Rhode Island’s governor is pitching an unconventional recreational marijuana legalization plan centered on state-owned stores operated by private contractors, which would offer modest business opportunities for cannabis entrepreneurs.

The move reflects growing pressure to legalize adult-use cannabis along the East Coast after Massachusetts launched its recreational marijuana industry in 2018. It also dovetails legalization efforts by governors in Connecticut, New Jersey and New York.

Missed opportunity?

Rhode Island Gov. Gina Raimondo started talking in late 2018 about potentially legalizing adult use because, she said: “Our hand is being forced by all of our neighbors.”

In particular, the state is losing revenue and economic opportunities to bordering Massachusetts, where the recreational marijuana program is picking up steam after a slow start.

Rhode Island’s draft legislation, which is considered a long shot in the Legislature this year, calls for licenses for private cultivators and processors as well as the contractors that would manage the retail stores. The plan doesn’t spell out how many permits the state would issue.

Private contractors would acquire MMJ products from private growers and processors as well as receive a fee from the state for operating the Rhode Island-owned retail stores. The state would base the fee on sales generated at the store.

Based on Rhode Island budget projections, the market would remain small at first, generating roughly $35 million in sales for the state’s fiscal year starting July 1. The program would launch Jan. 1, 2021, according to the draft legislation, which is part of the governor’s budget bill.

Cannabis industry experts praised Raimondo, a Democrat, for making another stab at legalizing adult-use sales after an effort failed in the state last year.

But they said the plan could raise some legal questions and has a slim chance of passing the state Legislature in its current form.

Raimondo’s idea comes at a time when her administration and the state Legislature, which is controlled by Democrats, have tussled over control of the state’s medical marijuana program.

State Senate leaders said in December that they wouldn’t support adult-use legalization because they believed it would have a negative impact on Rhode Island’s youth.

Raimondo has shown determination in her approach: She has included $21.8 million in tax revenue from adult-use legalization in her fiscal year budget for a state badly in need of revenue.

State-owned model

“I’m happy to see her take a lead on the issue,” said Jared Moffat, campaigns coordinator for the Marijuana Policy Project.

“It’s frustrating to see the (state) General Assembly ignore the reality that Massachusetts is taking tax revenues every day from Rhode Island.”

MPP, though, is looking into whether the unusual state-owned model would run into some legal issues, Moffat said.

Utah scrapped a plan in 2019 that would have established state-run medical cannabis dispensaries after county attorneys said the system would put public employees at risk of prosecution under federal drug laws.

Moffat said MPP would like to see a backup plan with a more traditional model of licensing recreational cannabis retail stores owned by private businesses.

He added he likes that the proposed legislation would include a governor-appointed Community Equity and Reinvestment Council that would be charged with – among other things – creating diversity and economic opportunities in the industry.

Most retail revenues would go to state coffers

The state-ownership plan calls for Rhode Island to receive 61% of the revenue from adult-use sales.

Rhode Island will receive a greater percentage of the retail revenues than under a conventional private model.

The licensed private contractors would receive 29% and municipalities would receive 10%.

The model breaks sharply from the private-sector licensing approach discussed last fall at a Northeast governors summit hosted by New York Gov. Andrew Cuomo.

Rhode Island sent representatives to the summit, which was intended as a first step toward developing a regional regulatory approach. Raimondo didn’t attend the meeting herself.

Katie Sokol Ratkiewicz, president of the Rhode Island Cannabis Association, which represents cultivators, said potential growers might find the adult-use plan beneficial.

Rhode Island currently has three licensed vertically integrated MMJ dispensaries that can grow some cannabis. They rely heavily on supplies from 51 stand-alone cultivators.

Ratkiewicz said she hasn’t had time to think about the adult-use plan because her association has focused on fighting to keep limits on how much dispensaries can grow.

A proposed MMJ expansion bill would have allowed six planned new dispensaries to grow as much cannabis as they wanted, threatening the future of the stand-alone growers.

But leaders of the state House and Senate retreated from the proposal, and earlier this week, panels in each chamber advanced legislation favorable to cultivators.

Moffat said the state will have hearings on the governor’s budget, which includes the adult-use legalization plan, over the next five months. Bill amendments are expected.

The budget bill needs to pass by June 30, the last day of this fiscal year, although potentials exist for extension of the process.

Moffat underlined that the adult-use marijuana legalization plan in its current form doesn’t have much of a chance of passing.

“It might appeal to some,” he said, “But Republicans and more moderate Democrats – I think they will be against a state-owned system.”

Jeff Smith can be reached at jeffs@mjbizdaily.com