CBD OIL

Despite President Biden’s reticence in tackling cannabis reform, Senate Democrats led by Chuck Schumer of New York have insisted that they intend to move forward with descheduling and decriminalizing cannabis with or without the President. This begs the question, what could brands across the legal cannabis industry look like as the federal regulatory environment evolves? As part of this, will interstate restrictions come down and allow for efficient regional and even national brands or will the structure continue to require a state-by-state strategy and rollout?

Currently, state borders set boundaries that dictate supply, distribution and sale, setting strict regulations on cannabis industry operations. As of today, many companies throughout the U.S. cannabis industry are structured as multi-state operators (MSOs), in which the companies own products or dispensary brands that are available in multiple legal state markets but operate in virtual silos from one another. This poses an interesting challenge that may need to evolve with federal legislative changes that could determine redrawing of these supply chains both on a regional and national level.

Brands like Korova, a popular edibles and flower brand based in California, with operations in Oregon and licensees in Oklahoma and Arizona, must keep its operations entirely separate, even if it operates under the same name in different states. Moreover, cannabis flower and extract sourced from California cannot legally be shipped to Oregon or other states. Thus, the MSO often creates vertical operations in each state in which it operates. It creates an entirely distinct process from cultivation to extraction to retail facilities. This difference in operation, even slight, can affect brand quality and consistency across markets if not managed carefully. 

When federal cannabis legislation changes, these types of decisions will most likely be left to the states. I view it as similar to how the alcohol industry operates. In this case, states want to work to protect tax revenue and jobs. Whatever new federal legislation materializes, it is likely that states will retain considerable control over their borders and will have little to no immediate change in terms of vertical operations or the supply chain. The industry is still very nascent, and today’s companies have already developed competitive moats.

On the other hand, if federal barriers are abruptly lifted, we head into a massive free for all. In this scenario, massive consolidation and disruption will occur across the industry, and companies with larger footprints, either in large, important states or across states, will likely be merged together or acquired outright, by either larger MSOs or consumer packaged goods companies that enter the cannabis industry. Along the way, smaller, private companies would go out of business. This would have a massive impact on the industry, with considerable local or state-level disruption to tax revenues and employment. No politician wants to be responsible for something like this, especially during this time of economic turmoil.

If the federal government goes all in on legalization and offers interstate commerce and travel across state lines, companies will no longer have to operate within their own states, nor will MSOs need to create separate vertical operations in different states with hopes that brands maintain consistency. If this occurs, it will ease major strains that presently exist for corporations throughout the industry. Large operators will certainly have an advantage if movement is freed for brands. However, challenges will most likely persist for smaller operators looking to make a splash in the market and the likelihood of this happening for the reasons stated above is low.

Interstate cannabis commerce will be the game changer. While it remains unlikely, in my view, that there will be interstate commerce allowed in any legislation we see out of this Congress, it will happen eventually, just as interstate alcohol laws have also evolved overtime. Having ownership of good assets and brands in important markets and building a strong revenue base is key to both short and long-term success as the industry continues it consolidation, a measure which will only be accelerated with more federal legislation. For Terra Tech, which is acquiring Korova and other brands, it is a fundamental part of our strategy.

So how does a company identify the strongest brands and best operations to work with in our incredibly fragmented industry with no national brands? While there are companies trying to move in that direction, none of them have national brand stature at this point, providing an opening. The brands most likely to succeed are the ones that are more likely to resonate with consumers across various markets. These brands tend to have higher quality and potency at a good perceived value, and which have history in the community of delivering consistent products.

When it comes to choosing markets to get involved in, some choose to do it regionally and others seek out available markets regardless of geography or marketing segments. Unlike many leaders of multi-state operations, I don’t prefer to buy smaller operations in a bunch of states. In my experience, organizing our operations by region increases our efficiency and profitability.  I’m very firmly in support of creating one larger brand than smaller regional brands. It’s easier to develop with marketing and advertising.

What is “hemp”?

The word “hemp” has many meanings. Historically the term has been used as the common name for the Cannabis sativa L. plant. Just like other plants, the cannabis plant has two names, a common name, hemp, and a scientific name, Cannabis sativa L. After the ratification of the UN Single Conventions on Narcotic Drugs and Psychotropic Substances, in 1961 and 1972 respectively, the term started to be used to distinguish between resin producing varieties of the cannabis plant and non-resin producing varieties of the cannabis plant. Nowadays the term is generally used to refer to cannabis plants with a delta-9-tetrahydrocannabinol (d9-THC), a controlled substance, content equal to or less than the maximum allowable limit defined by each marketplace.

