electricity cost is a major factor in the location of indoor grow houses, in states where recreational marijuana is legal
Source: State of Colorado, Energy Use in the Colorado Cannabis Industry (p.8)
The Virginia General Assembly legalized use of marijuana for medical purposes in 1979, and expanded such use in 2015 and 2018. The laws protected patients from prosecution if they had a recommendation from a doctor that marijuana was medically advised. By the end of 2018, some form of medical marijuana use was legal in 46 states, and broad access to the drug under a doctor's guidance was available in 33 states.
Decriminalization of possession of up to one ounce in Virginia occurred in 2020. Legalization of marijuana possession for recreational use, including the right to grow four plants in each house, occurred in 2021. That year, the General Assembly also schedule for a full-scale commercial system for growing and selling marijuana to be in place by the start of 2024.
In 2017, a Quinnipiac poll had indicated that the 59% of the people in Virginia supported legalizing recreational use, while 35% percent were opposed. After the November, 2018 elections, recreational use had been legalized in the District of Columbia and 10 states, but at that time recreational use was allowed in no state closer to Virginia than Massachusetts.1
In the 2018 legislative session, a bill to decriminalize possession of small amounts of marijuana for recreational use was killed in the Senate Courts of Justice Committee. The vote was clearly partisan. All six Democrats voted in favor, while all nine Republicans opposed decriminalization.2
The political divide reflected the urban-rural divide of Republican and Democratic elected officials, and the different socio-economic character of urban districts represented by Democrats vs. rural districts represented by Republicans. Urban districts had higher percentages of minority voters, and they were arrested for marijuana possession at significantly higher rates than whites.
Virginia has no mechanism for a citizen-initiated referendum, so legalization for recreational use required approval by the General Assembly. Legalization proposals had to be approved first in the Courts of Justice committee of the House of Delegates and the State Senate. Recreational use proposals were blocked in the 2020 session of the General Assembly, which chose to focus instead on decriminalization bills.
In 2020, the legislature ultimately decriminalized possession of up to one ounce of marijuana, hash, or oil concentrates. Those convicted of possession of marijuana had been at risk of 30 days in jail and a $500 fine, while possession of hash or other concentrates was a felony. Efforts by local prosecutors to dismiss all possession cases had been blocked by Virginia judges, who determined such an approach would be an abuse of prosecutorial discretion.
Though recreational marijuana use was not legalized, possession became a civil offense equivalent to a minor traffic violation, with just a $25 penalty. The new law did not eliminate the threat of selective enforcement against minorities based on a law enforcement officer's claim of smelling marijuana before initiating a search, but did eliminate the risk of going to jail for possession of small amounts of marijuana for personal use. In 2018, there had been 29,000 arrests, up from 20,000 in 2008.
In addition to many of the 2018 arrests, charges filed in previous years were also resolved in court cases that year. In 2018, more than 46,000 cases involving marijuana possession were prosecuted in General District Courts across Virginia. In the court system that year, only traffic-related cases exceeded the number of marijuana cases handled.
Some of those cases were not resolved that year, but of the nearly 35,000 cases completed nearly 20,000 people were convicted. African-Americans constituted 19% of the state's population in 2018, but were charged in 49% of the marijuana possession cases and convicted in 51%.
prosecutions and convictions for marijuana possession had a disproportionate impact on the African-American population in 2018
Source: VCU Capital News Service and WWBT, Virginia prosecuted 46,000+ marijuana cases in 2018 (December 12, 2019)
The 2020 legislation was bipartisan. Decriminalization passed in the House of Delegates by 56-36 vote, and in the Senate by 27-12.
One side effect of decriminalization is that K-9 dogs trained to sniff out marijuana became surplus. The dogs had been imprinted to find that one drug, and could not be retrained. If K-9 signaled a law enforcement officer that a car had marijuana but the officer then found guns or other evidence of a felony, then a search based on just a civil crime might be invalidated and the case dismissed. In Tazewell County, the two trained K-9's were sold to another state where possession had not been decriminalized. Two new dogs were purchased and trained to detect narcotics, and also to track and apprehend people.
