High hopes for a Recreational Cannabis market after Democratic election win
Under current law, it’s legal in Virginia to possess small amounts of marijuana, but you can’t buy it or sell it.
In the wake of the Democrats’ victory in last month’s legislative election, advocates for a state-regulated cannabis marketplace in Virginia are experiencing a surge of cautious optimism as they anticipate favorable changes in policies that could significantly impact their industry and lead to legal retail sales.
“I’m a little bit more hopeful for the future,” said Jason Johannessen, director of operations at NuTrac Hemp in Blacksburg, a small company that has been extracting and distilling hemp biomass for its line of CBD products since 2021. “Democrats have to step up and deliver, but we’re working with lawmakers from both sides all the time, and I don’t see a reason why we won’t get it done.”
Only the sale of intoxicating cannabinoid alternatives derived from hemp is legal outside the medical cannabis market. It’s already legal in Virginia to buy and sell products made from cannabinoid alternatives that come from hemp, but NuTrac Hemp has been pushing for legislation that would eventually allow the company to obtain a processing license for cannabis — a hemp species with a higher content of tetrahydrocannabinol, or THC, one of many cannabinoids found in the plant that is primarily responsible for the “high” associated with cannabis.
“We want to make cannabis products for the right market, possibly even have a dispensary and manufacturing facility,” Johannessen said. “Processing cannabis is not that much different from processing hemp, a lot of it is the same. We have the experience, the capital, equipment and the technique, we know how to do it, and as hemp businesses, we already have the framework to succeed in the market.”
However, it’s the lack of regulation that keeps entrepreneurs like Johannessen from legally participating in a non-medical, adult-use cannabis market. While a Democratic majority in the General Assembly decriminalized some personal possession and home growing of cannabis effective in 2021, the parts of the legislation that would create a fully regulated marketplace by 2024 have yet to be finalized.
And when Republicans won back the majority in the House of Delegates two years ago, they did not make it a legislative priority to fix a problem that they said Democrats created. “It’s a mess, and it’s been handed to us,” Del. Todd Gilbert, R-Shenandoah County, told reporters at the onset of the 2022 General Assembly session, just hours before being sworn in as the new House speaker.
Both parties blame each other for cannabis stalemate
The legislative impasse over the creation of an adult-use cannabis marketplace under a divided government over the last few years has led to a growing number of cannabis-related retail shops across Southwest Virginia and other parts of the state that are operating outside the law.
Some of these stores are referred to as marijuana “pop-up shops” by industry officials, although a couple in Bristol and Abingdon have been open for more than two years. Many of these shops sell synthetic marijuana derived from the CBD found in hemp, which is legal but unregulated, while others sell cannabis from unknown sources, purchased in other states or home grown.
Law enforcement has largely looked the other way, with the exception of a wide-scale raid in September, when authorities executed two dozen search warrants across nine Southwest Virginia counties as part of “an extensive, ongoing criminal investigation into allegations of money laundering and illegal narcotic distribution network by retail establishments.”
No charges have been filed yet, and several retailers reopened just days after the raid, and to many, it appears to be business as usual.
“Legalization without regulation creates an unregulated and untaxed black market, where untested and unsafe products are sold,” said Greg Habeeb, a former Republican member of the House of Delegates from Salem and an attorney who now represents the interests of the cannabis lobby.
“If you’re anti-cannabis, you should want the government to step in, test the product, tax them, regulate them and enforce. If you’re pro-cannabis, you should want to create a robust and regulated commercial market where people actually have access to what is now a legal product,” Habeeb said.
Cannabis remains the only legal commodity in Virginia without a commercial market around it, Habeeb added. “There is not the ability to buy or sell, so it’s not about legalizing marijuana, that’s already happened. The real question is how should we regulate the sale of what is already a legal product.”
State study hails economic potential of legalizing cannabis sales
In 2020, a report by the Joint Legislative Audit & Review Commission found that legal sales of adult-use cannabis in Virginia could “eventually produce substantial revenue” of up to $300 million in annual state tax revenue while creating between 11,000 and 18,000 jobs.
