2021 is shaping up to be a record year for legislative-driven recreational marijuana legalization – and cannabis industry executives and advocates have lawmakers and governors in four states to thank for that.

The MJBizFactbook projects those four markets – Connecticut, New Mexico, New York and Virginia – together will generate more than $4.5 billion in annual sales by their fourth year of operation.

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In addition, $500 million in annual medical marijuana sales are expected to be produced over time through MMJ legalization this year in the Deep South state of Alabama – again thanks to lawmakers and the governor.

This year’s adult-use victories represent a record number of legislative wins for recreational marijuana advocates.

They reflect how recreational marijuana legalization increasingly is being steered by lawmakers and governors – rather than citizens alone.

Moreover, the state-level victories come at a time when legalization efforts at the federal level effort face an uphill battle.

“This year has shown us that state legislatures are capable of rising to the challenge to end cannabis prohibition,” Karen O’Keefe, director of state policies at Washington DC-based Marijuana Policy Project, recently said.

It’s a major turnaround.

Three years ago, Vermont became the first state to legalize adult-use marijuana through its Legislature, although that measure authorized only the possession and use of recreational cannabis.

Then, in 2019, came Illinois, the first state in the country to legalize a commercial recreational marijuana market through its Legislature.

Vermont lawmakers last year followed suit, approving a commercial market that is expected to launch later this year.

This year, however, has produced a deluge of legislative activity to legalize recreational marijuana.

On the medical marijuana front, most states – 38 and counting – already have legalized MMJ, and so the activity on that front is less brisk.

Yet it’s significant that lawmakers approved MMJ in deeply red Alabama. And efforts remain alive in North Carolina, where legislators don’t adjourn until the end of the month.

MJBizDaily projects that Alabama’s MMJ program could generate $80 million to $90 million in sales in its first year and $450 million to $545 million in annual sales by the fourth year of the program.

Ballot measures remain key

Despite the rise in adult-use marijuana legalization through state legislatures, voter-initiated ballot measures remain important during election years.

Adult-use marijuana measures enjoyed a clean sweep at the ballot box in November 2020, with voters in Arizona, Montana, New Jersey and South Dakota all approving recreational marijuana – although South Dakota is in limbo after a legal challenge there.

Two years ago, much was made of whether New Jersey or New York would be the first to legalize and launch a recreational marijuana market.

Today, it seems almost a sure bet that New Jersey, which has helped ignite a domino effect down the East Coast, will start recreational marijuana sales first.

New York-based Viridian Capital Advisors recently noted that little progress has been made in New York in recent weeks because Gov. Andrew Cuomo and state Senate leaders are at an impasse over who should lead the new Office of Cannabis Management and Control.

“He’s been dragging his feet from the beginning,” Viridian President Scott Greiper said of Cuomo, noting the New York governor embraced recreational marijuana only out of fear of losing economic opportunities when he saw New Jersey was forging ahead.

New York has an additional challenge to launching a multibillion-dollar recreational marijuana market: It is leaning on a small medical cannabis infrastructure of only 10 operators and 38 dispensaries.

Frank Colombo, director of Viridian’s data analytics, recently estimated that $2 billion needs to be spent to ramp up cultivation facilities in New York to meet projected demand.

Some expansion is in the works, but nowhere near that number.

Despite this year’s string of legalization victories, reform efforts have suffered some losses.

Adult-use marijuana legalization efforts stalled in Delaware, Maryland and Rhode Island, but there’s still the possibility of a special session this fall in Rhode Island to address legalization.

Lawmakers in Pennsylvania are expected to consider adult-use legalization later this year, but key state Senate Republicans are seen as a high hurdle.

Here is a synopsis of the four adult-use markets that have been legalized so far in 2021 via state legislatures.

NEW YORK

  • Projected market start date: Sometime in 2022.
  • Projected annual sales by the fourth year: $2.1 billion.

Key business details

  • Existing medical marijuana operators can participate in the adult-use market by paying a one-time “special licensing fee” to convert three of their MMJ dispensaries to dual medical-recreational stores. The fee would help fund social equity programs.
  • Microbusinesses can form vertical operations, helping them achieve economies of scale.
  • Other businesses are prohibited from vertical integration. Critics say that could give existing MMJ operators an overwhelming market advantage.
  • Cannabis products will be taxed at 13%, of which 9% would go to the state and 4% to localities.

Key social equity provisions

  • The goal is to award 50% of all adult-use licenses to social and economic equity applicants. Experts predict priority will be given for microbusiness and delivery licenses.
  • 40% of the tax revenues generated by adult-use sales will go to communities disadvantaged by the war on drugs.
  • Social equity applicants can qualify for low- or no-interest loans, fee reductions or waivers as well as assistance in preparing applications and operating a business.
  • Experts say New York’s social equity program could become the cannabis industry’s gold standard – if it succeeds on the ground as well as it looks on paper.

CONNECTICUT

  • Projected market start date: May 2022.
  • Projected annual sales by the fourth year: $750 million.

Key business details

  • Existing medical marijuana cultivators can apply for an adult-use license as soon as this summer but would be required to pay a $3 million fee or, if they create at least two social equity joint ventures, a $1.5 million fee, according to a Marijuana Policy Project summary.
  • A recreational marijuana operator will be required to make a “good-faith effort” to enter into a labor peace agreement with a union before receiving its final license.
  • Local jurisdictions can prohibit retail sales through zoning laws, but residents could petition for a local referendum to approve adult-use stores.
  • Product sales will be subject to the state sales tax of 6.35%, plus taxes based on product potency. Municipalities that allow recreational marijuana sales would collect a sales tax of 3%.

Key social equity provisions

  • 50% of applications will be reserved for social equity applicants.
  • Most of the new licenses will be issued by lottery to provide a more equal opportunity for those who qualify.

NEW MEXICO

  • Projected market start date: April 1, 2022.
  • Projected annual sales by the fourth year: $425 million.

Key business details

  • Microbusinesses can be vertically integrated.
  • An excise tax of 12% will be placed on retail sales, on top of local and state sales taxes that range from 5% to 9%. The excise tax would increase over time to 18%.
  • Municipalities can limit the density of adult-use operations but not ban them altogether.

Key social equity provisions

  • The state will be required to create a plan to ensure license diversity.
  • Native American communities can participate in the recreational market through agreements with regulators.

VIRGINIA

  • Projected market start date: Jan. 1, 2024.
  • Projected annual sales by the fourth year: $1.3 billion.

Key business details

  • Subject to reenactments next year, the following license caps will be established: retail stores, 400; wholesalers, 25; manufacturing facilities, 60; cultivation facilities, 450.
  • Vertical integration will be limited to small businesses.
  • Adult-use marijuana product sales will be taxed at 21% in addition to the standard state sales tax of 6%. Municipalities could charge up to an additional 3%.

Key social equity provisions

  • Social equity licenses will be awarded early in the licensing process.
  • Qualified applicants will have to hold at least a 66% ownership stake in the business.
  • Successful social equity applicants will have access to low-interest loans to help overcome the hurdle of raising capital.

Jeff Smith can be reached at jeff.smith@mjbizdaily.com.