First Look: Virginia Passes Recreational Cannabis Legislation | Fox Rothschild LLP

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Virginia law passed House Bill 2312 on February 27, 2021, which included development, regulation, and enforcement provisions for the personal use of cannabis-containing products by individuals aged 21 and over. Legislation awaiting signature by Governor Ralph Northam also creates the Commonwealth’s Cannabis Control Agency, which will oversee the cannabis market starting May. The first sale of cannabis will be in 2024.

The law also provides for criminal justice reforms in relation to enumerated crimes related to the manufacture, distribution, or small-scale supply of marijuana. It empowers the agency to participate in the industry for individuals previously convicted or found criminals for a cannabis crime, as well as individuals from socially and economically disadvantaged communities.

The law provides for five classes of licensed marijuana companies:

  • Cultivator
  • Manufacturer
  • Wholesaler
  • Testing system
  • Retailers

Application process

The authority will set up an application process which, if possible, prevents different effects on historically disadvantaged communities. However, the law does not specify how the agency should achieve this. In other states, this has manifested itself as a points program where social justice applicants are given additional points or priorities based on their social justice status.

Recreational cannabis license applicants must post an application notice on the front door of the building or room where the business will be conducted for 30 days and publish it in a newspaper once a week for two consecutive weeks. The notice provides the public with an opportunity to raise concerns about the application with the agency. In addition, the agency will notify the local government of the jurisdiction in which the applicant will operate and give the local government 30 days to file an appeal.

License terms

The law prohibits people who own or are interested in more than one license category unless permitted by the authority. It defines “interest” as any interest in ownership, in whole or in part, or any other type of financial interest, including that of an investor or a person in a managerial position. For example, unless the agency enacts regulations on the matter, the law’s restrictions would prevent any investor in retailers from investing in wholesalers or manufacturing operations.

However, the agency will also have the ability to enable vertical integration between small businesses, medical marijuana manufacturers, and industrial hemp manufacturers.

Unlike recent government legalization measures, the law does not allow delivery services.

The pool of licensees is limited. The authority has the first word on the number of licenses that are allowed for the various classes. However, the number of licenses granted per class does not exceed the following limits:

  • Marijuana retail stores: 400
  • Marijuana Wholesalers: 25
  • Marijuana production facilities: 60
  • Marijuana grows: 450

The Commonwealth is also establishing a Cannabis Equity Business Loan Fund, under which qualified social justice cannabis licensees can obtain low-interest loans to promote business ownership and economic growth in communities whose proportionality is affected by the ban.

Fees, Penalties, and Taxes

The Commonwealth has a 21% excise tax (on top of sales tax) and local communities can apply an additional 3% excise tax. All license fees and penalties as well as tax revenues collected by the agency and deposited in the state treasury, as well as all funds raised by the agency minus all costs, expenses and fees approved under the law, are divided: 40% on preschool programs for at -Risk 3 and 4 years old; 30% to the Cannabis Equity Reinvestment Fund; 25% for substance use disorders as well as prevention and treatment programs; and 5% for public health programs.

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