What a legalized marijuana market could look like for Va.

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If Virginia legalizes marijuana, sales could generate up to $300 million in annual state tax revenue and create 11,000 jobs, according to a Joint Legislative Audit & Review Commission (JLARC) report issued Monday. But legalizing the drug would not be without hurdles.

While the marijuana use was decriminalized in Virginia this year and the state’s first medical cannabis dispensary opened in Bristol last month, Virginia still has some distance to go to establish a legal and commercial marijuana market — and to reap its tax revenue benefits.

Gov. Ralph Northam, however, is pushing to legalize marijuana for recreational use in Virginia, according to a Monday Associated Press report. “Legalizing marijuana will happen in Virginia,” Northam said, according to the AP.

“Our commonwealth has an opportunity to be the first state in the South to take this step, and we will lead with a focus on equity, public health and public safety,” Northam said in a statement released later Monday. “I look forward to working with the General Assembly to get this right.” In July, possession of marijuana was decriminalized in Virginia, with only a $25 civil fine as the maximum penalty for people caught with an ounce or less.

The JLARC report released Monday notes that aside from necessary General Assembly actions to completely legalize marijuana, establishing a well-regulated commercial market to sell marijuana products would take two or more years to get up and running, and cost between $8 million and $20 million, including prevention efforts, social equity programs and regulatory agency establishment.

The General Assembly this year commissioned JLARC to conduct a study about how Virginia could legalize marijuana. Before considering commercial market specifications, the General Assembly would need to determine the scope of legalization, including setting limits on the amount of the drug a person could possess and determining the legal age for use.

JLARC recommended that the General Assembly could consider legislation to issue licenses for marijuana cultivation, processing, distribution, retail sales and testing, among other recommendations pertaining to public health and safety concerning marijuana use. To achieve this, JLARC recommends that all commercial marijuana operations be licensed by the state. This could be done using one of three models: a government-controlled distribution and retail model; a model in which vertical integration of operations is allowed; and one in which vertical integration of operations is prohibited.

A government-controlled model would leave an authority in charge of distribution and retail sales, similar to how the Alcoholic Beverage Control (ABC) operates in Virginia. Since the legal market would be competing with the existing illegal market, a vertical integration market could work best for competition, JLARC notes. 

Vertical integration would allow a business to grow, process, distribute and sell its own marijuana products. “This approach could promote a more efficient legal market that best competes with the illegal market and most likely would result in the lowest prices for consumers,” the JLARC report states.

A model without vertical integration (similar to that currently used by Washington state) would require distribution and retail sales be handled by another party. That could better suit public health needs, JLARC finds.  “Lower prices would contribute to increased use,” according to JLARC. “The primary consumers of marijuana are young adults and a small number of heavy, everyday users. These users are sensitive to small price changes and may consume more marijuana if prices are lower, which could negatively affect public health.”

In order to attain the projected tax revenue that a legalized marijuana market could bring to the state, JLARC notes, legal marijuana dealers must be able to compete for customers against the existing illegal market. In some markets, home delivery has assisted the legal market with this competition because current users in the illegal market typically buy the product close to home, but JLARC recommends prohibiting home delivery as well as businesses that would allow on-site marijuana consumption for at least three to five years in order to let the market get established in retail stores.

It could take several years for Virginia to see the revenue gap close between legal and illegal marijuana markets. JLARC projects that it could take four years for Virginia to claim the majority market share for the product. If the General Assembly authorizes commercial marijuana sales, JLARC recommends a 20% to 25% marijuana retail sales tax on top of the existing 5.3% standard retail sales tax. Dependent upon tax revenue and demand, taxes on marijuana sales could bring in $300 million annually, according to JLARC. This revenue could be shared between state and local governments.

Attorney General Mark R. Herring also spoke in support of legalization Monday. “This JLARC report just confirms what I have long been saying — Virginia needs to allow legal, regulated adult use of marijuana as a matter of public safety, justice, equity and economic opportunity,” Herring said in a statement. “For too long, the commonwealth’s approach to cannabis was needlessly and disproportionately saddling Black Virginians and [other] people of color with convictions, and this report shows just how important legalizing marijuana is for promoting equity in Virginia.” Herring’s statement notes that Black people in Virginia are arrested at a rate of 3.5 times more often than white people are for marijuana-related charges.

Though the legal marijuana market could create up to 11,000 jobs, the majority would be low-paying jobs below Virginia’s median wage. These jobs would include production technicians, security guards, retail clerks, packers, labelers and growers. Fewer jobs would be in the realm of quality control, chemistry and management.

In terms of commercial market regulations, JLARC recommended that the General Assembly consider putting one agency, perhaps the Virginia ABC, in charge of implementing and enforcing market regulations. Using the existing agency would lower operating costs, take less time to implement and lead to a lower risk of unexpected delays, JLARC points out. A new agency, however, could perhaps better focus on marijuana and social equity.

Despite the challenges, “Virginia could establish a well-regulated, fully private commercial market where licensed businesses cultivate, process, distribute and sell marijuana,” according to JLARC.

With more demand, the state would be able to generate more tax revenue and increase job creation.

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