Shenandoah Valley medical marijuana permit likely stalled

Patients in a region of the state that includes the Shenandoah Valley, Charlottesville and Fredericksburg may have to wait longer to purchase medical marijuana locally.

That’s because the parent company of AYR Virginia, the entity that the Virginia Cannabis Control Authority selected last year to cultivate, manufacture and sell medical marijuana in the northwest part of the state, entered a restructuring agreement over the summer due to overwhelming debt. (Because marijuana remains illegal under federal law, companies in the industry generally cannot file for bankruptcy.)

As part of the agreement, AYR Wellness, the Miami-based parent company of AYR Virginia and another multistate marijuana company, agreed to sell its assets in several states including Virginia. That sale was held Monday, and a group of AYR Wellness’ senior noteholders made the successful bid.

“While AYR is now under new ownership, its core business, footprint and team are all remaining intact,” Robert Vanisko, senior vice president of public affairs for AYR Wellness, wrote in an email Tuesday.

A spokesperson for the CCA declined to comment Tuesday on how the sale will affect medical marijuana sales in Virginia’s Health Service Area 1, which is made up of 32 counties and cities located around the Shenandoah region, or what the process will be for the new owners of AYR Virginia to take over the CCA’s conditional permit to grow and sell medical marijuana in that region.

In a September 2024 press release, the state authority explained that “AYR Virginia will have one year to meet all requirements necessary to obtain a full pharmaceutical processor permit. ”

Gregory D. Habeeb, chair of the regulatory affairs practice group and the president of consulting for Gentry Locke, a Roanoke-headquartered law firm, said the CCA can transfer a permit to another entity, but that process will take time.

“It won’t make it quicker,” Habeeb said.

Why has Shenandoah lagged?  

In other parts of the state, medicinal marijuana is a thriving industry, but the Shenandoah region’s medical marijuana program has long been delayed.

The first company awarded the permit lost it in 2020 after failing to meet construction deadlines.

After the matter was resolved in court, the CCA announced in February 2024 that it would accept applications from entities who wanted to be considered for the CCA’s approval to grow and sell medical marijuana in HSA 1. Forty applicants, who each paid $18,000 in fees, threw their hats in the ring.

A CCA review committee scored the applicants and had a 33-way tie for the highest score. The CCA held a lottery to determine the winning entity in September 2024, using a number randomization website. The authority then awarded its conditional approval to AYR Virginia.

Dozens of unsuccessful applicants sued the CCA over its selection process, but a Richmond judge dismissed the case in August. Some have appealed to the Virginia Supreme Court.

Tanner Johnson, CEO of Pure Virginia, a Harrisonburg company that applied to win the permit to grow, manufacture and sell medical marijuana in HSA 1, said he and the other leaders of the company wish CCA had done a better job with the selection.

“The worst part of all this is that our community in HSA 1 continues to suffer without access to medical cannabis,” Johnson said in a statement.

AYR Wellness restructuring

AYR Wellness reported having more than $385 million in long-term debt at the end of January. “We started with an overburdened balance sheet. Too much debt,” Scott Davido, interim CEO of AYR Wellness, said during an August livestream with Cultivated Media, which caters to cannabis professionals.

Winning the assets of AYR Wellness allows the group of senior noteholders to move forward. “This restructuring will wipe out a significant portion, hundreds of millions of dollars, of that debt,” Davido said on the livestream. “It will be converted to equity that will be owned by our prior creditors.”

In recent months, AYR Wellness has closed several cultivation sites and cut hundreds of jobs as part of the restructuring, according to news reports.

The company’s leaders remain bullish on the commonwealth, however. “We’re going to open up Virginia and completely roll out our footprint there,” Davido said on the August livestream.

Habeeb believes it’s likely the new company created by AYR Wellness’ senior noteholders will become the entity that ends up serving the HSA 1 medical marijuana market.

“Unless the commission is going to suspend the award of the license because of their financial conditions or background checks or something else,” Habeeb said. “These licenses have always been deemed to be transferable.”

To be clear, that’s not necessarily what Habeeb thinks should happen. Gentry Locke represented two entities, Blue Ridge Medical and Pure Virginia, in the case against the CCA and AYR in Richmond Circuit Court this summer.

“We never thought that was a properly run process,” Habeeb said of the method the state cannabis authority used in choosing the company to serve the medical marijuana market in HSA 1. “Using Random.org for a random number generator to draw out of a hat a company to award a license worth tens or hundreds of millions of dollars, … the fact that they awarded it to a licensee who apparently didn’t have the financial capacity to go through with the deal, … is just another example of where they dropped the ball in this procurement.”

As for Johnson, he’s not giving up on his cannabis dreams. After Gov.-elect Abigail Spanberger is sworn in in January, many expect Virginia to quickly launch a retail marijuana market, long delayed under the administration of her Republican predecessor, Gov. Glenn Youngkin.

“Our sights are now set on the opening of the adult-use market in Virginia, which seems to be the best and fastest pathway to ensuring all Virginians have access to safe and regulated cannabis products,” Tanner said in a statement.