Dozens of companies compete for a piece of Virginia's limited medical marijuana market

Four decades after Virginia legalized medical marijuana in a pioneering but ultimately unworkable way, dozens of companies are vying for the state’s permission to grow cannabis and make a medicinal oil out of the otherwise outlawed weed.

Under emergency legislation passed early this year, Virginia will grant up to five permits to produce cannabidiol (CBD) oil or THC-A oil. Stripped of most of the plant’s THC, the chemical compound that triggers the intoxicating reaction in the nervous system, the oils have been touted as treatments for severe seizures and other maladies.

Virginia is taking a restrictive approach as it once again cracks open the door to medical marijuana, giving the green light only to the low-THC oils and prohibiting the smokable, high-inducing variety available to anyone with a doctor’s note in neighboring Maryland and to any adult, in small amounts, in the District.

In fact, Virginia has not even formally legalized the oils, providing only an “affirmative defense” to anyone charged with possession. For that reason, NORML, the nation’s leading advocate for marijuana legalization, does not include Virginia in its count of 31 states that have legalized medicinal use.

“Virginia is following its own course in creeping into the medical cannabis space,” said Jeremy Unruh, director of public and regulatory affairs for PharmaCann, one of 32 companies competing for five permits. “Each state has the right and authority to craft a program that’s sensitive to the needs and sensibilities of its own local citizens.”

The companies that ultimately get in on the commonwealth’s marijuana-oil market will operate within a regulatory framework that sharply limits the number of producers and dictates how they operate — from business model (vertical integration) to the clothing worn by workers (no pockets) and the brand name (nothing that screams “recreational pot”).

Those restrictions have hardly been a deterrent. The 32 companies submitted a total of 51 applications — some are applying in multiple regions — and each bid required a detailed proposal and a nonrefundable $10,000 application fee by the June deadline. The response so far exceeded the expectations of the state’s Board of Pharmacy that it says it won’t decide permits until late September.

The state plans to award one permit for each of five regions. Those chosen for conditional permits will have a year to get up and running. A one-year permit will cost $60,000.

Much of the selection process is under wraps, with the state maintaining that the identities of applicants are exempt from Virginia’s Freedom of Information Act. A few of the hopefuls have gone public as they’ve pitched their projects to local officials, whose buy-in will be a factor as the committee weighs applications. Among them: a mom-and-pop pharmacist hoping to set up shop in a shuttered J.C. Penney near the Tennessee border and a Hampton home builder seeking to operate out of a former NASA lab. The latter would partner with Arizona Organix, which opened that state’s first dispensary in 2012.

At least two other contenders with out-of-state operations are in the mix. One is PharmaCann, which is based in the Chicago area and operates in Illinois, New York, Massachusetts and Maryland, and is licensed and in the process of building in Pennsylvania, Ohio and Michigan.

The other out-of-state operator is Surterra Wellness, which is licensed in Florida and Texas and backed by venture capitalists, including chewing-gum heir William “Beau” Wrigley Jr., who was named chairman of the board this month. It has applied for three of Virginia’s permits. One would operate out of greenhouses in Waynesboro, the other two in industrial warehouses in Prince William and Amelia counties.

Of all the known contenders, Surterra has pushed for medical marijuana in Richmond since 2014. The company donated a total of $50,000 to Gov. Ralph Northam (D) and his predecessor, Terry McAuliffe (D), and is represented by Richmond lobbying powerhouse McGuireWoods. Andrew Smith, who was McAuliffe’s campaign finance director and later a McGuireWoods vice president, is now a Surterra senior vice president.

Surterra founder Jake Bergmann said that if it is selected, the company would invest $10 million to $20 million in Virginia in the first year and hire “a couple hundred” employees.

At the other end of the spectrum is Dharma Pharmaceuticals, which takes pride in being a purely local start-up. While established outfits have executives and specialists such as master growers, a from-scratch operation will need all new hires, boosting the local economy, said Michael Johnson, a pharmacist in the southwest Virginia community of Abingdon who is leading Dharma’s effort.

“I think that’s a benefit for the region,” said Johnson, whose group plans to occupy a former J.C. Penney’s at the defunct Bristol Mall.

Virginia looked like a trailblazer when it approved medical marijuana for people with certain illnesses in 1979. A year earlier, New Mexico had legalized marijuana for medicinal use, but only for a limited number of patients enrolled in a research study.

Virginia’s law, meant to make marijuana available to patients with glaucoma and cancer, seemed far more sweeping.

“My recollection was that no other state had done that,” said former congressman Rick Boucher (D-Va.), who was then a state senator and the chief sponsor of the bill.

The medical marijuana measure, part of a broader package of legislation that eased first-offense penalties for possessing or growing small amounts of marijuana, drew little attention or controversy at the time. And it was soon forgotten, because it proved to be useless: It required patients to have a doctor’s prescription for marijuana, something doctors could not prescribe since it was illegal under federal law.

The law drew attention nearly 20 years later, when Del. Robert G. Marshall (R-Prince William) led a repeal effort, but a Senate committee was persuaded to keep it on the books.

As other states legalized medical if not recreational marijuana, Virginia resisted the trend. But law-and-order legislators started budging after a 2013 CNN documentary, “Weed,” showed the plight of a family seeking marijuana oil to control their daughter’s seizures.

The program instantly reshaped the legalization argument into a family-values tear-jerker.

Virginia legislators heard from a mother who had moved to Colorado so her daughter could obtain the oils there legally, leaving another daughter behind in Virginia until the strain on the family proved too much. In front of legislators at one hearing, a girl had a seizure.

Even so, instead of legalizing the oil, Virginia lawmakers in 2015 passed a measure that would provide only an “affirmative defense” to shield epileptics and their guardians from prosecution. Provisions for producing the oils in-state had to be scrapped that year, forcing parents to rely on the black market or risk prosecution for buying the oils elsewhere and illegally transporting them across state lines.

In the years since, the legislature has loosened the rules so that now the state is preparing for in-state production of the oils, authorized not just for epilepsy but for any medical condition that a doctor thinks can be helped. Patients will need a recommendation — rather than a prescription — from a physician, and both patient and doctor must register with the state.

Jenn Michelle Pedini, executive director of Virginia NORML, said the commonwealth’s approach is among the strictest in the nation. But among the states operating under “hyper-restrictive models, Virginia is sort of the best of the worst,” Pedini said, noting that the state will allow the oils to contain up to 5 percent THC, compared with 0.5 percent in Texas.

The state requires that companies grow their own marijuana, produce the oil and sell it — all at one location. One contender compares that mandate to requiring that Jim Beam not only grow its own corn, rye and barley, but also do so in the same spot where it distills, bottles and sells its bourbon.

The vertical setup is fairly unusual and intended to ensure quality and control the product, Pedini said. Florida has similar requirements, and critics contend that they create huge barriers to entry and limit competition, leading to higher prices and “legal drug cartels,” as the Tampa Bay Times has put it.

The regulations do allow for delivery after patients have an initial, in-person consultation with the company’s on-site pharmacist. But the companies have to run the delivery service themselves.

Pedini predicts that some of Virginia’s restrictions will fall away as the state grows more comfortable with the industry. And that is precisely what worries conservatives like Marshall, who lost his reelection bid in 2017 and was shocked to learn that both houses of the legislature voted unanimously this year to broaden use of the oils beyond epileptics.

“This is like these wagons that went through the Old West, these hucksters who said, ‘This will cure X, Y and Z,’ ” he said. “This is experimentation, and if it’s for any illness, this is really wide open.”