Episode 54: How can Virginia legalize cannabis the right way? (2022 edition)
"Legalize weed" is an easy slogan, but the devil is in the details if we want to do that fairly. Can we set up the market to benefit Virginians and small businesses, not just a few corporate owners? Can we repair and do right after decades of unfairly enforced drug laws? In 2022, those conversations are as pressing as ever... especially since a newly elected Republican majority seems set on rolling back equity measures.
Machine-generated transcript. Blame the AI for any errors.
Nathan Moore 0:00
This is Bold Dominon, an explainer for state politics and changing Virginia. I'm Nathan Moore. So you've been enjoying some legal marijuana this year? Maybe started a new gardening project? You don't actually have to answer that. But it is pretty remarkable. Virginia legalized cannabis last year. And that we're on track to set up a new cannabis marketplace that considers social equity. After all, legalize weed is an easy slogan, but the devil's in the details if we want to do that fairly. Should past weed convictions be expunged? Should growers and sellers in the informal cannabis market get a leg up in this new formal market? Can we set up the market to benefit Virginians and small businesses... Not just a few corporate owners from Big Weed? A little over a year ago here on Bold Dominon. We asked those questions. And then Virginia Democrats passed a bill during the 2021 General Assembly session that did some things right.
Paul Seaborn 0:57
But time has passed. And we've now had 15 1617 states go down this path of legalizing for adult use. And so I think rightly so. There's a lot more expectation that any state that legalizes will consider social equity.
Nathan Moore 1:12
That's Paul Seaborn. He's an assistant professor at the McIntyre School of Commerce at the University of Virginia. Later in the show, we'll hear more from him about how legislation in this General Assembly session could affect the market structure for cannabis. But first, we turned to marijuana Justice Executive Director Chelsea Higgs Wise, she says there's a lot that Virginia got right and its legalization bill last year. But this year, the conversation needs to return to social equity and criminal justice reform, especially since a newly elected Republican majority seems dead set on rolling back those equity measures.
So last July, possession of marijuana was legalized for people in Virginia over 21. What was in that legislation that Democrats passed to make it happen?
Chelsea Higgs Wise 2:05
Well, you know, we passed a bill that at the very last moment was decided to legalize the possession, we had to remember that initially, the proposals were to legalize the sale and the possession in the same time in 2024. And it was really criminal justice advocates like myself and our coalition members, Justice Ford, Virginia rise for you, the Virginia student power network, and ACLU, Virginia that came through and said, Hey, if you want to legalize it right, then you have to start the harm right now. So you could possess up to one ounce on your person in public not using it. And you can even smell like it so because now the ability for law enforcement to search see stop you because the smell was also banned. We were able to grow to four plants in your house, not per person per house. And you could share marijuana in your private space with 21 and up year olds up to up to an ounce. And but there was no selling right there. You cannot necessarily purchase adult used cannabis anywhere unless you had that medicinal piece, which is under another type of oversight. So that's really what went into effect right away. And there is also some language, again, about just starting and building the cannabis control authority that would regulate the adult use market that was coming. So they did start building that appointing people there. And underneath that cannabis control authority, we were really excited to see the cannabis equity Reinvestment Fund and the board that was created. That fund really is going to redirect 30% of the cannabis revenue that the state collects, and to a fund that is specifically targeting to reinvest in the individuals and the people that were directly impacted by the drug war that we know. Also a big part of the bill that was equity approaches is sealing records last year that did happen continuing to seal marijuana misdemeanors, that puresole offenses.
Nathan Moore 4:09
Let's let's break it out just a little bit and talk about the the basics of repeal which happened relatively quickly. But obviously, I guess what I'm hearing is that it takes longer.
Chelsea Higgs Wise 4:19
So Jay Clark did a study in 2020 that came out in November that said if we take our time to create a cannabis control authority, a new institution rather than legalizing the and regulating legal cannabis under ABC that's already stood up. They said that it would produce a more equitable market a more inclusive workplace and more inclusive policies. And that will take time and in creating the licenses particularly for social equity operators that was also passed in the bill takes time. So yeah, we saw the slow rollout to stop the harm now but what they said last April was let's let's stop and take our time. and legalize it and 2024 for sales.
Nathan Moore 5:03
So you say that last April. And obviously some big things have happened since last April, in terms of political control of the state now we've got Republican governor Glen Younkin, and Republican majority in the House of Delegates. So what's good, both of those things threatened some of the provisions, you're talking about what's going on in the General Assembly right now.
