It’s really no longer a matter of “if” recreational use of marijuana will be legalized in Rhode Island. Now it’s more a question of “when.”
Three of the state’s most powerful leaders have expressed a desire to allow the adult use of marijuana and tax and regulate its sale, in part because retail pot stores are already established across the border in Massachusetts, and Connecticut is on the path to doing the same.
Failing to act means millions of dollars in potential revenue for Rhode Island will flow into neighboring states, while officials here will be left to deal with many of the costs that come with legalization, such as increased law enforcement and public safety concerns.
“We’ll get the headaches, but we won’t get the benefit of tax revenue,” Senate President Dominick J. Ruggerio said recently.
Such talk has the state’s business leaders largely conceding that it’s only a matter of time before recreational marijuana will be legalized, and they are now pressing to ensure they don’t lose control over what’s allowed and what’s prohibited in their workplaces.
For the moment, the snag has been that Ruggerio, House Speaker K. Joseph Shekarchi, Gov. Daniel J. McKee and others have been negotiating behind the scenes for months on the details of how to tax and regulate recreational cannabis.
At a panel discussion on marijuana legalization at Johnson & Wales University in October, Sen. Joshua Miller, D-Cranston, acknowledged that state officials were still hammering out the details of adult-use marijuana legislation. That includes social equity provisions, expungement of drug convictions, the level of municipal control over retail stores and the involvement of organized labor.
Meanwhile, business leaders are wary that the legislation won’t contain enough provisions to protect employers.
Miller, who co-sponsored a recreational marijuana bill that was approved in the Senate earlier this year but died in the House, said in October that negotiators were getting closer to an agreement. For his part, Shekarchi was confident legislators would reach a solution.
“Marijuana has been kicking around for a lot of years,” the speaker said. “I think that legalization of marijuana is inevitable.”
Still, there are many, especially in the business community, keeping a close eye on how things play out.
[caption id="attachment_387137" align="aligncenter" width="1024"]
GREEN LIGHT? Rick McAuliffe stands among the marijuana plants growing at the Ocean State Cultivation Center in Warwick. McAuliffe is chairman of the firm the Mayforth Group, the registered lobbyist for the center. The state’s licensed cultivators stand to benefit financially in the move to legalize recreational marijuana. / PBN PHOTO/RUPERT WHITELEY[/caption]
EMPLOYER RIGHTS
Laurie White is one of them.
The president of the Greater Providence Chamber of Commerce is adamant that the legislation must contain provisions that preserve the rights of employers to establish rules and conditions to maintain a drug-free workplace, including a zero-tolerance policy. Otherwise, White said, businesses could be dealing with health care policy adjustments, more workers compensation claims and ensuring companies’ policies don’t run afoul of the law.
“It’s another compliance issue, another thing to understand and become expert on, and another piece of exposure and liability, and another expense,” said White, adding that her staff has been lobbying legislators on behalf of Chamber members.
Drug testing and screening are big question marks.
Miller’s bill and a similar one introduced in the House that also failed last spring specified that employers could ban the possession and use of marijuana in the workplace, but companies wouldn’t be allowed to fire a worker for the use of cannabis outside of work hours. The bills exempted one type of employer from the latter provision: federal contractors for which failure to take disciplinary action could cost them money.
Neither measure addressed employee drug testing and screening, and neither did a failed proposal to legalize adult-use marijuana that was part of McKee’s state budget proposal earlier this year.
White said many in the business community are opposed to recreational marijuana because they don’t want to have to go through the process of implementing drug testing protocols for it.
“The notion of continuous testing [for marijuana] is another cost; it’s another impediment; and it’s another distraction,” she said. “And anything that presents another set of uncertainty is definitely problematic for business.
“There is a great hue and cry around this and what it means,” she said.
Manufacturers have been particularly vocal.
“We have a lot of machinery, dangerous equipment,” said Karl Wadensten, CEO and president of Richmond-based VIBCO Inc., a maker of industrial vibrators. “And even if you’re on your game, you could get really hurt.”
At the same time, he said, proving that someone is impaired from marijuana is more difficult than with alcohol since remnants of the drug can stay in the body for weeks.
That’s why David M. Chenevert, executive director of the Rhode Island Manufacturers Association, believes the business community should be part of the negotiations that have been taking place at the Statehouse.
“The big thing is ensuring that employees are kept safe and that employers are protected from lawsuits and liability issues,” he said. “Put us at the table.”
Connecticut-based defense contractor General Dynamics Electric Boat, which employs about 4,000 people at a facility in North Kingstown, went through a similar process earlier this year when Connecticut lawmakers legalized the adult use of recreational marijuana.
