Governor vetoes medical cannabis vertical integration bill, but fix may appear on special session call

MORGANTOWN — Gov. Jim Justice vetoed a bill aimed at paving the way for medical cannabis businesses to set up in West Virginia.

The bill’s lead sponsor is disappointed and sees the veto as a setback for the program set to launch July 1.

But a fix may be in the works for the special session set to resume in May.

The bill is HB 2079. Its chief goal was to allow vertical integration of medical cannabis businesses. Current law prohibits cannabis growers or processors from operating dispensaries. The bill would have allowed one company to operate all three.

Lead sponsor, Delegate Mike Pushkin, D-Kanawha, explained that Internal Revenue Service tax regulations create what amounts to a 70 percent tax rate on dispensary profits. Combining operations allows the companies to function at a workable profit.

“If we don’t have vertical integration and allow people to have multiple licenses we’re just setting the program up to fail,” he said.

Justice said in his veto message that the bill unfairly favors vertically integrated cannabis business over others.

He bases that on a provision the Senate Judiciary Committee added to the bill. Current law sets a 10 percent gross receipts tax on sales by grower/processors to dispensaries.

The Judiciary amendment sets two rates.

The first applies to growers who sell to unrelated processors, processors who sell to unrelated dispensaries, or grower-processors who sell to unrelated dispensaries. They would pay the 10 percent rate.

But integrated businesses would be charged a 5 percent tax based on gross customer receipts.

In any case the tax could not be passed along as a separate charge or line item to the buyer.

Justice said in his message that the Legislature may classify and tax businesses differently, but federal law requires the tax to be reasonable, based on real differences and be germane to the enabling legislation. “Applying this test, it is impossible to justify the classifications in the bill.”

Pushkin expressed his frustration at Justice’s reading of the bill. “It appeared to me that the governor doesn’t really understand the issue and why that bill was necessary. Perhaps if he would show up more during the session, he could familiarize himself with these types of issues.”

Pushkin said he understands why Justice would perceive the bill as potentially unfair. “In reality, though there aren’t going to be standalone dispensaries, so they’re basically protecting a class that most likely isn’t going to exist.”

Pushkin said that it will be a full year before there’s any product to be taxed, so Justice would have been wiser to allow the bill to become law and save any fixes for a special session or next session.

“We’ve really set the program back at least another year. And that’s unfortunate because there’s a lot of people going through chemotherapy or suffering from seizures. There’s a lot of people waiting on us to get this right. The governor’s veto has prolonger their wait.

“If he’s sincere about trying to fix it, and sincerely supports the medical cannabis program in West Virginia, then he can fix it. He can let us fix it.”

Pushkin also said there are other provisions in the bill that businesses need to operate successfully.

The bill kept the maximum number of grower and processor permits at 10 but raised the number of dispensary permits from 30 to 100. It raised the maximum number of dispensary permits may hold from two to 10.

The bill also replaced a requirement that all three types of businesses be distributed evenly among several established regions with one that calls for the state Bureau for Public Health to consider geographic location when approving dispensary permits.

And it eliminated a requirement, considered impossible to satisfy, to have a physician or pharmacist on site at every dispensary.

If the bill isn’t fixed, Pushkin said, the current setup could scare off hundreds of millions of investment dollars and stop creation of thousands of jobs.

The fix

Justice said he supports the medical cannabis program for those who need it and encouraged the Legislature to prepare a bill that addresses the tax issues fairly for him to sign.

The Dominion Post sent questions about the veto to House Speaker Roger Hanshaw and Senate President Mitch Carmichael.

Hanshaw did not respond. But Carmichael said of the bill in a phone interview, “The governor’s supportive of it. We’re supportive of it.”

He characterized Justice’s objections as technical issues that can be fixed during the special session Justice called to handle education reform bills.

“You’ll see this bill back on the call,” Carmichael said. “We’ll deal with it very quickly.” It’s important to get it passed so the people who need it can get some relief.

Under state law, the governor determines what bills are considered during a special session.

The special session began immediately after the regular session ended, but is adjourned until Carmichael and Hanshaw call the legislators back. Carmichael said he believes that will be no later than the May interims, tentatively the third full week.

Tweet David Beard @dbeardtdp Email dbeard@dominionpost.com

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