The sheriff elected in Prince Edward County in 2019 had emphasized in his campaign how he planned to restart the county's K-9 program. The county retired one of its two trained dogs, but donated the other to the Piedmont Regional Jail. Inmates were not allowed to possess cannabis, so searches by trained dogs were still appropriate there.
Though new dogs could be acquired which were not trained to signal their handler when smelling marijuana, early retirement took a toll on the old dogs. One handler who adopted his K-9 described him as suffering initially:3
after decriminalization of marijuana in 2020, K-9's trained to spot the drug became surplus
Source: US Marine Corps, PMO K9 division maintains readiness with night training
Decriminalization was expected reduce the racial bias of law enforcement in Virginia. The Drug Policy Alliance concluded, after examining marijuana-related arrest between 2003-2013, that racial disparity was increasing:4
Statistics on marijuana-related arrests between 2010-2016 revealed a clear distinction based on race. Blacks were three times more likely to be arrested than whites, even though whites and blacks were using marijuana at equal rates. Law enforcement personnel evidently targeted 20% of the state's population more intensely.
There were dramatic differences in the average overall arrest rates between localities. Emporia and Colonial Heights made over 1,500 arrests per 1,000 people living within those jurisdictions, while police in Charlottesville made only 25 arrests/1,000 people. There were 589 arrests/1,000 residents in the City of Fairfax, but the similar City of Falls Church had only 51 arrests/1,000.5
arrest rates vary dramatically by race and by jurisdiction
Source: Blue Virginia blog, New Study: Marijuana Arrests, Racial Disparity in Those Arrests, Increase Sharply in Virginia
The opportunities to create jobs by legalizing recreational marijuana was another incentive for legislative action. Commercial marijuana growing and processing grew rapidly in other states after legalization for recreational use. Virginia legislators saw new tax revenues grow in states that legalized recreational use.
By 2019, there was a widespread assumption that Virginia would be legalizing full recreational use of marijuana soon. In the 2020 election, four more states legalized recreational use, bringing the national total to 15. Members of the General Assembly predicted that the 2021 House of Delegates would authorize recreational use, but passage in the State Senate was not assured. The voting was expected to be bi-partisan, with members of both parties lined up as opponents vs. supporters of legalization.
Governor Northam announced his support for legalizing recreational use two months before the 2021 General Assembly opened. Previously, he had only advocated for decriminalization. He spoke out after release of a report from the Joint Legislative Audit and Review Commission (JLARC) suggested that legalization could generate $300 million in annual sales tax revenue, if the total tax on marijuana (including sales tax) was between 25%-30%.
after the Joint Legislative Audit and Review Commission (JLARC) reported on possible tax revenues, Gov. Northam endorsed legalization of recreational use in November 2020
Source: Joint Legislative Audit and Review Commission (JLARC), Key Considerations for Marijuana Legalization
One commentator noted in 2019 that delay in legalization would handicap the future marijuana growers within the state:6
After Federal legalization, many states will try to develop "grow houses," growing and processing marijuana to meet projected demand. Grow houses are energy intensive, requiring 10 times the energy per square foot compared to a typical office building. Two or three grow houses can create the demand equivalent to a data center. Locating a grow house in an existing developed area may require that the electrical grid be modified to accommodate the increased demand, including upgrades to transformers.
Successful grow houses may have to produce cannabis at $300/pound. Energy efficiency could be the factor that determines where the lowest-cost marijuana can be produced. A grow house is an artificial environment, and they may end up being where electrical costs are lowest and not where day length is longest or soil is best.7
Colorado businesses benefitted from "green tourism" after the state legalized recreational use in 2014. State law required growing, processing, and sale within the state's boundaries, but customers could cross state lines and come to Colorado to purchase and use marijuana. In 2017, revenue from cannabis sales exceeded alcohol sales in Aspen. After legalization in California, companies advertised California, "wine and weed" tours.8
Because the Federal government did not legalize recreational use, each state operated as a separate market, an island of opportunity. So many growers in Oregon started legalized businesses that the state ended up with an excess supply. Retail prices dropped 50%, from $14/gram in 2015 to $7/gram in 2017.
