County and the president of Cannabis Equity Consultants, said that the legislation sponsored by Ebbin and Krizek for the Virginia market is designed to avert such legal scrutiny by allowing medical cannabis retailers to involve minorities at their own discretion.

“We understand based on recent U.S. Supreme Court decisions that affirmative action is being scrutinized very deeply, especially from the governmental level,” Thompson said. “So if we can have the medical cannabis operators develop their own program, where they can be a little bit more aggressive in targeting minority companies for an incubation program, we thought that would help moving businesses along.” 

And instead of identifying individuals based on their racial background, Thompson said that the legislation instead focuses on localities that have been disproportionately policed during the war on drugs. “Some of these locations are in western Virginia, and in the rural areas,” he said. 

Other states have tried to incorporate minorities into commercial cannabis operations, but with little success, Thompson said. “Some of the barriers that they run into are of course the upfront money, which is a very difficult process, but also the know-how on how to run a business. We think that the incubation program will provide the medical cannabis operators the time to help people understand the business and how to go about doing things the right way and put them in a great position to succeed once they obtain a license and open their businesses.”

The Ebbin-Krizek proposal would also make it easier for smaller businesses to get into the market without the burden of major upfront investments, Thompson said. “Part of that is waiving licensing fees, providing some investments from the medical cannabis companies, which is estimated between $15 and $20 million, returned to them from revenue in a six-month period to be used to help them get up and running.” 

The bill is the best way to ensure a significant minority participation in the cannabis business, Thompson added. “We don’t want a situation where 58 licenses are by nonminorities and only two are by minorities, and we hope that this legislation can prevent that.”

However, some civic groups are concerned that neither proposal on the committee docket Thursday goes far enough to ensure fair minority participation in the market because they would offer pharmaceutical companies and hemp growers a head start. 

“Both bills provide first mover advantage to medical and hemp, basically existing cannabis operators, and this means that particularly those that have been impacted and that are not in the cannabis industry today are not being positioned to benefit first in any of the proposals,” said Chelsea Higgs Wise, the executive director of Marijuana Justice, a Richmond-based nonprofit that works to legalize marijuana and achieve social equity. 

Wise cited the 2022 National Cannabis Equity Report by the Minority Cannabis Business Association, which found that state medical programs, like Virginia’s medical marijuana program, include “significant barriers to entry to both ownership and employment” that carry from the medical to adult-use market, along with significant advantages for medical operators seeking adult-use licenses. 

“The common advantages include automatic co-location of an adult-use license with medical licenses, early market access, and opt-out and land use exemptions. These advantages, along with barriers to entry, create significant inequities and perpetuate oligopolies in state adult-use cannabis markets,” the report said.

All but one of the states that transitioned from medical-only to include adult-use cannabis markets have provided for the co-location of at least one adult-use license for each existing medical license held, including 13 of the 14 states with social equity programs, the report found.

“Folks that have been impacted [by the war on drugs] should be able to start first, and they are not going to be able to start first without that training and without the capital funds,” Wise said. “We just aren’t putting the thought process and intention into positioning people that have not been able to get into the business through medical or hemp yet. We have got to stop diminishing opportunities for Black people, but that’s what we have continued to do, diminish our opportunities in each proposal since 2022.”

But Paul McLean, the founder and executive director of Virginia Minority Cannabis Coalition, said that while the legacy market has always been a concern, the new legislation is an opportunity “to right a lot of wrongs,” and to prop up economic development in communities that have not had it.

“It doesn’t all have to be fixed in the first year, it’s not going to be perfect in the first year,” McLean said. “But to have something that can grow organically and help many people get opportunity and find pathways and jobs that they can actually enjoy, I think that’s the biggest thing.”

A well-regulated adult-use cannabis market in Virginia, McLean said, would provide an opportunity for people who have not had a high enough income to pay taxes and provide to their communities. 

“The biggest thing with Virginia that I hope people will understand is that this will be a game changer, not just for the state, but for the South,” McLean said. “I think it’s a great economic sunrise for Virginia, there is a lot of hope here, it just has to be done right and hopefully everybody will see the benefits.”

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