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April 20, 2022 News + Opinion » Business
T he flyers advertised a business luncheon, but the crowd passing between the velvet ropes and into Einstein's Tap House in Burlington exuded a different vibe.
Sporting tie-dye and tats, more than 100 people bounded into the dimly lit lounge with the giddy air of partygoers. They carried product samples, business cards and, most of all, lofty aspirations of breaking into Vermont's long-awaited recreational cannabis market, which is set for a full launch in October. The entrepreneurs, representing every facet of cannabis production, produced a cheery din as they mingled and swapped plans over pizza provided by the hosts of the networking event, Vermont Cannabis Solutions, a Burlington-based specialty law firm.
There was weed on the bar tables and in the air, but the main intoxicant for this motley gathering of cannabis aficionados was the prospect of being among the first in the state to turn grass into legal green tender: Vermont's pot pioneers.
Kelli Story, boasting a shock of blue hair and a T-shirt reading "slut jokes are just whoreable," worked the room promoting plans for a socially conscious edibles company, Green Queen Candies. The Vermont cannapreneur had just driven two hours from the Northeast Kingdom town of Glover, where a week earlier she'd bought a log cabin compound along Route 16 that was once a café and yoga studio.
If her plans work out, the spot will soon house Story's production line for affordable pot brownies for low-income shoppers, among other THC-laced treats. She intends to set aside a portion of profits to help disadvantaged entrepreneurs and support addiction recovery programs. Story, who said she currently makes edibles as a "black-market not-for-profit," has taken on the burden of a $300,000 debt to finance her dream.
For Story to succeed, however, she must attend to a slew of pressing business matters, many of which are complicated by the fact that cannabis is still banned by federal law. She'll also need sharp elbows to gain a competitive edge amid what could be a crowded field of cannabis hopefuls: veteran black-market growers, investor-backed operators, corporate managers, transplants from other states, family farmers, mom-and-pop shopkeepers, and bootstrapping idealists. All are jockeying for spots in what's known as the "adult-use" market, which is projected to peak at $230 million in sales in Vermont within a few years.
For many, the coming cannabis retail market represents the culmination of years of dreaming, plotting and hard work. Vermont's legal framework encourages small businesses and existing illicit operators to take part in the market. The new Cannabis Control Board has already received more than 640 preliminary license applications from those hoping to be ready for opening day in October. Some say they are wagering their life savings on the ventures.
Cannabis' illicit federal status means every feature of the industry, from banking and product testing to selling and growing, must be built from the ground up within Vermont's borders — and remain inside them. Supply problems, regulatory confusion, laboratory backlogs, licensing delays, insurance and banking hang-ups, and zoning battles all present possible pitfalls for the people who were trading business cards at the Einstein's Tap House luncheon.
In addition, dealing in legal cannabis promises to be extremely expensive, subject to plenty of red tape and highly dependent on reputation and product quality. Vermonters with the deepest understanding of cannabis may be less equipped to navigate the fast-evolving playing field, having spent decades marginalized by the drug's prohibition.
Broader questions loom over the launch, as well. How will the state's plan to nurture small operators fare against the forces of an open market that may invite large companies? Is Vermont destined for a repeat of the boom and bust that crushed producers of hemp and CBD in 2019? Will weed grown here be any good?
"Right now is probably the last best of times," said Eli Harrington, a longtime Vermont weed advocate who plans to start his own recreational cannabis business. "It's fairly high stakes for a lot of different people."
At the Burlington bar, however, such sobering considerations were all but drowned out by the excited buzz of anticipation.
Andrew Subin, of Vermont Cannabis Solutions, was trying to deliver the latest information about the state's still-shifting industry regulations but struggled to be heard over the crowd's noisy hum.
"You need a bank account to be able to get a cannabis license," Subin instructed from the dance floor, beneath the kaleidoscopic glow of DJ lights.
"Hey, you guys, can we keep it down in here, please, for one second?" he yelled into the microphone. "Everybody needs a bank account!"
Ana MacDuff has a plan to open a cannabis retail store in Rutland — and is wagering plenty on the prospect.
"We cashed out our 401k and savings to do this," MacDuff told Seven Days as she described her company, Mountain Girl Cannabis, and her dream of opening shop this summer in preparation for legal sales. She's already started the preapplication process for her retail license.
