Growing Pains

Virginia is on the cusp of establishing a long-awaited retail market for marijuana. Will it work?

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Features

This article has been updated since it first appeared in print.

UPDATE, March 16, 2026: Legislation creating a retail marketplace for cannabis in Virginia passed both houses of the General Assembly on March 14. The companion bills set an opening date of Jan. 1, 2027, with 6% statewide cannabis tax and a local option of between 1% and 3.5% tax. Including the state sales tax of 5.3%, the total tax rate will range from 11.3% to $14.8%. 

Medical cannabis dispensaries would be required to pay a $10 million conversion fee to sell adult-use marijuana. The legislation, which now awaits Gov. Abigail Spanberger’s signature, also directs 40% of tax revenues to “support early childhood care and early childhood education,” with 30% going to the Cannabis Equity Reinvestment Fund.

By almost every measure, Michael Carter Jr. is the perfect candidate to kick off Virginia’s new retail marketplace for cannabis.

An 11th-generation Black farmer from Virginia’s Orange County, Carter, 47, is a practitioner of what’s known as Africulture, the plantings and techniques of African-descended farming. He’s a leader in agricultural equity and sustainability, and an educator who teaches at the University of Virginia. In 2019, Carter was one of a thousand or so farmers permitted to grow commercial hemp after it was legalized in Virginia.

Carter’s farm is small, roughly 2 acres, and part of a 150-acre property that his great-great-grandparents purchased in 1910. It’s one of approximately 1,200 Black-owned farms still operating in Virginia. It’s also one of the reasons then-Gov. Ralph Northam tapped Carter in 2020 to serve on the Virginia Marijuana Legalization Work Group.

In the realm of Virginia’s budding, equity-minded marketplace, Carter brings a wealth of knowledge and much-needed know-how. There’s only one problem: State policymakers don’t seem interested.

“Legislators don’t understand the needs of the farmers when they create these bills,” Carter explains. He recalls that, during a recent trip to Richmond, he found lawmakers knew next to nothing about how cannabis is grown and harvested. “Farmers? No one is looking out for our business interests. They’re much more concerned about the revenue coming in than having a long-term, successful industry.”

As Virginia prepares to enter a brave new world of cannabis retail sales, one that could generate upward of $100 million in annual tax revenue, Carter’s story serves as a cautionary tale. He’s seen what happens when good intentions go awry, like the ill-fated industrial hemp market introduced seven years ago. “I grew two seasons, 150-200 plants. It was a wise test run, because a lot of farmers still have hemp in their farms,” Carter says. Most struggled to find buyers for nonpsychoactive weed. “There was no market available for us.”

Hemp, however, was just the appetizer. After four years of political exile (former Gov. Glenn Youngkin didn’t support legalization and vetoed bills creating a retail market in 2024 and 2025), the long-awaited regulatory structure to establish retail marijuana sales in Virginia is finally within reach. As of press time, the finer details, such as when the market would officially open — likely Nov. 1 of this year or Jan. 1, 2027 — were still being negotiated.

Regardless, it’s only a matter of time. With Democrats controlling both houses of the General Assembly and newly elected Gov. Abigail Spanberger having pledged her support, Virginia is set to become the 25th state in the union to fully legalize marijuana.

A Divided Market

There is no magic switch, however. Legalizing weed doesn’t mean consumers will rush in. The illicit market, capitalizing on confusion over Virginia law, is already thriving by offering easy access to inexpensive cannabis.

While marijuana was decriminalized and possession legalized in 2021 (up to 1 ounce in public, four plants at home), the regulatory structure for selling the plant was not. This left Virginia in limbo, with recreational marijuana legal to consume yet still illegal to purchase.

Ironically, decriminalizing cannabis fueled enormous growth in the illicit market. From 2020 to 2023, the black market for marijuana in the commonwealth grew more than 40%, from $1.8 billion to $2.4 billion, according to New Frontier Data’s U.S. Cannabis Report.

Tobacco and vape shops discovered that many customers had no idea they weren’t supposed to buy marijuana and products laced with THC, the psychoactive ingredient in cannabis. These shops have proliferated over the last few years, often stymieing local enforcement, Richmond Police Chief Rick Edwards told City Council last year. In fact, he said at the time, most of the city’s 87 tobacco stores sold illegal cannabis and THC products.

The rise of illicit, unregulated marijuana is the primary reason many advocates want to push up the opening date of a retail marketplace. The sooner the market opens, the sooner Virginia can ensure that safe, third-party-tested cannabis is more readily available to consumers. The illegal stuff often includes dangerous chemical agents, such as pesticides, heavy metals and even fecal matter, researchers have found.

