RI lawmakers weigh potential model for legal cannabis

PROVIDENCE, R.I. (WPRI) — In their first action on the issue since the chamber’s leaders signaled support for legalizing recreational marijuana, Rhode Island senators on Wednesday night began considering a proposal to set up a system for legalized cannabis in Rhode Island.

The proposal — made by Gov. Gina Raimondo in her pre-pandemic budget proposal in January and heard by the Senate Finance Committee Wednesday night — is to keep recreational cannabis under complete state control, with state-run shops akin to New Hampshire’s liquor outlets, and to ban home-growing of the plant except for those authorized under the medical marijuana program.

Members of the committee expressed skepticism about the state-run model compared to allowing private businesses to sell the drug, but the tone of the meeting indicated the committee is trying to figure out how — not if — they will advance legislation to legalize recreational marijuana next year.

The soon-to-be chairman of the panel, Sen. Ryan Pearson, said afterwards he anticipates the committee will take up the matter in January, rather than waiting to include it in the fiscal year 2021-22 budget, typically passed in June. (The General Assembly still hasn’t passed a budget for the current fiscal year, which started in July, but may return to pass that measure in December.)

“I certainly do think we will act on the issue, whether it’s more private or whether it’s more state,” Pearson told 12 News. “I’m optimistic to take this up early in the next session.”

The Raimondo administration’s proposal would create a revenue-sharing model similar to how the state runs casinos, with the state keeping 61% of the net revenue from sales at the stores, giving 29% to one or more contractors who operate the stores, and 10% to municipalities. Even cities and towns who ban marijuana shops would get a share, though those who host the stores would get more.

Administration officials gave two reasons for the unique model, which Pamela Toro from the R.I. Department of Business Regulation said no other state uses for cannabis: it would give the state a tight grip on the recreational industry, with a goal of eliminating the black market, and it would potentially bring in more revenue than a taxation model.

Massachusetts uses the latter model, with private businesses opening their own stores licensed by the state, and the state getting revenue through taxes and fees.

That’s also how Rhode Island currently operates its medical marijuana program. There are three dispensaries called compassion centers — with six more set to be licensed next year — that pay a $500,000 annual licensing fee to the state, plus a 4% surcharge on sales, and consumers pay the 7% sales tax. But the profits from the marijuana sales stay in the hands of the private businesses.

“I’m not certain based on what we’ve done with regards to all those other components that setting up a model this way makes sense,” Sen. Lou DiPalma said at the hearing, referring to the vast infrastructure of cannabis businesses already in place in Rhode Island’s medical market. “Why not license it like we do everything else?”

Toro replied, “This was an effort to do something that yes, is different, but really focuses on health and safety.” She said if state officials can control the prices, they can more effectively “displace” the black market with a safer, lab-tested product sold in stores. Private legal marijuana marketplaces in other states have failed to do so because pot on the black market is cheaper than what the stores are selling, she added.

The Raimondo administration estimates $52 million in net revenue would go to the state in a full year of sales, though the timing of the plan’s passage could affect the deficit in the current budget year; if legislation is passed in early 2021, the state would expend roughly $3 million in startup costs during the current fiscal year, but wouldn’t recoup any revenue until the stores open in the next fiscal year, which starts in July 2021.

The cannabis sold in the state-run stores would be purchased wholesale from existing cultivators, dozens of which are licensed in the state but can currently only sell their product to the three medical dispensaries, which all also grow their own cannabis.

“I think there’s a natural skepticism any time that we say the state’s going to run it and run it better,” Pearson said, while adding, “I don’t think that means that a state-run model is off the table.”

He said he wants the administration to “show their homework” in terms of how it’s a better model and how they came to a $52 million net revenue projection for the state’s portion in the first year.

Matthew McCabe, chief data analyst at the R.I. Office of Management and Budget, said the administration assumed a brand new cohort of customers in the recreational market, adding to the thousands who already use the medical marijuana market. But a certain share of recreational users may already be utilizing the medical market, in part because of the ease of obtaining medical marijuana cards online from other states, which are accepted at Rhode Island dispensaries.

Whether or not some customers move over to the recreational market would likely depend on prices and variety of product offerings. Raimondo has proposed capping how potent the THC content of products could be in the recreational market, for example, while the medical dispensaries would still be allowed to sell high-potency medicine that can be crucial for chemotherapy patients or those with seizure disorders.

McCabe said he anticipates the state-run stores to sell marijuana at a cheaper price, ounce for ounce, than the medical dispensaries. But Pearson questioned that assumption as well, since the stores will be buying cannabis from cultivators and will need to sell at a high enough price to net the expected revenue and allow the contracted operators to cover their expenses.

“What price do you have to sell at for that 29% to cover operation and profit, and what’s the profit margin you modeled?” Pearson asked.

The state’s share of the revenue would go towards licensing, enforcement, police training, health inspections and education, substance abuse prevention and treatment among other items directly tied to marijuana, with the remainder going into the general fund, according to Raimondo’s proposal.

As it stands, state leaders argue that having legal cannabis available in Massachusetts has given Rhode Islanders all the health and safety effects without any of the revenue to deal with those.

That’s partly why Dr. Nicole Alexander-Scott, the director of the R.I. Department of Health, and R.I. State Police Col. James Manni submitted written testimony in favor of the state-run legalization plan, citing the tight regulatory framework and resources to deal with effects of what is already a widely-used drug in Rhode Island.

While some submitted testimony opposed to the state-run model but in favor of legalization in general, only one piece of testimony was submitted to the committee opposing legalizing recreational marijuana altogether. The Rhode Island Manufacturers Association said they were concerned about workers being under the influence, and urged lawmakers to reject the legislation or at least include strong provisions for employers to prevent impairment in the workplace.

Senate President Dominick Ruggerio — previously a staunch opponent of legalization — said earlier this month he is open to looking at legalization next year, while his majority leader, Michael McCaffrey, gave a full-throated endorsement of the move in a speech after the Senate Democrats re-elected both to their leadership positions.

House Speaker Nicholas Mattiello, who lost re-election this month, had also opposed legalizing marijuana this year when Raimondo proposed it in her budget in January. But Mattiello will be leaving the lower chamber at the end of year, and his expected replacement, Majority Leader Joseph Shekarchi, has signaled openness to the prospect once he takes over as speaker.

“We’re heading in that direction as a country, so yes I’m open to it,” Shekarchi said last week on a taping of WPRI 12’s Newsmakers. “I want to listen to all sides and what they have to say. I don’t have a hard and fast position on legalization of marijuana.”