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Hazy pair with pot, politics

South Boston News / November 18, 2021
Big gaming has arrived in Southside Virginia with Danville’s embrace of casino gambling and deal with Caesars Entertainment to build a $500 million entertainment complex in a blighted part of the city.

Is Big Weed next around the corner, loosening a spigot of cash for Southside Virginia farmers?

The plight of the Commonwealth’s nascent cannabis industry will be taken up at the upcoming session of the General Assembly, which this year made Virginia the 16th state in the U.S. to legalize recreational marijuana use. The legislation enacted during the 2021 session also puts Virginia on a path to create a regulated commercial market for the manufacture and sale of cannabis products.

First, however, the legislature must reenact a bill in the 2022 session to establish commercial cannabis in Virginia before regulatory work can go forward. With the change of political fortunes in Richmond, and divided partisan control of the General Assembly, the outlook for commercialization of recreational pot in Virginia is hazy at best.

“I think with what happened in November, you frankly have to sweep the whole slate clean and start all over again,” said Greg Habeeb, a former Republican delegate and founder of Gentry Locke Consulting, a Roanoke consulting and lobbying firm that represents cannabis firms at the Capital.

“We have a lot of clients who are very engaged in trying to help the new governor and the General Assembly craft a new bill that will work as a market,” said Habeeb.

The bill that Gov. Ralph Northam signed into law earlier this year, the Cannabis Control Act (CCA), prioritizes social equity concerns arising from longstanding bias in drug enforcement against Black and minority marijuana users.

The CCA gives priority to minority entrepreneurs who want to enter the market to produce and sell legal cannabis, an approach that could meet resistance next year with the Republican takeover of the House of Delegates and Governor-elect Glenn Youngkin moving into the Governor’s Mansion.

Youngkin said during the campaign that he will not seek to repeal the CCA, pointing to the billions in revenue from legal pot sales that will help “[restore] excellence in education. That’s different than creating a path forward for the commercialization of adult-use of cannabis.

According to Jenn Michelle Pedini, the executive director of Virginia NORML, the final votes for the two bills that authorized a recreational market in 2021 were along party lines in the House of Delegates, with all Democrats in favor and every Republican opposed in the 47-44 vote. In the Senate, the lieutenant governor had to cast the tie-breaking vote.

Pedini predicts if the issue even makes it out of committee during the 2022 session, the vote will again be along party lines.

“It’s not clear a bill could even make it out of committee at this point.”

Republican Lt. Governor-elect Winsome Sears, who will cast tiebreaking votes in the narrowly-divided albeit Democratic-controlled atate Senate, has also voiced opposition to recreational marijuana use.

Sears has spoken favorably of medicinal marijuana legalization.

Political developments in Richmond are of keen interest to Golden Piedmont Labs, one of a handful of industrial-scale hemp processing operations in Virginia. Sterling Edmunds, founder of the South Boston company with fellow Halifax County native Rick Gregory, said “it is likely” Golden Piedmont Labs will want to participate in a commercial cannabis market, but “from a regulatory standpoint, [it’s] too early for us to know what that is.

“There’s so much uncertainty that I really couldn’t say much other than we’re following the process closely to see if there’s space there for us to play,” said Edmunds.

Gregory, interviewed by Virginia Business magazine for a recent cover story on the Commonwealth’s cannabis industry, noted that Golden Piedmont Labs was founded in part to turn around the fortunes of Southside Virginia tobacco growers by helping them grow hemp as an alternative. Gregory downplayed the idea that marijuana would ever supplant tobacco as the region’s signature cash crop.

“Remember, we were growing tobacco for the world,” Gregory told Virginia Business in an Oct. 28 story. “Here, you’re talking about marijuana for Virginia. That’s not to say it won’t have some impact, but the hemp crop will have more because [marijuana is] going to be much more difficult and regulated to grow anything in fields more than 1% THC. Marijuana will not change the world here.”

Edmunds seconded that assessment but noted that with the similarities in cultivation of tobacco and hemp, growing legal marijuana is a logical next step for farmers in the traditional tobacco belt of Southside and Southwest Virginia.

“If [farmers] grow tobacco, they can grow hemp,” said Edmunds. “There are some differences, sure. But it’s not like you have to buy a $250,000 piece of equipment to go do it.”

It remains to be seen if growers will find marijuana more vexing than a potential transition to hemp production. Federal law requires hemp producers to limit THC — the compound that gives cannabis its psychoactive properties — to no more than a 0.3 percent threshold.

Most states with legalized cannabis have not capped THC content in the pot products available for retail purchase.

Enthusiasm among Southside Virginia growers for marijuana is hard to gauge — in part due to the novelty of growing a formerly illicit crop in a socially conservative area. But another issue weighing over farmers’ embrace of cannabis is the slow start to Southside’s hemp industry.

Within a year of Virginia legalizing hemp growing, Southside Virginia had more registered hemp growers than any other region in the state. Hemp growing was legalized in Virginia in 2019. Two years later many of those growers have given up on the crop after processing companies with which they had contracts failed to pay them.

