Pros and Cons of Virginia's Proposed Recreational Cannabis Bill: A CSBA Perspective

House Bill 642 (HB642), introduced on January 13, 2026, by Delegate Paul Krizek (D), establishes a framework for a regulated retail marijuana market in Virginia. Administered by the Virginia Cannabis Control Authority (CCA), the bill prohibits retail sales before November 1, 2026, while advancing licensing processes beforehand. It prioritizes a competitive, decentralized market structure designed for long-term viability, with safeguards against undue concentration by large multi-state operators (MSOs). The legislation eliminates local opt-outs for retail operations, caps total retail licenses at no more than 350 before January 1, 2028, and imposes an 8% excise tax, while also allowing localities to impose a sales tax of 1% to 3% on cannabis products.

The Cannabis Small Business Association (CSBA) focuses on advocating for small, independent cannabis businesses in Virginia. Key priorities include ensuring a level playing field for fair competition, protecting existing hemp operators from undue harm through the transition, and promoting opportunities for small enterprises to thrive in the emerging market. While HB642 contains provisions supportive of small business entry and competition, other elements grant significant advantages to established medical cannabis operators and certain hemp entities, potentially limiting opportunities for new small players. This analysis outlines the main pros and cons from a small business standpoint, informed by CSBA member feedback and stakeholder input, and incorporates CSBA's proposed amendments to address identified shortcomings.

Pros for Small Businesses

These elements support market decentralization, independent operations, and protections for smaller participants.

• Explicit Market Goals for Competition and Sustainability: The bill emphasizes building a "competitive, sustainable, and decentralized market structure built for long-term success, prioritizing the creation of durable, independent businesses over the maximization of short-term tax revenue." Protections against excessive market concentration help prevent dominance by large operators, creating space for small businesses to compete effectively.

• Limits on Total Licenses and Market Concentration: The legislation generally caps any person or entity at five licenses (excluding transporters) and one Tier V cultivation license. It requires ongoing market concentration analyses using tools such as the Herfindahl-Hirschman Index (HHI) to prevent monopolistic control. These measures help maintain a fair, competitive environment for small operators, but at the potential cost of hindering growth and upward mobility for small operators.

• Virginia Cannabis Equity Business Loan Fund: This fund provides grants and low- or zero-interest loans to qualifying licensees for startup and operational needs, drawing 50% of its resources from the Cannabis Equity Reinvestment Fund. It addresses capital access challenges common in the industry, but at the potential cost of hindering growth and upward mobility for small operators.

• Cannabis Impact Business Equity and Diversity Support Team: This team will analyze barriers for small, women-owned, minority-owned, veteran-owned, and other independent businesses; recommend solutions; offer technical assistance and business planning support; and conduct outreach. Such resources aid small operators in navigating regulations and scaling effectively.

• Prohibit Using Impact Licensees as Leverage to Increase Tier V Cultivation Canopy Beyond Standard Limits: This prevents the exploitation of equity provisions, maintaining fairness and preventing exploitation of equity provisions.

Cons for Small Businesses

Several provisions favor the four existing medical cannabis operators (pharmaceutical processors) and pre-2021 industrial hemp entities—often large, vertically integrated operations—creating barriers that could hinder new small business entry and growth.

• High Conversion Fees and Advantages for Existing Medical Operators: Existing medical operators may convert to dual-use licenses (enabling adult-use sales) with a one-time $10 million fee. While this generates state revenue, the cost poses a prohibitive barrier for smaller entrants. Dual-use licenses allow indoor cultivation up to 70,000 square feet—twice the 35,000 square foot limit for Tier V general cultivation licenses. This advantage applies only to the current operators, providing them with substantial early market leverage.

• Exemption from Multiple License Caps for Dual-Use: Dual-use licenses permit pharmaceutical processors to operate across cultivation, processing, and retail categories without the standard five-license cap, potentially allowing up to six vertically integrated facilities per health service area. This creates a significant edge over new small businesses subject to stricter limits.

• Conversion Privileges for Hemp Operators: Pre-January 1, 2021, registered industrial hemp growers and processors (including those with justified registration forfeitures) receive streamlined conversion to up to five cultivation and five processing licenses upon a $500,000 one-time fee. While this protects some existing hemp businesses, it favors larger, established entities over new or small entrants without similar history or finance options.