Chelsea Higgs Wise 5:23
I will say that the house now being Republican LED and the administration, they're being very quiet about what they want with cannabis. And it seems like well, they actually even said on record to Mellon or from RTD, that they are waiting to see what the Democrats do with this new proposal. And what it looks like the Democrats are doing on the Senate side is that they are proposing new crimes, number one New misdemeanor and a new felony possession crime. Number two, we are really excited to see some cleaning up of the sealed records, and also some education about the difference between sealed records and expungement. And what some people are calling automatic expungement, which is really sealing and so we're getting some Clean Language on that. But I do think that's a good thing. We're also looking at some resentencing language, because last year, what you didn't hear me say happen was that we re sentenced people's time that are still incarcerated. So if you had a sole marijuana offense, or say you were in there for another offense, but your sentence was enhanced, because you also have a marijuana offense, then what we say is that you deserve a new hearing and a new sentence because of the new laws. You know, we are still having those conversations. It sounds like what is happening in the Senate is that they will allow hearings for people that have sold marijuana crimes. But for anyone else that is sentenced with a different most serious offense. That is not cannabis, though, something else, they would have to petition the parole board for a new sentence. I don't know if anyone remembered one of the first things the new governor did was come in and switch out the parole board.
Nathan Moore 7:05
So in the legislation that passed already, there are some provisions for either expungement and some provisions for appealing for resentencing. Just bullet point clarify for me, the current state of that, and then what could happen now,
Chelsea Higgs Wise 7:22
as far as the the sealing records, I want to be very clear that the only thing that has been sealed right now are misdemeanors, y'all. So anybody for a felony, whether it's marijuana or anything else, have to go through what we just passed last year, which is you have to wait seven years, finish all your fines, and then you have to petition. So the state of it right now is if you have a misdemeanor marijuana piece, that is not a possession with intention, it's just possession that is sealed automatically. And in means that someone should not be able to search it and be applied to your sentence. an expungement is actually said that you did not commit the crime, you are actually innocent. And so they destroy it forever. And then last year, we had a lot of really interesting language. And there was also an automatic expungement, which was actually sealing records. So that's just a technical cleanup there. The really interesting side of that to the to your resentencing question is that I am watching and making sure that people with like possession with intent that are still locked in there, and maybe they their sentence was enhanced for that best make sure they can get a new hearing as well.
Nathan Moore 8:33
As Virginia moves cannabis from a black market to illegal market. In the bill that passed last year. There's a preference for distribution licenses for people who were in the industry when I was a black market, is that preference gonna survive this assembly?
Chelsea Higgs Wise 8:49
So I'm gonna first offer you some language instead of saying the black market and the illicit market. A lot of folks have been referring to this as the legacy market or the informal market. And I think a lot of advocates maybe that aren't getting mainstream platforms are are having conversations about how do we bring the legacy market to the table rather than throwing them in prison. I encourage everyone to go to marijuana justice.org Our education page you can read more about the social equity criteria. So you know, you asked me the very beginning will that stay? I don't know Nathan, honestly the publicans in the House have been like equity. What's that? We don't need the scare tactic of we have to have early sales because what this actually doing Nathan is making such a head start for these medicinal operators. They have exclusive Headstart to the market. speeding it up is not going to make it safer. Speeding up is not going to stop the informal market speeding up is only going to stop social equity and day one equity.
Nathan Moore 9:57
It does feel like if it just kind of follows The typical default path of American capitalism, it'll end up being a big money game. How do we support new players, small businesses, local growers, co ops,
Chelsea Higgs Wise 10:11
we listen to the people across the United States that have been telling us this is not working. We are now learning Nathan, that every single state that has given exclusive early sales to medical operators, those same operators have been involved in a litigation to stop social equity in the state as well. And I mean, seriously, there are still social equity programs all across the state that are caught up in litigation. And it's not an accident. This is their playbook. And they've come down to Virginia legislators that had no idea the difference because they don't have time to talk to people. So the best way you can do is say, slow this down. Make sure we're involved. Make sure you're not adding new crimes. Did we just do this last year, let's stick to what we had last year and see what the Republicans respond back with. We all know that this bill is going to go to conference. Okay. We just know and conferences, y'all that's listening is the house, here's marijuana stuff, the Senate, here's marijuana stuff, they hopefully get to one bill on with each chamber. And then they the bills don't match, they go to this thing called conference. It's a scary secret room where no one ever has any idea
Nathan Moore 11:19
was actually told to guard brand you're involved. But seriously,
Chelsea Higgs Wise 11:23
we have no idea what actually happens. But then they come out with a quote unquote, compromise. And the leaders of the chambers appointed, you know, two representatives to go in that room. And what I'm saying to people is, if we are already offering them a bill with new crimes, something that's not great, and re sentencing is going on the parole board and something that's not including equity. Can you imagine what's going to come out of that, we're going to get even less
Nathan Moore 11:48
if the Democrats in the Senate can't pull it together. And there are changes that remove or reduce some of those social equity provisions. What comes next? How can Virginia support small businesses? How can Virginia support communities that have been disproportionately affected by the war on drugs?