The Craft Cannabis Alliance pushed the Oregon legislature to authorize wholesale shipments to other states where marijuana use had been legalized. Oregon growers would benefit from access to a wider market, expanding their customer base. The executive director of the business association complained:9
The Craft Cannabis Alliance in Oregon was anticipating that the US Congress would change Federal law.
So long as marijuana was listed under the Controlled Substances Act as a Schedule I drug, with "high potential for abuse and the potential to create severe psychological and/or physical dependence," growing, processing, selling, and using marijuana was a Federal crime.10
If the US Congress changed the law, however, the state-based barriers to doing business would drop. The competitive position of growers in Colorado, Oregon, and California would be enhanced by expanding the market.
the products from cannabis flowers attract tourists to Colorado
Source: Colorado Department of Agriculture, Industrial Hemp
Because Virginia was not one of the first states to legalize recreational marijuana, growers remained underground and sellers operated in a black market. No Virginia-based strains developed a broad, brand name recognition and no Virginia-based growers developed a broad reputation for a quality product. Virginia ceded the business growth opportunity, because it was "late to market" compared to other states.
The Virginia wine industry has demonstrated the time and effort required to create a market for a locally-grown and locally-processed agricultural product in Virginia. The wine industry required decades to overcome the general public's perception that good wine came from California and Europe, and to get customers to say "make mine Virginia wine."11
cannabis buds produce the oils, terpenes and other flavoring agents that define the commercially-valuable differences between different strains
Source: State of Colorado, Energy Use in the Colorado Cannabis Industry (p.10)
The banking industry has demonstrated the impact on Virginia corporations when state barriers to commerce are loosened by changes in Federal law. During the deregulation initiatives of the 1980's, Virginia was slow to allow banks to expand with branches, protecting small-town banks from competition with bigger banks based in the urban areas.
North Carolina provided easier opportunities for its banks to expand. They gained experience acquiring and integrating smaller banks into larger corporations. When a 1985 Supreme Court decision liberalized interstate banking, North Carolina banks were better prepared for competition. Virginia banks were swallowed up, and corporate headquarters were moved to Charlotte.12
If the Federal government legalizes recreational marijuana use, then a few large growers are likely to dominate the wholesale market. Just as a few bourbon distilleries are concentrated near the clean water of limestone formations in Kentucky and Tennessee, one region could become the primary center of marijuana production.
Though Colorado legalized recreational use first, the Emerald Triangle of Northern California and Southern Oregon is a top contender for primacy in the marijuana business. Individuals operating outdoor farms and indoor "grow houses" there have learned from decades of experience how to breed specific strains and extract preferred oils from cannabis plants.
growing industrial hemp outdoors in Colorado includes acquiring water rights for irrigation
Source: Colorado Department of Agriculture, Industrial Hemp
In addition to being a center of practical experience, the Northern California and Southern Oregon region also offers low electricity costs and a mild climate that reduces heating/cooling costs. Grow houses there can be "mixed," with windows opened at suitable times to allow air circulation.
Federal legalization could create a shift in marijuana production that mimics the shift in computer storage and processing to the cloud. When companies first automated their operations in the 1980's and 1990's, they built small computer centers in their local offices. Later, even small companies shifted their data storage and processing to a relatively few data centers, shutting down the small computer centers within the company-owned buildings.
Marijuana growing also started in the 1960's with small, decentralized operations. Fragmenting the farming and processing operations minimized the risk of discovery by law enforcement officials, and minimized the initial investment required by marijuana capitalists to initiate their start-ups.
If legalized, larger and more cost-effective grow houses are likely to replace most of the black market indoor growing operations scattered in garages, basements, barns, and warehouses. Illegal and small facilities may disappear as investors finance larger facilities that benefit from economies of scale.