Electric Boat spokesperson Liz Power said the company communicated frequently with legislators in that state to ensure that employer protections were included in the legislation that passed in June. Connecticut exempted the construction, manufacturing and transportation sectors from provisions of the new law, such as prohibiting workers from using cannabis away from the workplace.
Now the company’s attention has turned to Rhode Island. At the North Kingstown facility, new hires are required to pass a drug test, and many employees must maintain a security clearance.
“Our No. 1 focus is for the safety of our workforce and that of the sailors aboard our submarines,” Power said in a statement. “If it is the will of the Rhode Island legislature to pass this initiative, EB would request employer protections similar to those included in the Connecticut legislation.”
Miller said state officials have examined how states such as Connecticut have addressed workplace concerns in their laws.
As it stands now, Rhode Island businesses are allowed to conduct drug tests and will still be allowed to do so under the provisions being negotiated now. “It will be up to the employer to determine how they test,” Miller said.
Miller said the language Rhode Island negotiators envision being included in future legislation would mirror Connecticut’s law, which allows employers to conduct marijuana drug testing of prospective employees, and drug testing or “fitness for duty” evaluations of employees. A positive test could be grounds for discipline or rescinding a job offer.
Miller said those involved in talks at the Statehouse also agree that they want to exempt certain industries from a recreational marijuana law and are looking to see how Connecticut deals with exemptions.
“It’s not an issue of contention,” he said. “We don’t see it as being controversial to those who are negotiating.”
Miller, who owns Trinity Brewhouse and the Hot Club in Providence, acknowledged however, that people who are under the influence of cannabis are not his priority. “There are a lot more job performance issues for people who drink heavily, or have a substance abuse disorder than it is for somebody that engages in regular cannabis intake,” he said.
ECONOMIC OPPORTUNITY
While some businesses still have major questions about how legalization of adult recreational use will affect them, the payoff could be big for others that would be part of the evolving industry here.
Ocean State Cultivation Center in Warwick, one of 65 licensed marijuana cultivators in the state, reports about $100,000 in monthly sales while producing more than 700 pounds annually in its 2,500-square-foot grow facility.
And that’s with a limited customer base of just three dispensaries selling medicinal marijuana. With the number of licensed dispensaries set to triple in the coming weeks, Ocean State Cultivation Center executive David Spradlin predicts sales will double. And the thought of dozens of retail outlets that his cultivation center could supply if cannabis is legalized has Spradlin’s mind spinning with big sales figures.
Spradlin, president of MWG Holdings Inc., a California company that also operates 18 marijuana retail stores in California and New Mexico, says sales in those states have doubled every year since 2018. “We’re expected to break $200 million in 2022,” he said.
MWG Holdings began operating Ocean State Cultivation Center in 2017 to get a foothold in the state with hopes to open retail stores here when marijuana is legalized.
“I would be shocked if Rhode Island, with adult-use, didn’t go over $150 million in [total] annual sales, if not $200 million,” he said. “This is a faucet that could be turned on pretty easily.”
Even with only legalized medical marijuana in the Ocean State, the cash is flowing. According to the R.I. Department of Business Regulation, sales through three licensed dispensaries amounted to $59.7 million in fiscal 2019. In the first 10 months of 2020, sales amounted to $65.2 million.
And that number is expected to escalate fast. On Oct. 29, the DBR held a special lottery to determine who would get five new dispensary licenses. The awarding of a sixth license has been delayed because of an applicant’s legal appeal.
The new dispensaries have nine months to open, and are also in line to become retail sites when recreational marijuana is legalized.
Spencer Blier, CEO of Mammoth Inc., a Warwick marijuana cultivator, said that right now his company is competing with other cultivators to sell marijuana at the three dispensaries at between $1,800 and $1,900 per pound. With an increase in demand if retail stores are opened, Blier said that price could soar to more than $3,000 per pound.
One concern he has: that the state might increase the number of licensed cultivators.
Miller has said publicly that the plan is to cap the number of cultivators at the current number, at least initially because many of the cultivators are only producing marijuana at a fraction of their capacity right now.
Who would be charged with regulating the new industry? While McKee proposed placing responsibility under the DBR, the measures introduced last spring by Miller and Rep. Scott A. Slater, D-Providence, would have set up a cannabis commission, similar to the system used in Massachusetts.
That’s a point of contention, with some such as Spradlin wanting a new commission to administer the new system, but others such as Blier wanting the DBR to oversee regulation, as it does with medical marijuana.
“I don’t know why they would want to create a Cannabis Control Commission,” said Blier. “It would be a significant change to the way we do business.”
Another potentially contentious issue: organized labor.
Miller acknowledged that officials are in talks about the part labor unions would play in a recreational marijuana system.
