Cannabis industry participants are keeping close tabs on a potential breakthrough in the Virginia recreational cannabis market. Virginia legalized adult-use recreational cannabis in 2021, but legislation that would have allowed sales of recreational cannabis died the following year when the General Assembly failed to reenact it. Since then, Virginians have been able to use marijuana recreationally, but have had no legal means to acquire it.

That hasn’t stopped Virginians from lighting up, of course; rather, this contradiction has encouraged abuse of the medical cannabis program, fueled illicit sales, and blocked the development of legitimate businesses. Meanwhile, even in states with legal recreational markets, cannabis businesses are hampered by the continued federal prohibition on cannabis.

There are three developments that prospective retailers in Virginia should be watching closely:

1. Democrats in the General Assembly are working on legislation to open a recreational cannabis market. The bill, SB448, would allow businesses to apply for licenses in September 2024 and allow sales beginning on May 1, 2025. The bill would allow up to 350 retail cannabis stores and 100 cannabis processing facilities. Sales would be subject to a 9% retail tax (4.5% local and 4.5% state). Don’t celebrate yet, however. Gov. Youngkin has stated that he is not interested in creating a recreational market. Unless the General Assembly can muster a veto-proof majority on this issue, prospective retailers’ hopes may be dashed yet again.
2. The U.S. Department of Health and Human Services (HHS) has recommended to the U.S. Drug Enforcement Administration (DEA) that cannabis be reclassified under Controlled Substances Act from a Schedule I drug to a Schedule III drug. Cannabis’s current status as a Schedule I drug, a classification that includes heroin and LSD, means that the substance has a high potential for abuse and no accepted medical use. In contrast, Schedule III substances (e.g., Tylenol with codeine, ketamine, anabolic steroids, testosterone) have a moderate to low potential for physical and psychological dependence. Although rescheduling would not equate to federal legalization of marijuana, it would have a significant impact for cannabis businesses that are legal under state laws. For starters, such businesses would be able to significantly lower their tax bills by taking deductions that are currently barred by IRC § 280E. Rescheduling would also open the door to scientific research on cannabis, which is currently restricted.
3. The SAFER Banking Act (S.2860) is winding its way through Congress yet again. We’ve been disappointed repeatedly by this law’s failure to pass. Could this be the year it finally breaks through, allowing cannabis businesses legal under state law to have full access to the banking system?

WRVB continues to monitor industry developments and will be poised to assist businesses when and if Virginia opens a recreational market.