First Look: Virginia Passes Recreational Cannabis Legislation

Fox Rothschild LLP

Fox Rothschild LLP

The Virginia Legislature, on February 27, 2021, passed House Bill 2312, containing development, regulation and enforcement provisions governing the personal use of products containing cannabis by individuals 21 and older. The legislation, which awaits the signature of Gov, Ralph Northam, also creates the Commonwealth’s Cannabis Control Authority, which will oversee the cannabis market starting in May, with the first sales of cannabis occurring in 2024.

The act also provides for criminal justice reforms with respect to enumerated offenses associated with manufacturing, distributing or dispensing smaller amounts of marijuana. It vests the authority with the power to participation in the industry by persons previously convicted of or adjudicated delinquent for any misdemeanor cannabis crime as well as individuals from socially and economically disadvantaged communities.

The act establishes five classes of licensed marijuana businesses:

  • Cultivator
  • Manufacturer
  • Wholesaler
  • Testing Facility
  • Retailer

Application Process

The authority will establish an application process that will, when possible, prevent disparate impacts on historically disadvantaged communities. However, the act does not specify how the authority should accomplish this. In other states, this has manifested as a points program in which social equity applicants are given additional points or priority based on their social equity status.

Applicants for recreational cannabis licenses will be required to post a notice of application on the front door of the building or room in which the business activity will take place for 30 days and to publish it in a newspaper once a week for two consecutive weeks. The notice will provide the public an opportunity to voice concerns to the authority about the application. In addition, the authority will notify the local government of the jurisdiction where the applicant will operate and give the local government 30 days to object.

Licensing Provisions

The act prohibits any person holding or having an interest in more than one category of license, unless permitted by the authority. It defines “interest” to include any complete or partial ownership interest in or any other type of financial interest, including that of an investor or person serving in a management position. Unless the authority promulgates regulations on this topic, the restrictions in the act would, for example, prevent any investor in retailers from investing in wholesale or manufacturing operations.

However, the authority will also have the ability to permit vertical integration among small businesses, medical marijuana manufacturers and industrial hemp manufacturers.

Unlike more recent state legalization measures, the act does not authorize delivery services.

The pool of licensees will be limited. The authority will have the initial say on the number of licenses permitted across the different classes, but the number of licenses issued per class will not exceed the following limits:

  • Retail marijuana stores: 400
  • Marijuana wholesalers: 25
  • Marijuana manufacturing facilities: 60
  • Marijuana cultivation facilities: 450

The Commonwealth is also creating a Cannabis Equity Business Loan Fund pursuant to which qualified social equity cannabis licensees can receive low-interest loans for promoting business ownership and economic growth in communities that have been disproportionality impacted by prohibition.

Fees, Penalties and Taxes

The commonwealth will collect a 21% excise tax (on top of any sales tax) and local municipalities may impose an additional 3% excise tax. All license fees and penalties and tax revenues collected by the authority and deposited into the treasury, and all moneys collected by the authority less all costs, expenses and charges authorized under the act, will be apportioned: 40% to pre-kindergarten programs for at-risk 3 and 4 year-olds; 30% to the Cannabis Equity Reinvestment Fund; 25% to substance use disorder and prevention and treatment programs; and 5% to public health programs.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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