Originally from the South American country of Colombia, MacDuff said the state's effort to ensure that the legal market is accessible to entrepreneurs from groups disadvantaged by the nation's 50-year war on drugs, including applicants who are Black or Hispanic, qualifies her for priority review. She would be exempted from application fees and the annual $10,000 retail license fee during the first year and pay only a portion in subsequent years.
She knows of others who want to open competing stores in the Rutland area, but she didn't sound too concerned.
"Rutland is a big enough city that it can accommodate two or three dispensaries," MacDuff said. "No problem."
Vermont lawmakers intended to curtail the influence of big cannabis companies by limiting the number of licenses issued to any one firm and providing advantages to small growers and businesses such as MacDuff's. They meant to foster a market that looks like Vermont's craft beer and specialty foods industries, which have helped turn the tiny state into a profitable brand of its own.
Yet the corporations are lurking. The three owners of Vermont's medical cannabis dispensaries — all from outside the state — can now apply for a so-called "integrated" license to operate on the recreational market. That gives the companies access to every license type, including growing, wholesale, testing, manufacturing and retail, and allows them to start selling to everyone on May 1 — five months before other retailers.
But the prospects of a grand opening on day one are unlikely; none of the dispensaries has announced imminent plans. Most notably, the corporate owner of Vermont's largest medical dispensary, CeresMED, has been regrouping in recent months amid signs of wider financial troubles and scaled-back ambitions.
Toronto-based Slang Worldwide, a publicly traded company that acquired CeresMED last summer, has applied for integrated licenses, according to a company executive. But it has quietly shelved plans for a massive, 50,000-square-foot cultivation facility in Milton and instead intends to build two temporary greenhouses comprising just 5,700 square feet.
The company let go key staffers, including CeresMED founder and CEO Shayne Lynn, a trailblazer and architect of Vermont's cannabis industry, who remains a shareholder on the company's board. And the company has held off growing any of its own cannabis for recreational sales, despite legislative permission to do so beginning February 1.
"We are making decisions based on prudence, not on hope," Slang interim CEO Drew McManigle said in an interview this month with Seven Days. "I have found in 30 years of being CEO or holding other fiduciary positions that hope is often a failed business strategy. You can hope for the best, but you better damn well have your facts, figures and numbers together when you're making business decisions, especially when you're a) playing with other people's money and b) have shareholders who are expecting you to perform at a high level."
McManigle's sober assessment might be logical for a corporation that operates in multiple states, all of which have larger markets than Vermont. But aspiring local, independent operators such as MacDuff are making a different calculation.
"You can invest on the [stock] market, or you can invest in yourself," she reasoned. "I think I'll take the bet on myself."
In Barre, a section of a warehouse that once belonged to a local granite company is getting another life as a cannabis grow operation.
Nick Mattei and his fiancée, Angela Payette, have paid rent on the cavernous 10,000-square-foot space since last August so their company, ForbinsFinest, can be ready to go when they get the green light.
"We took a five-year lease on the space without even knowing if we could get licensed here," said Payette, who ditched a job at an optometry practice to focus on Forbins. "It was a real, giant leap of faith."
Mattei, a 39-year-old former diesel mechanic, has long grown cannabis for personal use and spent the last six years consulting and installing HVAC systems for indoor weed and hemp cultivators. Now he has the chance to set up his own shop.
Collectively, growers will have to cultivate at least 500,000 square feet of cannabis canopy, or at least 60,000 plants, each year to satisfy Vermont's weed needs, according to a state estimate.
Forbins aims to raise a small part of that. The company has preapplied for what is known as a Tier 3 license, which would allow it to grow up to 5,000 square feet of cannabis indoors. But the owners say they'll start at about 2,500 square feet, with room to scale up if they find early success.
Mattei is confident they will. They've made local connections with others entering the industry and have even landed Vermont investors, though Mattei declined to name them.
"We've been lucky enough to find a few individuals that believe in us and our mission and are very supportive," Mattei said. He added that "most of the people involved in the industry are bootstrapping it, essentially," because federally insured banks aren't making cannabis business loans.
The same lack of financing could hinder the state's goal of transitioning people from Vermont's illicit market into the regulated one. The Cannabis Control Board lowered application and license fees to encourage so-called "legacy growers" to go legit as a way to level the playing field and ensure that all weed sold to Vermont consumers is tested, safe and taxed. While the black market carries legal risk, illicit weed doesn't require expensive testing and can be sold, grown and processed without the state looking over your shoulder.
If an insufficient number of legacy growers bite, the illicit market could undercut demand in the legal market, sending prices into a tailspin, as has happened in California and Oregon.
