Hagen: Embracing Cannabis and How Youngkin Can Use It to Fulfill His Campaign Promises
By Nick Hagen
There were a couple of landmark issues that helped propel Governor-elect Glenn Youngkin to victory this past November. His campaign did a massive job in turning around over a decade of Democratic rule within Virginia.
Two major parts of his campaign were promises to reduce the gas tax and to remove the grocery sales tax in Virginia, both of which are achievable.
However, one of the undying laws of politics is that for every action there is a reaction. Assuming we remove the Virginia fuel tax and the gas tax, the Commonwealth is looking at an annual loss of approximately 1.5 billion dollars in revenue. That revenue was going to infrastructure such as roads and other transportation costs.
However, with the passage of the legal adult use of cannabis last year, there is hope that Virginia can make up much of that deficit by legalizing the sale of cannabis to adults 21 years of age or older. The tax revenue for 2020-2022 which is estimated to be brought in solely by the Virginia Motor Vehicle Fuel Tax (commonly called the “gas tax”) is 2.159 billion dollars.
Annually, this works out to be a little over one billion dollars which the state collects every time someone is at the gas pump. These funds go into the Non-General Fund, which, in this case, is earmarked for things like transportation programs. Obviously, these funds are very important as the lifeblood of the Commonwealth is our road system. Removing or even reducing it without an alternative funding scheme would cause some havoc on the maintenance of our roads. An alternative funding scheme involving cannabis is a real political possibility that can help Mr. Youngkin keep his promises to the citizens of the Commonwealth.
In order to analyze and understand how legal cannabis sales can help Virginia, we must look at one of our sister states, Colorado. For those unaware, Colorado passed legal recreation sales for adult-use cannabis in 2012, with their legal sales beginning in 2015. Colorado decided to tax their cannabis sales at about 15 percent. In the six years since Colorado has legalized, they have brought in approximately $1.6 billion in tax revenue solely from cannabis sales.
Virginia’s legislation that was passed last year has a maximum tax of 24 percent on the sale of cannabis. Virginia also happens to have roughly two million more citizens within her borders. For the sake of simplicity within this analysis, I will assume that our legal sales will match Colorado’s annually.
However, even looking at the numbers with the increase in tax revenue, the Commonwealth could see a revenue of nearly 325 million dollars solely in taxes. These taxes, by the way, are not going into the state currently but rather in the hands of those individuals who choose to break the law.
While $325 million in annual revenue is about one third of the annual gas tax, it will likely go a long way to help fulfill Governor-elect Youngkin’s campaign promises if his administration wants it to do so.
Obviously, the law to legalize cannabis sales is not yet set in stone. Because of the bill passed in 2021, legislation to legalize sales must be reenacted during the 2022 session so legal sales can begin on January 1, 2024. From a political standpoint, it will serve the GOP to get behind legal cannabis sales this year.
Due to the stagnation that the Virginia Redistricting Commission has taken in their maps for redistricting, a Virginia Supreme Court ruling could cause another House of Delegates election to take place in 2022. Failure to act on legalization could become a hot button issue for democrats looking to regain control of the House of Delegates.
The fact remains that, according to a recent Gallup poll, 68 percent of Americans approve of cannabis legalization. However, if we break that down to party identification, 48 percent of Republicans approve of legalization of cannabis, but independents (a good portion of those who were needed to propel GOP control of the House of Delegates and leading the GOP to win the three statewide races) overwhelmingly approve of legalization at 72 percent.
If the members of the GOP in the House of Delegates allow this to become a political issue and utilized in a hypothetical House of Delegates race in 2022, then the Democrats will likely utilize the GOP hesitation on this issue in their campaigns. The benefit of pushing this by the GOP is that we can work out the issues with the current law to create a system of legalization which will be the envy of our sister states. This will have the added benefit of bringing an entire multi-billion-dollar industry out of the shadows resulting in an increase in jobs and prosperity throughout our Commonwealth.
Ultimately, it is up to the fine people working within the GOP and Youngkin’s team to help forge a path forward on legal sales of cannabis. However, the numbers are there for the tax revenue.
There are issues with the current cannabis law which will need correcting. The GOP can get ahead of this issue and prevent a potential loss of power within the House of Delegates for 2023.
Nick Hagen is an attorney based in Roanoke, Virginia. He is the founding member of The Hagen Law Office, PLLC, a firm focusing on cannabis law and regulatory compliance. A graduate of the Antonin Scalia School of Law, he can be reached at [email protected] or via twitter at @NickTalksLaw.