• Initial Market Head Start and Limited New Licenses: Conversions for dual-use and hemp operators are set to issue by November 1, 2026, granting established players a first-mover advantage. The CCA must issue up to 100 microbusiness licenses by October 1, 2026, and at least 55 additional licenses (including impact and Tier I/II cultivation) by November 1, 2026. This creates a supply bottleneck for new small businesses, exacerbated by the November 1, 2026, retail start date, which may disadvantage non-vertically integrated operations.

• Overall Vertical Integration Bias: Exemptions for conversions reinforce capital-intensive, vertically integrated models, disadvantaging specialized small operators (e.g., those focused solely on cultivation or retail). High upfront requirements can exclude many independent entrepreneurs.

• Microbusiness Licenses: This license type supports small-scale, vertically integrated operations, allowing cultivation (indoor canopy up to 5,000 square feet, outdoor up to 10,000 square feet), processing, and retail, limited to self-produced products. Microbusinesses cannot hold other licenses or multiple sites, preserving independence. While vertical integration requires significant startup capital and prohibits wholesaling or sourcing from others, the structure lowers certain barriers for new entrants. The bill directs issuance of up to 100 such licenses by October 1, 2026, with priority for qualifying pre-2021 industrial hemp operators, impact applicants, and distressed farmers—providing a pathway for existing small hemp businesses to transition without severe disruption. As written I would move this to con space and clarify that with some tweaks (specifically the redlines), this could be a very advantageous avenue for small businesses to entry point. Currently, it's a cost prohibitive entry point and the limits imposed would lead to failure. Also, opportunities to build this sort of operation within properly zoned areas are scarce.

  
  

CSBA's Stance and Recommendations

HB642 advances a regulated market with potential to generate economic opportunities and support industry growth in Virginia. However, its structure tilts toward incumbents, risking reduced competition and limited access for small businesses. CSBA urges targeted amendments to enhance small business viability, drawing from our proposed changes to the bill:

• Define business accelerators in coordination with public higher education institutions and prohibit their use as leverage for additional licenses beyond one category (§ 4.1-604), ensuring programs genuinely support small operators without enabling market concentration.

• Reduce impact licensee qualification to at least two out of seven criteria, with one required to include (iii) (§ 4.1-606), to better align with legislative intent and broaden access for targeted applicants.

• Allow regulatory flexibility for small businesses and microbusinesses by removing requirements that their regulations be as stringent as those for pharmaceutical processors (§ 4.1-606), enabling tailored rules that differentiate small entities from large corporations.

• Permit impact and microbusiness licensees to enter cooperative agreements, lease space/equipment, and share processing facilities (§ 4.1-606), fostering collaboration and reducing operational barriers for small operators.

• Authorize the CCA to prohibit commingling of medical and non-medical cultivation if beneficial to the medical market, while allowing integration of processing, packaging, transporting, and dispensing (§ 4.1-606), protecting medical supply integrity without hindering efficiency.

• Implement a two-year canopy cap of 35,000 square feet for dual-use facilities before allowing expansion to 70,000 square feet (§ 4.1-807), preventing early oversupply and canopy capture by established operators.

• Prohibit using impact licensees as leverage to increase Tier V cultivation canopy beyond standard limits (§ 4.1-800), maintaining fairness and preventing exploitation of equity provisions.

• Allow microbusiness licensees to sell to other microbusinesses for business-to-business transactions (§ 4.1-803), enhancing profitability and market flexibility for small operators.

• Ease zoning restrictions by increasing the minimum distance for retail stores from sensitive locations (e.g., schools, places of worship) from 500 to 1,000 feet (§ 4.1-811), and enable localities to adopt ordinances reducing distances or prohibiting operations in public parks/playgrounds, supporting denser urban development without compromising safety.

Additionally, CSBA recommends reducing barriers for microbusiness flexibility (e.g., allowing limited wholesaling), applying license caps more uniformly (including to conversions), delaying retail commencement if needed to ensure equitable supply, and expanding support for non-vertical models to lower entry costs while safeguarding existing hemp operators.

As the 2026 General Assembly session unfolds, beginning January 14, CSBA will monitor progress and advocate for changes that promote a fair, competitive marketplace. For more information or to engage, visit the CSBA website or contact the organization directly. A balanced Virginia cannabis industry requires policies that empower small businesses and ensure long-term viability for all participants.