“Virginia could implement a total combined tax rate of 25 to 30%, comprising a new 20 to 25% marijuana retail sales tax and the existing 5.3% standard sales tax. A total rate of 30% would be at the upper end of the range of other states’ marijuana tax rates,” the report stated.
The study also recommended that medical cannabis dispensaries should not be allowed to enter the commercial market before other businesses, based on lessons learned in other states. “Over the long term, the goal should be to merge the two markets under a single regulator, license structure, and set of regulations.”
But to this day, the 21 dispensaries that are currently state-licensed in Virginia remain the only option to purchase tested and regulated cannabis products legally — and officially for medical use only. But a new study released last week found that Virginia’s medical cannabis program is struggling to capture patients amid evolving local and adult-use policies in bordering states, resulting in above-average prices that drive consumers to purchase cannabis products elsewhere.
“There are a lot of different stakeholders who would benefit from an adult-use cannabis marketplace,” Habeeb said. “How do we take care of Virginia agriculture? How do we take care of historically disadvantaged communities or disabled veterans? Are there preferred classes of potential operators? How are we going to tax this market so it can stay in business while generating enough revenue to create proper enforcement, address mental health issues, public health and otherwise? We’ve really been trying to draft a bill that everybody can get behind so we can properly regulate this product.”
Democrats hopeful for a compromise on cannabis legislation
But despite last month’s legislative elections, which resulted in Democrats keeping their majority in the state Senate and flipping enough Republican seats in the House to regain full control of the General Assembly, some Democratic lawmakers remain cautious about raising expectations for successful cannabis legislation to pass in the 2024 session, which is set to begin next month.
“We haven’t had those policy conversations internally just yet,” Del. Sam Rasoul, D-Roanoke, the only remaining House Democrat from west of Charlottesville, said in a recent phone interview.
“Hopefully as the two chambers and leadership come together we can build some more clarity about what direction we are heading in there,” Rasoul said. “The General Assembly can’t do something on its own, it’s going to need the governor to buy in. Sure, we can say we are going to accomplish something and send it to the governor, but I think it is a broader policy conversation, because the governor will have to agree to it or give his input.”
Del. Don Scott, D-Portsmouth, the designated next House speaker, is more optimistic, vowing to make cannabis legislation one of the legislative priorities for the upcoming session.
“I believe adamantly that we need a market for adult-use legalization of marijuana,” Scott said during an interview at his office at the new General Assembly Building in Richmond last month.
“We have an $1.8 billion illicit marijuana market right now that we are receiving no tax revenues for and that we could be funding public schools and mental health hospitals with. We could do a lot with those resources,” Scott said. “I have a surprise for Republicans who opposed the adult-use legalization — people are using it, the only difference is we are not taxing it. So we may as well go ahead and tax it.”
By throwing his support behind legislation creating a well-regulated marketplace for cannabis products, Youngkin has “an opportunity to really be a leader on this” instead of just leaving the issue up to the legislature, Scott said.
“I think that the governor could be held as a champion to make this happen for those folks who have been left behind; he could lead and help us get to where we need to go and make it fair to everybody, and I hope to work with him in a partnership to do that. I don’t know where he stands on adult-use legalization, but it is my goal to send a bill to him that’s palatable to him that he can sign.”
Macaulay Porter, a spokesperson for the governor, declined to comment for this story, but Youngkin said in a press conference in Richmond’s Capitol Square last month that he was willing to work with the new Democratic majority on a variety of bipartisan issues.
“The Constitution requires both houses to pass a bill and the governor to sign it. This is still the reality of where we are versus the same place where we have been the last two years,” Youngkin said. “I’m encouraged that we have demonstrated that we can do this, and it still requires us to come together. I’m here, I’m the executive branch, and I will continue to invite the leadership of the legislature to work with us.”
Cannabis bill could be a win for Youngkin
David Richards, a political analyst and chair of the political science program at the University of Lynchburg, agreed that from a legislative perspective, some measures to finally create a regulated marketplace for cannabis in Virginia might be “an easy win” for both Democrats and Youngkin.