"We had to learn a lot early on about good growing practices: What has gone wrong in other states, and how do we make this uniquely Vermont?" said James Pepper, who chairs the Cannabis Control Board. "The legacy market really stepped up to the plate and attended our meetings, provided us feedback, provided us testimony, provided us the justifications that we would need to go into the legislature and say, 'This is why we set the market up this way.'"
Mattei said he's pleased with the regulations that the board devised.
"I think we should all play by equal and fair rules," Mattei said. "Food is regulated, right? You can't buy bathtub gin at the liquor store. And so cannabis is really no different."
During a tour of their slice of the drab, brown warehouse just off Barre's main drag, Mattei, Payette and their operations manager, Scott Rodd, described plans to install security systems and transform the open space into multiple rooms for growing high-quality cannabis under artificial lights. They want to collect rainwater off the roof for the plants and eventually install solar panels.
Using racks and water tanks they bought from the former occupant, a now-defunct hydroponic lettuce operation, the entrepreneurs envision setting up a nursery with various strains of "mother plants," a "preproduction room" and three rooms where different strains will flower on staggered schedules to keep up production.
"That allows us to harvest about every 24 to 26 days because of the offset cycle, so that's gonna give us a better shelf life," Mattei explained. "A lot of other cultivators are going to do what's called monocropping, where it's one big room and you just fill the room and eight or nine weeks later, you harvest. Our model is different."
To ensure quality control, all the product will be trimmed, dried, packaged and stored on-site before going out to the eight to 10 Vermont retailers with whom Forbins already has handshake agreements. Those deals account for about 80 percent of the weed the company will likely produce, Mattei said.
By growing indoors, Forbins can maintain environmental consistency, keep out pests and mold more effectively, and produce multiple harvests each year, its founders say. But that is expensive and energy-intensive.
Outdoor growers, meanwhile, rely on the sun and rain, so their overhead costs are lower. But Vermont's short growing season limits them to one harvest each year, and the quality and consistency is not as certain. And they'll still have to pay for some state-mandated security measures, such as fencing, video surveillance and motion-activated floodlights.
As of April 18, about 90 people had applied for the lowest tier for outdoor growth — 125 plants — while a similar number had applied for the smallest indoor license, up 1,000 square feet. More than 100 are seeking the smallest "mixed" license, which would allow them to grow indoors and outdoors.
In the Northeast Kingdom, cannabis advocate Harrington is banking on sun-grown weed as a selling point. He's started a collective of small outdoor growers who want in — but aren't ready to quit their day jobs. Most are using cannabis as a way to diversify their current agricultural pursuits; Harrington, for instance, raises chickens for meat on property he rents in Irasburg.
"If you want [cannabis] to be the thing that you do, you're gonna have to be ready to navigate a lot of unknowns ahead and rocky roads," said Harrington, who added that he "doubled down on chickens this year, just in case."
Even with side hustles, Harrington noted that the collective's decision to bet "millions of dollars on an annual plant in the Northeast Kingdom in Vermont during climate change" is a pretty huge risk.
"You have got to be kind of fucking crazy to do this, anyways," he said.
The state's market projections anticipate that the demand for cannabis in the first year will far exceed supply, meaning those who can secure plenty of shelf space are in position to reel in top dollar. But that initial bonanza likely won't last. It could take several years for the market to shake out.
"If it's not done right — this is our one shot, right?" said Payette of Forbins. "We don't have another opportunity like this. So we're really putting all of our eggs in one basket."
Janet Currie has been growing hemp at her historic Orwell farmstead for several years and working as a hemp biomass broker, an expertise she's honed since deciding to plant cannabis in 2014 to help her mother through a cancer diagnosis. (While hemp and weed are cannabis plants, hemp lacks high levels of tetrahydrocannabinol, or THC, and has no psychoactive properties.)
Even before Vermont's retail legalization bill, Act 164, became law in October 2020, Currie had been planning a pivot to pot: She's secured an investor, developed a business plan, recruited employees who can help her turn her plants into high-end edibles through a company she's calling Vermont Cannabis Products and identified a promising location for a companion retail business at one of the busiest intersections in Castleton.
Then, in March, came a jarring setback: Castleton voters said no to retail pot.
Act 164 legalized weed sales but restricted stores to towns where local residents voted to allow them. Nearly 70 of the state's 251 municipalities have already done so, according to a database maintained by cannabis news website Heady Vermont, though votes have also failed in more than a dozen places.
