Vermont Legislature SmartTranscripts:

[Rep. Robin Scheu (Chair)]: Good morning. This is the House Appropriations Committee. It's Tuesday, 02/03/2026. It is just after 09:30 in the morning, and we're continuing our tour of the FY27 budget as proposed by the governor. This morning, morning, we're going to start with the Cannabis Control Board, who's joining us here. And then after that, we're going to hear from VSAC, the Vermont Student Assistance Corporation, take a break. And then the Criminal Justice Council is here. And then this afternoon, we have the attorney general, judiciary, and a bill to take a look at. And it may be another one of those bills where it's a little not sure why it's here. Depending upon how it looks, it's age six eleven. We may vote today anyway, but if it feels like it's something that we want to have more votes on,

[Rep. Robin Scheu (Chair)]: we can postpone the vote so people are back. So there's not a rush on that, but we'll see once we face it. And I will be presenting the budget adjustment in Senate Appropriations at one So Marty, if you don't mind running the meeting at one this afternoon, that would be great. So that's what

[Rep. Robin Scheu (Chair)]: I know for now. And now we'll welcome the Cannabis Control Board. Thank you.

[James Pepper (Chair, Vermont Cannabis Control Board)]: And just for the record, James Pepper to the board.

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: My name is Olga Fitch, and I'm the executive director for the board. All right. So we have a presentation for you. It's not very long, so we'll try to keep it interesting enough. Alright, so here we are. And what I wanted to start with is a quick slide to Patong's friends in the taxable sales and also collected tax. It's a little bit of a busy slide, so I'll walk you through it. What you're looking at in those blue bars, it is the taxable sales. Looking back at the fiscal year twenty three, and all the way forecast through fiscal year 'twenty nine. So you can see if we, say, look at fiscal year 'twenty seven, the consensus GFO and administration forecast is that the expectation is it's about $168,600,000 in taxable sales is expected. So this is just the consensus revenue forecast Yes. Of our That's exactly. That's where that number is coming from. And then the yellow bars, those are the six percent sales and used tax revenue. That is also represented for you here. You could see year over year actuals through fiscal year twenty five and also projections FY '26 and below. That tax supports the Universal After School and Summer Special Fund, so the Department of Education administers that, and the expectation is for fiscal year twenty seven is $10,100,000 in that sales in these stacks. And then the light green bars represent their 14% cannabis excise tax revenue. So, you could see, again, for fiscal year twenty seven, the forecast is 23,600,000 Again, you could see actuals collected through '25 and then forecasts '26 on. And I wanted to put just a little reminder that 70% of the cannabis excise tax revenues directly into the general fund. So, as I was saying, 30% of the cannabis excise tax revenue is dedicated to the Substance Misuse Prevention Special Fund, and Department of Health administers that. So, again, those are the numbers, and those are the projections and actuals. Do you have any questions? Let me know. If not, I'll

[Rep. Robin Scheu (Chair)]: This is really helpful to just see this all laid out like this.

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: We appreciate things like this. Thank you.

[James Pepper (Chair, Vermont Cannabis Control Board)]: I think the only thing notable about this is if you go back to the January 2023 consensus revenue forecast and look at projections for these same years, they're on average about 50% higher than what JFO predicted they would be three years ago when the market had just launched.

[Rep. Robin Scheu (Chair)]: So the actuals are higher than what was

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: predicted historically. Do you see this?

[Rep. Robin Scheu (Chair)]: It looks though like it's a little bit leveling off.

[James Pepper (Chair, Vermont Cannabis Control Board)]: And that this is a purely intrastate market. So there is a natural cap to how high this can go. And then we're also because New York has now launched program, all those people that live in Plattsburgh and along the West Border that we're crossing over to buy cannabis legally here are probably now purchasing New York. But New Hampshire still has a ways to go before they legalize. So we're capturing, like the White River Junction stores, which are some of our highest performing stores.

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: So again, we expect a bit of a leveling, but still continuing growth. Yeah, just not at the same rate as you had earlier. Exactly. Alright, so I'll keep on. I included a quick slide here to show you our administrative penalties. As our enforcement programme has been ramping up, I wanted to just throw that in to show that in 2025, and that's a calendar year, we issued just over $200,000 in administrative penalties, and so far we've collected just over 62,000. We do offer payment plans, so that's part of the reason we put people on corrective action plans. But again, that's not a big part of our budget. Administrative penalties is not where we are going to see any significant revenues, but it is significant to us enough that we wanted to flag that, and we'll watch those numbers year over year. And then you could quickly see the notices of violations associated with those penalties, and the reasons folks are being under corrective action plans and having to pay penalties. And most of that is tied to issues with their reporting, whether it's sales or transactions related to transfer or acquisition of the product. So, are just tagging all that.

