MONTPELIER, Vt. — In June 2022, three months before retail recreational marijuana sales were about to start, the state’s legislative fiscal office predicted Vermont would have a fledgling cannabis industry doing $86 million in sales within two years.
But when June rolled around this year, the numbers were even better than expected: Eighty retail shops registered $128 million in sales, kicking back some $25 million in taxes into public coffers — more tax revenue than from alcohol sales.
By most measures, the rollout of the legal cannabis industry in Vermont has been a success. But it’s been uneven, with a concentration of dispensaries in a handful of communities, while most of the state has so far refused to host any. So Vermont regulators are taking a breath, this month halting applications for new retail licenses and cultivation areas larger than 1,000 square feet while they review how licenses are distributed around the state.
The Legislature, meanwhile, has instructed the state’s Cannabis Control Board to tweak the way it awards licenses, taking population and density into consideration, with a view to more evenly distribute them across the state — a task made more difficult by the fact that only about one-third of the state’s cities and towns have voted to approve retail sales within their communities.
That has created clusters of stores in some communities, while greatly limiting available markets to growers. In tiny Morrisville, for example, the town of 2,200 people has four dispensaries, and two more in the pipeline, while neighboring and much larger Stowe, a year-round tourist mecca, has none because the town hasn’t voted to allow them.
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In an interview, James Pepper, chair of the Cannabis Control Board, said the rollout and steady growth of the industry in Vermont has gone well. But he also believes Vermont can learn from other states, including Oregon and Oklahoma, where unregulated growth led to wild price fluctuations, with many growers and retailers going out of business.
He said the pause on new retail licenses is aimed at giving regulators time to analyze and figure out a way around what he called “the unnatural distribution of licenses,” which has left two-thirds of the state’s cities and towns without dispensaries. It’s unclear how long the pause will last.
In many ways, officials said, the cannabis industry, with the active encouragement of regulators and legislators, is trying to emulate the state’s successful craft beer industry, by keeping things relatively small and locally sourced — or, put another way, Vermont-centric.
Some of Vermont’s most popular craft brewers, such as The Alchemist in Stowe, have consciously limited their output and turned down lucrative buyout offers from conglomerates, saying they want to retain local control and quality standards.
Pepper, who a decade ago as an aide to then-Governor Pete Shumlin was asked to draw up the state’s first plan for a legal cannabis industry, said Vermont has focused on keeping the growth, testing, and sale of cannabis in Vermonters’ hands, rather than allow deep-pocket, out-of-state interests to move in.
“We’re not trying to be protectionists,” Pepper said, “but as we’ve seen in other states, too much and too big doesn’t work well.”
State regulators initially envisioned six different tiers of cultivation areas, ranging from 1,000 to 25,000 square feet, but they have not implemented the largest tier and have been more inclined to license smaller, mom-and-pop growers. State records show that of the 383 licensed cultivators, only 13 use areas larger than 5,000 square feet, and 289 of them are in the 1,000-square-foot tier.
Geoffrey Pizzutillo, executive director of the Vermont Growers Association, which represents licensed growers in the state, said his group mostly agrees with regulators’ determination to keep cultivation areas on the lower end of the scale.
“We think nothing larger than 5,000 square feet is needed in Vermont,” he said. “When it comes to pot, I have not seen exquisite cannabis grown beyond 5,000 square feet.”
Beyond maintaining quality, smaller cultivation areas fit with Vermont’s demographics and allow for more growers to get into the industry, Pizzutillo said.
As for geographic saturation, he believes the state got things backward from the get-go, by legalizing sales but then leaving it to individual cities and towns to opt-in. He said once the Legislature voted to legalize retail sales, it should have made it legal in all communities and put the onus on those communities to opt-out.
Pepper, the chief state regulator, said some cities and towns are already oversaturated. For example, there are 13 retail stores in Burlington, the state’s largest city with 45,000 people.
“Burlington can’t sustain 14 or 15 brick-and-mortar stores,” Pepper said.
Just days after Pepper said that, Grass Queen in Burlington announced it was closing. In a statement, owner Jahala Dudley cited too much competition and said the $10,000 annual license fee “ensures that Grass Queen cannot be financially viable.”
Statewide, only three stores have closed since sales began two years ago, but regulators believe there could be many more closings if they don’t temporarily restrict licenses and figure out a way to spread them out across a wider swathe of the state. Regulators stress the importance of a stable market — for retailers, growers, and customers.
The Cannabis Control Board’s reset is fine with Miriam Wood, who owns The Tea House, one of three pot shops within a one-mile stretch in White River Junction, a village of the Upper Valley town of Hartford, which borders New Hampshire. She said business is stable now, but just one more retail store in the area could jeopardize the existing ones.
“Not just for me, but for the whole industry to succeed, there has to be some kind of balance,” she said. “We’re two years in. It’s a good time to take a pause, see what’s going well, what’s not going well, reevaluate, adjust, and keep this market successful.”
Legislators this year passed a bill they hope will allow regulators to adjust regulatory rules to better reflect the market and better spread the number of retail shops across the state.
Michael McCarthy, a state representative from St. Albans who sponsored the bill, said the way the industry has taken root and grown offers a blueprint for revising the powers of the Cannabis Control Board to better reflect the state’s goal of keeping the industry scaled to the size of a small state like Vermont.
“We’ve tried to keep this as a craft market,” McCarthy said. “We don’t get into big corporate ownership, like other states, with advertising out of control. Having a small market suits us. Keeping dollars circulating locally.”
H/T: www.bostonglobe.com
