Craft Cultivators, Cooperatives, Edibles & More: VT House Introduces Full Tax & Regulate Bill

Heady Vermont Staff 24 Feb 2017

MONTPELIER, Vt. — In the works for several weeks, on Thursday, the public received its first look at House Bill H.490 (full text), a piece of legislation that ‘proposes to establish an adult use commercial marijuana regulatory system.’ The bill’s main architect and promoter in the House was Rep. Sam Young (D-Glover), a dynamic, under-40 web-developer turned legislator from the NEK who’s already run for Governor and created the best political ads of the 2016 election campaign.

via Vote for Sam: Good Ideas from Sam Young on Vimeo.

In sponsoring H.490, Rep. Young was joined by a mix of Progressives and Democrats in the House, notably including Rep. Sarah Copeland-Hanzas (D-Bradford), previously a candidate for Speaker of the House and similar to Young, another representative whose influence in Montpelier continues to rise.

Politically, the legislation broadens the scope of the cannabis conversations happening in Montpelier where the House is already considering H.170 (full text), a bill that would legalize small amounts of personal possession and home cultivation. The House will also consider the Senate-passed S.16, which would expand medical marijuana patient access with more qualifying conditions and more medical professionals able to register patients without the current three-month waiting period.

While several Vermont representatives —and Governor Phil Scott — have voiced concerns about drugged driving, administration officials themselves have repeatedly called for drugged driving to be addressed “separately” from the legalization discussion.

As Heady Vermont first reported in January, specifically related to cannabis, the same house committee members who proposed the legalization bill, had also previously proposed a bill called H.24 that would reduce the legal alcohol limit to .05% for drivers with, ‘any detectable amount of cannabis’.

Who Would Be Allowed to Grow?

Cooperatives have been in the discussion for quite awhile with models like The Intervale Center touted as examples of agricultural coops that give small producers the means to organize, share costs (like testing) and knowledge and access larger markets than they would on their own.

The model proposed in H.490 does not propose to create an open cooperative where members would sell to the public (yet), but it would allow up to 10 home growers to combine their legal plant count (two mature plants each, 20 total) and distribute their harvest to their members. 

Following that ‘Intervale’ model, a cooperative with multiple growers could actually take the next step and apply for a large-scale cultivation license (see below); in those applications, co-ops would have preference over other large-scale license applications.

‘Craft’ (anything) is more of a flowery marketing term than a set definition and in this context is used in a way similar to ‘craft brewers’ as a way to classify small (or micro) producers and infers higher quality and a more direct connection between the producer (grower in this context) and the consumer.

Having heard loud and clear from members of the public and advocates that ‘Big Marijuana’ would not be ‘the Vermont way,’ this system would give preference to small-scale growers over commercial cultivators, restricts out-of-state ownership, and prevents the kind of horizontal consolidation that would keep single entities from dominating and crowding out the small producers.

  • There would be no limit on the amount of craft licenses, and those applicants would be given preference over commercial cultivators.
  • Craft cultivation permits would be divided into 500ft^2 plots
  • Outdoor craft cultivation would be allowed with costs pegged to $500 per year, or $1/square foot.
  • Indoor craft cultivation licenses would cost $1500 per year, or $3/square foot.

In order to both meet the larger market demand, and ensure that there’s enough legal cannabis available when it can’t be grown outside, there would also be large producers who would be licensed for commercial cultivation.

However, even with the 54 licenses outlined below, the overall intent of the bill is that craft growers would provide 75% of the entire market with medium and large 

In its present form, the bill breaks down medium and large-scale licenses other licenses into a number of different tiers, with the majority of licenses for grows under 2,500 ft.^2 and only six large licenses:

  • 20 licenses for cultivators less than 1,000 ft.^2
  • 8 licenses for cultivators between 1,000-2,500 ft.^2
  • 20 licenses for cultivators between 2,500-5,000 ft.^2
  • 6 licenses for cultivators between 5,000-10,000 ft.^2

Anti-Monopoly & Residency Preferences

Under the proposed bill, no single person would be able to own or control more than one licensed business of each kind.  There would be vertical integration (you could cultivate, manufacture your own products, and sell them to a retail outlet), but the system would avoid horizontal monopolies from forming.

To further ensure the Vermont-first preference, there would be residency requirements, including for a majority of in-state ownership, a majority of in-state board of directors, top executives officers to be residents. The legislation proposes background checks on major owners, directors, executives and employees, however prior non-violent drug convictions would not disqualify individuals from participating in the legal industry.