“In general, when you’re legalizing cannabis, you’re trying to balance three different priorities: safety, a fair market structure and optimizing tax revenue,” says Ngiste Abebe, a Richmond-based cannabis policy expert and co-founder of consulting firm KND Group. Abebe prefers opening the market as soon as July 1 of this year. “Of those three priorities I described, July 1 firmly addresses two — safety and the tax revenue — and it leaves all of the groundwork and does no harm to the third one, which is a fair market.”

When the marketplace will open has long been a sticking point. Some, like Carter, want the state to wait until next year to give the Cannabis Control Authority time to get properly staffed and its regulatory process in place. With the legislation focused on giving smaller, minority operators a head start, timing is everything. The primary House bill, carried by Del. Paul Krizek, D-Fairfax, calls for awarding up to 100 microbusiness licenses by Nov. 1. A microbusiness license allows smaller operators to cultivate, process and sell their own product.

“The idea is that the Cannabis Control Authority, which will be the regulator, will start accepting applications for this license right away, with 100 spots open as soon as possible,” Krizek said on Jan. 23 during the first subcommittee hearing on House Bill 642. “That will allow the market to get going as quickly as possible.”

Included in early versions of Krizek’s bill and companion legislation in the Virginia Senate carried by Lashrecse Aird, D-Petersburg, are limits on the medical cannabis operators in the state. There are five medical licenses, one for each of the state’s five health districts, currently operating a total of 23 locations. Under the bills, the larger medical dispensaries would be required to pay a $5 million to $15 million conversion fee to sell adult-use marijuana. Each of the existing medical operators would receive up to eight or nine licenses for cultivating, manufacturing and retail sales. Including the medical operators and microbusinesses, both bills cap the number of cannabis retail stores in the state at 350.

The fee is likely to decrease by the time the final bill is approved, but the policy goal is clear: Restricting the larger medical cannabis operators from dominating the market is necessary to allow smaller dispensaries to compete.

Thrown ‘to the Wolves’

Prioritizing smaller license holders, however, comes with considerable risk.

“The medical guys have to come up with [$5 million to $15 million], but everybody else has to at least deploy, you know, $2 million to $3 million just to get their businesses open,” explains Beau Whitney, an economist from Portland, Oregon, who specializes in the cannabis industry.

Because cannabis is still considered a Schedule I narcotic by the federal government, meaning it is deemed to have no accepted medical use and a high propensity for abuse, businesses that sell the drug aren’t allowed to deduct business expenses, according to the IRS. That leads to effective tax rates of between 50% and 80%.

President Donald Trump’s recent executive order to expedite reclassifying marijuana as Schedule III, which would recognize accepted medical uses for THC and significantly reduce the federal tax rate, likely won’t be in place in time to benefit Virginia’s new cannabusinesses.

Those first innovators take some of the risk. … But protecting us from failure is not allowing us to grow from our mistakes.

—Michael Carter Jr., farmer and prospective marijuana grower

In late January, during the 2026 Virginia Cannabis Conference in Richmond, Morgan Fox, political director for the National Organization for the Reform of Marijuana Laws, or NORML, explained that reclassifying cannabis would likely lead to a lengthy court battle.

“I think the last time that there was litigation involving a petition-scheduling decision, the court cases dragged on for between six and 10 years,” Fox said, “so we might be looking at quite a long wait until cannabis is moved to Schedule III.”

In the meantime, the taxes will be brutal. In addition to the feds, most states also collect enormous sin taxes on weed sales. As of mid-February, Krizek’s bill called for a tax rate of between 12% and 15%, which is considerably lower than most states but still more than double Virginia’s 5.3% sales tax. And then there’s the high cost of adhering to strict regulatory guidelines, which have yet to be finalized.

New businesses must also contend with the domino effects of selling a product that the federal government deems illegal and dangerous. Most major banks and credit card companies won’t process transactions involving cannabis, forcing dispensaries to operate as cash-only businesses. Running entirely on cash can make it more difficult to obtain insurance coverage and startup financing. In other words, there aren’t a lot of banks willing to lend money to cannabis entrepreneurs.

“There’s very few lenders. And so, as a result of that competition for financing, there’s going to be a lot of risk associated with it,” Whitney explains, “and that’s going to drive up your risk premium, or the percentage of interest that’s charged for those loans.”

Translation: 100 or more new businesses fighting for financing will lead to higher costs and higher debt, which ultimately leads to higher prices. At the same time, deploying too many microbusiness licenses out of the gate may oversaturate the market, Whitney says, leading to more business failures.

In a national survey of cannabis businesses in 2024, Whitney found that just 27% were profitable, with a wide disparity between white (33.7%) and minority (17.5%) operators. Despite the focus on social equity in many states, minority businesses struggle even more due to systemic barriers, Whitney says, particularly in banking.

Coupled with the current oversaturation in the national market — prices have been falling across the country as supply outstrips demand, which is good for consumers but terrible for businesses — pushing the little guys to the front of the line could backfire.

