Raimondo wants state-run pot shops, modeled on NH liquor stores

Politics

PROVIDENCE, R.I. (WPRI) – In her second bid to legalize recreational marijuana, Gov. Gina Raimondo is proposing to open state-run cannabis retail stores, a major departure from the way the state currently licenses and regulates medical marijuana dispensaries.

The plan is being compared to state liquor store models in about a dozen states, including the well-known New Hampshire liquor outlets that are practically tourist destinations. There are no other states that use this model for marijuana, according to Liz Tanner, the director of the Department of Business Regulation.

Under Raimondo’s proposal — submitted to lawmakers Thursday as part of her $10.2 billion 2020-21 budget plan — the state would contract with one or more operators who would run the day-to-day business at a still-to-be-determined number of retail shops.

Budget analysts estimated that about 176,000 Rhode Islanders would buy cannabis at the retail stores, and that they would open in March 2021. Adults over 21 would be able to buy one ounce at a time at the stores, and possess up to five ounces total at home. No recreational home-growing would be allowed under the proposal.

A sizable chunk of the revenue from pot sales – 61% — would be kept by the state. Another 29% of the revenue would go to the contracted operator, and 10% would go to municipalities, with a larger share going to the towns and cities where the stores are actually located.

Because of the revenue share with the state, marijuana bought at the retail stores would not otherwise be taxed.

The revenue sharing model is similar to how the state runs the lottery, splitting the revenue between the state, vendor IGT and casino operator Twin River.

But unlike the lottery model, the state would potentially contract with more than one vendor for marijuana retail sales.

“This is an industry that’s already around us whether we like it or not,” Tanner told reporters. She called Raimondo’s new proposal the “most restrictive and conservative adult-use plan by far.”

The Raimondo administration also contends the state-run pot shops could “reduce opportunities for corruption” in the system.

“We really look forward to a clear and transparent process to be able to show everything that happens in the process of growing marijuana and selling marijuana,” Tanner said.

The state would have control over the products and pricing at the stores, which would be retail-only and would not grow their own cannabis.

Instead, the retailers would wholesale the products from cultivators — who would grow the cannabis — and processors, who would manufacture cannabis products. Existing medical marijuana cultivators would be able to apply for recreational cultivator and processing licenses, but could not operate a retail location.

The proposal – which appears to be a nonstarter in 2020 for current legislative leaders – is a major departure from Rhode Island’s medical marijuana industry, which would not be affected by the legislation.

In the medical program, private dispensaries known as compassion centers are licensed by the state but set their own prices, and keep their revenue. They pay an annual $500,000 licensing fee to the state and a 4% surcharge per transaction, and customers pay the 7% sales tax when they buy medical marijuana.

Under Raimondo’s new plan, medical compassion centers would be barred from selling recreational marijuana. But the compassion centers would be able to sell products with higher THC than the recreational stores, potentially enticing medical patients to keep shopping at the dispensaries.

From the governor’s perspective, one of the major advantages of the state-control model for recreational marijuana is the amount of money it is projected to bring the state — $21.8 million in fiscal 2020-21, and nearly $40 million the year after, which Raimondo is partly using to help close a roughly $200 million budget gap.

For comparison, her recreational marijuana proposal last year was only projected to bring in about $6.5 million in tax revenue. That plan, which was rejected by lawmakers, would have licensed private retailers in a similar fashion to the current medical program.

“I am disappointed that the revenue from the proposed legalization of recreational marijuana was included in the budget proposal,” Senate President Dominick Ruggerio said in a statement Thursday afternoon. “Seeing as the marijuana proposal is unlikely to pass, we effectively have a proposed budget that is out of balance to the tune of $21.8 million.”

House Speaker Nicholas Mattiello agreed, calling the governor’s move “risky and shortsighted at best.”

But Brett Smiley, Raimondo’s newly appointed Director of Administration, argued the General Assembly should wait before rejecting the idea.

“This new proposal deserves a fresh look,” Smiley argued. He pointed out that some of the revenue generated by marijuana sales would be set aside for public safety, including training more drug recognition experts.

The Raimondo administration also looked to the fact that the New Hampshire state-run liquor stores sell a higher volume of alcohol at a cheaper price, and estimated that marijuana prices at the Rhode Island pot shops would drop in the second year.

Medical marijuana debate continues

Despite the new recreational marijuana proposal, the state’s medical cannabis program is likely to get the most rigorous debate in the General Assembly this year. Six new medical compassion centers are slated to be licensed after being authorized in the budget enacted last year, the first expansion of the program since dispensaries were first licensed.

The largest issue remains unresolved: will the new compassion centers be allowed to grow their own cannabis, potentially putting 51 state-licensed cannabis growers out of business?

“There are far too many cultivators,” Mattiello told reporters this week. “Some of them are not going to survive long term.”

Raimondo proposed in regulations late last year to block the six new compassion centers from growing, citing the need for a market study to prevent an oversupply of marijuana.

But Mattiello and Ruggerio introduced legislation this month to stop that. The bill sponsored by the two leaders would block the executive branch from setting regulations that limit compassion centers from growing.

Mattiello said this creates “equal footing” for all the compassion centers, since the existing three centers can already grow. He also said the state has issued too many cultivator licenses.

The leaders have also said the goal of the bill is to prevent Raimondo from legislating via regulation — meaning its still possible lawmakers will address the concerns of the cultivators in separate legislation.

“I can’t see how we could stay in business if the new centers will be able to grow,” said cultivator Domenic Passarella earlier this week. He co-owns Rhode Island’s Finest Gardens in Warwick. “It basically legislates us out of the market.”

Steph Machado (smachado@wpri.com) covers Providence, politics and more for WPRI 12. Follow her on Twitter and on Facebook

Copyright 2020 Nexstar Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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