As Vermont Attorney General T.J. Donovan put it, the state is in a “really weird position when it comes to cannabis.”
In fact, Vermont is “probably in the worst position we can possibly be in, where we’ve legalized possession of cannabis, but we’ve remained absolutely silent on how Vermonters obtain it,” Donovan said during his opening statement at a panel he hosted Thursday night called “Conversation About Cannabis: Lessons from our Neighbors.”
The panel, held in the Contois Auditorium at Burlington City Hall, focused on challenges and lessons Vermont lawmakers could learn from neighboring states as the state legislature reconvenes next month and cannabis regulation is likely to come into focus. “I’m sure that this issue will come up,” Donovan said.
The conversation drew heavily on experiences with legalization from Maine and Massachusetts, where voters legalized cannabis for adult use in 2016. Panelists included: Erik Gunderson, director of Maine’s Office of Marijuana Policy; Kevin Conroy, a partner in the Massachusetts-based Foley Hoag’s Administrative Law Department; Charlotte Hanna, founder of Community Growth Partners in Massachusetts; Laura Subin of the Vermont Coalition to Regulate Marijuana; Joe Bergeron, president of the Association of Vermont Credit Unions; and David Mickenberg, a lawyer with Mickenberg, Dunn, and Smith, PLC in Vermont.
The panel discussion started by highlighting the difficulties of operating a cannabis business in Massachusetts.
“The way the regulations were designed in Massachusetts were very well-intentioned, sort of trying to push the responsibility down to the municipalities out of respect for the change that was afoot in these communities that were going to be welcoming cannabis,” Hanna of Community Growth Partners said. “What happened as a result of that was that it became very difficult to figure out where to go. A lot of municipalities banned it.”
Hanna said that, as someone from out of state, she had to ask herself which jurisdictions it made sense to target, considering the bans, and, from there, where she could secure real estate. Property owners noticed, and prices skyrocketed.
“What has the friendliest government? The most pro-business, pro cannabis?” she said.
Opportunity zones soon entered the picture and became a factor in real estate strategies, too. These Zones are a federal program created under the Trump administration to bring investment to economically disadvantaged communities by offering tax benefits to those who invest.
“A lot of people started looking at the intersection of opportunity zones and cannabis zones,” Hanna said. “I was bidding on properties that were $300,000 the year before, and were suddenly $2 million because the property owners realized they had an asset.”
Massachusetts was the first state to launch adult-use sales on the east coast, and “for the most part, things are going very, very well,” Conroy said, who advises a number of cannabis investors and businesses with a focus on regulations. Conroy, referencing lessons learned, pointed to required host community agreements, which, in some cases, turned into a pay-to-play arrangement.
“We gave too much control to our municipalities, and if I had some advice for Vermont, it would be: you need to have some local control, but we’ve got too much local control in Massachusetts,” Conroy said.
Gunderson, director of Maine’s Office of Marijuana Policy, described Maine’s version of local control, which is an “opt-in” program. In order for a municipality to participate in the adult use industry, they must opt-in, and only roughly 26 towns of about 450 have opted in.
Diversity was also a repeated theme throughout the evening. Conroy said that he thinks a lot about how to ensure that larger businesses and smaller businesses can better co-exist.
“We have struggled some with diversity in our ownership,” Conroy said, adding that while regulators are “well-intentioned,” the cost of doing business is a very high barrier. “We need better state loans, we need better state funding going to help small business owners open these businesses.”
Subin, of the Vermont Coalition to Regulate Marijuana, said that one aspect of legalizing the “Vermont Way” is by doing so fairly. “We believe deeply in a restorative justice model. So that means letting people that have been harmed by cannabis prohibition have access, removing the barriers of access for those people to an emerging cannabis industry.”
Panelists also spoke frequently about capital, or lack thereof, and liquidity.
“Recently, there’s been a little bit of a bubble in the cannabis market from an investment perspective. And equity capital has really dried up. So it’s become very difficult to get access to capital,” Hanna said, noting that these hurdles forced her to “take a lot more personal risk” than she had ever taken, and required her to be really “creative.”
“It is a tough capital environment,” Conroy added, saying most of his businesses rely on small investors and family offices for funding.
While Maine and Massachusetts voters legalized adult use at the same time, Maine been slow to roll out its program. Former Governor Paul LePage, who opposed legalization, ended up vetoing the work of lawmakers, which they then had to override, resulting in a lengthy legislative tug-of-war. Gunderson, director of Maine’s Office of Marijuana Policy, gave an update: the state opened cultivation, manufacturing, and retail applications.
Bergeron gave insight from the banker perspective, mostly reiterating what many in the cannabis industry already know: banking remains, at best, a huge headache.
“It’s a real challenge for financial institutions, be it a cooperatively-owned credit union or bank of any sort, to make the decision to provide financial services to cannabis related businesses,” said Bergeron, president of the Association of Vermont Credit Unions, adding that it’s “because of the inherent risk involved.”
It’s not that a cannabis business itself presents a risk; it’s the federal prohibition and surrounding lack of clarity, Bergeron said. In other words, the “conflict between the current federal law, and state law.” Credit unions have historically been more willing to work with cannabis businesses, and Bergeron said that while there are credit unions in legalized states that have “done their research” and will provide some services, “usually, it’s pretty limited.”
A total of 38 state and territory attorneys general signed a letter in May urging action on legislation in Congress that would expand industry access to financial services,the SAFE Banking Act, which passed in an historic House vote this fall (read Cannabis Wire’s coverage of the vote.)
“Credit unions, and I believe banks too, aren’t taking a position on legalization one way or another. But they do want to serve these businesses. But in order to do so, need some clarity and some safe harbor,” Bergeron said.
When it comes to Vermont, Subin, of the Vermont Coalition to Regulate Marijuana, said that any cannabis regulations have to protect small farmers.
“Their ability to raise capital and start businesses and move from the illicit market into a regulated market is going to depend on the costs. And if it can’t be economically viable for them to make those transitions, then it’s not going to happen,” Subin said. He recommended tiered licenses that delineate between smaller and larger farms, emphasizing that an “unlimited number of small licenses is going to be essential to bring people to move from the illicit market to a regulated market in Vermont.”
Considering these states are all in the northeast, the cold weather was front and center. Hanna said one of the biggest economic development opportunities is with the reconditioning of old mill buildings in struggling communities. The climate, though requires at least greenhouses, which become “almost as expensive as is indoor.”
The most expensive cost of doing business in Massachusetts, Hanna said, is “HVAC. Climate control. Power.”
Residency requirements also came up. Conroy, the Massachusetts lawyer, talked about the state’s lack of residency requirements for licenses (Maine, for example, has one), and why he thinks residency requirements could be restrictive.
“This is a highly regulated industry. And you are going to need the people from out of state to help you do that in order to do it the right way,” Conroy said, referencing the influx of people with experience from Colorado’s cannabis industry that emerged when Massachusetts came on board, which, he said, “helped us a lot.”
Donovan asked what keeps Gunderson, the Maine cannabis regulator, up at night. He outlines the main areas, in addition to the complications created by the residency requirement: the pressure to get mandatory quality control testing right, and supply track and trace, which are “giant IT projects that can really cause a lot of trouble on the industry side.”
The final aspect of cannabis regulation that keeps Gunderson up is, “how to lift and shift the medical program to align with the adult program while serving its purpose. There is a significant difference between patients and consumers. So doing it right, both for the patients, the program participants, and the state, it is a very difficult task.”