Youngkin refuses retail cannabis sales, Virginia misses out on tax revenue

Small business entrepreneurs who detest government regulation are cheering a recent announcement by the Youngkin administration. They are more commonly called drug dealers.

The Daily Progress in Charlottesville last week reported that Gov. Glenn Youngkin doesn’t want to see Virginia legalize the retail sale of cannabis. “Governor Youngkin has stated that he is not interested in any further moves towards legalization of adult recreational use marijuana,” said Joseph Guthrie, commissioner of the Virginia Department of Agriculture and Consumer Services, during a meeting of the Virginia Cannabis Public Health Advisory Council. “So I wouldn’t expect that during his administration.” 

This is a pretty definitive declaration of something we’ve suspected for some time now.

I can certainly understand why the governor would not want to open the door to retail cannabis stores across the state — that would surely enable more cannabis use than we do now. If you’re against that, then you ought to be against a legal retail market for weed.

The catch is that we have already legalized cannabis for personal use; we just haven’t legalized the sale of it. That means Virginia exists in a hazy gray area where it’s legal to have small amounts of weed, you just can’t legally buy it or sell it. Obviously, though, the devil’s lettuce is getting bought and sold — not everyone has a legal backyard garden of pot plants — and the people doing that selling are outside the law. Without a legal retail market, Virginia is effectively condoning a black market — and who knows where that money winds up? You can’t be a little bit pregnant but in Virginia cannabis is a little bit legal.

This is all a consequence of politics. When Democrats controlled the General Assembly and the governor’s mansion in 2021, they legalized possession of small amounts and fully intended to come back the next year to write the rules for a retail market. Their thinking: Writing those rules would take time and they didn’t want to have people getting arrested in the meantime for something they planned to commercialize on a legal basis. Here’s the problem with waiting: Voters in 2021 installed a Republican governor and a Republican House of Delegates, and they weren’t nearly as keen about legal cannabis. In the 2022 General Assembly session and again this year, efforts to write a law governing retail sales failed to pass.

It’s not as simple as Democrats being in favor of a retail market and Republicans being against. Some Republicans certainly are — other Republicans, of a more libertarian bent, are OK with a retail market but a) they have very different ideas from Democrats about how who should be able to get licenses and b) some have been reluctant to go too far until they have a signal from the governor that he’d sign a bill. No point doing all the work, and running some political risk, if the governor’s going to veto the bill. Given this pronouncement from one of the governor’s top appointees, I wouldn’t expect those Republicans open to a cannabis market to do anything in the next session.

I’ll be curious to see if Democrats make this a campaign issue. As we’ve seen in other states, legal cannabis is a surprisingly popular issue with some — though certainly not all — Republicans. Alaska, Missouri and Montana are all predictably red states but all have legalized cannabis. South Dakota also voted to do so, but a court threw out the results for the way the referendum was worded. Democrats could legitimately raise the question of whether Republicans, if they win a majority in both chambers in this fall’s General Assembly elections, might repeal the current legal status for personal possession. I’m skeptical whether Republicans really would, but campaigns have been waged on less. Battle lines on some issues — abortion and guns, for instance — are pretty well drawn, but cannabis could be a potential wedge issue. (Counterargument: It may not be nearly as potent as other issues, so it’s easy to picture a Republican who might prefer legalized cannabis but likes the Republican position on other issues more, thus rendering the cannabis issue moot.)

Feel free to argue amongst yourselves over whether cannabis should or should not be legal and whether Virginia should or should not set up a retail market. Instead, let’s look at the practical effect of what’s happened in states that have done so. One argument that has been persuasive with Democrats (and some Republicans) is that there’s a lot of tax money to be collected from retail sales. (Keep in mind many of those sales are happening now, in the shadows, with no regulation or taxation whatsoever — a libertarian’s dream!)

The Tax Foundation reports that in 2021 (the last year for which complete data appears available), states with legal retail markets collected anywhere from $4.9 million (in Maine) to $1.29 billion (in California). The legal cannabis state most similar in size to Virginia is Washington, which collected $559.5 million. That may not be a fair comparison, though, since Washington was one of the first states to legalize cannabis, back in 2012, so that’s a more mature market. If Virginia legalized retail sales (and taxed at the same rate as Washington), we might someday collect that much money (or more, since we’re a little bigger) but we shouldn’t expect that right away.

