Control Board Reveals Long-Awaited Report on Vermont Cannabis Licensing Fees and Equity Criteria
MONTPELIER — On Friday, the Vermont Cannabis Control Board released its highly anticipated Fee Structure and Social Equity Applicant Criteria Report, a key document that recommends to the State Legislature how many licenses should be issued, proposes how much those licenses will cost, and defines criteria and licensing allowances for social equity applicants.
Here, we look at just some of the considerations that the board and its consultants used when estimating total canopy, cultivation requirements and projected sales. We’ll also look at the proposed tiers and licensing fees, and definitions and reduced licensing and application fees for social equity applicants.
- Canopy and Cultivation Considerations
- Proposed Licensing Tiers and Considerations
- Licensing Fee Recommendations
- Criteria and Licensing Fees for Social Equity Applicants
- What’s Next?
- Full PDF of the Report
Late last month, the board announced that it would need more time to deliver the much-anticipated report on adult use licensing fees to lawmakers, setting a new deadline of October 15. During its October 1 meeting, however, the Control Board did share preliminary models and draft license fees. A week later, board members also revealed their criteria for social equity applicants.
“The CCB’s license and fee recommendations are designed to foster a legal cannabis market that reflects Vermont’s culture and embraces its strengths.” – Vermont Cannabis Control Board
The members of the board noted that their license and fee recommendations are “designed to foster a legal cannabis market that reflects Vermont’s culture and embraces its strengths,” and emphasized that their objectives include promoting an equitable and accessible industry, and providing access to small cultivators, legacy market operators and individuals from communities disproportionately impacted by harmful government policies, including cannabis prohibition.
Since the end of May, there have been 16 full board meetings, two full advisory committee meetings, and 50 sub-committee meetings.
Canopy and Cultivation Considerations
As reported last month, the Control Board has estimated, with the help of its consultants, that Vermont will likely require 400,000–500,000 square feet of flowering canopy, and makes the assumption that approximately 20% of cultivation comes from outdoor cultivation with one harvest per year.
Flowering canopy, the report says, typically makes up 40%–60% of a cultivation facility’s premises. Outdoor cultivation produces less total biomass per square feet per year since Vermont’s climate only allows for one early fall harvest.
Infographics showed the total balance of seasonal supply and demand with 450,000 square feet of flowering canopy and 20% outdoor. While it is possible to supply the market with a greater percentage of outdoor cultivation, the report says, doing so may result in larger seasonal supply swings and a less stable market for growers. The same 450,000 square feet of cultivation would result in summer shortages if 50% of square feet were allocated for outdoor cultivators.
While seasonal outdoor supply will surpass demand in the fall, inventory can be stored over time to meet consumer needs in the winter and spring. While it is possible to supply the market with a greater percentage of outdoor cultivation, the report says, doing so may result in larger seasonal supply swings and a less stable market for growers.
Supply and demand were evaluated on a product category basis. Supply in Vermont will vary based on the total square feet of cultivation, month, harvest yield, extraction efficiency, and allocation of oil to manufactured products.
The board designated six primary product categories: Cannabis flower, pre-rolls, concentrates, vaporizer pens, edible products and topical products. Each of these categories will have dozens to hundreds of different retail product varieties.
Total projected sales for retail sales of adult-use finished products are with a modest $10 million in the third quarter of 2021, with over $100 million in legal cannabis sales predicted for 2022.
Proposed Vermont Cannabis Licenses – Tiers and Considerations
The six cultivation tiers, which the board voted on last Friday, range from 1,000 to 37,500 square feet.
Outdoor Tier 6 is designed to fall within existing land use regulations for cultivation of under an acre. Indoor Tier 6 licenses will not initially not be available. If additional supply is need, the board said it may choose to allow existing cultivators to expand to Indoor Tier 7 or allow applications for Indoor Tier 7 licenses at some point in the future.
While most tiers are designated either outdoor or indoor, the board is proposing one license targeted at small businesses and farmers that will allow both indoor and outdoor cultivation under one license. This tier would allow license holders to have an indoor cultivation space of up to 1,000 square feet AND grow up to 50 plants outdoors at the same licensed premise.
Licensees would have the flexibility to grow how they choose and the ability to continue cultivation during the winter when outdoor growing in Vermont is impossible.
Vermont Cannabis License Fee Recommendations
The Control Board envisions a two-part licensing process, where potential applicants can file an intent to apply early in the process. This filing will allow the applicant to meet background check and other application requirements before procuring real estate and finalizing business plans. If an applicant submits an intent to apply application, the application fee will be reduced by the amount of the intent to apply fee.
The two-part licensing process, the board says, provides them with an early sense of entrepreneurial demand in order to gauge supply.
It allows applicants to get official state approval for their leadership team and initial plans before having to procure real estate, saving money for applicants and helping them attract financing, and gives potential entrepreneurs a relatively low-cost first step they can use to evaluate the viability of their plan.
The state will additionally be able to collect a portion of the application fee earlier in the process, which is helpful in terms of the program’s cash flow. The two proposals:
- Proposal A — We estimate that the fees in this proposal would cover our costs and provide enough additional revenue to reimburse the state for initial appropriations within 10 years. The size of these fees could keep prospective entrepreneurs out of the market and would make Vermont an outlier when compared to most competitor states.
- Proposal B — This proposal was designed to balance the goals of generating significant fee revenue with providing low-cost entry into the market for many license types and keeping most fees competitive with nearby states and other markets without limited licenses. Some tax revenue would be needed to cover operating expenses, but we believe this investment will help ensure Vermont has a functioning and inclusive market.
The Vermont chapter of NORML is a nonprofit public-interest advocacy group established in Burlington earlier this year. The group’s stated mission is to implement a fair and equitable cannabis market in the Green Mountain State.
