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First in the South – Virginia’s Legalization Focuses on Public Safety, Health and Social Justice

By Gregory S. Kaufman, Jessica R. Rodgers
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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

Virginia became the first state in the South to legalize adult use cannabis

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.

Virginia Governor Ralph Northam
Image: Craig, Flickr

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.

Flower-Side Chats Part 2: A Q&A with Bill Conkling, Founder and CEO of Maggie’s Farm

By Aaron Green
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Flower continues to be the dominant product category in US cannabis sales. In this “Flower-Side Chats” series of articles, Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses navigate a rapidly changing landscape of regulatory, supply chain and consumer demand.

Maggie’s Farm is an integrated cannabis company based in Southern Colorado. Maggie’s Farm has seven adult-use and medical dispensaries and cultivates the vast majority of their flower on outdoor farms. All Maggie’s Farm products are sun-grown from seed in soil that is 100% custom-mixed onsite as well as spring-watered, slow-cured and hand-trimmed. Maggie’s Farm does not use any synthetic pesticides or growth hormones in its cultivation. In addition, for the past eight years, Maggie’s Farm has recently obtained Clean Green Certified®, a designation certifying organic standards and testing that mirrors the USDA organic certification. Maggie’s Farm was the first cultivator in Colorado to earn the Clean Green certification.

We spoke with Bill Conkling, Founder and CEO of Maggie’s Farm to learn more about the benefits of outdoor growing, localism and their Clean Green certification. Bill started Maggie’s Farm in 2010 after growing up on cattle ranches and farms in Colorado.

Aaron Green: Bill, thanks for taking the time today. Tell me a bit about how you got involved in the cannabis industry.

Bill Conkling: I am a native of southern Colorado. I was a medical caregiver back in the early days of legalization, and I saw an opportunity to vertically align after my first legal crop in 2010. I opened up the store in 2011. I’ve been a lifelong proponent of medical, recreational and adult use of marijuana.

I come from a background of farmers and I had worked on cattle ranches and farms throughout childhood. As soon as I graduated from college, I went back to work on a large cattle ranch in the four corners area [of southern Colorado]. That’s where I started to incorporate my indoor cultivation experience and skills with outdoor.

Aaron: What trends are you following in the cannabis industry?

Bill: I was one of the first medical operators to support legalization, so I have certainly followed legalization trends. I’ve looked at some other states in our region in terms of growth and legalization.

Bill Conkling, Founder and CEO of Maggie’s Farm

We’re trying to stay a regional supplier and producer so that we are locally grown. We believe the southwest of Colorado is optimal for outdoor cannabis cultivation.

At Maggie’s Farm, we have followed an organic trend from the beginning and I think that’s becoming more of a trend now. We recently received Clean Green certification to that effect. Our goal is to try to provide the healthiest product at a good value to the market.

I believe that all of the products that are made in the cannabis world come from the flower. Downstream products are only as good as their ingredients. It all starts with the flower. So, we focus on producing a clean, top-shelf quality flower that is produced outdoors.

Aaron: How do you define local?

Bill: Local is staying in the climate that is optimal with the least amount of carbon footprint to the earth. That also means trying to operate so that we’re not moving a lot of product across long distances.

We’re trying to set up farms that are in optimal climates. There is a two or three-state region that I believe is the optimal climate for outdoor marijuana cultivation in our country.

Aaron: What states are those specifically?

Bill: I think Colorado and New Mexico, primarily.

Aaron: What geographies is Maggie’s farm currently in?

Bill: We’re in southern Colorado. We don’t go into the plains of Colorado.

Aaron: So Colorado state only right now?

Bill: Yes. The wet mountain range is one of the mountain ranges that we are in. I’ve also cultivated in the La Plata mountain range.

Aaron: What specifically is it about that region that makes it conducive to cannabis growing?

Bill: I think if you get the right elevation and the right microclimates within those elevations, and you have the number of sunny days that Colorado offers in those areas – the intensity of the sunlight, and the cool nights – all those things are factors that coincide in these areas that we like to cultivate in.

Aaron: We’ve been talking about outdoor growth. Does Maggie’s do any indoor?

Bill: No. We’re essentially an outdoor farm. We do a little bit of breeding and we’ve got starter houses, greenhouses and hoop houses for that purpose. We’ve got one greenhouse that we use for some wholesale, but we are primarily outdoors.

Aaron: How do you go about selecting the genetics or evolving the genetics to meet your local environment, given that you’re growing outdoors?

Bill: A lot of it is honestly through testing and experimentation, historically. You just cultivate and harvest and see how the genetics performed, you know? You test, you take test inputs, you take customer reviews, and blind test results from the team and from the customers and you consider all those facts.

Aaron: Do you produce and use your own seeds or are you purchasing those?

Bill: We have done both. I think I’ve probably created somewhere north of 800 different strains at this point. So, we’ve got a huge seed bank. We do also buy from vendors and experiment with some of those genetics as well.