In the United States and Canada, the limit is defined as 0.3% on a dry weight bases, and until November 2020, in the European Union, the limit was defined as 0.2%. After years of effort the “hemp” industry in Europe was successfully able to get the limit raised to 0.3% to be in line with the United States and Canada – creating the largest global trade region for hemp products. But there exist several marketplaces around the world where, either through the consequences of geographic location or more progressive regulations, the d9-THC content in the plant can be substantially higher than 0.3% and still considered “hemp” by the local authority.

To address these variances, ASTM International’s Technical Committee D37 on Cannabis has been working on a harmonized definition of hemp, or industrial hemp, depending on the authority having jurisdiction, through the efforts of its Subcommittee D37.07 on Industrial Hemp. The following is a proposed working definition:

hemp, n—a Cannabis sativa L. plant, or any part of that plant, in which the concentration of total delta-9 THC in the fruiting tops is equal to or less than the regulated maximum level as established by an authority having jurisdiction.

Discussion: The term “Industrial Hemp” is synonymous with “Hemp”.

Note: Total delta-9 THC is calculated as Δ⁹-tetrahydrocannabinol (delta-9 THC) + (0.877 x Δ⁹-tetrahydrocannabinolic acid).

This definition goes a long way to harmonize the various definitions of hemp from around the world, but it also defines “hemp” as a thing rather than as a classification for a type of cannabis plant or cannabis product. This is a concept rooted in the regulatory consequences of the UN Single Conventions, and one I strongly disagree with.

The definition also leaves the total d9-THC limit open-ended rather than establishing a specified limit. An issue I will address further in this series.

Can “hemp products” only come from “hemp plants”?

If you are an invested stakeholder in the traditional “hemp” marketplace, you would say, yes.

But are there such things as “hemp plants” or are there only cannabis plants that can be classified as “hemp”? (The definition for hemp clearly states that it is a cannabis plant…)

There is no distinction between the cannabinoids, seeds, and fibers derived from a cannabis plant that can be classified as “hemp” and those derived from a cannabis plant that cannot. The only difference is the word: “cannabis,” and the slew of negative connotations that come along with it. (Negative connotations that continue to be propagated subconsciously, or consciously, whenever someone says the “hemp plant” has 50,000+ uses, and counting, and will save the world because it’s so green and awesome, but not the “cannabis plant”, no that’s evil and bad, stay away! #NewReeferMadness)

The declaration that “hemp products” only come from “hemp plants” has some major implications. “Hemp seeds” can only come from “hemp plants”. “Hemp seed oils” can only come from “hemp seeds”. “Hemp fibers” can only come from “hemp plants”. Etc.

What does that really mean? What are the real-world impacts of this line of thinking?

Flat out it means that if you are growing a cannabis plant with a d9-THC content above the limit for that plant or its parts to be classified as “hemp”, then the entire crop is subjected to the same rules as d9-THC itself and considered a controlled substance. This means that literal tons of usable material with no resin content whatsoever are destroyed annually rather than being utilized in a commercial application simply because a part or parts of the plant they came from did not meet the d9-THC limit.

It is well known that d9-THC content is concentrated in the glandular trichomes (resin glands) which are themselves concentrated to the fruiting tops of the plant. Once the leaves, seeds, stalks, stems, roots, etc. have been separated from the fruiting tops and/or the resin glands, then as long as these materials meet the authority having jurisdiction’s specifications for “hemp” there should be no reason why these materials could not be marketed and sold as “hemp”.

There are several reasons why a classification approach to “hemp plants” and “hemp products” makes more long-term sense than a bifurcation of the “cannabis” and “hemp” marketplaces, namely from a sustainability aspect, but also to aid in eliminating the frankly unwarranted stigma associated with the cannabis plant. #NewReeferMadness

That said, say you are a producer making shives from the stalks of cannabis plants that can be classified as “hemp” and then all of a sudden, the market opens up and tons of material from cannabis plants that cannot be classified as “hemp,” that was being sent to the landfill, become available for making shives. Would you be happy about this development? Or would you fight tooth and nail to prevent it from happening?