[Rep. Robin Scheu (Chair)]: So, of the 51 violations, are there growers or sellers who have multiples? Because this is

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: 51 organizations or is it 51 licenses or specific events? You could see in theory Somebody on here multiple times. Yes, and if somebody is vertically integrated they've had an issue with their retail license, say they didn't report well, and they also have a cultivation license and they've had issues there, they would have two notices, So those would be counted individually against the license. What is the suspended category? Suspended is so there is a penalty, but there is also a three year corrective action plan. And if the licensee is able to abide, they will not have to pay that amount. Are there any questions on this? Okay, so next slide. So now we'll look at the slide that is really focusing on our budget. You could see our total budget asked is just over $7,100,000 and two thirds of that we are looking to cover through the general fund appropriations, and just over $2,500,000 which is the remaining third, would be covered through the cannabis regulation fund. And as a reminder, Cannabis Regulation Fund is made out of licensing fees, product registration fees, and administrative penalties. And that's our estimation for the fiscal '27, that we will have enough in that fund to cover about a third of our operating budget. And then I put a quick staffing overview for you as well, so you could see we have a total of 28 positions for our agency, and those include five exempt, including the board, executive director and legal. We have 16 agents across our compliance licensing medical program that work directly with the licensees and applicants. Business office data outreach team is represented by four staff, and now we have a lab with three folks that are hired and ready to do the important work at the new reference lab. And will this leave a balance in the cannabis regulation fund, or is it just taken to zero? It's taken to zero. I think that would be our first year working with that new setup. So we'll see how that goes. But not a deficit? No. I guess the general fund feels that anyway, it's good. Okay. So, next slide here. This is where I try to really summarize the increase in our budget when you look year over year to make it really visual. Over year, we are looking at just over $600,000 in increase, which represents 9.4% fiscal year over fiscal year. If you break this down, you'll see that about a quarter of that, just over $200,000 is the increase related to personal services, wages, benefits primarily. And so the remainder of that, the two thirds, which is just over $400,000 is the increase in the operating costs for our agency. Most of that is what we are budgeting towards the lab and those operating costs to run the lab. So we are going from zero to 100 because we did not budget for any of that in the prior fiscal year. So here we're just coming up with a brand new line item in our budget. And that yellow box, text box, is sort of to give you an overview of what it is that we need to budget in order to run that. Luckily, have an amazing lab director with twenty five plus years of experience within the state system, working with different labs. So she's instrumental, has been instrumental in helping build the budget. And you could see two sections here where we are trying to capture subscriptions and contracts and maintenance costs associated with running the lab. For example, we need to purchase a subscription for the information management system that the lab will use, right? So that comes as an annual cost. Lab proficiency testing, that is a contract with a vendor who could make bi annual visits to the lab to make sure things are running as they should. And then having flammable solvents on-site and other things that need to be removed means we need a waste removal contract with a vendor. So those are the kind of things that you just can't run a lab without. And then separately, it's the consumables. And you'll see in the next slide where I touch on how we put that phase in the budget, we have two separate categories where we track those expenses to again separate any subscriptions and contracts from the actual supplies that we need to run the lab. So that's sort of the big chunk of it, it's about 4.5% of our budget, just the operating costs of the lab. And then there is a little bit there towards IT costs that again, just creeping up a little bit, and a little bit towards DLL, our memorandum of understanding, to help support our efforts.

[Rep. Robin Scheu (Chair)]: So you're expecting ongoing lab costs to be about $240,000 a year, net not including salaries?

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: Correct. That's sort of our best estimate right now prior to actually starting the work. And again, based on our lab director's assessment and experience. I hope it's a little bit less, but we'll see where we end after we have a full year.

[Rep. Robin Scheu (Chair)]: So is that going to, if this covers the full year, will it be up

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: and running by July 1? It should be, yes. We are getting very, very close. We got all of our equipment set up. We have all three staff hired. We are working actively with ADS to procure this LEMS system, should be purchased this summer. I don't think we'll do a lot in June, July, August, but hopefully by fall we should be able to do a lot more actual work.

[James Pepper (Chair, Vermont Cannabis Control Board)]: What pathogens are you going to test for?

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: Oh, yes. Yeah,

[James Pepper (Chair, Vermont Cannabis Control Board)]: it's the four major strains of aspergillus and then molten milliliters. We also do heavy metal testing, potency testing. I just curious about the pathogens. No E. Coli or anything like that? You do E. Coli, yeah.

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: Great, thanks. Okay, and so what I have for you here is just our actual roll out report. I highlighted three places in this report in orange, that last column, the places where you see the largest increases year over year. And again, those are really associated with what I've discussed. So, if you look at the 12.3% increase, which is that second line on the operating expenses, that's IT costs that have grown year over year a little bit to our ongoing work with ADS on a few projects. And then the second two places is where we are capturing the cost of the lab, So other purchase services include those subscriptions, maintenance costs and contracts to run the lab, and then the supplies is where we are capturing our consumables. So again, it's a huge increase year over year, but it's mostly because there was zero budget to run the lab in terms of supplies. So that's where you're seeing a total of that $403,570 for that operating costs. And really it's driven largely by IT and most importantly the lab. And then on that last page, unless you have questions for me on this page, and the last page is capturing under grants, is where we track our memorandum of understanding with DLL. I'm not sure why it's titled grants, but that's where we keep that. And we're budgeting an extra 5,000.