Its members said in a collective interview that it was refreshing to be able to “digest non-speculative language regarding the license structure.” The group’s members agree with the board in its support of Plan B, as it “looks to be more attainable for social equity applicants, and to small craft growers in general.”
“Adopting lower fees now will prove to be beneficial in the long run by fostering innovation, collaboration and more generally, equitable participation in Vermont’s cannabis market.” – Vermont NORML
“Once retail cannabis is legalized, it is here to stay and the board will find, in over 10 years’ time with Proposal B, that adopting lower fees now will prove to be beneficial in the long run by fostering innovation, collaboration and more generally, equitable participation in Vermont’s cannabis market,” said said Executive Director Nick Schuermann of Vermont NORML.
The members of VT NORML said during the interview that they hope to see a large number of grants and low-interest loans given to Social Equity Applicants. “We are very interested in hearing how the CCB intends to prepare applicants for continued success in their business after they have been granted a license,” said Deputy Director Shirelle Grant.
“Many will need support in developing business plans, understanding compliance issues, security requirements, accounting and legal assistance,” she said. “We hope there is a more robust plan to support social equity applicants to ensure their businesses are sustainable, and we aim to do everything within our limited power to see this happen.”
The group added the only thing about Proposal B that they’d ideally like to see adjusted is pay-ins by established cannabis businesses. While integrated license holders are required to pay $50,000 in the first year of the retail market, VT NORML said, those established businesses may have capital that allows them to pay-in more than the delineated amount.
All Licensing Fees:
Potential Future Vermont Cannabis License Types
Potential future license type were also discussed during the meeting, including cottage manufacturing, delivery and temporary event licenses.
“The [entry level or] reduced rate retail [license] might be a smaller dispensary,” board member Kyle Harris said. “I don’t want to say a farm stand necessarily but something smaller than your traditional dispensary storefront.” He said that in the context of smaller Vermont communities, a reduced rate retail license might be a good option.
Criteria and Licensing Fees for Social Equity Applicants
Pepper on Friday suggested that the board refer to social equity applicants as “economic empowerment” applicants. The language in the report submitted to the Legislature, however, remained the former.
On Friday, October 8, as reported by VTDigger, the Control Board recommended against prioritizing low-income neighborhoods, or “economic opportunity zones,” when considering whether an applicant for a cannabis license should be considered as a social equity candidate. Board members expressed concern that people would move into those zones just to apply for licenses.
The board left out small farmers from the social equity program, but Chair James Pepper promised that they would receive special consideration.
They recommended that applicants who seek qualification as social equity candidates meet one of two criteria:
- That they are Black, Indigenous or people of color, or from a community disproportionately affected by cannabis prohibition.
- That they or someone in their family have been arrested, convicted or imprisoned for a cannabis-related offense.
Social equity candidates would also receive loans or grants to open up their cannabis businesses. The board left out small farmers from the social equity program, but Chair James Pepper promised that they would receive special consideration.
“We want to encourage the participation of as many social equity applicants as possible, as this could help generations of people that have been targeted by biased institutions finally generate lasting capital.”
Pepper also said that, in the next few months, the board members would talk to people in communities disproportionately affected by past criminalization of cannabis to find out what they got right in the recommendations and what they missed.
The October 15 report proposes that license application fees be waived for all social equity applicants. More importantly, it recommends that all license fees be waived for equity applicants in the first year, then 25% in the second year and so on, with full license fees in effect by the fifth year.
“We fully support waiving licensing fees for social equity applicants for the first year with a gradual increase of fees every consecutive year,” Grant said. “We want to encourage the participation of as many social equity applicants as possible, as this could help generations of people that have been targeted by biased institutions finally generate lasting capital.”
During the meeting, Pepper expressed concern about waiving fees for social equity applicants and wondered if it should be left out of the report.”I’m concerned that it’s going to kind of lead to people wanting to enter this market that aren’t prepared for the cost of compliance,” he said, drawing a comparison to the low cost of entry to the Vermont hemp market – and the resulting boom and bust.
Hulburd countered, pointing out that equity applicants would still need to cover considerable startup costs in addition to the application and licensing fee. She also pointed out that the board was required by law to make this recommendation to the legislature in the report. Ultimately, they left it in after some back-and-forth discussion.
“The truth is that striking application fees won’t even put a dent in what it costs to get a business up and running.”
“Social equity applicants are not going to think they are getting a ‘free ride’ because of waived application fees. The truth is that striking application fees won’t even put a dent in what it costs to get a business up and running,” Grant said. “We are strongly in favor of waiving as many fees as possible for social equity applicants while providing as much support as they need to be successful. As we see it, waiving application fees for [them] is a small drop in a much larger bucket.”
One suggestion made by the advocacy group included proposals for robust mentorship programs and/or educational events. These initiatives, VT NORML said, would serve to educate those interested in joining the market and who could qualify as social equity applicants.
“Ideally, this would weed out those who are potentially getting in over their heads,” Grant said. “These sessions would lay down facts and allow prospective social equity applicants to determine how realistic [cannabis licenses] could be for them.”
The Control Board has submitted its report to the the House Committee on Ways and Means, the Senate Committee on Finance, and the House and Senate Committees on Government Operations as per Section 4a of Act 62 (2021).
“It’s really kind of an exciting moment to get this report in,” Pepper said. “I think [it] represents an incredible amount of work.”
In the next several weeks, the board and its advisory members will be delving into whether concentrates above 60% should be restructured, and whether conversion of CBD to THC will be allowed, as well as make some recommendations around the future of the Cannabis for Symptom Relief Oversight Committee.
There will also be much discussion around social equity. “We want to do some outreach,” Hulburd said. “We are going to have a couple more meetings and there will be an effort to get some feedback.”