In this segment, we looked at the history of the term “hemp” and some of the consequences from drawing a line in the sand between “cannabis” and “hemp”. I dive deeper into this topic and provide some commonsense definitions for several traditional hemp products in Part 2 of Defining Hemp: Classifications, Policies & Markets.

A unionization effort filed for 17 employees at the Curaleaf medical dispensary in Hanover, Mass., went all the way to Washington, D.C., before a final decision on the results of a mail-in election was made earlier this month. The majority of ballots had been challenged, some of which remained sealed in the final vote count.

The United Food and Commercial Workers (UFCW) Local 328, which represents more than 11,000 workers in a range of industries throughout Rhode Island and southeastern Massachusetts, filed for the Curaleaf Hanover union election April 20, 2020—during the onset of the COVID-19 pandemic. Ballots went out to the Hanover team in May, and the original vote count was June 26. That vote came back 5-2 in favor of joining the Local 328, excluding 10 challenged ballots, which were determinative, meaning there were more challenged votes than the difference between yeses and noes.

“There was some fighting back and forth—because it was during COVID—about people that they were bringing in from other areas and having them work there,” UFCW Local 328 President Tim Melia said. “But they weren’t part of the Hanover group. The company was arguing that they should be part of the unit and should be able to vote on the contract. And we were arguing back the other way. So, there were some charges about who was eligible and who wasn’t when the vote came.” 

The challenged ballots took nearly 10 months to sort out. A federal investigation and hearing by the National Labor Relations Board (NLRB) examined the circumstances of the challenged ballots, which stemmed from which workers were employed at the Hanover location before government shutdowns and which workers were not. The Boston regional office of the NLRB determined that six of the 10 challenged ballots should not be counted. Curaleaf appealed that decision to the NLRB in Washington, D.C., where the labor board declined to hear the case, essentially upholding the ruling of the regional director in Boston.

The final vote was 8-3 in favor of the Curaleaf Hanover workers unionizing, which became official on April 9, 2021, roughly a year after the workers’ campaign was organized.

Local 328 organizers first connected with dispensary workers at Curaleaf Hanover in March 2020, a month before filing the unionization vote and before pandemic-related government shutdowns were enacted. At the time in Massachusetts, the shutdowns affected adult-use dispensaries while medical dispensaries like Curaleaf Hanover were deemed essential. 

“What ended up happening was that the company had sent over some workers from different locations because this is a purely medicinal facility [in Hanover] and the [adult-use] locations for Curaleaf had closed,” Local 328 Director of Organizing Sam Marvin said. “So, they had temporarily sent some workers from kind of far away to work at the medicinal location that was still open. And, so, essentially that made up some of the challenged votes.”

Curaleaf did not confirm the pre-shutdown whereabouts of its workers who represented the six challenged ballots that remained sealed, but the NLRB regional director in Boston determined those six should not be counted as part of the Hanover group. Had the six Hanover ballots that remained sealed all been no votes, then, theoretically, the union organization effort would have failed, 9-8.

A spokesperson from Curaleaf said the vote at the company’s Hanover dispensary was a “secret ballot election” but recognized that the final count was in fact in favor of union representation by the Local 328 for purposes of collective bargaining.

“While we’re disappointed with this outcome, because we believe team members are best served dealing directly with our management team, we respect the collective voice of our Hanover team members at the time and will seek to have a collaborative working relationship with the UFCW,” the spokesperson said. “We will continue to prioritize creating a positive, supportive and inclusive work environment for all team members and provide our patients and customers with the excellent service they expect and deserve from Curaleaf.”

Going Beyond Wages and Benefits

When Cannabis Business Times reached out to Curaleaf following the final vote and asked in what ways the company prioritizes taking care of its employees and meeting their needs, the spokesperson said, “We welcome everyone to join our employee resource groups focused on fostering inclusion.” The company identified specific groups that have been developed to meet this priority:

• Black, Indigenous and People of Color (Curaleaf in Color)
• WCC (Women’s Cannabis Collective) 
• PRIDE/QUSH (Queer-Centered Unity and Service Huddle)
• Working Parents (FamiLeaf)
• Community and Volunteerism (Curaleaf Cares) 

Curaleaf also hosts panel discussions and support events for all team members: 

• Heritage Lunch-in (food dishes that represent our heritage—celebrating diversity) 
• “Black in Cannabis” panel discussion (education and awareness of the war on drugs and historical community impact of Black people in cannabis) 
• “AAPI in Cannabis” panel discussion (education and awareness of Asian American Pacific Islander communities in cannabis)
• Holding Space and communicating from the C-suite (for times of grief and support—scheduled often and as needed when team members request and/or crisis happen. E.g., George Floyd murder and trial, mass shootings, Asian hate crimes, etc.)
• “Help a Family” (sponsoring Curaleaf team members who are in additional financial need during the holiday season)
• Virtual yoga and meditation classes 

“Our team members are the heart and soul of our company,” the spokesperson said. “Their dedication and commitment to serving our patients and customers is exemplified by their incredible efforts during this challenging time as our country deals with the COVID-19 pandemic.”