Castleton seemed like a shoo-in, given that Castleton University, which draws around 1,900 students to the town, offers a pioneering Cannabis Studies Certificate Program. On Town Meeting Day, however, the opt-in ballot question failed by 45 votes, 351 to 306.
Just about every aspect of the cannabiz carries complications and costs, entrepreneurs such as Currie are finding.
In Glover, Story encountered unanticipated expenses almost as soon as she bought her Northeast Kingdom cannabis compound. New England Federal Credit Union quoted Story monthly fees as high as $2,500 to maintain a business checking account for her cannabis company. The bank would charge a small edibles manufacturer $1,000 each month, and even the smallest craft growers would need to spend $2,400 annually in bank fees, according to a fee table obtained by Seven Days.
A representative said the fees are necessary to offset myriad special costs of servicing cannabis businesses, such as account monitoring for suspicious transactions and cash-heavy deposits. They were developed as a result of looking at cannabis banking across the country.
The only other local financial institution that serves cannabis companies is Vermont State Employees Credit Union, which charges between 1 and 2 percent of monthly deposits, rather than a flat fee.
"It's our aim to make the fee as fair as possible," said Gregory Huysman, VSECU's director of business lending and services.
The two credit unions are in the process of merging, which makes Story and others in Vermont's cannabis industry worry that they'll be stuck with whatever fees the new entity decides to charge.
"I need a way to kind of offset all of the ridiculous fees that we're getting hit with, just for being cannabis," Story said. "It's frustrating, and I'm too deep to get out of it now. I'm $300,000 in debt."
Businesses are also bracing for the familiar Vermont battleground over permits. The town opt-in requirement only applies to retail sales; towns can't bar cannabis cultivators or manufacturers within their borders. Towns must approach cultivation businesses as they would any other, but that hasn't prevented some costly delays.
Darrick Granai said he first contacted Derby's zoning office last November about his plan to set up an indoor grow facility for his company, Bushy Beard Cultivation, inside a warehouse. Granai is no novice to business regulation; he owns a pair of hotels, in Derby and neighboring Newport.
But Granai's zoning permit application ended up taking four months, multiple hearings and an attorney's involvement before the town signed off. The process delayed his initial timeline for outfitting the location, Granai said. He's no longer sure he'll be able to plant in time to harvest product for the anticipated October launch.
Navigating local zoning authorities around the state "has been an absolute pain in the ass," said lawyer Tim Fair, a partner at Vermont Cannabis Solutions. "It's those types of things where, if you get a prohibitionist in the wrong position, it can really make things difficult."
Some municipalities are promising to process cannabis permit applications expeditiously. That includes Burlington, where voters approved retail sales at last year's Town Meeting Day.
"Under the zoning code, retail is retail," said Scott Gustin, the city's principal planner. "So whether you're selling pots and pans or pot to smoke, it would be retail."
Owners of at least three cannabusinesses have plans to open shop in the Queen City, including Tito Bern, owner of the Bern Gallery pipe shop on Main Street; Dylan Raap, of Green State Gardener on Pine Street; and Ian "Ebo" Singleton and his business partner, Taylor Gaston Burton Carpenter, scion of the Burton Snowboards clan.
Singleton wouldn't say where the pair intends to open, but they hope to grow, manufacture and sell their products at a one-stop destination in the city for "the weed curious and the weed enthusiasts."
"We'd like to really kind of lean into cannabis tourism — some tours of gardens and just, you know, a real kind of immersive experience," Singleton said.
Back in Castleton, Currie is convinced that residents would similarly embrace cannabis, if only they'd give her a shot. Following the failed opt-in measure on Town Meeting Day, she collected the 141 signatures required to petition for a second vote in April, when the town was to again consider the school budget. With some friendly instruction on the subject, Currie reasoned, Castleton residents would change their minds, particularly those who had grown up amid earlier stigmas around weed.
On a Tuesday evening before the vote, Currie and her chief operating officer, Zak Pitzele, lugged a large TV and a tray of CBD samples into the Castleton fire department for their third installment in a public information series that Currie had dubbed "Let's Talk Cannabis." They enlisted Philip Lamy, director of Castleton University's cannabis studies program, and horticulturist Christine Motyka to help demystify the plant.
Four women showed up to the event, including one who arrived with an oxygen tank in tow. She declined to give her name but said she was taking prescription opioids for chronic pain and looking for an alternative. Cannabis was intriguing, the woman said, but Currie had yet to convince her to try it.