“That’s like throwing those smaller businesses to the wolves,” Whitney says, explaining that microbusinesses, which are easier to deploy because of their smaller footprints, often have a bigger learning curve. “Usually, microlicenses are inefficient at the beginning. It takes a while for them to ramp up and get up to speed, just like the bigger ones. And, so, you’re forcing the microlicenses to bear a lot of the risk in the start up of the market when you still have high levels of competition from the unregulated market.”

And that’s if you’re one of the lucky ones. A national decline in marijuana sales, down 32% since 2021, according to Cannabis Benchmarks, along with the current oversupply means startup financing is even more difficult to obtain.

“Right now, there’s so much uncertainty in the marketplace that financing is harder to come by. There’s still money out there, but it’s usually [available] to those that have the greatest creditworthiness. And that’s not a smaller operator, that’s a larger operator,” Whitney says. “This is tilting the entire market in favor of the larger operators.”

Seeds of Justice

On the heels of the Black Lives Matter movement, which morphed into a national reckoning on systemic racism after George Floyd was killed by Minneapolis police in 2020, Virginia’s push to legalize marijuana is rooted in social justice.

That same year, the Joint Legislative Audit and Review Commission, the General Assembly’s research and investigative arm, found that Black and white Virginians consume cannabis at about the same rate, but Black users were 3.5 times more likely to get arrested and 3.9 times more likely to be convicted of marijuana-related offenses.

The push to legalize marijuana, in fact, has as much to do with decriminalization as it does with capitalizing on an emerging market. Virginia can expect more than $400 million in tax revenue from cannabis sales in the first five years, Krizek said last year, but his bill, devised after several years of study, meetings and input from community stakeholders, is really about providing a pathway to “restorative justice.”

Figuratively and literally: Like other states, including New York, both Krizek’s and Aird’s bills prioritize cannabis license applicants from disenfranchised communities, so much so that marijuana convictions are actually among the qualifications for new applicants.

To help the social equity license holders get off the ground and stay in business, both bills would also funnel 50% of marijuana tax revenues into a Cannabis Equity Reinvestment Fund, being created to support “persons, families, and communities historically and disproportionately targeted and affected by drug enforcement,” in addition to providing new scholarship opportunities, grants for workforce development, and job training to those historically disadvantaged by drug abuse and the so-called “war on drugs.” The percentage may change in final negotiations.

Paul McLean, founder of the Virginia Minority Cannabis Coalition, a nonprofit that promotes economic empowerment and provides training for entrepreneurs in the marijuana industry, says the biggest challenge might be who’s calling the shots.

“There’s too many people that don’t really understand how the cannabis economy works, so they just dig into wanting what they want,” McLean says, adding that it’s better to let the market grow organically and adjust and pivot as it changes. In addition, he says, there should be “multiple lanes” for different types of cannabis businesses, including the larger medical and big-box-style operators.

McLean says prioritizing small operators is the right strategy because of their flexibility and ability to respond to local cannabis consumers, typically a finnicky lot. “You cannot have success in this industry without the small businesses,” he says, adding that it won’t be easy. “The bulk of the people that would want to pursue those 100 microlicenses, … they’re never going to get to that point because they’re going to get so frustrated just trying to get good at getting the business set up, because there’s a clock ticking.”

The brutal reality, says Ngiste, the policy consultant, is that operators from marginalized communities must overcome bigger obstacles than most. The new bills attempt to address this by establishing a business loan fund specifically for disadvantaged licensees.

But that alone won’t be enough, Ngiste says. “I think one of the things that we get excited about in cannabis is supporting and fixing past wrongs, but we have to remember that, at the end of the day, it’s still a business. The cannabis industry is difficult, … [it’s] especially hard in these current economic times, and even more hard for people from marginalized communities. A cannabis program can do its absolute best to address and minimize these risks, but it is still going to be really, really hard.”

Still, both Ngiste and McLean like the overall approach that Virginia is taking. The delay in setting up the retail marketplace might have allowed the illegal market to flourish, but it gave Virginia lawmakers time to dig into the particulars and incorporate lessons learned from other states. For example, keeping the tax rate at roughly 12% to 15% is almost universally lauded as one of the best ways to keep prices in check; it’s also within the price differential that most consumers are willing to pay to shift from illicit to regulated weed, Whitney says. Too many states made the mistake of overtaxing marijuana.

For Carter, the farmer from Orange, all he wants is a fair shot and the same advantages that everyone else has access to.

“Most farmers already know how challenging it is,” he says. “You risk every season, so we’re used to loss. We have crop failures, we’ve had commodity prices go up and down. If you want to make sure that we’re successful, you have to work with us.”

Carter is planning to apply for a microbusiness license, and he would prefer to be at the starting gate for this new industry — whenever the market opens.

“Those first innovators take some of the risk. They may even create a faulty crop,” he says. “But protecting us from failure is not allowing us to grow from our mistakes.”