A year ahead of legal sales, Vt. cannabis regulators want industry to be small-scale, equitable
In about one year — by October 2022 — Vermont's retail cannabis market is scheduled to go into place, and the state's Cannabis Control Board has already made some key decisions that will shape Vermont’s legal marijuana marketplace.
VPR’s Mitch Wertlieb spoke with senior political correspondent, Bob Kinzel. Their conversation has been edited and condensed for clarity.
Mitch Wertlieb: In one of their earliest and most important decisions, the board has decided to prioritize small marijuana growers, and why are they doing this in particular?
Bob Kinzel: Mitch, they're really doing this at the direction of the Legislature, and I think it might be one of the most important decisions that they've made, because it has a rippling effect on many aspects of this issue.
So, let's start with, what's a small grower. The board defines this as an indoor operation that's no larger than 1,000 square feet.
Well, how big is that? Imagine the size of a typical basketball court, and then cut it in half. You with me?
I'm with you so far. From half court, we've got that much room.
OK, now again, cut that half court in half and you've got a quarter of a basketball court. That's roughly 1,000 square feet. Board chair James Pepper told me that his initial goal is to fill the state's demand for retail cannabis — which he estimates to be roughly 450,000 square feet — by only using the smaller growers.
“Our goal is to open up the smaller license types first, and see how much of that 450,000 square feet we can fulfill using small cultivators," Pepper said. "And if we need larger canopy sizes, because we're not approaching that number, then we'll open up those larger tiers.”
Another way the board is favoring small, Vermont-sized businesses is to allow various companies to hold only one license in each of the various categories.
So this means that a single company could only have one growing permit. Initially, that's quite small. This means a single company could only own one retail business; no franchises in Vermont.
And this means a single company could only receive one wholesale product license. So initially, the board has made it very clear that it wants the state's cannabis industry to be made up of smaller, Vermont-sized businesses.
Bob, we know that Vermont already has a pretty big number of cannabis growers in the state's so-called “underground” market. What role could they play in the development of a legal retail marketplace?
Mitch, this is one of the most fascinating aspects of this issue for me. It's estimated that 25% of the state's adult population uses cannabis at least once a month. So, you might think the cannabis board would want to put these growers out of business.
But that's not the case. Pepper is actually embracing their cultivating skills and trying to bring them into the new legal market.
“They're growing for the legacy market, or the ‘illicit’ market, but they are some of the best," Pepper says. "And if we give them a welcoming regulatory environment, to bring them out of the shadows and provide some of that consumer protection, safety standards, I think we absolutely will be kind of a leader, in Vermont, and in the country.”
“They're growing for the legacy market, or the ‘illicit’ market, but they are some of the best. And if we give them a welcoming regulatory environment, to bring them out of the shadows and provide some of that consumer protection, safety standards, I think we absolutely will be kind of a leader, in Vermont, and in the country.”James Pepper, Cannabis Control Board chair
To gauge how many of these existing underground growers might be interested in becoming part of the new legal market, the board plans to issue what they call provisional growing licenses in the coming months, rather than wait until next summer.
The other big thing about this is that backers of the legalized retail approach are really hoping to raise a pretty fair amount of money by taxing these marijuana products.
How is that going to work? Is some of the money going to be targeted at certain programs?
At the outset, there's going to be a 14% state excise tax on all [cannabis] products, and then on top of that, they're going to impose the 6% state sales tax. So, it's going to start off with a state tax of 20%.
In addition, local towns that have a retail [cannabis] store would be able to have a 1% or 2% local option tax. So, you're looking probably at something in the 22% range.
You might wonder, how does that compare to other states? It's really in the middle. For instance, the state of Washington has a 37% tax rate. California has a 15% tax rate.
I had a chance to ask Pepper if he thought Vermont’s 22% tax rate might encourage some people to keep buying their cannabis from the underground market. He said no, because he thinks out-of-state tourists will initially be a large part of Vermont's new retail marketplace.
“And those are folks that really want to know what they're purchasing, want to know the cannabinoid profile, they want to know that a product has been tested," Pepper said. "And they want to purchase it from a store. They're willing to pay a little bit of a premium to come to Vermont, just like they do with our craft beer and our craft maple syrup and cheese, and pay a little bit extra for a specialty product.”
The board expects to raise between $45 and $50 million a year in cannabis tax revenue.
Now, all of the 6% state sales tax is dedicated to after-school programs, this could be about $10 million. And 30% of the excise tax will be used to pay for a variety of youth education and prevention programs, and that could total another $10 million.
In addition to emphasizing and supporting smaller growers here in Vermont, Act 164 — that's the law that created the retail marketplace — it also contains some really strong social equity provisions. Why was that done, and how is that going to work?
This was a top priority for lawmakers when they passed the retail cannabis law.
The board has defined the eligibility for this group to be either one, people of color, and/or, people who have “been disadvantaged by the criminalization of cannabis.”
House Judiciary Chair Rep. Maxine Grad says studies clearly show that people of color are much more likely to be stoppedfor traffic infractions in this state, and were much more likely to be arrested for the possession of cannabis, when it was illegal in Vermont.
“Well, it's important to try to repair and mitigate the harm that the war on cannabis has caused to communities of color," Grad said.
"[I]t's important to try to repair and mitigate the harm that the war on cannabis has caused to communities of color."Maxine Grad, Vermont House Judiciary Chair
To also assist these applicants, the board will waive licensing fees and make special loans available to make it easier to start a cannabis business.
Kyle Harris is a member of the [Cannabis Control] Board. He says it's critically important for this group of applicants to have access to sizeable loans and grants,
“A reduction of a $5,000 fee or a $10,000 fee, may make break some folks, but it's still going to take a lot of business acumen, and the right resources and the right support system, to be successful, just like in any market," Harris said.
Mitch, this is another reason why the board is going to issue provisional licenses, so that applicants can line up their financing just as soon as possible.
It seems like the Cannabis Control Board really has a lot to do if they're going to meet this goal of having retail stores for marijuana open up and operating in just about a year from now. Do you think they'll be able to make the timeframe?
Mitch, I think the answer is yes, no, and maybe. Does that cover everything?
If lawmakers study the decisions made by the board and then give them their approval, then the answer is yes.
But if lawmakers decide that they want to thoroughly review the key decisions made by the board, perhaps change and debate some of these policies, then the answer is most likely no.
And in the event that lawmakers don't put this issue on a front burner at the start of the session, but then it's kind of kick-it-into-high-gear around Town Meeting Day, then the answer is going to be “maybe.”