Chelsea Higgs Wise 12:06
I tell folks that uh, you know, we passed the bill in April, and by December, a group of legislators had recommended to change it. So whatever they decide this year, let's make them change it for next year. And we just had all these new lines drawn, right, people are scrambling for those seats, and who's going to run where and that kind of thing. So this is a strategic long game. Even if they start early sales, they won't start collecting revenue on it until 2023. Also, that's another six months to say, what are we doing? Where's this money going? And we can always ask for the data. And we're going to be able to show that folks are making a lot of money and who's not and who's still in prison. And we can continue to put that in folks. Face.
Nathan Moore 12:48
Chelsea, anything else you want to add here? As we move toward wrapping up?
Chelsea Higgs Wise 12:53
I do something else that is actually, Nathan, there's so much other changes. So one other piece that could come out of this news legislation that is being discussed is the opt out option in Virginia. So if you are in Virginia, what is in the bill that's going through the Senate right now as an option to opt out of legal sales in your local area. So say the municipal area and your town that your city council, your board, they decide that, hey, we want to take this moment and this November, November 2022. You might have on your ballot, a referendum that says do you want legal cannabis on sale here in this locality? And so that is something that if it passes, folks that want it locally, you're going to have to do some organizing,
Nathan Moore 13:45
that's like the equivalent of a dry counties kind of thing.
Chelsea Higgs Wise 13:48
Exactly. Yeah, exactly. So but they're probably have just enough money in the police. Right. So I want folks to know that that the money of law enforcement for drug recognition experts, we actually did pass a law last year, an extra million dollars to train cops how to recognize weed, which makes no sense to me that we legalize something, then put money into cops to recognize it to more enforce it. For something else. That's another point is that for this early access, there will be a fee. And last year, we passed it as a million dollar fee to get into adult use at all as a medicinal operator. That fee y'all is because we are also granting them and exclusion to the band vertical integration. Vertical integration is when someone can sell everything from seed to sale got all four licenses, it's a monopoly. Well, we actually ban that. And what we're doing now is giving an exception to that to the to the big guys to the medicinal operators. So in order to have that exception, you have to pay a million dollar fee. The Democrats are saying we should make that $6 million. I say it make it $10 million.
Nathan Moore 14:59
Chelsea Higgs is the executive director of marijuana justice. Stick around. In the second half of this episode, we're diving into the nuts and bolts of the market structure for Virginia's new formal cannabis market.
You're listening to Bold Dominon, a state politics explainer for a changing Virginia, visit us online at BoldDominon.org. I have a friend who's trying to get into state politics. Well tell them about this show. And then subscribe. You can find us on Apple podcasts, Spotify, or wherever find podcasts are served up. While you're there, go ahead and leave us a five star review. We like those. Bold Dominon is a member of Virginia Audio Collective, online at VirginiaAudio.org. You can check out all the podcasts from the collective from science to history to music, community affairs, we amplify the voices of people in our community, and help them tell stories that matter. You can listen and subscribe at VirginiaAudio.org.
So as Virginia works to set up a formal cannabis market, we suddenly have all sorts of things to consider interstate commerce restrictions, acquiring business capital, setting up a framework for taxes and licensing. It's a lot. Our next guest is here to help us understand it all. Paul Seaborn is an assistant professor at the McIntire School of Commerce at the University of Virginia. And his research has focused on the economics of cannabis policy.
Katherine Hansen 16:25
So with the General Assembly session underway, can you talk about some key legislative factors that would either assist or inhibit the growth of the cannabis market in Virginia?
Paul Seaborn 16:35
I think for me, the first thing I think about is just the overall licensing structure. And so you'd have some states that take a very limited licensing approach where there's just little handful of licenses, you know, six 810 1222, allow firms to come in and be part of the adult use or the recreational market. And then you have states that go the other direction, where they may establish some set of standards for obtaining a license. And usually those are still fairly rigorous. But anyone that can meet that standard can obtain a license, and that could lead to hundreds, or in some cases 1000s of licenses. And so I think that's a big question. With the previous administration, there was talk about potentially around 400 or so retail licenses that would actually allow for a storefront. And the second thing, I think that's of great interest to everyone, including myself and our residents in Virginia would be around the social equity side to legalization and commercialization. And so that is really something that was absent in the early states, if you look at Colorado or Washington, but time has passed, and we've now had 15 1617 states go down this path of legalizing for adult use. And so I think rightly so there's a lot more expectation that any state that legalizes will consider social equity.
