UPDATE: Virginia House Passes Bill to Legalize Adult-Use Cannabis Sales

UPDATE: The Virginia Senate voted, 21-18, on Feb. 13 to approve competing legislation to legalize adult-use cannabis sales, sending it to the House of Delegates. Lawmakers from the two chambers will have to reconcile their differences before potentially sending legislation to Republican Gov. Glenn Youngkin's desk.

Nearly three years after Virginia Democrats shot themselves in the foot by legalizing adult-use cannabis without including a concrete provision for commercial sales, a new wave of lawmakers are attempting to tie up the loose ends.

The Virginia House of Delegates initially approved legislation Feb. 9 via a voice vote to create the framework necessary for an adult-use cannabis marketplace so that sales can commence on Jan. 1, 2025. The delegates then passed a third and final reading of legislation, House Bill 698, with a 52-48 vote on Feb. 12, sending it over to the Senate.

Specifically, H.B. 698 would allow 60 microbusinesses to start cultivating adult-use cannabis on July 1, 2024, in preparation for the sales launch. In order to qualify as a microbusiness license applicant, a company must be 66% owned and controlled by a person who meets the state’s social equity criteria, according to the bill.

Initially, the 60 microbusinesses along with the state’s five existing medical operators and five vertically integrated hemp processors would be allowed to participate in the retail launch, as written in the bill.

While there are supposed to be five medical cannabis operators in Virginia, in reality there are only three companies serving the state’s qualified patients: Green Thumb Industries, Jushi Holdings and The Cannabist Co. (formerly Columbia Care), which operates two licenses following its 2021 acquisitionof Green Leaf Medical. The fifth license, awarded to PharmaCann and acquired by MedMen, was rescinded and held up in a lawsuit.

Nonetheless, the existing medical licensees would only be allowed to transition to the adult-use marketplace if they pay a one-time fee of $2.4 million, which will be distributed as unrestricted grants of $400,000 to each of six microbusinesses to help those businesses “get established” through an accelerator program.

Six months after the initial sales launch, additional businesses would be allowed to enter the retail market, bill sponsor Del. Paul Krizek, D-Fairfax, explained on the House floor last Friday.

“This bill will create a new regulatory scheme for a multibillion-dollar industry, which is a complex undertaking,” he said. “We only get one shot at rolling out a retail market in an orderly fashion, and we have to get it right. For that reason, this bill establishes a realistic starting date and increases the number of licensees incrementally.”

The House’s movement on legalizing adult-use cannabis sales comes after former Democratic Gov. Ralph Northam signed legislation in April 2021 that allowed adults 21 and older to possess up to 1 ounce of cannabis and grow up to four plants per household starting on July 1 of that year. But Democrats who controlled the General Assembly that legislative session wrote a reenactment clause into the legislation that forced lawmakers to come back to the table the following year to vote on allowing a commercial market to launch.

The problem? Republicans took control of the Virginia House and governorship in 2022, and the reenactment never unfolded—leaving the Old Dominion as a possession-only state ever since.

While Republican Gov. Glenn Youngkin, who hasn’t offered much optimism nor interest for cannabis reform since taking office, still heads the state’s executive branch, Democrats reclaimed a slim majority in the House to kick off 2024 and have wasted no time going back to the cannabis drawing board.

In addition to a timeline for launching a commercial adult-use marketplace, the legislation allows for “small retailers” to receive expedited consideration for a dispensary license from the Virginia Cannabis Control Authority, which will oversee the marketplace.

H.B. 698 also calls for a 9% cannabis excise tax that would allow for “legal cannabis to effectively compete with the illegal market,” Krizek said.

That excise rate, one of the lowest among 24 adult-use states in the nation, mirrors neighboring Maryland, where adult-use sales launched July 1, 2023. In their first six months, Maryland’s adult-use dispensaries reported $331.8 million in sales, contributing roughly $30 million in state revenue from the excise tax.

Virginia’s H.B. 698 also allows for local municipalities to opt-out from allowing adult-use cannabis establishments to operate within their jurisdictions and also includes safeguards to prevent monopolization, Krizek said.

“It’s time for this state’s $3 billion illegal cannabis market to have competition from a safe, tested and taxed product,” he said. “I recognize there’s many aspects of this bill that you might not be comfortable with, but I’m committed to working with you and everybody in this body to find a bipartisan bill as we continue to work on this complicated topic.”

While H.B. 698 passed the House, a competing bill in upper chamber, Senate Bill 448, was approved via a 9-5 vote Feb. 8 in the Finance and Appropriations Committee and arrived on the Senate floor Feb. 12 to receive initial approval via a voice vote. A third and final reading of legislation will likely be voted on later this week.

Sponsored by Sen. Aaron Rouse, D-Virginia Beach, S.B. 448 also aims to establish a commercialized adult-use marketplace that follows the same timeline as H.B. 698 to launch sales. However, the Senate’s version does not provide for microbusinesses nor special license considerations for various companies or individuals, among other differences.

Should the Senate pass its respective bill, a joint committee with members from each body would have to solve disagreements before sending a final version to the governor for consideration.