UFCW’s Push to Unionize Cannabis Workers

First organized by meat cutters and butchers in 1937, the Local 328 now represents workers in myriad industries, including retail food, institutional food, health care, banking, transportation, manufacturing, barbers, cosmetologists and now cannabis. But the push to unionize the cannabis space is just starting to unfold, both in the Local 328’s region and across the nation. Of the 11,000-plus workers represented by the Local 328, fewer than 100 are from the cannabis space. The union is working to increase that representation.

Earlier this month, dispensary workers at Greenleaf Compassionate Care Center in Portsmouth, R.I., unionized by a 21-1 vote to join the Local 328. The organized effort includes budtenders, keyholders, online team members and delivery associates.

Local 328 now represents workers from four cannabis businesses, including the Ocean State Cultivation Center (OSCC) in Warwick, R.I., where workers officially became the state’s first unionized cannabis organization with a negotiated contract in October 2020. OSCC provides cannabis products to compassion centers operating in Portsmouth, Providence and Warwick that serve more than 18,000 cannabis patients in Rhode Island’s medical program.

Perfect Union, a vertically integrated operator and parent company of OSCC, with dispensaries in California, New Mexico and Rhode Island, began paying all employees an additional $2.50 per hour on March 16, 2020—at the onset of COVID-19 and while negotiations were still taking place with UFCW. The bonus pay extended to more than 200 employees, including those working in cultivation, distribution, manufacturing and retail.

“Taking care of our employees is one of our highest priorities,” Perfect Union CEO David Spradlin said in a Local 328 release. “We are pleased to be partnering with the UFCW Local 328 and helping to set a standard for workers in Rhode Island’s cannabis industry. Our partnership ensures our employees will be treated fairly and equitably, allowing us to better serve the community around us.”

The two parties agreed to a labor peace agreement in late 2019, which committed them to open, transparent dialogue throughout the negotiation process, Marvin said. A labor peace agreement is an arrangement between a union and an employer under which one or both sides agree to waive certain rights under federal law with regard to union organization and related activity. Such an agreement is more likely to lead to unionization of a workplace, according to the U.S. Chamber of Commerce.

The finalized contract guarantees a living wage, comprehensive benefits, opportunities for career advancement and safe working conditions for OSCC employees, according to a Local 328 press release.

“The UFCW has been so important in turning these jobs into careers,” said Matthew Baryshyan, who works in cultivation at OSCC. “As this industry grows, so does our need to make sure our best interests are taken into consideration. We now have better wages, a pension plan, full benefits, vacation time, and the list goes on. The UFCW is making sure there is a future in cannabis, and it’s a bright one.”

Does Company Size Matter?

In addition, Local 328 representatives are currently negotiating a contract for the cannabis workers at a Cresco Labs cultivation and processing facility in Fall River, Mass. A multistate operator headquartered in Chicago, Cresco also operates one of its Sunnyside dispensaries in Fall River, after the company closed on its acquisition of Hope Heal Health Inc. in February 2020.

Earlier this year, more than 180 UFCW Local 881 members who work at Cresco Labs in Joliet, Ill., ratified a union contract that raised wages and improved benefits.

While Cresco Labs and Curaleaf are two of the biggest cannabis companies in the world, Marvin said workers throughout the industry essentially want the same thing—stability.

“Sometimes the smaller, medium-size companies will sell to a larger company,” he said. “So that’s why that’s one of the big issues for even the smaller, medium [companies] is to have some sense of protection and security in case that were to happen. They can still protect their unions, still protect their benefits and sit at the table with a new employer.”

As the biggest companies continue to grow in a sector with increasing revenues, workers of those companies want to ensure they are rewarded “in the industry where they’re creating these profits through their work,” Marvin said. This can take the shape of pay increases, ownership stakes or more inclusive workspaces.

