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Advocates warn of weed ‘oligopoly’ as Virginia looks to speed up sales

box store
gLeaf's retail store in Short Pump. (Photo: Crixell Matthews/VPM News)

A year after lawmakers legalized recreational marijuana use, Virginia cannabis connoisseurs have limited means to get legal weed. They can grow it, get it for free from a friend or get a medical license to buy it from three multi-state cannabis companies that operate a handful of dispensaries.

Lawmakers are advancing legislation that would allow those dispensaries to sell directly to all adults for a year or so before allowing other businesses into the market. But critics ranging from the Minority Cannabis Business Association to the libertarian-leaning Americans for Prosperity warn that Virginia is giving big operators a blank check. Smaller entrepreneurs who’ve borne the brunt of the war on drugs would be at a disadvantage right out of the gate, according to racial justice groups like Marijuana Justice.

“We want to make sure that if we're going to open a new marketplace, there isn't a situation where we're having the state pick winners and losers,” says Jacob Fish, deputy state director for AFP.

Three companies currently control the entirety of Virginia’s medical marijuana market: Jushi, Columbia Care and Green Thumb. Serious money is on the table once the state opens up the market to all adults; one Columbia Care estimate puts the potential market at up to $3 billion a year by 2026. The companies operate in a number of other states but are especially bullish about the commonwealth given its current licensing scheme.

“We view Virginia as one of the best licenses in cannabis,” Jim Cacioppo, the CEO of Jushi, told Forbes in November, citing his company’s monopoly over sales in Northern Virginia. “When you go adult-use, sales could triple overnight.”

The companies, alongside some lawmakers and advocates, say the plan to give them a head start addresses an urgent need to satiate demand. They warn of encouraging a black market that predates July 1, 2021, when Virginia became the first state in the South to legalize adult possession of marijuana for personal use.

Bills in the House and Senate, introduced by both Democrats and Republicans, would allow the companies to begin selling marijuana to all adults as early as July 1 or as late as Jan. 1, 2023. The proposals would require the companies to pay the state between $1 and $6 million for the ability to sell early, at least a year before state regulators award hundreds of licenses to others. They point out most other states stood up their recreational marijuana market the same way to give customers a way to get highly regulated, heavily tested cannabis.

“This is very much a public safety and consumer safety issue,” Jenn Michelle Pedini, executive director of Virginia NORML, told a Senate committee last week. Allowing medical marijuana dispensaries to sell “is the quickest way to onboard consumers to a regulated space and away from illicit transactions.”

It’s still unclear exactly how marijuana legislation will play out in Virginia’s divided General Assembly. Leaders from both parties have expressed an interest in speeding up the timeline of retail sales to address the black market. Days after the November election, Speaker of the House Todd Gilbert (R-Shenandoah) said his new majority had been handed a “live grenade” on marijuana and vowed to patch the threat he saw posed by the illicit market.

But while the Senate has advanced several marijuana bills, the House has yet to act. Garren Shipley, a spokesperson for Gilbert, signaled a possible change in direction on Wednesday.

“The last conversation I had with members of the caucus about this was that they were going to shift their focus to enforcement of the laws that are already in place,” Shipley said. “Remember, there’s a re-enactment clause on the retail sales/regulatory part. So if it is not re-enacted this year, it does not exist.”

Amber Littlejohn, executive director of MCBA, says there is little evidence that allowing the dispensaries to access a broader retail market would fix the problems backers claim. She pointed to California, where, over five years after voters legalized recreational use of marijuana, the black market is estimated to still make up the vast majority of cannabis sales. And she cast doubt on whether the monopoly would last for only one year. Three years after Illinois legalized adult-use marijuana, medical processors have posted strong revenues while companies licensed under the state’s “social equity” program have yet to open because of lawsuits.

Littlejohn says there’s an especially strong argument for Virginia lawmakers to consider how to empower minority business owners given “the state was built on slave labor from the last smokeable product that was rolled out.”

“If you believe in an oligopoly, you are not believing in equity,” Littlejohn says.

Hemp companies are also trying to get a slice of the stopgap market but were written out of a bill from Sen. Adam Ebbin (D-Alexandria). The move sparked outcry from lobbyists for hemp producers.

Dan Sumner, an agricultural economist at the University of California-Davis who has studied cannabis markets, says increasing competition is the best way to try to compete effectively with an untaxed, unregulated black market. He pointed to the example of Oklahoma, where state officials have licensed more than 12,000 marijuana-related businesses, according to NBC News.

“Assigning certain companies monopoly rights is not the way to ensure vigorous competition and low prices,” Sumner says. “Put the pressure on the illegal guys by throwing open the gates to lots and lots of competition.”

marijuana plants
gLeaf's marijuana production facility in Manchester. (Photo: Alex Scribner/VPM News)

Regional monopolies


The origins of Virginia's unusually restrictive marijuana market date back to 2017-2018, when Republicans controlled both chambers of the state legislature. Lawmakers carved up the state into five regions to service what was originally envisioned as a way for patients with epilepsy to access cannabidiol (CBD) or THC-A oil, though the program was greatly expanded in subsequent years. The awarding of those licenses sparked several unsuccessful lawsuits, with some losers protesting a lack of transparency.

