Recent Changes to Virginia’s Cannabis Sales Legislation May Disrupt Previous Agreement Between House and Senate

Advocates for the establishment of a regulated retail cannabis marketplace within the Commonwealth of Virginia are facing a critical juncture. This urgency arose from a decision by a Senate committee on a recent Tuesday to incorporate several amendments into the legislation that is designed to bring this market into being. The legislative amendments introduced have shifted the House-approved proposal away from a previously reached consensus, a development that threatens to propel the issue toward a joint conference committee. This committee is tasked with addressing the recent disparities that have arisen between the two legislative chambers.

In an attempt to avert the necessity of convening such a conference, members of the legislature are diligently working to align the bill with its version that was approved by the Senate and is currently awaiting action in the House of Representatives.

The House of Representatives, on its end, has chosen to temporarily suspend its review of the Senate’s proposition for establishing legal sales, specifically SB 448, which was authored by Senator Aaron Rouse (D). This legislation had garnered initial support within the chamber on a Monday and was scheduled for a final third reading on the subsequent Tuesday afternoon. Nevertheless, considering the amendments made by the Senate, the House opted to postpone its consideration of the bill at the behest of Delegate Paul Krizek (D).

Delegate Krizek, who champions another separate bill concerning retail cannabis sales, HB 698, expressed his strategy to provide additional time to avoid a conference committee. He indicated that reaching a mutual agreement swiftly could allow for amendments to be introduced directly on the legislative floor the next day, with the Senate prepared to make corresponding adjustments.

The Senate Finance and Appropriations subcommittee, followed by the full committee, introduced changes to HB 698, specifically targeting the proposed taxation rate on cannabis sales and the distribution of licensing fees. The committee decided to increase the initially agreed-upon tax rate of 9 percent to just over 17 percent, a figure that echoes the rate proposed in Senator Rouse’s original bill before reaching the compromise. Additionally, the allocation of licensing fees intended to support an equity-focused microbusiness initiative was altered; rather than dedicating 100 percent of these fees to the program, it was revised to allocate only 75 percent, with the remainder directed towards the Cannabis Control Authority responsible for industry regulation.

Senator Rouse, the initiator of SB 448, has remained silent on the adjustments made to Delegate Krizek’s legislation. His absence from the Senate committee meetings that Tuesday morning was noted, and there was no immediate response to inquiries regarding his stance on the revisions.

Despite this, a statement issued by Senator Rouse’s office before these legislative changes reflected a positive view of the compromise that had been reached. He articulated a belief that the bill represented an optimal approach for Virginia to regulate its current illicit market, enhance tax revenues, stimulate employment, and address emerging public health issues associated with the unregulated market. He reaffirmed his commitment to continuous collaboration with stakeholders, legislative colleagues, and the administration as they progress toward the bill’s final passage. This ongoing dialogue and effort to navigate the complexities of introducing a legal retail cannabis market highlight the intricate balance between regulatory objectives, fiscal considerations, and the broader goals of social equity and public health.

Numerous proponents have indicated their openness to the newly proposed modifications, underscoring their eagerness for a prompt legislative conclusion that would enable a comprehensive bill to be submitted to the governor’s office.

Chelsea Higgs Wise, serving as the Executive Director of Marihuana Justice, has put forward a proposition for the Commonwealth of Virginia to develop a robust, competitive marketplace capable of retaining consumers who may otherwise be enticed by Maryland’s more appealing pricing and accessibility. She remarked, “We welcome a graduated tax strategy, initiating with lower levies and incrementally increasing, in anticipation that continued dialogues will result in a legislative consensus that garners the endorsement of both legislative chambers, thereby expediting the presentation of a bill to the governor.”

Jason Blanchette, holding the position of President at the Virginia Cannabis Association, has voiced criticism regarding the suggested 17.125 percent tax rate, deeming it unduly burdensome. “Our objective is to secure a tax imposition not exceeding 12 percent, ideally,” he shared, expressing an optimistic yet wary stance: “The notion that discord over tax rates among the legislative entities might jeopardize this bill is indeed surprising.”

JM Pedini, the Development Director for NORML and the Executive Director of its Virginia branch has expressed a preference for the previously settled upon lower tax rate. “Maintaining the tax rate at the earlier agreed-upon nine percent is a more prudent approach,” Pedini noted, “It is imperative to offer competitive pricing to facilitate consumers’ shift to the legal marketplace.”

Notwithstanding the introduction of these amendments, the fundamental aspects of the two legislative drafts remain substantially aligned with the stipulations of the recent agreement, demonstrating an ongoing commitment to the establishment of a legal cannabis market within Virginia.

Here are the outcomes and provisions of the compromise bill, should the legislation be enacted into law:

Retail sales commencement would be deferred until May 1, 2025, which represents a delay beyond the anticipated March start date mentioned in the revised legislation, and even further from the January 1 commencement date proposed in the earlier versions passed by the House and Senate.