Unionization efforts at Curaleaf Hanover and the Cresco Labs facility in Fall River come as the Massachusetts cannabis industry generated roughly $696 million in sales in 2020—a 56.4% increase from 2019, according to adult-use sales and production data from the state’s Cannabis Control Commission.

Since the adult-use system launched more than two years ago, Massachusetts cannabis sales have exceeded more than $1.5 billion overall. Cannabis sales in 2021 have already logged roughly $370 million through April, according to the state’s seed-to-sale tracking system.

Worker-Management Relations

Big or small, the Local 328 is pushing to extend its representation in the cannabis space. Sometimes organization efforts are met with cordial negotiations, and other times they are not, Marvin said.

As other state legislatures continue to debate and pass adult-use cannabis measures, lawmakers are including provisions in their bills that aim to deter anti-union practices on the part of cannabis business owners. For example, Virginia Gov. Ralph Northam signed legislation last week that gives the state’s incoming Cannabis Control Authority the power to strip licenses from any cannabis business that doesn’t remain neutral while its workers attempt to unionize.

Unionization can be good for both employers and employees, Marvin said. A key benefit made possible through unionization is that employers who may have a tough time entering into industry pension funds could gain access through labor unions that represent their workers, Marvin said.

“For example, we have UFCW industry pension funds that we can now negotiate these employers into because they’re union,” he said. “And we also have access to our industry health and welfare funds as well. So, maybe for some employers that cost can be greater if they’re doing it alone.”

While workers can gain health care and a secure retirement through unionization—which is not to say they can’t gain those benefits without a union—improving their relations with management can translate to the customer experience and reduce turnover, Marvin said.

“We don’t want to see an industry that has a high turnover where patients and customers are going in and seeing a new face every day,” he said. “We want to see that these are good jobs, that workers can take care of their families and their patients and customers at the same time. And I think ultimately that’s very beneficial for the consumer—that they can cultivate that relationship with employees and expect to see them the week after, and the week after that.”

Continuing the Push

Although Local 328 representatives have a trio of moving parts in the cannabis space—including their current negotiation with Cresco Labs and upcoming negotiation efforts with Curaleaf and Greenleaf—Marvin and Melia said the budding sector is ripe for additional unionization. Union negotiations are often centered on wages, hours, benefits and working conditions, while others choose to organize in order to gain dignity and respect on the job, Melia said.

Specifically for workers in medical dispensaries, who were deemed essential in many states as they worked on the front lines during the pandemic, having personal protective equipment (PPE), social-distancing protocols and proper cleaning measures in place were important safety standards, Marvin said. In general, working during a pandemic was a tipping point for many workers in a variety of sectors to organize, he said.

Going hand-in-hand with job security, workers want to make sure they are no longer at-will employees, Marvin said. In U.S. labor law, at-will employment is an employer’s ability to dismiss an employee for any reason, and without warning, as long as the reason is not illegal.

“I think that the organizing that workers are doing now is essentially framing how these jobs are going to be not only today and tomorrow, but for years down the road,” he said. “So, again, we want to make sure these are good jobs and we’re going to continue to communicate and partner with cannabis workers.”

With the signing of the Cannabis Control Act (the Act) on April 21, 2021, Virginia became the first southern state to legalize adult use cannabis and just the fourth state to do so through the legislature. Legalizing adult use cannabis through the legislature, as opposed to through the ballot box, is not the typical route states have followed up to now. Eleven of the sixteen states and the District of Columbia have legalized adult use cannabis through the use of ballot measures. Virginia joins Vermont, Illinois, New York and New Mexico (which legalized after Virginia) as one of the few states that have gone the legislative route. Under Governor Northam’s administration, the path to legalization was swift, taking less than four months from introduction to passage.

Governor Northam added amendments to the already passed Senate Bill 1406 and the General Assembly voted to approve those amendments, with the Lieutenant Governor breaking the tie in the Senate’s vote. Upon signing, Governor Northam called the law a step towards “building a more equitable and just Virginia and reforming our criminal justice system to make it more fair.” This message and the opportunities to promote social equity through a legal cannabis industry have been consistent points of advocacy made by supporters as the bill advanced to becoming law.