Aaron: Do you market your seeds in Colorado?“I don’t think that you can get anywhere near the terpene value indoors that you can outdoors.”

Bill: We do not.

Aaron: How did you settle on outdoor-only as the strategy for Maggie’s?

Bill: I believe outdoor is a premium flower. I think it has less impact on the earth. I think that there is a lot less pest mitigation than there is indoors, which makes it a healthier, cleaner product. You don’t have to mitigate the concentration of pests that you get in temperate climates of stagnant corners of greenhouses and buildings that you cultivate indoors. Therefore, you never get into the situations as often or as intensely, where you might have to really work hard at mitigating your pests. You can use the natural predator insects you can introduce and oftentimes they survive and they create their own climates and it’s a more natural, healthier product.

I don’t think that you can get anywhere near the terpene value indoors that you can outdoors. You just don’t have the value of the sun, which nothing compares to. You can hold up as many high wattage bulbs as you want and you don’t even pale to the sun and the effect that the sun has on the flower.

Aaron: What are some of the challenges of growing outdoors that you see frequently?

Bill: You have to be nimble. You can’t rely completely on a schedule. You’ve got to be able to shift around in your planting days and your harvest dates.

You’ve obviously got to be on your toes all the time for weather changes. Higher humidity years can tend to bring more insects or pests. Some years you’ve got higher winds than other years. This year, we had a snowstorm on September 9, which left nine inches of heavy wet snow on one of our farms. So, you’ve got to be nimble, very proactive and ready for those kinds of weather events that happen in very short notice.

Aaron: We mentioned Clean Green Certified® briefly. Can you explain more about the Clean Green certification and why that’s an important thing for you at Maggie’s?

Bill: The choice to become Clean Green Certified® was really an effort to validate the organic process that we have. We vetted out what we believe was and still is the premier, organic criteria certification endorsement in the market for cannabis. To this day, they really do an ethical, vetting-out process whereby if you fail the parts of any of the soils that are sent to federal-licensed labs, you do not get your endorsement. The owner of Clean Green also had a mother company that was an endorser of other agricultural products such as coffee, wheat and dairy.

Aaron: How would you compare Clean Green Certified® to USDA Organic?

Bill: Identical. When the federal government legalizes, we are poised to automatically convert to a USDA Organic certification and endorsement. The processes the founder and owner of Clean Green uses to test cannabis is the same process used to test other agricultural industries. For plants, he takes random samples of soils throughout a cultivation field and sends them to a federal-licensed lab where they test for impurities.

Aaron: Did you decide to get your Clean Green certification due to pulling from the market, or is this more something you decided to do internally as Maggie’s Farm?

Bill: I decided to do this internally. I wanted to be recognized for all of our organic efforts and I wanted to let people know that we have a safe product that doesn’t have synthetics in it. Even to this day, a lot of people in Colorado unlike the coastal states like maybe California are still pretty unaware of a Clean Green certification or even the fact that there is an organic process for cannabis or marijuana. So, it’s really just to let our customers know that there is value in a safe, healthy choice for them.

Aaron: What kind of products do you create at Maggie’s farm?

Bill: We grow flower. We are also a big producer of a very high-quality pre-roll. We are developing promoted products as well.

Aaron: Do you do fresh frozen?

Bill: We do some, yes.

Aaron: Are you selling direct to the dispensary or to manufacturers?

Bill: We finally had produced some excess. So, we started wholesaling flower this year and lots of high-quality shake for concentrates to concentrate makers. Our customer is typically a little more of a mature customer. I don’t want to say necessarily older, but I think we probably do hit a little bit of a higher, more experienced, health-conscious, connoisseur customer.

Aaron: Can you give me an idea of some of the regulatory challenges in Colorado that you’ve faced in the past or are facing today?

Bill: The perpetual change of regulation has been a challenge. Being a competent operator in cannabis means getting used to the change and having the resources to be nimble with compliance. We haven’t had common problems such as metals, mold or mildew issues. However, we have had some hardware issues, which required us to change cameras along with other technical intricacies.

Aaron: How many acres do you have?

Bill: We have about 30 acres of secured premise cultivation.

Aaron: Is that all managed in-house or sublet?

Bill: It’s all managed and operated exclusively by Maggie’s Farm.

Aaron: What’s next for Maggie’s Farm? What are you excited about?

Bill:  We want to continue to put a higher scale of a very healthy, quality, value flower out there and to be able to offer that to more states initially states that are within our region and eventually states across the US. Also, we will continue to do our best to meet the growing demand for healthier choices in general.

Aaron: Lastly, what are you personally interested in learning more about?

Bill: How we can continue to be as earth-conscious as we can be? How we can continue to look for ways to give back to our communities? How we can continue to operate as a view of made in the USA and to try to just support local regional and national products and vendors? Just how to be more aware and always look for opportunities for self-improvement.

Aaron: That concludes the interview, thank you Bill!