Retail cannabis bill veto applies brakes to budding practice area

Five years ago, the General Assembly passed legislation allowing marijuana possession in small amounts in Virginia – seen as a landmark development in the commonwealth’s history of cannabis law.

But multiple attempts to establish legal recreational cannabis sales were vetoed by then-Gov. Glenn Youngkin, with Democrats in Virginia promising to revisit cannabis sales once the party held the governor’s office and majorities in the legislature.

The wait will continue for at least one more year.

On May 19, Gov. Abigail Spanberger vetoed the combined House Bill 642 and Senate Bill 542, which passed mostly on party lines to establish a retail cannabis market in Virginia.

Spanberger, who promised during her gubernatorial campaign to create a legal cannabis market, vetoed the bills after the legislature rejected her substitute proposal. Her changes — including delaying the market open six months, lowering the number of retail locations and the legal possession limit, and harsher criminal penalties — represented a “significant departure from the framework of the bill” according to a statement from bill patrons Del. Paul Krizek, D-Fairfax, and Sen. Lashrecse Aird, D-Henrico County.

“By making the legal market harder to access, this proposal allows the illicit market to continue to thrive in every corner store in our commonwealth,” the patrons said in a joint statement. “That undermines the core goals of legalization and increases the likelihood of untested products, inconsistent potency, and lacks consumer protections.”

In her veto statement, Spanberger said the bills as passed lacked “the timeline, structure or resources” for a retail cannabis market to be successfully implemented.

“As Virginia pursues a legal retail market, it is critical that we incorporate lessons learned by other states and ensure that our regulatory framework is fully prepared to provide strong oversight from day one,” Spanberger said. “That includes clear enforcement authority and sufficient resources for compliance, testing and inspections, and robust tools to crack down on bad actors who continue to profit from the illicit market.”

Left in the wake of the veto are stakeholders who must wait another year for clarity on the legal cannabis market — and likely months after that for its eventual implementation.

Gentry Locke Consulting President Greg Habeeb, who now lobbies for the Virginia Cannabis Association, noted that Virginia
has done everything short of create the commercial market.

“We have legal possession, we have legal consumption, we have legal growing, we have legal sharing,” Habeeb said. “We have illegal sales, and we have developed what appears to be a multibillion-dollar black market of illegal sales.”

The veto also leaves attorneys looking for an opportunity to enter the cannabis law space in flux for another year. Habeeb said retail market legalization has the chance to impact many areas of the law.

“It’s an opportunity space for your existing practice to add a new industry, like tax, real estate and employment,” Habeeb said. “It’s also a potential entirely new industry for people who want to try to have a cannabis practice.”

Vetoed legislation

As passed, the retail cannabis legislation would have launched a legal recreational cannabis marketplace for adults ages 21 and over on Jan. 1, 2027. The bill would have permitted up to 350 legal cannabis shops in Virginia, while also increasing the possession limit from 1 ounce to 2.5 ounces.

Spanberger’s proposed amendments would have pushed back the opening of the market to July 1, 2027, decreased the number of retail locations to 200 and lowered the possession limit to 2 ounces.

The governor also added harsher criminal penalties in her substitute than existed in the legislature’s version, notably making it a Class 2 felony to illegally transport at least 50 pounds of cannabis to Virginia to sell or distribute.

“[T]he governor’s substitute substantially introduces harsh escalating criminal penalties that risk repeating the very harm legalization was meant to correct, particularly in communities that have historically been harmed by prohibition,” Aird and Krizek said in a joint statement.

Whether legislation creating a legal marketplace should address marginalized groups is oft discussed, Habeeb said. He said provisions giving deference to groups including veterans communities or historically disadvantaged groups has been “in every version that’s ever passed” the legislature.

“Some in the marijuana justice community felt this year’s bill advanced their cause significantly, and they were disappointed that some of the governor’s amendments undid some of that work,” Habeeb said.

The differences between the General Assembly and Spanberger ultimately were too great to reconcile, leading to the May 19 veto.

JM Pedini, development director at Virginia’s chapter of the National Organization for the Reform of Marijuana Laws, was critical of Spanberger’s veto.

“It is outrageous that five years after Virginia lawmakers first approved legalization, there still exists no regulated cannabis sales system outside of the state-licensed medical program,” Pedini said.

Pedini also criticized proposals in Spanberger’s substitute as “out of touch.”