Prior to the Governor’s amendments, the Act under consideration set July 1, 2024 as the date on which both legal possession and adult use sales would begin. The Governor decided to accelerate the date for legal possession to July 1 of this year, a decision believed to have been influenced by data showing that Black Virginians were more than three times as likely to be cited for possession, even after simple possession was decriminalized in the state a year prior. The regulated adult use market is still set to begin making sales on July 1, 2024; however, it remains possible that this date could be advanced through the legislature in the meantime. Nevertheless, Virginia is on track to becoming the first southern state with an operating regulated commercial cannabis market.

Creating an Administrative Structure for the Adult Use Program

This sweeping fifty-page law creates the Cannabis Control Authority to regulate the cultivation, manufacture, wholesale and retail sale of cannabis and cannabis product. The Act further lays the groundwork for licensing market participants and regulating appropriate use of cannabis; defining local control; testing, labeling, packaging and advertising of cannabis and cannabis products; and taxation. The Act also contains changes to the criminal laws of the Commonwealth. Companion to the Act are new laws addressing the testing, labeling and packaging of smokable hemp products and manufacturing of edible cannabis products. Additionally, the Cannabis Equity Reinvestment Board was created to address the impact of economic divestment, violence and criminal justice responses to community and individual needs through scholarships and grants.

While persons 21 years or older may possess up to one ounce of cannabis and cultivate up to four plants for personal use per household beginning on July 1, 2021, there are a host of regulations to be written in order to regulate the adult use market. These regulations will be the devil in the details of how the regulated market will work. Regardless, the Cannabis Control Act does establish the framework for adult use cannabis that is unique to Virginia and designed to promote and encourage participation from people and communities disproportionately impacted by cannabis prohibition and enforcement.

The Cannabis Control Authority (CCA) will consist of a Board of Directors, the Cannabis Public Health Advisory Council, the Chief Executive Officer and employees. The Board will have five members appointed by the Governor and confirmed by the legislature, each with the possibility of serving two consecutive five-year terms. The Board is tasked with creating and enforcing regulations under which retail cannabis and cannabis products are possessed, sold, transported, distributed, and delivered. It is expected that the Board will begin discussing regulations next year and that applications for licenses for cannabis cultivation facilities, manufacturing facilities, cannabis testing facilities, wholesalers, and retail stores will begin to be accepted in 2023. Importantly, a Business Equity and Diversity Support Team, led by a Social Equity Liaison, and the Equity Reinvestment Board, led by the Director of Diversity, Equity and Inclusion, are to contribute to a plan to promote and encourage participation in the industry by people from disproportionately impacted communities.

Regulating Participation in the Market

The Act empowers the Board to establish a robust and diverse marketplace with many entry opportunities for market participants. Up to 450 cultivation licenses, 60 manufacturing licenses for the production of retail cannabis products, 25 wholesaler licenses and 400 licenses for retail stores can be granted. These numbers do not include the four permits granted to pharmaceutical processors (entities that cultivate and dispense medical cannabis) under the Commonwealth’s medical program.

In addition to the sheer number of licenses that can be granted, the Act devises a unique approach to addressing concerns of a concentration of licenses in too few hands and a market dominated by large multi-state operators. At the same time, it sets up a mechanism to capitalize two cannabis equity funds intended to benefit persons, families and communities historically and disproportionately targeted and affected by drug enforcement through grants, scholarships and loans. Over-concentration and market dominance concerns are addressed by limiting a person to holding an equity interest in no more than one cultivation, manufacturing, wholesaler, retail or testing facility license. This eliminates the ability of companies to be vertically integrated from cultivation through retail sales operations. However, there are two exceptions to the impediment to vertical integration. First, the Board is authorized to develop regulations that permit small businesses to be vertically integrated and ensure that all licensees have an equal and meaningful opportunity to participate in the market. These regulations will be closely scrutinized by those looking to enter Virginia’s regulated market once they are proposed. Qualifying small businesses could benefit substantially from the economic advantages commensurate with being vertically integrated, assuming they have the access to the capital needed to achieve integration and operate successfully. The second exception allows permitted pharmaceutical processors and registered industrial hemp processors to hold multiple licenses if they pay $1 million to the Board (to be allocated to job training, the equity loan fund or equity reinvestment fund) and submit a diversity, equity and inclusion plan for approval and implementation. Consequently, Virginia is attempting to fund, in part, its ambitious social equity programs by monetizing the opportunity for these processors to participate vertically in the adult use market.