Since Golden Piedmont Labs opened last year, a glut has developed in the market for Cannabidiol, or CBD oil, the active ingredient in a range of cosmetic and wellness products.

With the price for CBD at a nadir, Edmunds said Golden Piedmont Labs has scaled back its contracts with hemp growers in southern Virginia and northern North Carolina, a number he pegged at around 70.

“We haven’t sold all the hemp from last year,” said Edmunds, saying the company made a conscious decision to not unload its inventory amid a slack market.

“We want to make sure we optimize value for our farmers. We don’t want to sell at the bottom,” Edmunds said.

The bumpy start for hemp production appears to have dampened any enthusiasm for pot farming in Southside Virginia. Garland Comer, owner of Lazy C Farms in Vernon Hill and president of Halifax County Farm Bureau, said hemp growers like himself have yet to see any payoff from two seasons of dabbling in the crop.

“We don’t know yet” about marijuana. “We just hope they [Golden Piedmont Labs] stay in business long enough to pay us something [for hemp],” said Comer.

The political landscape for commercialization of the cannabis industry is similarly unsettled, but the potential for a multi-billion dollar market in Virginia is clear. The Joint Legislative Audit and Review Commission (JLARC) conducted a 2020 study that found marijuana legalization would generate between $31 million and $62 million in state tax revenues in the first full year of sales, rising to between $154 million and $308 million by the fifth year of commercial sales.

With that kind of cash at stake, it’s more likely than not the General Assembly will move forward next year to reenact a bill to create a consumer market for marijuana products, Habeeb speculated, although he added that it’s no sure thing commercialization will go anywhere.

If it does, Republican lawmakers are likely to write a bill that treats marijuana as a commodity crop, rather than prioritizing the social justice concerns that animated the legislation that cleared the Democratic-controlled General Assembly earlier this year, Habeeb said.

That would bring the debate back around to a question that came up during the 2021 session — whether to put the Virginia Department of Agriculture and Consumer Services (VDACS) in charge of a legal marijuana industry in Virginia.

“Certainly Republicans seem more inclined to take up a more agriculture-focused bill that treats [marijuana] like a commodity product,” said Habeeb. That emphasis, in turn, would center the marijuana industry in traditional farming areas — which, coincidentally or not, tend to support Republican candidates.

“I think there’s going to be a lot of alignment between rural Virginia and the cannabis industry,” said Habeeb, who added that prioritizing marijuana production in areas such as Southside and Southwest Virginia could be viewed as a society equity initiative to boost areas that were devastated by the loss of tobacco farms.

“There’s a reason the Tobacco Commission exists,” said Habeeb. “There’s a way to do a bill like that gets to that form of social equity.”

For companies like Golden Piedmont Labs, the key question is likely to be whether they can gain a toehold in a commercial market before an onrush of other players — from national companies to small retail or commercial operators, including Black and minority-owned firms that were first in line to produce and retail cannabis products under the Democratic bill.

All these questions are unresolved, with murky outcomes ahead with divided control of the legislature and a new governor who thus far hasn’t expressed a keen interest in getting involved in the finer details of marijuana commercialization. “I don’t believe the governor’s office will be the driver of this bill,” said Habeeb.

More likely, he said, a Republican member of the legislature will need to step up to argue for a commercial market that favors farmers and the existing industrial hemp businesses.

“I think it comes down to whether someone in the House Republican caucus takes it upon himself to be the leader on this,” said Habeeb.

“If the General Assembly chooses to take a VDACS centered bill [with the state agriculture department overseeing the market], I think you can anticipate hemp processors to figure prominently in that approach,” said Habeeb.

Currently, Virginia law calls for the launch of commercial cannabis by 2024, to be regulated by the Cannabis Control Authority, a state board advised by a health advisory council.

There’s some in the General Assembly who will refuse to reenact cannabis legislation altogether in the upcoming session, Habeeb said, although he said lawmakers who oppose legal marijuana appear generally open to the prospect of a regulated commercial market in Virginia.

“What I’ve heard from a lot of legislators, including those who are against legalization, is that the only thing worse is legalization without commercialization, which gives you nothing but a black market.

Habeeb, who founded Gentry Locke Consulting to focus on three potential growth industries for rural areas — solar energy development, gaming and cannabis — said the socially conservative lawmakers, and the constituents they represent, seem willing to capitalize on changes in the law they may not agree with.

“It’s just like when we had dry counties before — what people who don’t like the consumption object to is the sales in their region, not the jobs and taxes” that are created with industry formation.

A similar dynamic has played out in the gambling business, with the success of Danville’s gambling referendum and the industry’s arrival in rural areas of Virginia.

“This might be the new Virginia that none of us anticipated, at least a new Danville that none of us anticipated,” said Habeeb.

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Hey Golden Labs, pay the farmers for the crops you took under contract but paid Zero money.
Stop stiffing the farmers!!

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