• The legislation permits adults to acquire up to 2.5 ounces of cannabis per transaction, or an equivalent quantity of other cannabis derivatives as stipulated by regulatory authorities.
• A statewide tax of 4.5 percent would be imposed on all cannabis product retail sales, with the provision for local municipalities to introduce an additional levy of up to 4.5 percent. It is noted that subsequent adjustments have increased HB 698’s tax rate to 17.125 percent.
• The Virginia Cannabis Control Authority is designated to manage the licensing and regulatory oversight of the emerging industry, with its board of directors authorized to regulate the possession, sale, transport, distribution, delivery, and testing of cannabis products.
• Municipal governments may prohibit cannabis establishments within their jurisdictions, contingent upon the approval of such a measure through a voter referendum.
• Regulations stipulate that cannabis retail outlets must not be located within 1,000 feet of another such retailer.
• Cannabis cultivation oversight will be based on the canopy size allocated for growth, rather than the specific number of plants cultivated.
• The legislation allows for both indoor and outdoor cultivation of cannabis, with the stipulation that only lower-tier cultivators, subjected to smaller canopy size restrictions, may grow plants outdoors. Larger cultivation operations are required to conduct their growing activities indoors, with secure greenhouses qualifying as acceptable indoor cultivation environments.
• Transactions must be conducted directly and face-to-face, with the legislation expressly prohibiting alternate transaction methods such as vending machines, drive-through services, internet-based sales platforms, and delivery services.
• Existing medical cannabis providers transitioning to the adult-use market may apply for up to five additional retail licenses, which must be located at their currently licensed facilities.
• The legislation mandates that serving sizes for THC content be limited to 10 milligrams per serving, with a maximum of 100 milligrams of THC per package.
• A restriction is placed on individuals, prohibiting the ownership or control of more than five licenses in total, excluding transporter licenses.
• Individuals with felony convictions or convictions for crimes involving moral turpitude within the previous seven years, as well as employees of law enforcement agencies responsible for penal, traffic, or motor vehicle law enforcement, are deemed ineligible for licensing.
• A microbusiness program centered on equity has been launched, designed to grant licenses to businesses that are at least two-thirds owned and actively managed by qualified candidates. This includes people with previous misdemeanors related to cannabis, family members of individuals with past convictions, military veterans, inhabitants of historically underprivileged communities, and those who have been awarded federal Pell grants or have attended schools with at least 30 percent of students qualifying for Pell grants.
• The term “historically economically disadvantaged community” is defined as a region with recorded cannabis possession offenses at or above 150 percent of the state average between 2009 and 2019.
• Adults are permitted to share up to 2.5 ounces of cannabis with other adults without financial compensation, although the practice of “gifting” cannabis as part of another transaction is subject to criminal penalties.
• The legislation introduces a range of new criminal penalties, including sanctions for selling or distributing cannabis or related paraphernalia to individuals under the age of 21, selling cannabis to those suspected of intoxication, and advertising cannabis paraphernalia to minors.
• Illegal cultivation or production of cannabis, outside of legally sanctioned home growing, is classified as a Class 6 felony, with penalties including imprisonment and fines.
• Homegrown cannabis may be processed into products such as edibles, with the caveat that the use of butane extraction or other volatile solvents is punishable as a misdemeanor.

Virginia’s Cannabis Legislation: Progress and Uncertainty

In the latter part of the previous week, the legislative body saw significant progress regarding the contentious issue of cannabis regulation. A compromise piece of legislation successfully navigated through the intricate legislative process, securing approval from both a dedicated Senate committee and a corresponding panel within the House. This progression signaled a critical juncture in the continuing discussion about the legalization of cannabis, underscoring the collaborative endeavor of legislators to find common ground on this intricate matter.

Despite these legislative advancements, the ultimate fate of the cannabis legalization bill remains uncertain, contingent upon the approval of Governor Glenn Youngkin, a Republican. Governor Youngkin’s stance on cannabis legalization has been characterized by ambiguity and seemingly contradictory statements. Although he has refrained from categorically stating his intention to veto any bill about the retail sale of cannabis, his comments in the preceding month suggested a lack of enthusiasm for adopting the proposals put forth by Democratic legislators. This reticence has cast a shadow of doubt over the potential enactment of cannabis legalization under his governance.

Contrastingly, upon assuming office, Governor Youngkin’s initial remarks painted a somewhat different picture. He expressed an openness to the idea of permitting commercial cannabis sales, indicating a potential willingness to engage with the concept of legalization more broadly. This nuanced position underscores the complexity of the governor’s perspective on cannabis policy, reflecting a careful consideration of the various facets of this issue.

The legal landscape of cannabis in Virginia has undergone significant changes in recent years. Following a proposal spearheaded by Democrats, the use, possession, and limited cultivation of cannabis by adults were legalized in 2021, marking a historic shift in the state’s approach to cannabis regulation. However, the subsequent ascension of Republicans to the majority in the House and the governor’s office heralded a period of legislative inertia regarding the establishment of a regulatory framework for retail sales of cannabis. This legislative stalemate has inadvertently fueled the proliferation of illicit cannabis outlets, which have emerged to satisfy the persistent demand from consumers.

The political dynamics within Virginia experienced another transformation following the elections last year, with Democrats regaining control over both chambers of the legislature. This shift in power dynamics reinvigorated the debate on cannabis sales, culminating in the advancement of a sales bill through the Senate, which is under Democratic control. However, despite this progress, the bill encountered obstacles in the House, failing to move beyond the committee stage, a reflection of the prevailing partisan divides at the time, dominated by a Republican majority.

In a related development earlier this week, Virginia’s lawmakers took a significant step toward addressing the employment rights of public sector workers about medical cannabis. A bill aimed at safeguarding government officials and educators from termination due to medical cannabis use received legislative approval, thereby advancing to Governor Youngkin’s desk for consideration. This legislative initiative represents a broader effort to integrate cannabis policy within the framework of employment rights, highlighting the evolving discourse on cannabis within the state of Virginia.