Virginia’s cannabis farms will be largely urban. How can we keep some rural?

On Sept. 12, New Jersey-based AeroFarms held a formal opening ceremony in Pittsylvania County for what is billed as the world’s largest indoor farm.

That distinction will not last long. Two days later, Gov. Glenn Youngkin announced that a California-based company will open an indoor farm in Chesterfield County that will be even bigger.

If the Bristol Casino is taking bets, I’d be willing to wager that someone will come along with an outfit that will be even bigger than either of those. As Cardinal’s Grace Mamon reported, this is where the industry is headed. I’m reminded of growing up on a poultry farm in Rockingham County. I remember the days of chickens being raised outdoors, spending the night in “range shelters” that we’d lock up to keep the foxes out. When I was young, we built a chicken house that was the biggest in that part of the county. Within a few years, no one was building them that small – that’s how fast the industry changed.

Now we see the same thing happening with crops.

This is relevant to more than greens in Pittsylvania County and berries in Chesterfield County. This is also how the cannabis industry works. Virginia doesn’t have a legal retail market for cannabis – not yet. You can grow a few plants for personal use but you can’t sell the product. That day will come, though. If Democrats had retained control of the House of Delegates last year, the General Assembly would have already passed the rules for a retail market. They didn’t, and efforts to do so sputtered to a halt in the newly configured legislature. Some Republicans want nothing to do with legal cannabis. Others of a more libertarian bent are OK with it but don’t like how Democrats want to give an advantage in licensing to those who have been previously convicted of marijuana offenses. Democrats see that as social justice; Republicans see that as rewarding law-breaking.

In any case, I assume at some point all this will get worked out: There seems too much money involved for it not to be. MJBizDaily, a website that covers the cannabis industry, reports that legal retail sales nationwide this year are expected to hit $33 billion – with a total economic impact of $99 billion. Those figures are projected to rise to $52.6 billion – and $157.8 billion – by 2026. That means there are lots of companies out there that see money to be made, and governments will see lots of sales that could be taxed.

In Michigan, a state not that much bigger than Virginia (10 million residents to our 8.6 million), cannabis sales now add up to $188.8 million per month. In Washington, a state just slightly smaller than us (7.7 million), monthly sales are $109.9 million. If you figure Virginia would come in somewhat ahead of Washington, but behind more populous Michigan, you can use those two states to bracket what our likely market would be – and then calculate the tax revenue based on whatever tax rate you prefer.

The original proposal called for 21%. Republicans wanted to cut that to 10%, the lowest in the country, and not simply because Republicans prefer lower taxes. They felt the taxes shouldn’t be so high that black market marijuana is cheaper. (Tax-heavy California has had a problem with this.)

For the sake of argument (and to make the math easier), let’s assume Virginia’s cannabis market would produce monthly sales of $110 million. Ten percent of that is $11 million. If that’s consistent month to month, that’s a $132-million-a-year revenue stream into state coffers that presently doesn’t exist. Keep in mind, too, that this is simply the tax on the wacky weed itself. It doesn’t count the sale of what we’ll gently call related paraphernalia.

Anyway, the point is there’s a lot of money potentially involved here, and money tends to make things happen. For what it’s worth, Youngkin’s proposed gas tax holiday would have done away with $470 million in state revenue. I’m surprised he – or some other Republican – hasn’t floated what seems an obvious compromise: Figure out tax rates on cannabis that would equal out to the same amount of revenue the state would forgo in a gas tax holiday. Youngkin would get to say he’d given motorists a tax break but there’d be no revenue loss. Of course, things aren’t that simple. Both Democrats and Republicans have other ideas about what that cannabis revenue could and should be used for, and certainly some Democrats aren’t inclined to give a Republican governor a political “win.” So there’s that.

