Virginia election signals opportunity for legal cannabis industry

Cannabis isn’t a top issue for Abigail Spanberger, the next governor of Virginia.

But the Democratic nominee’s election by a comfortable margin on Tuesday – and with it, prospects of the long-awaited opening of what’s projected to be a billion-dollar adult-use marijuana market – is the best news and the biggest opportunity for the $32 billion legal industry in years.

“Governor-elect Spanberger’s administration has an opportunity to do what the last could not: implement a well-regulated adult-use cannabis market that prioritizes consumer safety, product transparency and public revenue over illicit sales,” said JM Pedini, director of Virginia NORML, which has been advocating and negotiating on a sales bill for years.

“The framework is already in place thanks to years of legislative work and public input,” Pedini added.

“With an administration poised to act, the focus now shifts from planning to building a retail system that Virginians can trust.”

Democratic control means pledge to legalize adult-use sales in the South

Virginia Democrats swept the field on Tuesday, capturing the governor’s office and boosting their majority in the state House of Delegates to nearly two-thirds, the largest in decades.

That means the removal of the last and biggest obstacle blocking the launch of legal adult-use cannabis sales in Virginia, where cannabis has been legal for adults 21 and older to possess since the state became the first in the South to legalize adult-use cannabis in 2021: a Republican governor.

Outgoing Gov. Glenn Youngkin, who is termed out, twice vetoed bills that would have finally set up regulated and taxed adult-use sales, most recently shooting down a bill that would have seen sales launch by May 2026.

His chosen successor, Republican Lt. Gov. Winsome Earle-Sears, seemed poised to continue to oppose legal sales.

By contrast, Spanberger has pledged to work with state lawmakers – currently cobbling together another proposed bill legalizing sales – to sign such a bill into law.

Lawmakers are expected to send to Spanberger a bill similar in scope to the last two proposals.

She’ll be at least partially motivated to sign it by the potential for new tax revenue to fill holes left by federal spending cuts.

But whatever the inspiration, it’s welcome news to legal cannabis operators above and beyond the five marijuana multistate operators who currently hold medical cannabis permits in the state’s roughly $180 million MMJ market.

How big is the Virginia adult-use cannabis market potential?

The appetite for cannabis in Virginia is immense, with one estimate pegging the illicit market at $3 billion, encouraged in part by expensive MMJ prices.

Lately, that demand’s been at least partially fulfilled by hemp-derived THC products, such as popular drinks sold by Total Wine & Spirits and delivered by DoorDash.

How consumer will behave remains to be seen. Cannabis companies are eager to find out.

“We’ve played the waiting game long enough,” said Trent Woloveck, chief strategy officer at MSO Jushi Holdings Inc., which operates MMJ dispensaries in the state under its Beyond/Hello brand.

“We now have a very big public health and safety issue with all the illicit product being sold in the commonwealth.”

“That sets up the market to be opened as quickly as possible.”

Virginia medical marijuana sales exceeding expectations

With 8.6 million residents, Virginia is the 12^th-most populous U.S. state. And it boasts significant numbers of both tourists as well as college students, two indicators generally associated with robust cannabis markets.

For context: Michigan, the 10th-most populous state with 10 million people, has the second-largest legal cannabis market in the country, behind California.

Virginia medical cannabis sales are already exceeding expectations.

The state reported nearly $30 million in sales in July and August, the first two months of state-mandated track-and-trace monitoring.

That would put the state on track to smash the $59 million in sales projected by the MJBiz Factbook in 2025 before Thanksgiving.

Adult-use cannabis sales could reach $780 million in the first full year of sale and exceed $1.09 billion by the second year, according to the Factbook.

But that might be conservative.

“There’s nearly 9 million people, some of them with very high incomes that seem to have an interest in cannabis,” Jushi’s Woloveck said.

“I think I can confidently say it’s a $2 billion market.”

Virginia could support hundreds of adult-use cannabis licenses

Much of the market’s true size will depend on when sales begin – and who gets to participate.

Ohio, for example, is slightly more populous than Michigan. Sales topped $700 million in its first year.

According to a 2020 study commissioned by state lawmakers, Virginia could support between:

• 100 and 800 cultivation permits
•  30 and 150 processing or distribution licenses
• 200 and 600 retail licenses

Virginia’s MMJ market is currently limited to five companies, each of which are assigned to a geographic region.

These are:

• Ayr Wellness, which is in the process of being liquidated and never opened up a dispensary, according to the Virginia Cannabis Control Authority
• Jushi
• Chicago-based Green Thumb Industries
• The Cannabist Co., formerly known as Columbia Care
• Verano Holdings Corp.

Who will sell cannabis in Virginia first?

That will give lawmakers a choice.

Giving existing licensed MMJ operators the privilege to transition to adult-use – and with it, first crack at the market, as was done in Maryland and, earlier this year, Minnesota and Delaware – might satisfy consumer demand as well as shareholders in the publicly trade companies.

But it might also irk small business and social equity advocates who want legal marijuana to be an opportunity for those harmed by the drug war.

At a hearing in Richmond earlier this month, lawmakers on a state commission tasked with overseeing the transition to a legal cannabis retail market heard pitches from both sides.

For some cannabis advocates, who gets the first sale matters far less than ensuring legal regulated sales can start soon.

“It’s my job to make sure that consumers are prioritized, not any particular business interest, and NORML has been clear that our opinion is sales should begin as soon as possible,” said that organization’s Pedini.

No matter who is first, “This is an exciting day for the industry,” said Ryan Hunter, chief revenue officer at Colorado-based extraction company Spherex, which is considering expansion to other states such as Virginia.

“Virginia is a market where the governor has been actively resisting the will of the legislature and electorate for years,” he added.

“Now the reckoning has come.”

Chris Roberts can be reached at chris.roberts@mjbizdaily.com.