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Just days after a potential agreement first appeared to be within reach, Democrats in the House of Delegates and the state Senate have found a compromise on legislation that would create a legal adult-use cannabis market in Virginia by merging two rival measures that cleared the floors of their respective chambers last week.
Republicans, however, are not yet on board with one of the biggest legislative undertakings of the 2024 General Assembly session. A substitute for SB 448, sponsored by Sen. Aaron Rouse, D-Virginia Beach, passed the House General Laws Committee on a 12-10 vote on Thursday — without a single GOP vote in favor.
By harmonizing Rouse’s measure with a similar proposal introduced by Del. Paul Krizek, D-Fairfax County, lawmakers avoided having to work out their differences in conference, where contentious legislation often lingers until the final hours of the session. Instead, they opted for an expedited and more transparent committee process.
“Senator Rouse and I are happy to report that the Senate and House are now on the cusp of sending the governor legislation which will create a retail marijuana market in a very responsible and thoughtful way,” Krizek, who is a member of the General Laws Committee, said Thursday.
During their negotiations, Rouse, Krizek and other stakeholders agreed on several issues that have remained sticking points, especially for social equity advocates, who strongly opposed a provision in Krizek’s proposal that would have given the five big medical marijuana producers in the commonwealth a six-month head start before other retailers would have been allowed to sell their products.
“Let’s be clear with what this bill does not do. This bill doesn’t legalize marijuana in Virginia, that’s already happened,” said Greg Habeeb, an attorney and lobbyist who helped draft the legislation. “This bill does not create a market for cannabis in Virginia. It regulates the existing market to ensure that all sellers are licensed, all products are tested and all sales are taxed. If you don’t like marijuana, you shouldn’t want drug dealers on the street selling unlicensed and untested products.”
Under the new legislation, the Cannabis Control Authority, the agency created to oversee and regulate a marijuana retail market, would accept applications for testing, cultivation, processing, retail and transporter licenses by Sept. 1, with retail to begin on May 1, 2025 — after the Jan. 1 and March 1 start dates in earlier versions. The authority had asked for the additional time to prepare for the marketplace and to allow licensees enough time to start building facilities, planting crops and getting leases in place for the retail locations.
The legislation would allow the authority to limit the number of licenses issued to marijuana retail stores statewide to 350 (with an allowable square footage of floor space capped at 2,500 square feet), processing facilities to 100, and cultivation facilities to 125. The latter are spread across five tiers, beginning with micro-grow of up to 2,500 square feet, and a grow space of up to 70,000 in the fifth and highest tier. “This totals to about 1.5 million square feet statewide, which is a reasonable amount for the first year or two of the market,” Habeeb said.
House and Senate Democrats also agreed on the tax rate for cannabis products, which they set at 9%, with 4.5% going to localities and another 4.5% to the state. Krizek’s proposal initially called for a tax rate of 12%, but Habeeb said that the lower rate was chosen to spur market growth. “The cheaper we can keep the product, the quicker we can get rid of the black market,” he said.
One of the most contentious provisions was the so-called incubation program, which Krizek proposed in his original bill, and under which six existing medical companies would have been given a six-month head start, allowing them to start selling on July 1 of this year.
Each company would have been required to provide grants of up to $400,000 to six micro-businesses and to help those businesses get established through acceleration programs, which would follow on Jan. 1, 2025. But to Rouse, this was a nonstarter, because he feared that it would give the medical companies an opportunity to corner the market early on.
The new legislation eliminates the incubation program, but it tasks the Cannabis Control Authority with creating the Virginia Cannabis Equity Business Loan Fund to provide grants, low-interest loans, zero-interest loans and other supports and services to social equity qualified cannabis micro-business licensees in order to foster business ownership and economic growth within communities that have been the most disproportionately impacted by the former prohibition of cannabis.
The fund would be financed 100% by the licensing fees collected by the authority during the first year, Krizek said. “After that time, the program will be supported by 60% of the tax revenue from retail sales of marijuana.”
The compromise proposal found widespread support among cannabis advocacy groups. Chelsea Higgs Wise, the executive director of Marijuana Justice, said in a text message Thursday that she was thrilled that there has been a compromise that includes equity provisions such as startup capital as well as criteria that will reach people directly impacted by past marijuana offenses, as well as their family members.
“It was also an important move to increase the revenue going to the cannabis equity reinvestment fund from 30 to 60%. Aspects from the Senate bill such as outdoor grow and tiered cultivation licenses are aimed to also keep costs down and increase access for smaller sized operators. Overall we are excited at the decision to make this bill one Virginia can be proud of,” Wise said.
Alexander Macaulay, a lobbyist speaking on behalf of Jushi, a medical marijuana producer in Northern Virginia, told the committee that it was “a little amazing” to have a consensus at this stage of the session. “While the bill recognizes the key role that the medical cannabis companies have to play, it provides a level playing field for the other market participants,” Macaulay said.
Phillip Thompson, an attorney from Loudoun County and the president of Cannabis Equity Consultants, said that he was glad to see that both sides have managed to “close the distance” between them.
“One of the bigger issues potentially is minority participation and equity, which is a very important element for us to ensure that people who have been impacted will receive an opportunity to get into this market,” Thompson said. “But most importantly, we have changed the numbers of how much goes to the reinvestment fund, so we should see significant additional investment go to minority communities which have been impacted.”
And Susan Gaston, a lobbyist for the small-business network Purely Appalachia, said that the work to come to an agreement and eventual consensus achieved across all lines has been “very beneficial” to the overall issues.
“I know that our ladies and gentlemen in Southwest Virginia are as excited as to where we are, and we would not be here without the leadership of Delegate Krizek and Senator Rouse,” Gaston said.
However, some skeptics remain, among them Tom Intorcio, associate director with Virginia Catholic Conference, who expressed concern with the impact of widespread use of cannabis on mental health.
“We don’t have enough counselors, we are dealing with the aftermath of the pandemic, and this we believe would just compound the mental health crisis that is currently confronting the commonwealth. It’s a national security issue as well as a health issue,” Intorcio said.
And Todd Gathje of the Family Foundation of Virginia said that legalized cannabis retail would affect him and his family personally.
“We first legalized marijuana, and now we are planning to commercialize it and put a marijuana pot shop on every street corner,” Gathje said. “I have kids, and I don’t want them to be around this. It’s not fair to them, and it’s not fair to these ministries that are helping these men and women overcome these addictions to save their families and their lives. I see the direction this bill is heading, but I think we need to consider the long-term effects.”
Despite the hastened resolution of legislative differences among Democrats, it remains doubtful at this point that Gov. Glenn Youngkin will sign any cannabis legislation headed to his desk. But before that happens, the measure still has more hurdles to clear. On Friday, Krizek’s proposal, now identical to Rouse’s, will be weighed by the Senate Rehabilitation and Social Services Committee.