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S.54: The Good, The Bad, And The Hopeful – Part II

Photo by Tony Webster
Heady Vermont Staff
Heady Vermont Staff 11 Feb 2020

The Big Picture

As S.54 makes its way through every corner and committee of the Vermont legislature, naturally we’ve been watching the various tweaks and amendments with a great deal of interest.

Many folks in the Vermont cannabis community have been asking for our additional thoughts and perspective on the bill, and we’ve gone back in for a deeper dive to examine some of the nuances and more confusing portions of this piece of legislation.

Before we get into specifics, we want to make a preliminary point:

We’re basically in favor of the bill.

It’s not a perfect piece of legislation, but it’s been crafted by allies and legislators who have a fundamentally strong sense of social and economic justice, environmental responsibility, and the desire to build a robust, locally-based cannabis economy.

Certainly many rules and regulations still need to be put in place by a Cannabis Control Board which does not yet exist (and about which we do have questions and concerns). Amendments to the bill also can and will be made. This is a very long process that will take years to iron out.

Given the fact that legalization efforts are progressing across the region (and around the country), tossing out what we think is a fundamentally workable bill in the hopes of future perfection is not a wise or strategic choice.

However, this year’s legislative session is the end of a biennium. Which means, if we scrap S.54, the bill will need to start from square one and it could potentially be another two full years before we get here again.

Given the fact that legalization efforts are progressing across the region (and around the country), tossing out what we think is a fundamentally workable bill in the hopes of future perfection is not a wise or strategic choice.

What We Like About S.54

We’ll have a legal cannabis marketplace!

It’s been a long time coming. 

S.54 promises more competition, not less.

S.54 goes further than any other state in preventing monopolization of the market by strictly limiting the number of licenses any person or entity can “control,” to just one of each of the 5 types of licenses available to the public (cultivator, wholesaler, product manufacturer, retailer, or testing lab).

  • From the bill: an applicant and its affiliates may obtain a maximum of one type of each type of license as provided in subdivision (d)(1)(A)–(E) of this title. Each license shall permit only one location of the establishment.

Existing dispensary owners are limited to just one integrated license each.

While the integrated license has been made available only to existing dispensaries (allowing them to continue doing what they already do), they are not permitted to apply for any more licenses and are limited to their ONE integrated license.

  • From the bill: An integrated licensee may not hold a separate cultivator, wholesaler, product manufacturer, retailer, or testing laboratory license. An integrated license shall permit only one location for each of the types of activities permitted by the license: cultivation, wholesale operations, product manufacturing, retail sales, and testing (emphasis ours).

The 14% excise tax + 6% sales tax rates recently set by the House Ways and Means Committee is comparable to or less than what most other adult-use states have in place.

The craft cultivator license rocks.

Craft cultivators get preferential treatment, with lower application and annual fees, and when it comes to issuing licenses, the smallest tiers will be prioritized for faster review. 

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

  • From the bill: During the initial application period for cultivator licenses, the Board shall prioritize licenses for small cultivators. 
  • From the bill: Upon licensing, a small cultivator may sell cannabis to a licensed dispensary at any time, for sale to patients and caregivers pursuant to the dispensary license or to the public pursuant to an integrated license, including the time period before retail sales are permitted for licensed cannabis retailers (emphasis ours).

They’ve got good priorities.

Nonviolent drug offenses shall not automatically disqualify an applicant.

Priorities when issuing licenses will include a number of social justice and environmental considerations, including minority or women-led businesses, whether the business has plans to employ people negatively impacted by prohibition, plans to pay employees a living wage, and plans for environmental resiliency or sustainability.

  • From the bill: whether the applicants propose specific plans to recruit, hire, and implement a development ladder for minorities, women, or individuals who have historically been disproportionately impacted by cannabis prohibition

The bill also specifically states that previous convictions won’t inherently prevent someone from working in the industry.

  • From the bill: (regarding employee ID cards) Nonviolent drug offenses shall not automatically disqualify an applicant.

The sky’s the limit.

There is no limit on the number of craft cultivator licenses which will be issued, nor on the number of retailers, and geographic distribution is taken into account when issuing these licenses.

Our Concerns About S.54

While there are elements of S.54 we love, there are concerning aspects of the adult-use bill that we strongly feel need to be addressed.