Legal grow houses will also require extra capital to meet regulatory requirements such as monitoring of pesticide applications, product testing, and security. Since each plant is worth thousands of dollars, theft is a constant risk for marijuana-producing operations. To reassure investors that product will not be diverted, grow operations may implement security that exceeds the requirements established by official laws and regulations.
outdoor grow operations require security to prevent theft, and simple screening/fencing is not adequate
Source: San Bernardino Sheriff's Department, Search Warrants - Outdoor Marijuana Grow (Phelan/Pinon Hills, June 21, 2018)
Acreage and electricity requirements of grow houses resemble those of data centers filled with computer servers. Just a few processing plants near centralized grow houses could create the majority of the tetrahydrocannabinol (THC), the primary psychoactive ingredient in marijuana that produces the "high," and the non-psychoactive cannabidiol (CBD) thought to provide health benefits, needed to meet demand of a national and even international market.
Assuming Federal legalization, grow houses that produce the least expensive cannabis-related materials will capture a substantial part of the market. There will be a substantial demand from processors for low-cost cannabis-derived oils that can be infused in edibles and other items. Generic products sold in stores will compete primarily on cost, in contrast to brand name products.
Even branded marijuana products may seek the lowest-cost raw material. Packaging, advertising, celebrity endorsements, and other branding efforts can entice customers to purchase marijuana products without evaluating the source of the marijuana. The marketing of liquor may serve as a model, where companies price and advertise products based on aspects other than the source of the alcohol.
Advertising the health effects of various cannabis-derived products can be done without highlighting the source of the cannabidiol (CBD). For users seeking psychoactive effects, customers may not discriminate based on the specific strain from which the material was produced so long as the percentage of tetrahydrocannabinol (THC) is adequate.
Assuming Federal law changes, Virginia growers and processors still will have difficulty competing with Colorado or the Northern California/Southern Oregon region for production within indoor grow houses. Virginia facilities could be located in low-cost areas such as Mecklenburg County, which has already attracted a Microsoft data center. The milder climate of Hampton Roads There is less probability of placing grow houses near the data centers in the "Internet Alley" of Loudoun County, due to the high cost of land near the fast internet connections there.
Virginia has a better opportunity to compete in the outdoor grow market, for items with tetrahydrocannabinol (THC) that will be smoked. Marijuana plants are affected by the combination of soil, slope, aspect, elevation, and climate, just as grapes for wines are shaped by the terroir in which they grow.
plants from outdoor grow operations are affected more by local soil and climate than plants from indoor grow houses
Source: State of Colorado, Energy Use in the Colorado Cannabis Industry (p.25)
There may be a niche market for marijuana affected by specific geographic factors. Indoor grow operations are affected by location, especially mixed grow houses that open windows and allow local microorganisms to circulate in the air, but site-specific factors will have the greatest impact on outdoor marijuana farms.
Tourists might be enticed to visit places where Virginia-grown products are grown and processed, comparable to wineries. "Cannacultural areas" could be defined, comparable to the viticultural areas created for marketing Virginia wines. If the cannabis equivalent of wine snobs is large enough, Virginia farmers could develop outdoor grow operations and retail outlets despite the competition from outside the state.
Creating what could become a $1.8 billion industry created new economic opportunities. In other states, the business owners in the marijuana industry were 80% white, so Virginia legislators explored how to provide capital or incentives to expand diversity together with legalization. Elected officials also considered the impacts of expunging previous convictions for simple possession, since blacks had 350% greater risk to be convicted that whites.
The 2021 legalization debate in the General Assembly focused on three issues:13
One force driving the legislature to legalization was the availability of recreational marijuana in the District of Columbia, and perhaps soon in Maryland and possibly West Virginia. For decades residents of Virginia had purchased alcohol in the District, where prices were lower, and brought bottles back across the Potomac River. Possession of marijuana without medical authorization remained illegal in Virginia at the start of the 2021 General Assembly, but there would be minimal impacts if a customer brought marijuana from DC into Virginia. In 2020, the legislature had decriminalized possession; those caught would pay just a $25 fine.
As the 2021 General Assembly considered legalization, a commentator noted that the loss of tax revenue would affect their decision:14
The legislators struggled to pass the legalization, including proposals to expunge old criminal records for marijuana possession and to ensure some form of equity in the issuance of licenses. The legislation included a priority for issuing licenses to those who had a conviction for a marijuana-related crime, to people who had graduated from a Historically Black College and University (HBCU) in Virginia.