Spradlin, whose Ocean State Cultivation Center has unionized workers, thinks the state’s cannabis industry should be unionized to prevent employee turnover and create workforce consistency.
“I’m a huge proponent of it,” he said. “Workplace protections are important. It’s a booming industry, and labor is hard to come by. It’s always been a fruitful partnership.”
Sam Marvin, organizing director for the United Food and Commercial Workers Local 328, which represents workers at Spradlin’s center and at the Greenleaf Compassionate Care Center, a dispensary in Portsmouth, said legislators have an opportunity to guarantee equity, fair labor practices, safe working conditions and economic opportunities for communities historically affected by marijuana prohibition.
“We strongly support passing common-sense measures such as social equity licensing, worker co-operatives, automatic expungement, and labor peace agreements,” said Marvin.
Legislators pushing for legalization have agreed that social equity should be implemented to create pathways into the industry for people at an economic disadvantage, and those who might have been jailed on marijuana charges in the past. The bills introduced last spring would have created a “social equity assistance fund” financed by license and application fees that would, among other things, help disadvantaged people hurdle financial barriers to getting into the industry.
[caption id="attachment_387139" align="aligncenter" width="1024"]
A MATTER OF LUCK: Matthew Santacroce, left, the state’s cannabis chief, displays the first winning ball during a lottery to award five licenses for medical marijuana dispensaries on Oct. 29. At right is Russ Griffiths, an R.I. Department of Business Regulation official who picked the balls from a tumbler while blindfolded. / PBN FILE PHOTO/CASSIUS SHUMAN[/caption]
A TAXING MATTER
Just how much would legalized recreational marijuana bring into the state’s coffers? Depends on whose proposal you’re looking at.
When former Gov. Gina M. Raimondo included a plan for state-run retail stores selling cannabis in her 2020 state budget, her administration estimated that it would raise $21.8 million in taxes in the first year.
Last spring, McKee’s proposal estimated $16.9 million in new tax revenue by fiscal 2023 His plan called for an intitial 25 privately run stores and a 10% in taxes on sales tacked onto the state’s standard 7% sales tax.
That proposal also noted that there would be 97,480 adult-use cannabis consumers with $96 million in annual recreational sales – estimates based on 2019 federal survey data, which measured marijuana use combined with U.S. Census population data.
The legislation approved by the Senate last spring did not have projected revenue numbers, but it called for a 10% marijuana tax, 7% sales tax and a 3% tax for the municipality where the store is located.
“The last estimate I saw, which seemed pretty realistic and conservative, was about $20 million annually in revenue,” said Miller. “That’s for a full year of operation with a certain number of licenses processed.”
Slater’s legislation also did not offer projected revenue numbers, but it would have imposed a 20% tax, with 15% going to the state and 5% for cities and towns.
Slater believes cannabis could be a big windfall, estimating it could bring in an annual yield of about $17 million, increasing in later years.
Shekarchi isn’t so sure that legalization will pay off so well for Rhode Island. He said he’s more concerned about assembling legislation that clearly defines a fair regulatory process.
“There could be an uptick in revenue we would gladly accept,” he said. “But estimates for $100 million in [annual sales] are grossly overstated.”
There’s no doubt the numbers nationally are big.
The Marijuana Policy Project, a Washington, D.C.-based nonprofit advocating for legalization, estimates that $8 billion in tax revenue was generated since legal sales began in 2014 by the 18 states that legalized marijuana for recreational point of sale. (In June, Connecticut became the 19th state to legalize marijuana for recreational use.)
It’s numbers like these that have motivated state leaders to reach an agreement.
Still to be finalized is how many retail stores will be allowed in the state, and how much control will be given to local governments over regulation.
Miller said during the event at JWU last month that officials negotiating the framework of the recreational marijuana system had narrowed the number of retail licenses to between 30 and 40. And all proposals so far have included provisions that would allow local communities to reject marijuana retail stores within their borders.
Slater is eager to get something in place soon.
“Right now, we’re losing revenue to other states. So, it’s important to do something sooner than later,” said Slater. “People are developing their buying habits – traveling to Massachusetts to buy cannabis.”
But Wadensten, the VIBCO CEO, sees no reason to rush with what he perceives as the safety of employees at workplaces across Rhode Island at stake.
“This could have very profound consequences for industry,” he said.
CORRECTION: Rick McAuliffe is chairman of Providence-based Mayforth Group, the registered lobbyist for the Ocean State Cultivation Center. An earlier version of a caption in this story mischaracterized McAuliffe's relationship with the center. Also, the Ocean State Cultivation Center is located in Warwick. An earlier version of the caption and article gave the wrong location.
Cassius Shuman is a PBN staff writer. Email him at Shuman@PBN.com.
