Op-Ed: S.54 – Separating Fact from Fiction

Vermonters have made their voices heard loud and clear: they want the Legislature and Governor to create a regulated adult-use cannabis market that benefits consumers with top-quality product at affordable prices, and gives Vermont’s talented cannabis professionals the opportunity to thrive and grow in a compliant manner. 

The bill aiming to accomplish this task has been making its way through the legislative process for over a year: passed by the Senate on March 1, 2019, S.54 has now been reviewed by an unprecedented 11 of the House’s 14 committees, and is slated to be handled by two more before getting a final vote by the entire House at some point in February.

I thought it would be helpful to set the record straight on some of the common questions I’ve heard.

The bill currently weighs in at 90 pages long, and may grow longer before it’s done. That’s politics for you: nothing is easy, everything is more complicated than it “needs” to be.

Given the length and complexity, it has not been surprising to me to find a lot of misinformation out there (both online and in face-to-face conversations) about what the bill actually says and doesn’t say. I thought it would be helpful to set the record straight on some of the common questions I’ve heard:

I heard the Legislature is going to take away our homegrow rights. Is that true?

Absolutely not! Our hard-won right to grow our own cannabis, and share our harvests with friends, is not being touched in any way in S.54, and there is no proposal to change it.

The only long-term conversations happening around homegrow are around whether or not to increase the plant count. And S.54 does not contain any increased penalties for any activities which are illegal today.

Are grow licenses really going to be capped at 500 square feet?

No. S.54 would create “tiers” of cultivation license, with 500 square feet being the smallest, not the biggest, tier. There is no cap on the size of grow operations, and no cap on the number of grow licenses that will be issued. 

So what’s the deal with the 500 square foot license?

This “craft” cultivator license would get preferential treatment. The application and annual fees would be lower, and applicants for the smallest tiers would be prioritized for faster review. “Craft” cultivators would be granted exemptions from regulations designed for bigger operations, in order to cut the bureaucratic “red tape” that so often makes it hard for small businesses to get off the ground in Vermont. And these licensees would be allowed to immediately begin selling their product to the existing medical dispensaries – no questions asked as to how they were able to produce salable cannabis within minutes of obtaining their licenses. 

Is it true that only the existing medical dispensaries would be allowed to vertically integrate (i.e., to both grow and sell)?

Everyone would be able to vertically integrate, by applying for one of each type of license that would be made available: cultivator, wholesaler/processor, manufacturer, retailer, and testing lab. 

While there is a 6th type of license (an “Integrated License”) that’s available to the existing medical dispensaries (allowing them to continue doing what they already do today), everyone else would be eligible to apply for each type of license, or any combination of the 5 types – so you could “choose your own adventure.”

It’s also important to note that if a dispensary applies for an “Integrated” license, they would not be eligible for any other type of license.

For example, if you don’t want run a store, but you do want to grow flower and manufacture topicals and edibles, you could do that by obtaining a cultivator license and a manufacturing license. Or any other combination.

It’s also important to note that if a dispensary applies for an “Integrated” license, they would not be eligible for any other type of license. They have to choose one path or another, they can’t have both.

Are the medical dispensaries going to be the only ones allowed to sell at retail? Do they get a head start and for how long?

The version of S.54 passed by the Senate would require the dispensaries to obtain a separate retail license, while the House version under consideration would allow the dispensaries to sell under an “Integrated” license that would be available no more than 5 months before other retail licenses are issued, while the retail license rules are finalized. 

So, under the House proposal, an incumbent medical dispensary would be allowed to sell to the public, out of just one location (most have between 2 and 4 locations each total), 5 months before other retail stores opened. Cultivator licenses would be issued at the same time as “Integrated” licenses, and independent growers would be able to sell to the dispensaries.

Is everyone – including the medical dispensaries – going to have to play by the same rules?

Yes! Section 881(a)(7) says that “Integrated” licensees have to comply with all of the rules applicable to all of the other license types, plus any additional rules that the Control Board requires for the dispensaries (such as rules about maintaining registered patient confidentiality). This means that the regulatory burden will actually be higher on the dispensaries than on any other licensee.

Are we setting up a system where the big corporate operators from other states take over our market? Can’t we keep those people out?

No and no.

It would violate the United States Constitution to require Vermont residency in order to obtain a license or invest in a licensee, so we can’t keep out-of-state money out of the Vermont cannabis market. But S.54 goes further than any other state in preventing monopolization of the market. It does this by strictly limiting the number of licenses any person or entity can “control,” to just one of each type of license. 

The concept of “control,” in turn, looks much more deeply than who owns what percentage of stock in the applicant company – it requires full vertical transparency, down to the individual people who have 10% or larger stakes, or who otherwise run the business (whether by being executive officers, members of a board of directors, or just having contractual rights to make key decisions). 

The bottom line is that no person or entity will be able to control more than one grow operation, more than 1 licensed store, more than 1 testing lab, etc., while still making it possible for Vermont entrepreneurs to get non-controlling financing from outside of Vermont.

The bottom line is that no person or entity will be able to control more than one grow operation, more than 1 licensed store, more than 1 testing lab, etc., while still making it possible for Vermont entrepreneurs to get non-controlling financing from outside of Vermont.

One really interesting fallout from this rule is that Curaleaf, which has been reported to have a controlling interest in two of Vermont’s five medical cannabis licenses, would only be eligible for ONE “Integrated” license – and in all likelihood would sell off the other license because it would not be able to open that other dispensary for adult-use sales. 

S.54 promises MORE competition, not less.

Why do we need a 5-member Control Board? Can’t the Agency of Agriculture regulate the cannabis market, like they do with hemp, just by hiring two more people?

S.54 contemplates a central role for the Agency of Agriculture, including by expanding their pesticide management program to include all cannabis, not just hemp. But it’s simply not true that the Agency of Agriculture could do the job with just two more people — in testimony to the Legislature over the past two years, Agency officials have said that they need two more people just to handle their current responsibilities overseeing hemp. 

Moving their responsibilities to the Agency of Agriculture won’t change the amount of work required, or the number of people needed to do the job.

Writing rules for 5 different types of licenses, reviewing hundreds or thousands of applications once those rules are issued, and then overseeing those applicants once the licenses are issued, is a very large undertaking.

The Control Board, whether it be 3 people as proposed by the Senate, or 5 people as proposed by the House, and the staff that the Control Board hires to assist them, will be very busy for a long time. Moving their responsibilities to the Agency of Agriculture won’t change the amount of work required, or the number of people needed to do the job.

Dave Silberman is an attorney and pro bono drug policy reform advocate based in Middlebury. He has devoted over a thousand volunteer hours to Vermont’s legalization movement since 2015.