The General Assembly made a clear commitment to authorize sale of marijuana for recreational use starting in 2024, and the new Virginia Cannabis Control Authority will regulate the new retail marketplace. Fundamental decisions on how to license manufacture and distribution of recreational marijuana were postponed until a future session of the General Assembly. In addition, possession was not legalized. The $25 fine was retained to deter creation of a wide-open market with no oversight for the three years required to establish state-enforced rules.15
Delay in full legalization of marijuana for recreational use created opportunities for entrepreneurs willing to exploit regulatory confusion and gaps. The 2018 Farm Bill authorized use of hemp byproducts, limiting use only of hemp products which contained Delta-9-THC.
By 2021, it was common to see shelves at gas stations and various stores selling not just cannabidiol (CBD), but also other marijuana-related products suggesting they would offer a psychoactive effect. Standard hemp buds with less than 0.3% tetrahydrocannabinol (THC) were sprayed with Delta-8-THC, and that byproduct was manufactured into edibles such as gummies and cartridges for vaping. A lawyer for the industry claimed they were all byproducts authorized under the 2018 Farm Bill, and were legal even in states which did not allow recreational marijuana sales:16
The 2021 debate in the General Assembly to completely legalize marijuana for recreational use was complex. The legislature ultimately legalized possession of no more than one ounce, and retained the low $25 civil penalty for possession of more than an ounce but less than a pound. Up to four marijuana plants could be grown inside a house, but no mechanism was authorized for purchase of marijuana seeds or seedlings or for purchase of up to an ounce of processed marijuana.
Legislators struggled to how the Virginia Cannabis Control Authority should consider social equity when deciding which licenses to grant, and to use licenses to facilitate economic development in areas disproportionately policed for marijuana crimes. Debates concentrated on making it a priority to grant licenses to communities affected by drug crime enforcement, using profits for reparations, exempting cannabis businesses from right-to-work laws, repealing mandatory minimum sentences, and expunging records for past drug convictions. Proposals to schedule resentencing hearings for people already incarcerated on certain marijuana charges were not included in the 2021 legislation.
The bill ultimately authorized the Virginia Cannabis Control Authority to issue licenses for:
- 400 retail marijuana stores
- 25 marijuana wholesalers
- 60 marijuana manufacturing facilities
- 450 marijuana cultivation facilities
The legislators sought to limit vertical integration to small businesses, in response to concerns that existing industrial hemp processors and medical marijuana growers would have an unfair advantage. Companies licensed by the Board of Pharmacy to grow, process, and sell medical marijuane were authorized to obtain one license to sell marijuana for recreational purposes and to then sell that product at all authorized dispensaries, but only after paying a $1 million fee and submitting a diversity, equity, and inclusion plan to the Cannabis Business Equity and Diversity Support Team.
Key legislators viewed the enforcement of marijuana laws and the "War of Drugs" initiated by President Nixon as a vehicle to punish anti-Vietnam War leftists and people of color. They searched for agreement among a majority of legislators on how to to direct benefits from legalization to areas and groups of people which had been disadvantaged by selective law enforcement.
between 2003 - 2014, marijuana possession arrests increased 76% in Virginia while decreasing overall at the national level
Source: Drug Policy Alliance, Racial Disparities in Marijuana Arrests in Virginia (2003-2013) (Figure 1, p.3)
No consensus on the sales process was reached, leading to delay of full leglization until 2024. The bill initially approved by the legislators did not authorize possession for recreational use until 2024, so there was the potential for 30 month of arrests for acquiring a product that the state planned to legalize. The governor amended the initial bill to accelerate the legalization date to July 1, 2021, largely in response to concerns about inequity in policing:17
The amendments were adopted on a partisan vote; no Republicans voted in favor. Because one Democrat in the State Senate voted against the governor's proposed changes, the Lieutenant Governor cast a rare tie-breaking vote to adopt the amendments.18
legalization of marijuana possession for recreational use was a major news story in April, 2021