You know who the big winners in the recent General Assembly session were? Dope dealers.
That’s a harsh and uncharitable view of things, but not necessarily an inaccurate one. For the second straight year since the General Assembly legalized the personal possession of marijuana, it failed to come up with a way to create a legal market to grow and sell the devil’s lettuce.
That leaves Virginia in a hazy area where it’s perfectly legal to have a certain amount of weed in your pocket, but the only way to obtain it (unless you’re growing a few plants in the backyard) is to buy it from an unregulated and untaxed seller – in common parlance, a dope dealer. Put another way, Virginia’s legal gray area on cannabis (the preferred but less interesting term) only benefits the black market.
How we got into this situation is explained by politics. How we get out of it will ultimately be explained by politics, too, we just don’t know what they are.
The politics that we can explain: When Democrats controlled both chambers of the General Assembly in 2021, they legalized personal possession, with the idea that they’d come back the next year to set up the laws governing a retail market. They didn’t do that at the same time because a) they were in a hurry to legalize and b) they recognized that setting up the rules would take time. They understood that would create a weird in-between period but they wanted to avoid a situation where people were getting busted for something the state intended to make legal – so they legalized it right away and figured a year of awkwardness over where people got their weed would eventually be behind us.
What they didn’t count on was Republican Glenn Youngkin winning the 2021 governor’s race and pulling a Republican majority into the House of Delegates behind him. Since then Senate Democrats have remained committed to setting up a retail market but House Republicans have been divided on the subject. Some don’t like the idea of legalization at all, they just don’t have the votes to undo what’s been done. Others, of a more libertarian streak, are ready to proceed with setting up a retail market, but they have profound differences with Democrats over how that should be done. Democrats are keen to use legalization to pursue what they see as social justice – specifically, giving those previously convicted of marijuana offenses preference in licenses for growing, processing, selling. Republicans think that simply rewards law-breakers. That’s a highly simplified explanation, but it will do for now. The point is, there aren’t two sides in this debate, there are three – and so the easiest thing for the legislature to do is to do nothing. Also, Youngkin hasn’t indicated any interest in getting Virginia into the cannabis business, so no doubt many Republicans wonder why they should take a potentially risky vote if the governor might veto the legislation.
There’s actually a good conservative argument for setting up a retail market: It represents a crackdown on the black market of drug dealers. “Right now we have an illicit black market of people who don’t create jobs, and the money leaves the state,” is how former Del. Greg Habeeb, R-Salem, put it to me when I spoke to him before the session started. (Now a lobbyist in Richmond, Habeeb represents the Virginia Cannabis Association, so yes, the top weed lobbyist is a Republican. “It’s not the smoke shops or the vape shops,” Habeeb says. “We represent the sophisticated business people.”) That argument – that setting up a retail market is actually a tough-on-dope-dealers move – didn’t carry enough sway in this session.
Maybe the politics will evolve by the time next year’s General Assembly gavels in. If Democrats are back in control, it’s easy to see them passing their own brand of retail rules – although harder to see Youngkin signing them. If Republicans win both chambers, well, who knows?
Meanwhile, we can glean some lessons from other states: Even in many states that have set up retail weed markets, the black market still rules. Why? Basic economics. Black market weed is cheaper because it’s untaxed and dealers don’t have to comply with any regulations.
This has been a recurring theme in coverage of the cannabis industry over the past year or so:
“Marijuana’s black market is undercutting legal businesses,” reports CNBC.
“Six years after legalization, cannabis black market still thriving,” reports the Pacific Coast Business Times.
“The black market strangled California’s legal weed industry,” reports Politico. “Now it’s coming for New York.”
Yahoo News reports that Canada, which legalized marijuana nationwide in 2018, has faced the same issue.
California is typically singled out as the classic case because its regulations on growing and selling legal cannabis are considered so stringent that they’ve only helped the black market. A Los Angeles Times analysis last year found that in the state’s two biggest cannabis-growing counties, the number of illegal growing operations outnumbered the legal ones by 10 to 1. We’re not talking about small plots of marijuana up in the hills, either, ala Steve Earle’s anthemic song “Copperhead Road.” The Times published an aerial photo of 10 structures in Juniper Flat Valley that it called “illicit greenhouses” – with what appeared to be three others under construction.
“Butte County, at the northern end of the state’s Central Valley, tried to ban commercial cultivation, but the area covered by cannabis greenhouses in Berry Creek soared 700% in five years,” the LA Times reported. “Ravaged by wildfire, it is not rebuilt homes but the shiny plastic of greenhouses that gleams between the charred black skeletons of the forest.” The paper went on to report: “Neither a ban nor lack of water dissuaded outlaw growers from erecting hoop houses on the desert sands of Lucerne Valley, where the state mapped 13 cannabis plots before legalization and The Times last year found 935 greenhouses. A still-running campaign by the San Bernardino County sheriff in 12 months razed more than 8,200 greenhouses without running out of targets.”
I’m not suggesting we’re going to see anything like that in Virginia; otherwise, we’d have seen it already. The point is, though, that it’s apparently more profitable to grow and sell cannabis illegally in California than it is to grow and sell it legally. And the point here is that the cannabis that Virginans are toking is coming from somewhere, but it’s not generating any tax revenue. Should it?
Now, it’s true that lots of legal products have black market counterparts. Those of us living in moonshine country should understand that. The difference is one of scale.
While the black market eats a big share of the cannabis market even in states that have legalized recreational use, it’s instructive to look at how much those states have still managed to collect in taxes.
California last year took in $774.4 million in cannabis taxes, more than any other state. If the black market really is 10 times bigger than the legal market in California, that’s potentially $7.74 billion in revenue that the state is losing out on. That raises the question of how low it could cut the state’s 15% excise tax in hopes of luring more of those black market dollars into the legal market. (The retail market bill introduced this year by Del. Michael Webert, R-Fauquier County, would have set Virginia’s tax rate at 12%.)
Washington, the second biggest state in terms of cannabis tax collections, took in $517 million. (Washington has a tax rate of 37%, so you have to wonder how much more the state would bring in from the black market if the rate were lower.)
Illinois, in third place, collected $466.8 million. (Illinois is often considered a high-tax state but its cannabis tax rate of 7% is actually the lowest in the country among states that have cannabis excise taxes, according to the Tax Foundation.)
Colorado, with Washington one of the two original legal weed states, saw $353.7 million in revenue.
Oregon was in a distant fifth place with $170.6 million, according to the Urban Institute.
Of all those states, Washington might be the most relevant one for our purposes, because it’s the closest in size to Virginia – just under 7.8 million to our 8.68 million.
If Washington, a state somewhat smaller, can bring in $517 million, how much could Virginia collect? For comparison purposes, that’s twice the operating expenses of Radford University. Or more than the $470 million that Virginia has allotted for widening Interstate 64 between Richmond and Williamsburg. Or half the amount of the proposed tax cuts that Youngkin wanted. If Virginia took in $517 million in cannabis taxes, the governor could get half his tax cuts without disturbing a single spending program that Democrats believe are more important.
None of this is meant to make the case for a legal retail market. It’s simply to point out the absurdity of our current situation. If we want to ban cannabis, we should ban it, but we haven’t. We’ve done just the opposite – we’ve legalized it, but we’ve left it to the black market to supply that demand. The figures above represent the money we’re leaving on the table. Or, perhaps more accurately, in the pockets of shady drug dealers.