Gov. Youngkin Rejects Recreational Cannabis Sales

Updated 4.1.24

Gov. Youngkin dashed hopes for a recreational cannabis market in Virginia by vetoing SB448 and HB698. Those bills, which passed the General Assembly by narrow margins, would have allowed retail sales beginning in 2025. Yet again, businesses looking to enter a legal marijuana market in Virginia will have to shelve those plans.

As a result, Virginia maintains the confusing stance of “immaculate possession.” Possession of less than one ounce of marijuana, even for recreational use, is legal, but there is no legal way to obtain it. This allows an illegal market to flourish while legitimate businesses are excluded.

WRVB attorneys will continue to monitor developments in this area.

Updated 3.1.24

On February 28, 2024, the General Assembly passed bills SB448 and HB698, which were sent to Gov. Youngkin for his review. If enacted, the legislation would allow businesses to apply for licenses to test, cultivate, process, transport, or sell recreational marijuana beginning on September 1, 2024. Retail sales would begin on May 1, 2025, and be subject to an 11.625% tax.

Gov. Youngkin has not indicated what he will do with the legislation, but previously he stated that he has no interest in a recreational marijuana market. Given that the bills passed by narrow margins, it seems unlikely the General Assembly would be able to override a veto.

Original article:

Cannabis industry participants are keeping close tabs on a potential breakthrough in the Virginia recreational cannabis market. Virginia legalized adult-use recreational cannabis in 2021, but legislation that would have allowed sales of recreational cannabis died the following year when the General Assembly failed to reenact it. Since then, Virginians have been able to use marijuana recreationally, but have had no legal means to acquire it.

That hasn't stopped Virginians from lighting up, of course; rather, this contradiction has encouraged abuse of the medical cannabis program, fueled illicit sales, and blocked the development of legitimate businesses. Meanwhile, even in states with legal recreational markets, cannabis businesses are hampered by the continued federal prohibition on cannabis.

There are three developments that prospective retailers in Virginia should be watching closely:

1. Democrats in the General Assembly are working on legislation to open a recreational cannabis market. The bill, SB448, would allow businesses to apply for licenses in September 2024 and allow sales beginning on May 1, 2025. The bill would allow up to 350 retail cannabis stores and 100 cannabis processing facilities. Sales would be subject to a 9% retail tax (4.5% local and 4.5% state). Don’t celebrate yet, however. Gov. Youngkin has stated that he is not interested in creating a recreational market. Unless the General Assembly can muster a veto-proof majority on this issue, prospective retailers' hopes may be dashed yet again.
2. The U.S. Department of Health and Human Services (HHS) has recommended to the U.S. Drug Enforcement Administration (DEA) that cannabis be reclassified under Controlled Substances Act from a Schedule I drug to a Schedule III drug. Cannabis’s current status as a Schedule I drug, a classification that includes heroin and LSD, means that the substance has a high potential for abuse and no accepted medical use. In contrast, Schedule III substances (e.g., Tylenol with codeine, ketamine, anabolic steroids, testosterone) have a moderate to low potential for physical and psychological dependence. Although rescheduling would not equate to federal legalization of marijuana, it would have a significant impact for cannabis businesses that are legal under state laws. For starters, such businesses would be able to significantly lower their tax bills by taking deductions that are currently barred by IRC § 280E. Rescheduling would also open the door to scientific research on cannabis, which is currently restricted.
3. The SAFER Banking Act (S.2860) is winding its way through Congress yet again. We've been disappointed repeatedly by this law's failure to pass. Could this be the year it finally breaks through, allowing cannabis businesses legal under state law to have full access to the banking system?

WRVB continues to monitor industry developments and will be poised to assist businesses when and if Virginia opens a recreational market.