Virginia Cannabis: Letâ€™s Talk About Licenses
By Eric Postow
On April 21, 2021 Governor Northam signed Virginia’s recreational cannabis bill and made it law. Legal possession of up to one ounce and four plants for home cultivation will go live on July 1. More importantly for businesses looking to establish themselves in the new market will be the standing up of the Virginia Cannabis Control Authority “the Authority” that will regulate and “control the possession, sale, transportation, distribution, and delivery of retail marijuana and retail marijuana products in the Commonwealth.” The Authority will stand up July 1 of this year but will not “adopt such regulations prior to July 1, 2022,” and will start accepting applications on July 1, 2023. That puts us just over two years away from what will surely be a cattle call of interested cannabis parties. For now, let’s start with a good baseline understanding of the licenses that will be available.
First in Time, First in Line: Social Equity Applicants
“That the Virginia Cannabis Control Authority may start accepting applications for licenses pursuant to the provision of § 4.1-1000 of the Code of Virginia, as created by this act, on July 1, 2023, and shall, from July 1, 2023, until January 1, 2024, (italics added) give preference to qualified social equity applicants.” As we discussed last week, Social Equity places a significant role in Virginia’s new recreational cannabis law. For those applicants, understanding the qualifications and opportunities for no-low interest loans should start now.
The following categories will make up the initial licenses with the following caps set
- Marijuana cultivation facilities, 450
- Marijuana manufacturing facilities, 60
- Marijuana wholesalers, 25
- Retail marijuana stores, 400
Marijuana Cultivation Facility
The cultivation license allows the licensee to
- Cultivate, label, and package retail marijuana
- Purchase or take possession of marijuana plants and seeds from other marijuana cultivation facilities
- Transfer possession of and sell retail marijuana, immature marijuana plants, and marijuana seeds to marijuana wholesalers and retail marijuana stores; to other marijuana cultivation facilities; and to marijuana manufacturing facilities, and
- Sell immature marijuana plants and marijuana seeds to consumers for the purpose of cultivating marijuana at home for personal use.
There are two classes of cultivation licenses
- Class A cultivation facility license, which shall authorize the licensee to cultivate not more than a certain number of marijuana plants or marijuana plants in an area not larger than a certain number of square feet, as determined by the Board;
- Class B cultivation facility license, which shall authorize the licensee to cultivate marijuana plants with a tetrahydrocannabinol concentration of no more than one percent, as determined post-decarboxylation.
The Authority is left with the critical discretion of determining just how many a “certain number” of plants and square feet is. This certainly creates some anxiety for cultivators who need to start planning now for possible land acquisition, development, facilities, lighting, etc. It also unlikely that certain aspects of the cultivation regulations under the medical marijuana regime will inform the recreational regulations. Under Virginia’s medical marijuana regs, Pharmaceutical Processors are restricted to maintain no more than “12 Cannabis plants per patient at any given time based on dispensing data from the previous 90 days.” Simplifying the equation, but not limiting the growing of plants to an unprofitable point will be a significant area of interest as the Authority gets underway.
Marijuana Manufacturing Facility
The marijuana manufacturing licensee is authorized to:
- Manufacture, label, and package retail marijuana and retail marijuana products
- Purchase or take possession of retail marijuana from a marijuana cultivation facility or another marijuana manufacturing facility; and
- Transfer possession of and sell retail marijuana and retail marijuana products to marijuana wholesalers, retail marijuana stores, or other marijuana manufacturing facilities.
Under the law, manufacture means the “production of marijuana products or the blending, infusing, compounding, or other preparation of marijuana and marijuana products, including marijuana extraction or preparation by means of chemical synthesis. “Manufacturing” or “manufacture” does not include cultivation or testing.” The law draws a distinction between cultivation and manufacturing so that cultivators cannot grow the crop and manufacture it into a marijuana product. There is however, some daylight for those interested in obtaining both licenses, though the law is a bit ambiguous on the subject. The Authority will allow “certain persons to be granted or have interest in a license in more than one of the license categories” with the law requiring that the regulations be “drawn narrowly to limit vertical integration to small businesses.” Seemingly, the language promotes local Virginia businesses over multi state operators, which have already come to dominate the Virginia Medical Marijuana market. How the Authority defines “certain persons” will be another important area to watch.
Marijuana Wholesaler License
One of the more interesting license categories is that of the wholesaler. The marijuana wholesaler licensee is authorized to
- Purchase or take possession of retail marijuana, retail marijuana products, immature marijuana plants, and marijuana seeds from a marijuana cultivation facility, a marijuana manufacturing facility, or another marijuana wholesaler and
- Transfer possession and sell or resell retail marijuana, retail marijuana products, immature marijuana plants, and marijuana seeds to a marijuana cultivation facility, marijuana manufacturing facility, retail marijuana store, or another marijuana wholesaler
The wholesaler becomes the versatile middleman of the group as it works between the various categories through buying and selling to each. The main difference aside from the specific cultivation aspects of the cultivator license is that the wholesaler may also sell marijuana products, which the cultivator may not. The other interesting thing is that the wholesaler is limited to 25 total licenses. It is clear that law wants to limit vertical integration, but to the few who are able to obtain the cultivator, manufacturing and wholesaler license, a significant market advantage is in the prize.
Retail Marijuana Store License
Retail stores will be one of the most important and strategic licenses as the face of the industry to the consumer. It also the most vulnerable local ordinances and overall restrictions. While the law makes clear that “no county, city, or town shall, adopt any ordinance or resolution that regulates or prohibits the cultivation, manufacture, possession, sale, wholesale distribution, handling, transportation, consumption, use, advertising, or dispensing of retail marijuana or retail marijuana products in the Commonwealth,” it lays out two exceptions, one of which could be a game-changer for some towns. § 4.1-629. allows local jurisdictions to place prohibition of retail marijuana stores on the ballot for their locality. If the town votes yes to prohibit the operation of retail marijuana stores in their locality, those retail stores will still be allowed to operate for one year after January 1, 2024. Retail stores will also be subject to local ordinances for hours of operations.
Retail stores will also be restricted in the following nonexclusive ways
- Only sell to consumers in a direct, face-to-face exchange
- Cannot sell through an automated dispensing or vending machine; a drive-through sales window; c. an Internet-based sales platform; or a delivery service
- Limited to selling one ounce of marijuana or its equivalent in products per transaction to one person
- Generally cannot gift or give marijuana away
Additional and Likely License Opportunities
- Marijuana testing facility license
- Secured transportation licensing
Data Management Requirements for All Licensees
Data management will certainly play an important part in the market for each category as all players will be required to track and report from their point in the chain from “seed or immature marijuana plant to the point at which the marijuana plant or the marijuana produced by the marijuana plant is delivered or transferred to a marijuana testing facility, a marijuana wholesaler, another marijuana cultivation facility, a marijuana manufacturer, a retail marijuana store, or a consumer or is disposed of or destroyed.” The enormous amounts of data required to be maintained and submitted to the Authority creates an infrastructure planning need that should not be taken lightly. Data expertise will likely be a hot commodity in the cannabis hiring market.