Cannabis Control Board/Advisory Committee

The Control Board and the Advisory Committee are appointed by the Governor, Senate Committee of Committees, Speaker of the House, Treasurer and Attorney General. 

We definitely have questions regarding who will be on this control board, what considerations will be taken in these appointments, and how to avoid political appointments which aren’t grounded in or based on robust qualifications.

How can we be certain that these committee appointments won’t favor specific interests?

The Advisory Committee is appointed by the same people as the Control Board. While we are pleased that the advisory board includes social justice and environmental chairs, we wonder how much power the advisory board will actually have.

Are sufficient anti-corruption measures built into the rules for the CCB and Advisory Committee? We note that there is a conflict of interest rule in place – the Control Board can’t be involved in lobbying or existing cannabis businesses – but are they able to accept gifts? How can we be certain that these committee appointments won’t favor specific interests?

Affordability of licenses

We think the cost of buying one of each license (5 licences = 1 integrated license) should be comparable to or less than the integrated dispensary license. The bill leaves that decision to the CCB.

Roadside Testing

There is no test that accurately measures cannabis impairment. Though this concession was added as a compromise at Gov. Phil Scott’s insistence, we are concerned by the broad language in this part of S.54.

  • From the bill: If the law enforcement officer has reasonable grounds to believe that the person is under the influence of a drug other than alcohol, or under the combined influence of alcohol and a drug, the person is deemed to have given consent to providing an evidentiary sample of saliva (emphasis ours)

We would like to see roadside testing removed entirely, or at the very least have the above language amended. 

This is one of those sausage-making parts of creating legislation.

As we’re well aware, Gov. Scott has said that if in the final bill, law enforcement has to get a warrant to take saliva samples, he won’t support the initiative. This is one of those sausage-making parts of creating legislation. We don’t like it at all, but we will agree to disagree. 

Clearing Up The Facts

As often happens in the political process, we’ve seen quite a few statements going around which misrepresent the reality of the language in S.54. 

We’ve outlined some of the most misleading claims and what the actual corresponding facts are. Check out Dave Silberman’s recent Op-Ed: S.54 – Separating Fact from Fiction for more information.

Claim: Under S.54, small “craft” cultivators can only sell to dispensaries.

For the first five months of legalization, cultivators can only sell to existing medical dispensaries. After this, small cultivators may sell to any Vermont cannabis retailer.

  • From the bill: Upon licensing, a small cultivator may sell cannabis to a licensed dispensary at any time, for sale to patients and caregivers pursuant to the dispensary license or to the public pursuant to an integrated license, including the time period before retail sales are permitted for licensed cannabis retailers (emphasis ours)

We should also note that there’s been some concern that licenses will be capped at 500 square feet. S.54 sets up tiers of licenses, and 500 sq’ is the smallest size license, not the overall cap. 

Claim: S.54 prioritizes big out-of-state cannabis corporations over small Vermont businesses and farms. 

It’s against the Constitution to require Vermont residency in order to obtain a license or invest in a licensee. This means that no matter what, we can’t keep out-of-state money from entering the Vermont cannabis market. 

You can have one of each kind of license, which will then make you vertically integrated, just like a dispensary.

However, we go farther than any other cannabis-legal state in preventing monopolies, in that no person or entity will be able to have more than one of any of the five main types of licenses, while still making it possible for Vermont entrepreneurs to get non-controlling financing from outside of the state.

Again, to clarify, there are six kinds of licenses total:

Specifically for dispensaries:

  • 5 integrated licenses 
    • Each dispensary owner can only own one integrated license.

For everybody else:

  1. Cultivator license
  2. Wholesaler license
  3. Product manufacturer license
  4. Retailer license
  5. Testing laboratory license

Nobody can own more than one of each kind of license. However, you can have one of each kind of license, which will then make you vertically integrated, just like a dispensary.

We do want to make sure that when the Cannabis Control Board sets pricing, the cost of obtaining five licenses is comparable to or less than the cost of an integrated license, and that pricing is set with small businesses and family-owned farms in mind.

One 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. 

We do want to make sure that when the Cannabis Control Board sets pricing, the cost of obtaining five licenses is comparable to or less than the cost of an integrated license, and that pricing is set with small businesses and family-owned farms in mind.

