How to get a cannabis business permit in Virginia – and what regulators still need to sort out

Jennifer Martin (Courtesy photo)

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Rampant misinformation has spread around the question of how to get a cannabis business license in Virginia. But while we finally have some solid answers, there are still significant questions about who will get to enter what’s projected to be a billion-dollar adult-use cannabis market – and how.

Earlier this month, the state Cannabis Control Authority published draft regulations. The first sale isn’t until next July. But other than the price of entry to a potential lottery – triggered if the number of applicants exceeds the number of permits allowed under state law – little new details were revealed.

We still don’t know how many smaller cultivation licenses there will be, if permits will be limited by region or exactly what will be required for qualification.

We do know that entry fees will range from $1000 to $7500, depending on the license type, and that hemp license holders will have some uniquely interesting entryways into the regulated cannabis market.

How will Virginia cannabis regulators ensure licensees can succeed?

We do know the CCA must finalize the application process before the end of the year. We know the state will issue “no more” than 350 retail licenses and 100 micro business licenses, and set the caps for other license types.

We also know Gov. Abigail Spanberger and state lawmakers directed the CCA to “set the number of licenses issued by type or class to operate a marijuana establishment in order to ensure that there is a sufficient supply of marijuana to meet demand, provide market stability, avoid market dominance, ensure a competitive market that considers small business opportunities and concerns.”

In other words, the CCA should issue not too many and not too few so that Virginia can be a profitable market for all lottery winners.

Will Virginia have marijuana social equity?

Like several other states, Virginia is giving preference to marijuana social equity applicants. Qualification will be determined by recent residency in economically disadvantaged or “over-policed” areas. For the time being, it remains unclear whether out-of-state applicants can qualify.

Residency-based licensing programs have themselves become the subject of Dormant Commerce Clause challenges in other states, including recent litigation in Rhode Island that has halted their licensing process. Similar cases in California and Washington will potentially be heard by the Supreme Court, and if found to be legitimate, could upend residency-based licensing nationwide.

Presumably, the CCA is watching and poised to adjust its own process if need be to avoid being dragged into court – a fate that saw the launch of adult-use cannabis sales in New York delayed.

As other states have shown, financing for social equity licensees is notoriously hard to come by. To address that problem, the state is implementing financial support mechanisms for impact applicants, including grants, low-interest, zero-interest and conditional loans, CDFI lending, application and license fee waivers and the use of shared facilities, equipment and processing space

What cannabis business opportunities are there for Virginia hemp businesses?

General applicants will have attractive opportunities as well. Any adult over 21 years old, after determining basic eligibility status, can apply for the general lottery in several categories. This creates an exciting opportunity for everyone to get a chance to operate in a high-volume market, but it also means there will be longer odds to win due to a higher number of lottery entries.

There is no upfront requirement for showing proof of funds or a secured facility. Those requirements kick in after the lottery win, during preliminary licensure.

The microbusiness license type in VA is attractive because it can vertically integrate. There will only be 100 microbusiness licenses at first, and they are entirely earmarked for:

• Impact applicants
• US Department of Agriculture farmers
• State hemp license holders who were licensed in good standing before January 2021

Is large scale cannabis cultivation allowed in Virginia?

Cultivation permits are sorted into five size tiers, ranging from 5,000 to 35,000 square feet of canopy. With relatively small cultivation limits, the state hopes to encourage small businesses and more competition. However, some critics fear the state’s existing vertically integrated medical marijuana businesses, called “pharmaceutical processors,” are poised to enjoy an early head start. At the same time, holders of those permits have to pay a $10 million entry fee.

One of the biggest problems is a mandate to issue up to 10 cultivation licenses and 10 manufacturing licenses to existing hemp license holders for a conversion fee of $500,000. The CCA has not yet defined the size limits of these license or if both types can be obtained by one entity. They are mandated to publish a conversion application process no later than February 1st, 2027.

We haven’t yet seen a cannabis license lottery where the winner has the privilege of paying $500,000 to advance to preliminary approval. It will be interesting to see how the CCA navigates this because, in a high-stakes situation like this, litigation is likely.

How will Virginia prevent out-of-state money controlling marijuana social equity?

As with each newly legalized state, Virginia is taking further steps to prevent shell companies from stacking the deck on lottery entries. They intend to strictly enforce the limit of only lottery entry per category per person/entity.

The CCA will require disclosure and tracing of ultimate beneficial ownership and approval of ownership and control changes, while scrutinizing financing, management, and contractual arrangements for potential undue influence. The law specifically directs the CCA to assess factors including financing dependency, price-setting, shelf-space control, and shared personnel.

What more do Virginia cannabis regulators have to do before the market launches?

Over the next several months, the CCA still has some consequential gaps to address before the application window opens.

Applicants need clear rules on the number of licenses available in each category, whether cultivation lotteries will be regional, the documents required to qualify for a lottery, and exactly how impact status will be determined.

They must still clarify the structure and eligibility of the hemp-license conversion program, including the size of the cultivation and processing licenses and whether a single applicant can receive both.

Until those details are settled, applicants should view the current framework as a roadmap rather than a complete application and licensing playbook.

Jennifer Martin is a veteran industry operator, specializing in licensing and cultivation facility design. You can find her at CannabisCultivationConsulting.com and VirginiaCannabisLicensing.com.