Vermont Entrepreneurs Propose New Economic Model for Cannabis

Business Model

The Vermont Cannabis Collaborative, aided by Colorado law firm Vicente Sederberg and the Marijuana Policy Group, a Denver-based consulting group, has issued a report that proposes an economic model for an adult-use cannabis industry in Vermont that is diverse, egalitarian and craft driven—very Vermont.

With the highest estimated usage in the nation, Vermont is widely expected to legalize cannabis in 2016, but must do so by action of the state legislature, since the state does not permit ballot initiatives. The report is designed for the legislature’s consideration, but may offer insights for other states on the cusp of full legalization.

The economic model is driven by the existence of eight different kinds of licenses. Home growers of fewer than seven plants for personal consumption would not be licensed or taxed, but enterprises operating above that threshold would be regulated. Existing dispensaries would be the first allowed to apply for either cooperative or industrial licenses.


Craft Grow License: 7-99 Plants

This license category is inspired by the state’s experience with the craft beer industry. The state could issue an unlimited number of craft grow licenses, and growers might also hold other licenses. Craft growers would pay a licensing fee for every 10 plants grown. No tax would be due on cannabis sold in bulk to cooperatives. Growers would use their own facilities, which would be inspected by the co-op if growers were members, but otherwise by the state.


Cooperative License

This category, on the other hand, is informed by the state’s experience with the agricultural cooperatives. Co-ops would be for-profit businesses, with profits going back to members. The cooperative license would permit licensees to grow, test and sell on both a wholesale and retail basis, operate a lounge, make infused products and conduct genetic research. The co-ops would collect tax from bulk purchases from growers and from sales to consumers.

The VTCC study envisions that only three licenses would be available statewide.


Industrial  License

The study recommends that only four industrial licenses be available.

Industrial licensees would pay a production tax at the point of product testing. As with cooperatives, large industrial growers would be organized as for-profit businesses, preferably benefits corporations with majority Vermont ownership. Like a cooperative license, an industrial license would also permit all other licensed activities. Industrial licensees would pay a production tax at the point of product testing.


Testing License

The report recommends an unlimited number of testing licenses but makes five quality-control recommendations:

  • Laboratories should be certified to the ISO 17025 standard;
  • The assessment and accreditation process should be carried out by a third party accreditation body that is itself accredited to the ISO 17011 standard;
  • Laboratories should test for cannabinoids, pesticides, microbiology, residual solvents and water activity;
  • They should pass rigorous and regular proficiency testing programs; and
  • Labs should be managed by a full-time on-site chemist with a PhD in a relevant field or at least eight years of experience specific to analytical chromatography.

The VTCC study recommends that testing laboratory licenses be unlimited.


Marijuana-Infused Products License

The report supports a system similar to Washington state’s, in which all edible products are reviewed by the state. Standards should:

  • Reduce the risk of accidental ingestion by children;
  • Ensure uniform testing;
  • Limit each edible unit to 10 milligrams of THC; and
  • Require proper packaging and labeling.

MIP licensees would be able to buy bulk cannabis from licensed craft growers, co-ops or industrial growers and sell on the wholesale market to co-ops, industrial growers, retailers and lounges. MIPS licenses would be unlimited and licensees would be permitted to hold other licenses, as well


Retail License

Retail licensees, like cooperative and industrial growers, would be expected to be organized as benefits corporations with at least 51 percent Vermont ownership. Licenses would be limited to 30 stores, regionally distributed. Sales tax would be collected at point of sale. Local communities would have control, including veto power, over the siting of businesses.


Lounge License

Lounges would be allowed to sell cannabis products for consumption on the premises, but no alcohol. The report recommends the phased establishment of approximately a dozen lounges distributed regionally, perhaps with an eye to tourism. Lounges would be regulated in the same way as retail stores.


Genetics License

The VTCC report envisions a collaborative effort with existing research institutions in the state, including the University of Vermont and Vermont Tech. It recommends that the legislature:

  • Create a category of genetics research licenses to allow breeders to grow an unlimited number of plants for breeding purposes only. Once the pollen is harvested from the plant, the breeder would be required to dispose of the plant under state supervision.
  • Allow genetic research and breeding to begin immediately, and
  • Establish safety and security protocols for outdoor breeding.


Model Takeaways

These eight different kinds of licenses, proponents hope, will permit wider participation in the cannabis economy, promote a greater variety of quality products and services and support post-prohibition jobs in areas as diverse as scientific research and renewable energy.

Much like the RAND report which preceded it, the VTCC effort tries to approach the issue of recreational legalization in a comprehensive, holistic, far-sighted way. Even if the Vermont legislature adopts only some of the proposals, the study will likely provide food for thought for other jurisdictions considering adult use legalization.

Anne Wallace is a New York lawyer who writes extensively on legal and business issues. She also teaches law and business writing at the college and professional level. Anne graduated from Fordham Law School and Wellesley College.

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