Those devilish details of how this market will function, and how onerous compliance obligations will be, will emanate from those yet to be proposed regulations covering many areas and subject matters including:

• Outdoor cultivation by cultivation facilities;
• Security requirements;
• Sanitary standards;
• A testing program;
• An application process;
• Packaging and labeling requirements;
• Maximum THC level for retail products (not to exceed 5 mg per serving or 50 mg per package for edible products);
• Record retention requirements;
• Criteria for evaluating social equity license applications based on certain ownership standards;
• Licensing preferences for qualified social equity applicants;
• Low interest loan program standards;
• Personal cultivation guidelines; and
• Outdoor advertising restrictions.

Needless to say, the CCA Board has a lot work ahead in order to issue reasonable regulations that will carry out the dictates in the Act and encourage the development of a well-functioning marketplace delivering meaningful social equity opportunities.

Much work needs to be done before July 1, 2024 to prepare for its debutThe application process for the five categories of licenses will be developed by the Board, along with application fee and annual license fee amounts. It is not clear how substantial these fees will be and what effect they will have on the ability of less-well-capitalized companies and individuals to compete in the market. The Act dictates that licenses are deemed nontransferable from person to person or location to location. However, it is not entirely clear that changes in ownership will be prohibited. The Act contemplates that changes in ownership will be permitted, at least as to retail store licensees, through a reapplication process. Perhaps the forthcoming regulations will add clarity to the transferability of licenses and address the use of management services agreements as a potential workaround to the limitations in license ownership.

Certain requirements particular to certain license-types are worthy of highlighting. For example, there are two classes of cultivation licenses. Class A cultivation licenses authorize cultivation of a certain number of plants within a certain number of square feet to be determined by the Board. Interestingly, Class B licenses are for cultivation of low total THC (no more than 1%) cannabis. Several requirements specific to retail stores are noteworthy. Stores cannot exceed 1,500 square feet, or make sales through drive-through windows, internet-based sales platforms or delivery services. Prohibitive local ordinances are not allowed; however, localities can petition for a referendum on the question of whether retail stores should be prohibited in their locality. Retail stores are allowed to sell immature plants and seek to support the home growers, an allowance that is fairly unique among the existing legal adult-use states.

Taxing Cannabis Sales

Given the perception that regulated cannabis markets add to state coffers, it is little surprise that Virginia’s retail market will be subject to significant taxes. The taxing system is straightforward and not complicated by a taxing regime related to product weight or THC content, for example. There is a 21% tax on retail sales by stores, in addition to the current sales tax rates. In addition, localities may, by ordinance, impose a 3% tax on retail sales. These taxes could result in a retail tax of approximately 30%.

Changes to Criminal Laws

Changes to the criminality of cannabis will have long lasting effects for many Virginians. These changes include:

• Fines of no more than $25 and participation in substance abuse or education programs for illegal purchases by juveniles or persons 18 years or older;
• Prohibition of warrantless searches based solely on the odor of cannabis;
• Automatic expungement of records for certain former cannabis offenses;
• Prohibition of “gifting” cannabis in exchange for nominal purchases of some other product;
• Prohibition of consuming cannabis or cannabis products in public; and
• Prohibition of consumption by drivers or passengers in a motor vehicle being driven, with consumption being presumed if cannabis in the passenger compartment is not in the original sealed manufacturer’s container.

These changes, and others, represent a balancing of public safety with lessons learned from the effects of the war on drugs.

Potpourri

The Act contains myriad other noteworthy provisions. For example, the Board must develop, implement and maintain a seed-to-sale tracking system for the industry. Plants being grown at home must be tagged with the grower’s name and driver’s license or state ID number. Licenses may be stripped from businesses that do not remain neutral while workers attempt to unionize. However, this provision will not become effective unless approved again by the legislature next year. Banks and credit unions are protected under state law for providing financial services to licensed businesses or for investing any income derived from the providing of such services. This provision is intended to address the lack of access to banking for cannabis businesses due to the federal illegality of cannabis by removing any perceived state law barriers for banks and credit unions to do business with licensed cannabis companies.

The adult use cannabis industry is coming to Virginia. Much work needs to be done before July 1, 2024 to prepare for its debut. However, the criminal justice reforms and commitment to repairing harms related to past prohibition of cannabis are soon to be a present-day reality. Virginia is the first Southern state to take the path towards legal adult use cannabis. It is unlikely to be the last.