A more comparable comparison might be Michigan, which began state-licensed retail sales in December 2019. Michigan is more populous than Virginia —10.1 million to 8.8 million — so perhaps we shouldn’t hang too much on the fact that Michigan last year collected $325 million in cannabis tax revenues. Let’s assume that Virginia could bring in tax revenue somewhat south of that (again, that’s assuming similar tax rates and consumption rates). That’s still a lot of money — money that Democrats could use to spend on their priorities, money that Republicans could use to offset the tax cuts that they want.

Sometimes, though, all those millions are too big to comprehend, especially in the context of a two-year state budget that’s $165 billion with a b. Instead of looking at the forest, let’s look at the trees. In Michigan, 30% of cannabis tax revenue goes to local governments. In 2022, that amounted to about $51,800 for each retail store in a particular locality. Again, any future Virginia law might differ in terms of where the money goes but humor me here as we take a look at what retail sales have meant for certain Michigan localities. (You can find all the Michigan details here.)

While I’d caution against comparing Michigan and Virginia on a statewide basis, given their differing sizes, we can make some rough comparisons between particular localities.

Let’s start in Michigan’s westernmost county, Gogebic County on the Upper Peninsula. With a population of 13,765, it’s distinctly smaller than Virginia’s westernmost county, Lee County, which has a population of 22,173. Population-wise, it’s more similar to our Amelia County (13,265) or Dickenson County (14,124).

Last year, two retail cannabis stores in Gogebic County added up to $103,682 in additional local tax revenue.

What would a similar amount mean to our Amelia County or Dickenson County or Lee County?

The Virginia Department of Education says that the average teacher salary is $57,395 in Amelia, $43,191 in Dickenson and $54,227 in Lee — so cannabis tax revenue could pay the basic salary for roughly two teachers in any of those places (not counting benefits, of course).

I realize this cold math is devoid of any judgments — there may be lots of things we could legalize that could generate lots of tax revenue. The point here, though, is we’ve already legalized cannabis in Virginia, we’ve just chosen not to collect taxes on it. If someone thinks we’ve made a mistake in starting down this path, then the solution is clear: Repeal the law and make cannabis illegal again.

For now, let’s continue with a few more comparisons. (Some of you may get your thrills from THC, the active compound that produces the buzz. I get mine from doing math.)

Lenawee County, on Michigan’s southern border with Ohio, has a population of 99,282, which means it’s almost exactly the same as Roanoke (100,011) and Montgomery County (99,721). That county has 17 cannabis stores and pocketed $881,300.

Using the metric of teacher salaries (the average in Montgomery County is $54,410, in Roanoke $59,926), that amount of revenue would pay for 16 teachers in Montgomery County and 15 in Roanoke.

Just for fun, let’s find a population twin to Virginia’s most populous locality: Fairfax County at 1,150,309. That would be Michigan’s Oakland County. Oakland has 22 pot shops, for local tax revenue of $1.14 million. Fairfax pays its teachers more ($77,537 is the average), so that works out to cannabis revenue being enough for 15 teachers there, the same as Roanoke.

I suspect it’s easier for Fairfax County to come up with the revenue for 15 teachers than it is for Roanoke to do the same.

That raises the question: Would this revenue mean more for smaller localities than it would for bigger ones? That would require a more complicated analysis, involving a lot of things we don’t know yet. For instance, the Democratic version of Virginia’s retail bill originally allowed for sales in every locality, unless a locality held a referendum and opted out. Based on votes in other states, earlier this year I made a rough guesstimate on which localities in Virginia might approve sales and which ones might not. That analysis suggested a lot of rural localities in Southwest and Southside — but not all — would ban retail sales. If that were the case, then the Gogebic County, Michigan, example wouldn’t apply, because the comparable counties in Virginia probably wouldn’t allow sales.

In that previous analysis, I came up with two different versions. (You can find my methodology here.)

This is the most generous version:

Here’s how localities might vote on retail sales in a presidential-level turnout, based on results in South Dakota.

This is the strictest version:

Based on elections in Arkansas and South Dakota, here’s how Virginia localities might vote on retail sales.

For the sake of argument, let’s go with the strict version. Even with that stark east-west split, there are still a lot of rural areas — rural areas represented by Republicans — that would probably vote for retail sales.

Let’s look at two of them.

Our Halifax County matches up population-wise with Michigan’s Chippewa County, which brought in $311,047 in cannabis tax revenue. For Halifax, that would mean six teachers.

Our Buckingham County matches up population-wise with Michigan’s Benzie County, which netted $207,364 in cannabis tax revenue, and Kalkaska County, which brought in $414,729. For Buckingham, that would work out to either four or eight teachers.

None of this addresses whether making cannabis more widely available is a good thing or a bad thing, but it does show what the fiscal benefits might be for a lot of financially strapped rural counties.

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