One of the licensees, for the rights to a service area centered in Staunton, has been caught in a lawsuit that has yet to be resolved. The four remaining service areas are up and running. They all grow, process and sell medical marijuana, a process known as “vertical integration.”

It’s a system that’s worked well for the trio of companies in the medical business.

Erich Mauff, founder of Jushi, which has a hold over the Northern Virginia medical market, described Virginia as “nothing but a home run” in a 2020 interview with Marijuana Business Daily. Jushi executives have noted that five of the wealthiest neighborhoods in Virginia lie within the boundaries of its medical monopoly. The company sent contributions to more lawmakers than any other single donor ahead of this year’s legislative session, according to an analysis from the Virginia Public Access Project.

Columbia Care has monopolies in two of Virginia’s four operational regional markets, part of its broader footprint in 17 states, Washington, D.C. and the EU. CEO Nicholas Vita said the dispensaries in Richmond (where it operates under the name gLeaf) and Portsmouth set sales records for any dispensary in the history of the company on the first day they sold smokable marijuana flower in September.

“That’s a very big deal,” Vita said in an interview with the New Bedford Guide that month. “That’s an indication of how strong the patient demand is there.”

Still, it’s really the illicit market that has the ultimate head start, argues Ngiste Abebe, Columbia Care’s vice president of public policy who also sits on Virginia’s Cannabis Control Authority. Allowing medical operators to sell won’t eliminate that market, but it will help make a dent against illegal operators, who don’t pay taxes and are unlikely to cover their employees’ health care. Lawmakers might also bake in “canopy limits” restricting the number of plants that operators can grow.

“You don't get to snap your fingers and suddenly turn on an entire industry,” Abebe says. “You can't roll out a social equity program in a single day. And so other states have used their medical programs to help assist in that transition.”

Marijuana plant
Marijuana plants at gLeaf's production facility in Manchester. (Photo: Alex Scribner/VPM News)

Equity


The war on drugs took a heavy toll on Black and brown communities across the U.S. In Virginia, a 2019 state report found Black individuals were three and a half times more likely to be arrested on marijuana charges and four times more likely to be convicted from 2010 to 2019. That trend persisted even after lawmakers decriminalized marijuana in 2020.

The existing medical marijuana operators all say they’re committed to diversifying a marijuana industry whose leaders so far skew heavily white and male. In other states, large operators have offered smaller entrepreneurs training and capital to get off the ground, saying there’s more than enough business to go around. They’ve also steered money and support to criminal justice reform groups. Columbia Care, for example, stocks strains from so-called social equity producers – often people of color from communities impacted by the war on drugs, and says it supports "an expanded, more diverse, more impactful cannabis community in Virginia."

Racial equity advocates are skeptical that those efforts make a dent. In a report published Thursday, the Minority Cannabis Business Association argues that states and operators across the U.S. have failed to live up to their rhetoric around promoting equity. That’s in part because states have repeatedly given multi-state medical operators a head start, few of which are run by people of color.

“Creating these limited markets is very much a business model,” Littlejohn says. “And the failure of many of these social equity programs is by design.”

Littlejohn has proposed a couple alternatives she says have yet to find traction. Lawmakers could require Virginia’s big three medical players to work with a smaller, minority-owned business partner to sell during the transition period; one current bill requires they incubate five qualified social equity retailers that would open later. Or Littlejohn says, lawmakers could simply start all sales at the same time, waiting until state regulators have finalized the rules surrounding legal marijuana sales and built out their staff.

The debate over the temporary marijuana sales is part of a larger fight over equity provisions Democrats passed last year. Their plan, which has already been revised this year, calls for taxing marijuana sales at 21% and directing 30% of those revenues toward programs in communities hit hardest by the war on drugs. A set amount of licenses would be set aside for “social equity applicants,” including people who live in communities that are economically disadvantaged or that have disproportionately been policed for marijuana crimes.

Legislation introduced by Del. Michael Webert (R-Marshall), the main proposal under consideration in the GOP-controlled House of Delegates, would cut the state tax on cannabis sales to 10% and send the revenues toward repairing or replacing the roofs of public elementary and secondary school buildings. Republicans have also balked at provisions that would allow people previously convicted of felonies into a special pool of social equity licenses.

Webert’s bill has yet to be docketed for a hearing – a signal of the difficult path ahead for marijuana legislation in the divided legislature.

Editor's note: This article has been updated to clarify Littlejohn's views on requiring existing operators to partner with minority entrepreneurs. We've also added comment from Columbia Care noting the company supports adding more licenses to diversify the industry.