Katherine Hansen 17:53
Yeah, I want to start with your first point on licensing. In your opinion. Do you think the Virginia cannabis control authority will it all resemble Virginia's ABC system?
Paul Seaborn 18:03
So I think, again, that's another unique situation that Virginia is in as people who've traveled around No, not not as many states these days have a government State Liquor Control approach, like Virginia does with state operated stores. And so in a state like Colorado, that wasn't really a point of comparison, because all the stores are private and, and the governor is not involved in retail. So yes, Virginia has ABC model. But that being said, I'm actually not expecting that to happen in Virginia. And I think there are a few reasons for that one, the cannabis plant is is used for a much wider variety of purposes and applications than the way we think of alcohol and society. And so, you know, by taking that direct alcohol, Mala tends to kind of lend itself to the same mindset. And then I think, given that the previous Democratic administration was was expressing openness to private stores. And it just would be surprising to me that a Republican administration would would move away from the idea of private control and keep more in the hands of government, I guess we'll have to wait and see.
Katherine Hansen 19:03
Yeah, looking at social equity, how can regulations on taxes for retail sales be used to increase social equity or to compete with the black market?
Paul Seaborn 19:13
So yeah, I guess there's two sides to it. There's what level of tax is applied to these products? And then there's the second question of where did the proceeds of those taxes go? And so when you mentioned the black market, the the level of the taxes is very important. And so I think one of the the universal truths of this is that in the excitement of generating revenue and having all sorts of places to then spend that revenue, if if a jurisdiction sets the tax rates too high, naturally, it tends to cause people to not shift to the legal market as quickly or maybe at all. And you know, they may prefer to seek out black market sources because the price is just too much and you know, they're not willing to pay two or three to four times as much for the legal option. So yeah, so there's there's a need to set the the level right and then obviously the discussion about where did the funds go? So I think two things I would observe about Virginia. One is it's a state that's doing this through the legislature and not through ballot initiatives. And so in those early states like Colorado, where legalization was only happening, because the citizens were voting, it was a very common approach, I guess, to say, to earmark funds for education. And I think there was a thought that that's a very broadly appreciated benefit. And it reaches all aspects of the state, and not just those who are directly involved in the industry. And then as I mentioned, those early states didn't have the same pressure or clarity over some of the social equity options. And so those just weren't really in the mix. Whereas here in Virginia, in 2022, those options have been tried and various other states. And so I think there is an expectation that that's another place that the funds could be allocated. And you saw that in the proposals from the prior administration.
Katherine Hansen 20:54
Most marijuana business owners are white. So how can Virginia look to other states in the data available to increase social equity moving forward?
Paul Seaborn 21:04
So I think it's one of the most important questions about this overall legalization process. It's it's a challenge, I think, even when you have agreement on the goal, and then it's, you know, even harder if there's still disagreement over how much of a priority this should be. So I think, you know, the one conclusion I would draw, and this is my own point of view is that a more open market, a market that allows for more licenses, where each individual license is not as hard to get is not immediately as valuable to flip to someone else, just having a market where more people can participate. That gets you a little bit of the way there and hopefully getting a more broad set of society into the market. But even that alone is not enough to get a true cross section of our of our state involved. And so then that's where, yes, some subsidies of education, some specific licenses for for certain groups or areas in the state. Those are all different tools that can kind of be brought into a package of of efforts, I think, to try to get there.
Katherine Hansen 22:04
Yeah, a lot is yet to be seen in the General Assembly session. But how can Virginia set up a framework that supports an open market for new players and black owned businesses? And not not solely wealthy players?
Paul Seaborn 22:17
Yeah, so I think a couple of the lessons from those other states are helpful here. One is there's always a question of what will happen to the existing medical license holders, when the adult use or recreational market opens up. And so in, in a state like Colorado, those license holders got the first chance to open on January 1 of the of that year, but there was also then a opportunity for new license holders to come into the market. And then there have been states, I think Washington early on had this approach where they basically started fresh, so it didn't matter if you had a medical license already, you had to apply. And in some cases, I think they wanted different people to take on the adult use licenses. So that's that's one of the choices that's there. But again, with Virginia, our medical market is almost non existent, right. It's very, very small. At this point, most people listening to this podcast probably haven't driven by a medical cannabis storefront, because there's so few across the state. And that's not the case in a lot of the other states that that added at least so. So that alone is not enough to really shape the market. I think the other thing would just be around, as I mentioned, the number of licenses, the timelines for when they are allowed to be awarded and operated. And then there's also a question of, can an out of state company that does this in other parts of the US or maybe other parts of the world? Can they come in and get access to these licenses? Different states have taken different stances on that as well? And then just add one more twist to the to the question. I think there's also potential to allow one organization or one license holder to do the full production chain of cannabis cultivation, manufacturing, or some sort of processing and retail so that we call vertical integration. And you know, is that something that we want to happen where one organization can do all those things?
