Virginia took a step closer to a recreational marijuana market Thursday with the establishment of the Virginia Cannabis Control Authority, which will set up and regulate the budding industry.
Today also marked the legalization of possession and personal cultivation of marijuana in the commonwealth, while legal sales of the plant are slated to begin Jan. 1, 2024.
The law, which passed through the General Assembly earlier this year, also provides the framework for the state’s marijuana industry and spells out the powers of the authority’s board of directors.
In broad strokes, the authority will establish regulations, issue licenses and carry out a social equity plan for the industry. Gov. Ralph Northam’s picks for the board and authority’s CEO hadn’t been named yet as of Wednesday afternoon.
The authority’s board is empowered to grant, suspend and revoke licenses needed by businesses to operate as cogs in the larger machine that will be the recreational marijuana industry.
It’s expected that it will be possible to apply for a marijuana business license in 2023. The finer details of the licensing process haven’t been established yet.
There could be as many as 400 retail licenses, 450 cultivation licenses, 60 manufacturing licenses and 25 wholesale licenses statewide, though the board will determine the actual number of licenses in play for each category, said Sen. Adam Ebbin, a chief patron of the Senate’s version of the legalization bill.
“I think the General Assembly is open to meeting the demand, but for a start we thought a limit made sense,” Ebbin said. “This will be a new industry and we wanted to do all we can to make it right.”
The board is allowed to refuse licenses to entities that sell, manufacture or distribute alcohol or tobacco. Retailers will be required to sell their marijuana and related products through in-person, face-to-face transactions.
The board will also set limits on the square footage of marijuana retail spots, which are prohibited by legislation from being larger than 1,500 square feet. It will also establish the criteria that will be used to weigh approval of new licenses based on the density of existing marijuana stores in an area.
The board will also hash out requirements related to advertising and the security of facilities involved in the industry. The board is tasked with creation of a seed-to-sale tracking system, and legislation doesn’t allow interstate movement of marijuana and marijuana products.
In most cases, people won’t be able to have a financial interest in more than one license. However, holders of pharmaceutical processor or industrial hemp processor licenses can have licenses in more than one category if they pay a $1 million fee.
The legislation also establishes several efforts aimed at creating a level playing field for people previously convicted of marijuana violations, including an equity and diversity team at the authority intended to offer business guidance to qualified applicants. The legislation also creates a program to offer loans to licensees who qualify.
Between how the authority develops regulations within the legal framework and the potential for lawmakers to further tweak that framework, there’s still some growing to be done before the first legal recreational marijuana transaction takes place in the state.
In early June, the Joint Legislative Audit & Review Commission, a state watchdog agency, briefed lawmakers on further changes to the legislation intended to better cultivate competition in the market.
As things stand, licensed medical marijuana operators could choose to sell recreational products at all six of their retail spots (five dispensaries along with a dispensary at the growing and production facility), which JLARC suggested would provide an unfair advantage, and prescribed limiting those operators to up to three recreational marijuana dispensaries.
“Given that these businesses would have a competitive advantage from being vertically integrated, we proposed limiting them to half that number,” JLARC chief legislative analyst Mark Gribbin said.
JLARC also identified what it considered a loophole that would allow vertical integration more readily than intended due to rules on industrial hemp processors.
Any business can sign up to be a hemp processor with a $200 fee and some paperwork, as it is a registration rather than licensing process. There also isn’t a cap on hemp processors. As a hemp processor can pay the fee to shed marijuana licensing caps, there’s a pathway to vertical integration there, Gribbin said.
“We saw there might be some unintended consequences here that could undermine what the law is trying to achieve,” Gribbin said. “We think this might create a loophole around the caps and vertical integration restrictions.”
Gribbin also noted the legislation creates two types of cultivation licenses, one for marijuana and one for hemp. Currently, both types count toward the 450-license ceiling, so hemp growers could crowd out marijuana cultivation by taking up licenses.
The suggested fix was separate limits for each type. Gribbin also floated the idea that the authority be allowed to create subclasses within the license categories, such as specializations for edibles manufacturing or size of cultivators.
The timeline on market rollout could potentially use a tweak, in JLARC’s view.
As things are, the authority is scheduled to establish regulations and start to accept license applications six months before sales are legalized on Jan. 1, 2024.
Gribbin suggested that’s too short a time for businesses to get their ducks in a row, and pitched Jan. 1, 2023, as the new date for regulations to be hashed out and the application window opened, giving folks a year before sales are legal.
“I should note that there is no requirement for anyone to actually start selling marijuana in January of 2024, that’s just when the law allows it to happen,” Gribbin said. “However, there’s likely to be a lot of public expectation for the market to open at that time and, if most of the shelves are empty come January, it could be harder for the legal market (to compete) against an already entrenched illegal market.”
JLARC also had some ideas regarding the law’s equity efforts.
The legislation as written allows people to qualify for social equity status if they are any one of the following: a person convicted of a marijuana offense, a family member of a person convicted of a marijuana offense, a person who resides in an economically distressed area or high marijuana law enforcement area or a graduate of a historically Black college or university in Virginia.
Gribbin suggested family members of people convicted of marijuana offenses be removed from the list, in part to narrow the field of applicants down to people more directly affected by convictions.