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General Assembly votes to legalize marijuana

After months of debate and over a year of preliminary study and analysis, the General Assembly has voted to legalize marijuana in the Commonwealth.

HB 2312 (Herring) and SB 1406 (Ebbin) passed the House of Delegates and Senate late on Saturday, February 27, paving the way for the legalization and subsequent commercialization of marijuana throughout Virginia.  In a virtual legislative session marked by countless twists, turns and challenges, these bills were amongst the most difficult for the General Assembly to grapple with.  By the time a final vote was taken in each chamber, the bills had already been heard by three subcommittees and six full committees in the House and Senate, not to mention the many days of rigorous debate heard on the floor of each chamber.

Ultimately, a compromise version of HB 2312/SB 1406 passed with lengthy delays incorporated in the legislation.  As it currently stands, both the legalization of possession of marijuana as well as the establishment of retail sales are delayed until January 1, 2024.  The Commonwealth can begin to act as of July 1, 2021, to establish and develop the Virginia Cannabis Control Authority, the regulatory body that will provide oversight to this new industry.

As with earlier drafts, the final legislation agreed to is sweeping in nature, covering numerous topics (ranging from criminal code revisions to tax policy) and clocking in at 264 pages.  For the sake of brevity, three main local government concerns will be addressed here: local option, tax, and land use.

Local Option for Retail Stores
§ 4.1-629, Lines 6816-6849

The approved legislation provides that a local referendum may be held on the possible prohibition of retail marijuana stores in each locality.  Per § 4.1-629, the governing body of a locality may, by resolution, petition the circuit court for the locality for a referendum on the question of whether retail marijuana stores should be prohibited in the locality.

If a majority of the voters in such referendum vote “No,” retail marijuana stores shall be permitted to operate within the locality 60 days after the results are certified or on January 1, 2024, whichever is later.  Additionally, no subsequent referendum may be held pursuant to this section within such locality.  If, however, a majority of voters vote “Yes” on the question, retail marijuana stores shall be prohibited in the locality effective January 1 of the year immediately following the referendum. A referendum on the same question may be held subsequent to a vote to prohibit retail marijuana stores, but not earlier than four years following the date of the previous referendum. Any subsequent referendum shall be held pursuant to the provisions of this section.

When any referendum is held pursuant to this section in a town, separate and apart from the county in which such town or a part thereof is located, such town shall be treated as being separate and apart from such county. When any referendum in held pursuant to this section in a county, any town located within such county, shall be treated as being part of such county.

Finally, Enactment Clause #22 of the legislation stipulates that the initial referendum authorized under § 4.1-629 shall be held and results certified by December 31, 2022. A referendum on such question shall not be permitted in a locality after January 1, 2023, unless such referendum follows a referendum held prior to December 31, 2022, and any subsequent referendum, in which a majority of voters voted “Yes” to prohibit the operation of retail marijuana stores.

Tax and Revenue
§ 4.1-614, Lines 6639-6665; § 4.1-1003, Lines 7520-7533; § 4.1-1004, Lines 7534-7553

Per § 4.1-1003 of HB 2312/SB 1406, a tax of 21 percent shall be levied on the sale of retail marijuana, retail marijuana products, marijuana paraphernalia sold by a retail marijuana store, non-retail marijuana, and non-retail marijuana product. This new tax shall be in addition to any tax imposed under Chapter 6 (§ 58.1-600 et seq.) of Title 58.1 or any other provision of federal, state, or local law.

The revenue from this 21 percent tax is already accounted for in the legislation.  Per § 4.1-614:

  • Forty percent of the revenue is allocated for pre-kindergarten programs for at-risk three-year-olds and four-year-olds;
  • Thirty percent is allocated to the Cannabis Equity Reinvestment Fund (established pursuant to § 2.2-2499.4 of the legislation);
  • Twenty-five percent is allocated to the Department of Behavioral Health and Developmental Services (DBHDS), to be distributed to community services boards (CSBs) for the purpose of administering substance use disorder prevention and treatment programs; and
  • Five percent is allocated to public health programs.

Pursuant to § 4.1-1004, there is also an optional three percent local tax that may be levied on any sale taxable under § 4.1-1003.  The legislation clarifies that this new local tax shall be in addition to any other local sales tax imposed under Chapter 6 (§ 58.1-600 et seq.) of Title 58.1, any food and beverage tax imposed under Article 7.1 (§ 58.1-3833 et seq.) of Chapter 38 of Title 58.1, and any excise tax imposed on meals under § 58.1-3840.  This three percent tax may be levied by ordinance.  If a town imposes a tax under this section, any tax imposed by its surrounding county under this section shall not apply within the limits of the town (to prevent an accidental double-tax).

All local tax revenues collected under § 4.1-1004 shall be paid into the state treasury and credited to a special fund called “Collections of Local Marijuana Taxes.” The revenues shall be credited to the account of the locality in which they were collected. If revenues were collected from a marijuana establishment located in more than one locality by reason of the boundary line or lines passing through the marijuana establishment, tax revenues shall be distributed pro rata among the localities.  Payments shall be made to each locality on a quarterly basis.

Land Use Authority
§ 4.1-630, Lines 6850-6865; § 4.1-631, Lines 6866-6876

A consistent theme in the debate over these bills was the extent to which local governments had authority over the commercialization of marijuana. Simply put, the legislation does seek to broadly limit the authority a locality has to adopt future ordinances or resolutions regarding the cultivation, manufacture, possession, sale, wholesale distribution, handling, transportation, consumption, use, advertising, or dispensing of retail marijuana or retail marijuana products in the Commonwealth.  Despite this language, however, the legislation does provide several key provisions that help local governments:

First, as described in depth earlier, localities do have the option to hold a referendum on the prohibition of retail sales of marijuana.

Second, any county, city, or town may adopt an ordinance (i) that prohibits the acts described in § 4.1-1108, or the acts described in § 4.1-1109, and may provide a penalty for violation thereof; and (ii) that regulates or prohibits the possession of opened retail marijuana or retail marijuana products containers in its local public parks, playgrounds, public streets, and any sidewalk adjoining any public streets.

Additionally, the legislation does include language (§ 4.1-630(C)) that was proposed by VACo and other local government representatives that clarifies that “nothing in this chapter shall be construed to supersede or limit the authority of a locality to adopt and enforce local ordinances to regulate businesses licensed pursuant to this chapter, including local zoning and land use requirements and business license requirements.”

Finally, § 4.1-631 authorizes counties, cities, and towns to adopt ordinances that regulate the hours during which retail marijuana and marijuana products may be sold.

Next Steps
Having now passed both the House and Senate, HB 2312/SB 1406 will be communicated to the Governor for analysis and eventual action.  While not highlighted in this particular write-up, there are numerous questions and issues that stakeholders – both supporters and opponents of the legislation – have continued to raise, particularly related to the criminal justice aspects of this legislation (especially in regard to the 2024 legalization date).  It is unclear what – if any – amendments the Governor may send back to the General Assembly.

VACo will continue to monitor this legislation and will provide updates, as necessary.

VACo Contact: Chris McDonald, Esq.

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