“If they succeed, Democrats can claim that they were able to finish what they started years ago, despite GOP delays. And Youngkin might also claim a win if he can frame the whole thing correctly,” Richards said. “A possible approach might be that he tells the legislature to fix the bill and make the legalization process better. That way he can claim that he got the Democrats to do it the right way.”
Democrats would benefit from a legislative win in this area especially in light of oncoming budget battles, Richards said. “Next year’s budget looks to be tight, if not in a negative space already. If the Democrats proposed any new spending or increased existing spending, the GOP will bring out their tax-and-spend criticism. Democrats could temper that criticism by claiming a new revenue source by legalizing cannabis in Virginia.”
But the key is that Democrats, whether Youngkin tells them to or not, will come up with legislation “to clean up the whole process in Virginia.” Richards said.
“Right now even legal medical cannabis is taxed and regulated to such an extent that it is more costly here than in neighboring states, causing some folks to travel to Washington, D.C., for their needs. If the Democrats load up the legal sales with a lot of new taxes, fees and regulations, the potential for tax revenue may not be realized.”
Jason Blanchette, the president of the Virginia Cannabis Association, said that getting both parties to agree on legislation that would win Youngkin’s approval will not be easy after the recent Democratic takeover of the legislature.
“What we are trying to do is thread that needle to bring everyone to the table so that a reasonable and pragmatic bill can get to Governor Youngkin’s desk and one that he won’t take pleasure in vetoing,” Blanchette said in a phone interview last week. “While it absolutely could be a positive that the Democrats by a slim margin have taken both chambers, we’ve got to be very careful with how this final bill is crafted. Because quite frankly, if there aren’t Republican votes on it, Governor Youngkin is going to have zero problem red-stamping it.”
The tough part, Blanchette said, is finding where both sides will agree to give up some of the non-negotiables they’ve held to in the past.
“Our job is to come up with something where at the end of the day everybody feels like they have to give up something here, but they also at least made some progress in return. If we can get a certain number of Republican votes on it and it’s not just a party-line bill, we think that there’s a shot,” Blanchette said.
Many Republicans, however, have already accepted that the decriminalization of cannabis possession would be hard to reverse legislatively and have since endorsed policies to create a framework for a cannabis retail market.
During the 2023 session, at least two Republican lawmakers sponsored such proposals: House Bill 1750, introduced by Del. Michael Webert, R-Fauquier County, and House Bill 1464, a similar bill filed by Del. Keith Hodges, R-Middlesex. But both measures were killed by GOP-led committees, and an almost identical Senate Bill 1133, introduced by Sen. Adam Ebbin, D-Alexandria, shared the same fate after passing in the Senate in February by 24-16 votes.
Obenshain considers cannabis legislation
Newly elected Del. Chris Obenshain, R-Montgomery County, has also expressed support for a regulated cannabis marketplace in Virginia.
“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 said at a candidate forum hosted by Cardinal News in Blacksburg in October.
“But what I do have a problem with is when people can decide to use marijuana and get stoned, and then get behind the wheel of a vehicle and put people’s lives at risk,” he said at the event.
And Democrats, Obenshain said, killed a Republican bill that would have set a blood-alcohol limit for marijuana, similar to that for alcohol. And because of a lack of regulation, he said, THC-infused edibles are marketed toward children. “They are so readily available, they are in our schools,” he said, adding that the “quasi-legalization” in Virginia has “confused lots of people and has harmed businesses right here in our area, and that needs to change.”
In an email last week, Obenshain, a Montgomery County prosecutor, said that “leaving cannabis in the current unregulated gray area” is not an option.
“The voters of the 41st District elected me to be a problem solver and that’s what I intend to do. And I’ll be happy to work with both sides during this session to find something that works for Virginians and that the governor will sign,” Obenshain said, adding that he is currently “having conversations” about the possibility of introducing cannabis-related legislation during his first General Assembly session.
