Report details impact of marijuana legalization in Virginia

Virginia News

RICHMOND, Va. (WRIC) — The group tasked with outlining how Virginia would implement marijuana legalization discussed creating a state-run agency, similar to the Alcoholic Beverage Control Authority, giving the commonwealth a monopoly on the retail sale of cannabis, according to a report made public Monday.

The possibility of having a standalone agency to oversee legal marijuana sales and licenses was among one of the points presented in a report from the Virginia Marijuana Legalization Work Group, which was assembled to study legalization at the request of state lawmakers as the commonwealth was passing its decriminalization bill.

The group, made up of top officials in state agencies and Gov. Ralph Northam’s administration, Virginia Attorney General Mark Herring, law enforcement and advocacy group leaders, was formed to dive into the impact of legalization and provide options for a potential path forward. The work group was divided into three subgroups: Fiscal and Structural; Legal and Regulatory; Health Impacts.

Members met 15 times over a four-month span to learn from policy experts, health professionals and leaders from across the country, specifically those from states that already legalized cannabis.

“We will advance new laws to make sure that our Commonwealth legalizes marijuana the right way,” Northam said in a statement Monday. “Virginia has studied the experience of other states and this report lays out a path forward that leads with social equity, public health, and public safety.”

The report from the Virginia Marijuana Legalization Work Group states that the commonwealth should consider having one agency or an umbrella structure to regulate all adult-use and medical marijuana, concluding that any such program would require a significant investment beforehand.

“A program as complex as this cannot be created quickly; it is in Virginia’s best interest to move at a thoughtful pace,” the group advises in the report’s summary.

Two weeks ago, the governor expressed support for legalization as a Joint Legislative Audit and Review Commission (JLARC) study found that sales could bring in an excess of $300 million in tax revenue and create 11,000 new jobs. While a legal marijuana industry in Virginia is estimated to bring in hundreds of millions in annual tax revenue, the group noted that those figures rely on assumptions that could change as the process of legalization moves forward.

“A legal adult-use marijuana industry could be worth $698 million to $1.2 billion annually in economic activity and up to $274 million in tax revenues per year at industry maturation,” the report states. “However, there are two caveats. First, this analysis relies on a number of assumptions, many of which could change once Virginia actually moves forward with a legalization program. Additionally, it will likely take at least five years for the industry itself to mature, which adds greater uncertainty.”

Who will regulate legal marijuana in Virginia?

In its report, the Virginia Marijuana Legalization Work Group recommends that an agency should regulate a proposed adult-use marijuana industry. The group addressed whether a separate agency should be formed or if an existing regulatory agency — Virginia ABC was used as an example in much of the report — should be at the helm.

Travis Hill, Virginia ABC’s CEO, was co-chair for the group’s Fiscal and Structural subgroup.

The group laid out the potential benefits of having Virginia ABC take over this regulating role if marijuana is legalized — which can be found below — but noted in the report that “having the Commonwealth itself in the business of selling a product that is federally illegal could be problematic.”

Benefits of having Virginia ABC regulate legal marijuana sales

  • ABC has the infrastructure to support a regulatory mission.
  • Fewer additional employees would need to be hired to provide Human Resources, Finance, and Procurement services.
  • ABC’s leadership structure is already established and could focus on initiating the regulatory process rather than establishing a new organization.
  • As a regulator, ABC has experience in regulating a controlled substance and working with manufacturers, wholesalers, and retailers – all potential participants in a legal cannabis market.
  • ABC also has a dedicated enforcement division which functions as a regulatory actor with police powers.
  • ABC can regulate businesses, provide guidance and regulatory enforcement. Additionally,
  • ABC has law enforcement capabilities at its disposal.
  • ABC currently administers over 19,000 annual licenses that range from small family businesses to large multi-national corporations.

In order to establish a new agency, the Virginia General Assembly would have to look into the cost, time and operational efficiencies of doing so. The work group was informed by leaders in other states that no matter which agency takes over, setting up a program would take longer than expected. The general consensus was nothing shorter than 18 to 24 months.

Taxing cannabis in Virginia

Determining the final tax structure for sales would need to be completed in order to learn the actual revenue impacts of legalizing marijuana.

Taxing marijuana at the retail level, the option most weed-friendly states have adopted, was selected as the preferable option in the report. The Virginia Marijuana Legalization Work Group did, however, discuss having the agency tasked with collecting the tax to take it at the wholesale level, later concluding that “due to the nature of the product itself and the complexities of a brand new industry” the agency best equipped to do so would be the one regulating the industry.

“Whichever agency has taxation authority will need to fully understand the market, the licensed sellers, and the product mix,” the report said.

The group’s health impact subcommittee recommended that there be a tiered tax system based on THC level, with the report adding that another option could be taxing different products at different rates.

“As for the level of an excise tax (or taxes) itself, the group did not recommend a quantitative value. Generally, there was a consensus that the tax rate should be high enough to cover the costs of implementing the state program and to cover any other revenue goals the Commonwealth has,” the report continued. “Furthermore, this would demonstrate to consumers that the products themselves are safe (e.g., free from adulterants) to consume. However, the tax rate should not be so high as to encourage an illicit market. As discussed in the preceding section, which provides a range of potential tax rates and associated revenues, there are still many variables and unknown factors related to taxation.”

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