Claim: S.54 prioritizes the few in the form of Integrated licenses, available only to Vermont’s five medical marijuana dispensaries, which will be the sole entities permitted to cultivate, process, test, manufacture, and sell via retail THC cannabis products to the public during at least the initial licensing process.

While it’s true that the dispensaries would get a 5 month head start, they already have a fully developed retail infrastructure in place. They’ll basically be doing what they’re already doing, just with a different license (whether or not they’re doing it well is another issue).

While we weren’t in favor of that head start, five months is not that long a period of time, particularly when you’re building a business.

While we weren’t in favor of that head start, five months is not that long a period of time, particularly when you’re building a business. And we do understand that from a purely practical perspective, those five months will give the Cannabis Control Board time to develop the rest of the licensing criteria, put out a call for license applications, select applicants, and issue the licenses.

Also, remember what the bill says about the craft cultivator license:

  • From the bill: Upon licensing, a small cultivator may sell cannabis to a licensed dispensary at any time, for sale to patients and caregivers pursuant to the dispensary license or to the public pursuant to an integrated license, including the time period before retail sales are permitted for licensed cannabis retailers (emphasis ours).

Claim: The Vermont Agency of Agriculture, Food, and Markets can bring Vermonters to a legal cannabis industry faster and cheaper than a 5-10 person control board.

The reality – and this is something that we’ve heard from folks doing this work in other states – is that being on a cannabis control board is an enormous responsibility.

This is an undertaking of epic proportions that will keep the Control Board, and the staff they hire to assist them, busy for a long time. 

The board has to write rules for five different types of licenses, review hundreds – if not thousands – of applications once those rules are clarified, and then oversee those applicants once the licenses are issued. This is an undertaking of epic proportions that will keep the Control Board, and the staff they hire to assist them, busy for a long time. 

Shifting responsibilities over to the Agency of Ag by just adding a couple more people will not change the massive amount of work required to construct Vermont’s adult-use market. 

Claim: S.54 presently states that cannabis produced from cultivation will not be considered an agricultural product or agricultural crop. Such language would impede — or directly prevent — farmers’ ability to hold a cultivator, or other, license if that farmer is located on land zoned as agriculture.

This has been one of the most confusing sections of the bill for us, but it turns out that it’s a poorly articulated section about some very specific pre-existing regulations.

Where S.54 says that a cannabis establishment “shall not be regulated as farming under required agricultural practices or other state law,” they’re specifically referring to 6 V.S.A. § 215, which governs the water quality regulation of large farm operators. Cannabis farmers won’t have to comply with those water quality regulations the same way a large dairy would. 

You can’t put a small cannabis crop down in the middle of your 200 acre lakefront home in Shelburne, call it a farm, and get your property taxes reduced.

Another regulation they’re specifically referring to is 32 V.S.A. § 124, which covers the Current Use program and tax abatements for working farms. S.54 doesn’t say you can’t grow cannabis on a farm. It says, in essence, that you can’t put a small cannabis crop down in the middle of your 200 acre lakefront home in Shelburne, call it a farm, and get your property taxes reduced.

Finally, S.54 refers to 24 V.S.A. § 117, and says that cannabis establishments are subject to their regional planning process. It doesn’t say you can’t grow cannabis on a farm. You just have to work with regional and town zoning.

That’s an extra step for cannabis farmers which might well be annoying. But it’s not shutting down anyone’s ability to grow weed.

Claim: S.54 will shut down hemp farmers.

There is nothing in S.54 saying you can’t grow hemp or that hemp farmers can’t grow cannabis. These are two different programs with different rules and regulations. 

To Conclude…

In the end, while there are certainly elements of this bill which should be addressed and amended, and the Cannabis Control Board will be an entity to which we should pay very close attention, we don’t believe any of the bill’s issues are enough to pull the plug on what is, fundamentally, a very workable piece of legislation.

In addition, given that cannabis legalization is accelerating across New England, we think it’s important to give Vermont’s cannabis community the opportunity to create a robust marketplace sooner rather than later.

While, in an ideal world, it would be lovely to get your weed at your local farmer’s market and have it be as unregulated as tomatoes and zucchini, that’s not going to happen right now.

But given the decades of prohibition, incarceration, and misinformation we’ve had to undo, given how far the community has come in a relatively short period of time, we are excited to see and support all the local expertise, innovation, and businesses acumen which will make Vermont cannabis a vital and compelling addition to our working landscape.

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