How Would Legal Marijuana Be Sold?

Neither craft cultivators, large producers, nor cooperatives would be allowed to sell directly to consumers. Instead, the bill creates licenses for 42 retail outlets, a number likely calculated at three for each of Vermont’s fourteen counties. There’s not a strict guideline (obviously there would be more retail shops in Chittenden County than Essex County), but the geographic diversity is an important factor in preventing all shops from only being clustered in Burlington, ski resort towns, and border towns.

With retailers the only ones allowed to make direct sales, there would be additional regulations: no retailer that sells alcohol, tobacco, or nicotine (e-cigs/vapes) would be allowed to sell cannabis.

Existing medical marijuana dispensaries would be allowed to apply for those retail licenses but would not receive statutory preference; however, in practice, their applications will be the only ones that include experience selling regulated marijuana and with security procedures and established business plans. Even if all dispensaries, were allocated retail licenses, the other 90% would be new applicants.

One of the reasons for not allowing direct sales (except within cooperative cultivators and members), all legal adult-use marijuana sold would have to be tested — the bill creates five licenses for testing facilities.

Manufacturers, Wholesalers, and Edibles

Wholesalers are the ‘middle-men’ in the system who could buy from marijuana from licensed cultivators and sell that marijuana to either retailers to be sold to the pubic, or to manufacturers who would then make marijuana-infused products. Wholesalers could also buy marijuana-infused products from manufacturers and sell those to retailers who would sell them to the public.

Manufacturers would buy from cultivators and/or wholesalers, then sell their marijuana-infused products to other manufacturers, wholesalers, or retailers.

Making butane hash oil using butane or hexane would not be allowed, but edibles would be permitted provided they meet specific circumstances: no candy or other products especially appealing to children; no THC products could be combined with caffeine, nicotine and/or alcohol; products would have to be sold in standardized, single-dose packaging with specific labeling, including the time it takes for the product to take full effect.

THC-infused Chili Lime Almonds from Washington State, where edibles are regulated to prevent confusion with candies…via Evergreen Herbal
THC-infused Lemongrass hard candies, also from Washington State…via Evergreen Herbal

Most of those provisions are based on laws passed in Colorado and Washington that were adopted to prevent marijuana-infused gummies and candies from being accidentally confused with conventional sweets or appealing to children.


When Would Things Actually Start Happening?

From a political standpoint, this new tax and regulate bill helps the 2017 legalization efforts (‘home grow before commercial’ is a message that’s been heard loud and clear by VT legislators) but is more likely to set the table for 2018 than make significant progress in the House in 2018.

That being said, the bill has already been assigned to the House General committee and should get hearings this year, even if they come later in March after the formal crossover date. In addition to the General committee, Agriculture, Commerce, Education, Transportation, and Judiciary could all receive the bill, which would also go to Ways and Means and Appropriations.

As political insiders have noted, given that last year’s (more conservative) Senate already voted to tax and regulate marijuana, if this bill did clear the House, the Senate could very well find a way to work with the bill, even if it did reach the upper chamber after the formal crossover deadline in March.

If the legislation does pass, it would propose to start accepting cultivator and testing lab license applications by April 2018, start issuing those licenses as early as June 2018, but no sales could occur before January 2, 2019. 1

Who Does the Regulation and What Happens With Tax Revenues?

The question of which state agency would be responsible for overseeing a taxed and regulated system has been an especially difficult one for Montpelier–to quote Spiderman’s tragically-deceased Uncle Ben, “With great power comes great responsibility”.

Models vary in other legal adult use states depending on how sales are organized: in Maine it’s Health & Human Services, in Washington and Oregon it’s Liquor Control, in Colorado it’s the Department of Revenue. The new Vermont legislation however, proposes that the Agency of Agriculture, Food and Markets would license cultivators, wholesalers, product manufacturers, retailers, and testing labs.

That being said, the Department of Public Safety would also be responsible for public safety aspects, and likely end up getting some significant funding from any eventual sales: even 5% of a $200million market is $10million…that’s a lot of DRE training.

Monies raised from adult use taxes would also go directly to an education adn prevention

Overall, the tax structure on the legally-sold herb would be broken down based on wholesale (15%) and retail (10%) prices and include a local tax of 2.5%. The funds themselves would cover the costs of regulation of the marijuana, and go directly to education and prevention campaigns, but the balance (and majority) would go to the General Fund and be divvied up by the legislature. Towns in which sales are made would also receive tax revenues.

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