Katherine Hansen 24:05
To clarify, marijuana is still a schedule one drug under the federal government?
Paul Seaborn 24:10
Yeah, so nothing that that's happening at the state level has changed the federal status of marijuana and so any product that has notable amount of THC in it is still completely federally illegal. And everything that happens in our Virginia market today or as we commercialize is still federally illegal. So that's a very unique space to be in.
Katherine Hansen 24:32
So because marijuana is a schedule one drug, how can growing firms acquire capital? Like what are the roadblocks to that?
Paul Seaborn 24:40
There may be a big observation from a state like Colorado was that succeeding in this industry, even when it was the first state and relatively small state by population of 5 million people succeeding in that industry took money and the the people who succeeded in Colorado for the most part, they weren't going public. They can't go public, it's a federally illegal business today in the US. And so it generally reflected that they had access to private investment. And there's actually very little access to traditional banking, where you might just have a great business plan and a great look at a bank gives you a very traditional commercial loan. So in the early days, those just weren't there. And they, the Federal status kept those things from being available. The only thing that's changed since then there's been some guidance given to banks that they can actually do banking with state legal cannabis businesses, as long as they do an excessive additional amount of due diligence reporting surveillance of those accounts. And that's just not appealing to all banks, particularly National Bank. So it's very prohibitive to making the industry diverse, because only only those who have those, those benefits of access are able to really jump in. But But again, the state could come up with some some programs or some funding to help certain individuals do that.
Katherine Hansen 26:00
Do you expect that the black market could grow proportionally to the retail market? Given it has no regulations? Licenses taxes?
Paul Seaborn 26:08
Yeah, I think that's been maybe one of the disappointments of legalization for a lot of people in a lot of jurisdictions is that just making this substance legal doesn't make the black market disappear overnight, or even over over years. So there's a few challenges there. I think one in particular is until the whole country legalizes anytime you have a legal market in one state, there's still a lot of demand for for, for that cannabis to then end up in another state. But then secondly, the legal market has to be competitive with the black market in a few different ways. Price is certainly one area. And so both the cost of doing business directly and the taxes that get added on at the end, if those push the legal market too far away from the black market, it's going to be hard to convince everyone to switch over, you know, obviously, some people would never consider the black market, but many may have other factors, and they may not see the legal market as attractive, but then it's not just price to it, it has to do with convenience and where these products can be purchased. And you know, do I need to drive two hours across the state to get to the nearest retail store. So convenience is part of it. And then I think also just the quality and the choices
Katherine Hansen 27:18
for Virginia surrounded by either decriminalized or medically approved states. How will interstate commerce limitations in Virginia's geographic location affect the cannabis market?
Paul Seaborn 27:30
I think a few things that we can expect from looking elsewhere is, first of all, the product will go over state lines one way or the other. And then you have you seen similar things in Illinois, Illinois was one of the first states to have full adult use in that area. And it's estimated that over 20% of their total adult use sales are coming from out of state purchasers. So I would expect the exactly the same here in Virginia, especially looking at the Nova area where you know, people crosses state lines all the time. So that's one thing to consider. The second part, which you know, those who are interested in more on the business side of this industry need to recognize too is that as a producer, it doesn't matter if you've already operated in Colorado, Pennsylvania, Maryland, medically or adult use doesn't matter. You can't use any of those facilities or any of the product and then ship that into a Virginia market. Everything that happens in the Virginia market until the federal law changes needs to stay within state line. So you have to recreate a cultivation facility or a processing facility. So in a way that that keeps more of the operations state by state for now, right? There's not going to be just one cultivation hotbed that's just pumping out all the cannabis that's needed for the entire country, not today. But someday when the federal government changes those rules, all bets are off right that that cultivation might move to Virginia because of our agricultural history. You know, we're we're always a strong tobacco producing state and there could be some some carryover as a cannabis producing state.
Nathan Moore 29:01
Paul Seaborn is a professor in UVA's School of Commerce. Thanks to him and also to Chelsea Higgs Wise from Marijuana Justice. My name is Nathan Moore, and I'm the host of Bold Dominon. Our producer and editor this week was Katherine Hansen. You can find us online at BoldDominon.org And don't forget to subscribe. It's just a click away.