One of the sticking points for Republicans is a social equity provision that Democrats would like to see attached to any cannabis legislation. When Democrats decriminalized simple possession for adults, they established a loan fund to redress past disproportionality in marijuana enforcement and ensure that Black Virginians have an opportunity to benefit from the new commercial market.
According to the 2020 JLARC study, between 2010 and 2019 the average arrest rate of Black individuals for marijuana possession 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 individuals, the study found.
“In other states that have created commercial marijuana markets, relatively few Black individuals have benefited from the establishment of commercial marijuana markets. Industry statistics show the vast majority of current marijuana business owners are white, and there are few Black-owned marijuana businesses,” the report said.
The Cannabis Equity Reinvestment Fund was designed to support individuals, families and communities that are disproportionately targeted and affected by drug enforcement with up to 30% of the tax revenue from adult-use cannabis sales, providing scholarship opportunities and educational and vocational resources for historically marginalized Virginians.
The fund would also award grants to support workforce development, mentoring programs, job training and placement services, apprenticeships, and reentry services to benefit people and communities that were disproportionately targeted by drug enforcement.
But Republicans have opposed the establishment of the fund, and during the 2022 General Assembly session, Sen. Tommy Norment, R-Williamsburg, filed legislation that would have directed the tax revenue from cannabis sales to the general fund.
While Norment’s bill was killed by a Democratic-run Senate committee, the sentiment against the fund among many Republicans remains.
“The biggest misnomer is that a lot of folks have very different ideas about what social equity is, and we are attempting to educate as many legislators as we can on what that really looks like and how it can negatively affect legislation,” said Blanchette, the Virginia Cannabis Association president. “We pretty much have resigned to the fact that when Republicans see the term named in any bill, it’s going to be an immediate no-vote for them.”
Social equity remains sticking point for Republicans
But for some stakeholders, the proposed loan fund isn’t going far enough.
“We would rather the upfront capital to be grants so that these loans are not at risk to go to bankruptcy as we have seen across the country for failed social equity licenses,” said Chelsea Higgs Wise, the executive director of Marijuana Justice, a Richmond-based nonprofit that works to legalize marijuana and achieve social equity.
Wise said that while she was excited to hear that Democrats made passing cannabis legislation a legislative priority for the upcoming session, she also remains cautious.
“I have been around long enough to know that it is not [a priority], and that does worry me because this is such a large bill with such an important impact, and we don’t have solid champions right now,” she said. “People have walked away from that issue, and they are now coming back because we have a majority — versus working on this every session — and that does say something about where marijuana falls on the priority list.”
Wise said she hopes that the new Democratic majority in the General Assembly will at least in part rekindle the spirit of 2019, when the party previously regained control of all branches of government.
“Marijuana Justice were really excited to see folks with more liberal and progressive views to be in control of the House and Senate chambers, as this was the mindset that allowed Virginia to become the first state in the southern region to repeal the prohibition of simple possession, to legalize home-grow and seal the records of many marijuana misdemeanors,” Wise said.
“It was the Democrats as a party in a majority that put us in a progressive place for cannabis, and we are really hoping that they are going to continue that momentum that we started back in 2020 and 2021.”
Blanchette said that the biggest challenge remains bringing lawmakers from both parties to the table “and making sure that they can all get up and feel like they have accomplished something” without losing too much ground from their side.
“It’s a heavy lift, we have been transparent that it is going to take a lot of work and we’re certainly willing to do that, and we are already in talks with Democrats and Republicans about a vehicle that could not only make it to Governor Youngkin’s desk, but that there is a potential for his signature,” Blanchette said.
For entrepreneurs like Johannessen of NuTrac Hemp in Blacksburg, the time for lawmakers to act is now. “We think that the only solution to this problem is a robust, regulated and fair adult-use market,” he said. “It needs to be done, there are a multitude of reasons, for consumers, for public health, for small businesses. Pretty much everybody is on board, we just need a bill that we can agree on.”
How that plays out will be determined in the next couple of months, “ad nauseam,” Johannessen said.