“Now, instead of finally taking marijuana out of smoke shops and placing it behind an age-verified counter, Virginia is once again being forced to tolerate yet another year of dangerous illicit activity in every corner of the commonwealth,” Pedini said.

Norfolk attorney Anne Bibeau, principal at Woods Rogers, said she anticipates the legislation being revisited in the next session.

“I don’t have any doubt that this is going to come back,” Bibeau said. “I anticipate that we’ll see this again next spring and the kinks will be worked out by then, because there wasn’t a lot of difference between what the governor wanted and what the General Assembly wanted.”

Illicit market

One point often brought up during the debate around legalizing retail cannabis markets is the “multibillion-
dollar black market of illegal sales” that Habeeb referenced.

University of Virginia School of Law Professor Kimberly Krawiec focuses her research on “taboo trades” and has taught a course on cannabis legalization.

While noting that she is “sympathetic” to some of Spanberger’s concerns and that the market design is crucial to cannabis legalization, Krawiec cautioned that the bill’s veto may have consequences in the short term.

“Virginia has legalized some end-user conduct while continuing to prohibit most market exchange,” Krawiec said. “That creates precisely the kind of hybrid regime likely to sustain gray and illicit channels: Demand is lawful enough to be normalized, but supply remains legally constrained.”

Habeeb said the stakeholders recognize the existence of this illicit market and have common end goals.

“I think everyone is trying to get to the same place, which is a workable system that regulates a current existing black market, that taxes currently untaxed products and that tests untested products and gets them out of the hands of kids,” Habeeb said. “It’s just a question of how you get there.”

Virginia has legalized medicinal cannabis for several years, meaning it is possible to purchase marijuana via that avenue. While acknowledging that many people have legitimate medicinal needs for cannabis, Bibeau noted that “it is widely known that it is easy to get a medical cannabis certification.”

“We’ve created this legal framework where it allows people to pretend to have medical conditions warranting a medical certificate so they can buy these products legally,” Bibeau said. “There are definitely people who have a legitimate medical reason for it, but I think it’s open for abuse, and that’s pretty well known.”

Krawiec acknowledged that the market for cannabis in Virginia already exists, despite the lack of a legal retail market.

“I am also concerned that the veto postponed regulation of an already- existing market without publicly demonstrating that the bill’s flaws were worse than continued illicit-market governance,” Krawiec said.

Cannabis and law practice

With the veto, Krawiec said that attorneys looking to practice in the cannabis law space are “in a state of uncertainty.”

“The veto both delays the licensing work that I’m sure many were anticipating, but also leaves lawyers in a constrained advisory posture,” Krawiec said.

Bibeau said she has fielded many calls from people interested in the legal cannabis market.

“I’ve gotten a lot of calls from people wanting to get into this space and are basically chomping at the bit as soon as the law is approved to move forward,” Bibeau said.

Bibeau highlighted two practice areas as possible forums for attorneys to explore cannabis law: emerging growth practices and government regulation.

Emerging growth practice focusing on new business and entrepreneurs can help startups launch and learn how to get capital and form their businesses.

“I think the attorneys who focus on that area are primed to get into this space,” Bibeau said.

Bibeau and Habeeb both cited tax law as an area for attorneys to get involved in the cannabis law space, namely due to the heavy regulations involved in the industry.

“If you do tax work, if you do real estate work, if you do lender finance work, all the stuff that you do in lots of existing industries, this will simply be a new industry you can do it in,” Habeeb said.

Habeeb also said that some attorneys may look into cannabis-specific practices that envelop many of those same concepts and focus on licensure and regulatory compliance.

“Any time a new industry comes to
Virginia, whether it’s renewable energy or gaming or cannabis, there’s always opportunity for service,” Habeeb said.

With the legislature revisiting the retail marketplace issue annually in recent years, sources who spoke with Virginia Lawyers Weekly believed that Spanberger and the legislature will eventually come to an agreement on retail cannabis sales. Bibeau noted that the latest attempt is the closest it has come to passing so far.

As the sides move closer, attorneys and stakeholders stand ready to capitalize on the new industry.

“The big thing is we’re just waiting and watching,” Bibeau said. “I’m pretty confident we’ll be right back here in March next year, looking at another bill that will be pretty similar to what we’ve seen this time, only more in line with what the governor wants.”