"We shouldn't be scared about this," Currie suggested to her audience. She explained that, if voters allow her to open, she intended to provide a nurse knowledgeable about cannabis to talk to curious clients.
"I know that my retail store is going to be an opportunity for people to come and ask those questions," she said.
Currie's perseverance didn't pan out. Last week, Castleton voters again rejected weed stores — this time by just 15 votes, 290 to 275.
Currie is considering a third try in November.
Three years ago, hemp looked like a sure thing. Hundreds of Vermonters applied to grow the cannabis plant for an extract known as CBD — cannabidiol — and big profits were in the offing.
Instead, it was mostly hype. The market crashed. Hemp plants rotted in the field. Growers were left holding the bag on handshake deals worth tens of thousands of dollars.
Some survived, though, and a number of those hope that they can find success in Vermont's fledgling weed industry.
"Our numbers, our margins, our products — it took the CBD experience to figure out exactly what we can do well with THC," said Jane Lanza, who, with her husband, Ben, runs Family Tree Hemp. One lesson learned: Don't overextend yourself.
On their four-acre Sheldon farm, the couple grows hemp that they sell as buds, CBD oil, or in edibles and skin care products, which are available online or in nearly 20 locations in Vermont and other New England states.
As they move into THC, Lanza said, the couple plans to grow steadily according to a five-year plan that should help them weather turbulence during the market's startup phase. Their CBD business landed them relationships with retail outlets that Lanza expects will provide a leg up in securing shelf space for their THC products.
Family Tree is not aiming to "take over the world and be, you know, a Budweiser," Lanza said. "But if we could be a little Vermont craft brewery making our town proud, we'd be happy."
Whether Family Tree or other small growers succeed may turn on more than just their individual business acumen. Their fate is also tied to whether Vermont can distinguish itself as a purveyor of artisanal cannabis.
In other states, the aspirations of industry creators have rarely transformed into reality. Dan Pomerantz witnessed California's experience firsthand as a grower in its fabled Emerald Triangle cultivation region in the northern part of the state. He saw large operators turn "craft cannabis" into a vacuous marketing term, pushing out small growers with cultivation expertise in the process.
Pomerantz, who bought property in Craftsbury in 2012 and has been growing hemp there in recent years, believes Vermont has an opportunity to foster a true "grassroots cannabis culture."
"No one's ever done it the right way before," he said. "There's no blueprint. Every state so far, instead, has done it the wrong way."
Pomerantz thinks Vermont has played its cards right so far in seeking to promote independent growers. He plans to grow flower, the smokable buds of the plant, and sell seeds to growers and retailers, doing his part to build a branding aura around Vermont buds.
"People can say, 'Wow, this is grown in this magical place,' where you can describe to people the feeling of the dew in the grass being wet on a lovely summer day, with the birds chirping in the air and all the wildflowers blooming," Pomerantz said.
For years now, Sara Farnsworth, who earned an MBA in 2020 from the University of Vermont, has been pitching her own vision for exceptional Green Mountain cannabis. If the state wants a sustainable pot industry, growers will also need to address its environmental impacts, especially for energy-intensive indoor cultivation, Farnsworth said. She wants to use cutting-edge methods to cultivate sustainably — in the process creating an ecotourism destination and building a green green brand.
"Some folks are just really concerned about the bottom line and looking to just make as much money as they can. That alarms me," said Farnsworth, who lives in Burlington. "Yes, there is going to be money that's made, but we also have the potential to really use business as a force for good and help to make the Earth better than when we found it."
That's the dream. Farnsworth has, so far, been unable to sell that vision to anyone with deep enough pockets to fund it. A single mother of two, Farnsworth works as a barista and can't afford to finance the eco-friendly cannabis company she's calling Full Circle Farm. She managed to find partners in Chittenden County with land where they would be able to grow 2,500 outdoor plants and 1,000 square feet of indoor canopy — if Farnsworth can raise the money.
Farnsworth said she needs about $50,000 by June in order to set up her operation. Besides saving every penny she can, Farnsworth has also approached friends, family and pretty much anyone who will listen for a short-term loan, for which she's willing to pay 18 percent interest. Whether or not she finds the cash, Farnsworth said, she is determined to get as many seeds in the soil as she can afford.
"I've got to believe," she said, "that at some point in time, after such hard work and dedication, good things will come."
Tags: Business, Cannabeat, retail cannabis, cannabis, weed
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