In any case, that’s not what this is about. This is about how and where that cannabis will be grown once Virginia does have a legal retail market. It will almost surely be grown the same way that AeroFarms is growing watercress and kale. It will be grown indoors. Cannabis Business Times – websites devoted to the marijuana business are springing up like, um, weeds – reports that only 12% of the nation’s cannabis crop is grown outdoors. The reasons why cannabis is being grown indoors are the same as why AeroFarms is growing greens indoors: You can grow them faster, you don’t have to worry about bugs and such, and you can produce more crops in a year indoors than you can in an open field. Cannabis growers have another reason, too: security. Not many people are likely to steal a kale crop. Cannabis, though, is a more inviting target.

With that, I return to a point I’ve raised before: Rural Virginia probably won’t be able to cash in on cannabis. If you can grow cannabis indoors, producers will most likely locate those greenhouses close to the marketplace – the urban crescent. That’s where the people are. Just look at where these indoor farms are locating. AeroFarms is unusual in that it’s in a traditional farming community. But most others aren’t. Plenty Unlimited will be in Chesterfield County – in the Meadowville Technology Park, which sure doesn’t sound like farm country. A company called Beanstalk is growing greens in Fairfax County. Fresh Impact is growing herbs, greens and edible flowers in Arlington. Sunny Farms is putting 3 acres under roof in Virginia Beach to grow lettuce and those ever-popular leafy greens.

There’s no reason to think indoor cannabis will be grown any differently. In Colorado, 78% of the state’s marijuana is grown in just four counties – all around major cities. (Thanks to Colorado Politics for that info.) The largest cannabis farms in California are under roof in Santa Barbara County, not the traditional farming country of the San Joaquin Valley, according to the Los Angeles Times. The biggest one in Nevada is a greenhouse in Las Vegas. And so forth and so on.

There are at least two ways to look at this. One is: Let the free market rule. The other is: Here’s another economic opportunity that rural Virginia is going to miss out on.

Now for the interesting political cross-pressures. Republicans, of course, are the most inclined to say “let the free market rule.” But it’s also their counties that will be the ones losing out. Democrats are the most inclined to tinker in the marketplace, but it’s their districts that would benefit most from an unfettered free market approach.

Can we talk both sides into a compromise? Democrats are the ones pushing for a social justice approach in awarding licenses. Here’s another way to look at this: What if the state set up certain rules for where cannabis growing operations could be, with an eye toward helping bridge some of the economic divides in the state?

Here are a couple ways to do that – and the challenges with each.

1. The state could require that all cannabis-growing facilities be in counties or cities that are officially deemed “economically distressed” – or even “doubly distressed.” That would bring in virtually all of Southwest and Southside Virginia plus some other places – including some distinctly non-rural communities such as Hampton, Newport News, Norfolk, Petersburg, Portsmouth and Richmond. So maybe I haven’t solved the problem I was trying to, although at least we wouldn’t have growhouses in Northern Virginia. It doesn’t solve another problem, though …
   
2. The state could require that all cannabis-growing facilities be in localities where their wages would be higher than the local median. A 2020 report by the Joint Legislative Audit and Review Commission said that the median wage for marijuana workers in Washington state was about $30,000 and advised that “most positions in cultivation, manufacturing, and retail typically pay less than Virginia’s median salary or hourly wage and would likely represent the majority of industry jobs.” That means, in creating a retail cannabis market, the state would intentionally be creating a low-wage industry that would pull down the state’s median income. Even limiting growhouses to economically distressed localities would mean that the state would be helping create jobs there, but still pulling down the median income. That runs exactly counter to other state economic development initiatives, such as the GO Virginia program, which is focused on trying to create jobs that raise the state median. Is there a way to avoid this? There is, but it’s probably politically untenable. If the state limited cannabis growhouses to localities with a median household income of less than $30,000 a year, then we’d be growing cannabis in just three places: Dickenson County, Norton and Emporia.

There’s a third option, of course, and that’s to do nothing. Let the free market sort it out. We can already tell how that will go: Those jobs will mostly be in urban areas where they will pull down those communities’ median wages, however slightly. Sorry for the buzzkill.