[Rep. Robin Scheu (Chair)]: Tell us the relationship with the department of Windham Modern.

[James Pepper (Chair, Vermont Cannabis Control Board)]: Their compliance team are sworn law enforcement. Ours are not. It's conscious decision not to have law enforcement. But of course, if you're operating outside of your license in certain aspects, there are criminal consequences to that. And there are public safety risks when

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: we have to immediately shut down a business on large amounts of products. And so from time to time, we will partner with DLL when we have a sensitive issue that requires law enforcement. And oftentimes, it's to protect health and safety of our staff. So if our staff comes to us and say, this licensee could be challenging, but we do need to go in and do the cessation of operation and confiscate. So we would call out DLL just to be there. They don't need to do any work. Agents would go in, do the inventory collection, but we would have somebody there from DLL on the knock chance things go wrong.

[Rep. Robin Scheu (Chair)]: And how many times have you to

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: do the cessation of operation thing? Well, we do it regularly, but we ask DLL very rarely. I would say in the last last year, it might have been three, four times that we really felt we needed their presence. Sometimes we may need them to help us transport, to pick up a large amount of product. We are moving from a retailer to our lab. When we confiscate that, we may have somebody, so again, that might have been once or twice for those purposes. So usually, just to provide a little reinforcement. But you said you're doing cessation on a regular basis. Are the those go back

[Rep. Robin Scheu (Chair)]: to the notice of violations, are they other things?

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: When businesses go out of business and they have product that they haven't disposed of and not willing to, or they just abandon, we need to confiscate that product and dispose of that. Oftentimes we just oversee the destruction, so we won't necessarily cease to transport. We call this process cessation of operations, and say we watch them destroy the product.

[Rep. Robin Scheu (Chair)]: So, this might be another interesting chart of the number of licenses in each of the categories and where things are, where you've had cessation, sort of

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: the ups and downs over a

[Rep. Robin Scheu (Chair)]: few years like we did with

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: the revenue. Okay, yeah, we do track folks exiting the market, we run, we collect their reasonings too, so our agents will talk, hey, tell us the main reason why you've chosen to enter the market. So we do have some of the data, we could definitely figure

[Rep. Robin Scheu (Chair)]: Yeah, I think it would be very interesting to see, because we've now been going long enough that

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: we could know that. But yeah, we could definitely do that. And that's basically all we got in terms of our budget.

[Rep. Robin Scheu (Chair)]: No other new initiatives, but the lab is kind of your new initiative.

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: The medical endorsements that came online and now retailers are now able to those who secured the medical endorsement are able to offer services to patients or caregivers. So, we have about 25 businesses in that. So, we are working on incorporating that aspect into our

[Rep. Robin Scheu (Chair)]: And how would

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: you define success when it comes to that? What are you hoping is going to happen as a result of having those medical endorsements? So

[James Pepper (Chair, Vermont Cannabis Control Board)]: when Act 164 passed in 2020, there was an acknowledgment that the medical program would probably continue its death spiral. And there was intent section on the medical program. You decided to shift it over to cannabis cohort from the Department of Public Safety that it's your intent to ensure that through this transition, that patients will continue to have access to medical products and services. So not expand the program, but make sure that the existing products and services would be available. So in the timeframe of 2020 to 2024, all the three of the dispensaries closed down. That's common in other states. The patients stopped seeing the benefits to program, start shifting to the adult use. The economies of scale don't work to just have these brick and mortar stores serve 3,000 patients or 2,000 patients. But that does leave a lot of the kind of people that are infirm or invalid, can't go to the store or whatever else, without access to the products, services that they're used to. So the response from the legislature was just to merge the two programs essentially, allow patients, allow adult use retailers that are subjecting themselves to additional regulatory burden around confidentiality, tracking medical product sales, are not taxed, certain additional regulatory hurdles can serve patients the way that a medical dispensary historically would. So really, it's all about patient access, continued patient access. We're not, no one's trying to expand the program, we're just trying to serve the existing patients.

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: Any other questions for, yeah, go ahead. It looks like your total budget is about $7,100,000,000 right? Just lost my scale here. And you get 2.5 from the cannabis regulation fund and the source of that is your licensees. The remaining 4.5 comes in the general fund. And it looks like we get tax revenue of $33,000,000 What is that? Total between sales and excise tax? Yeah, I believe so. We'll be coming into the general fund and just first to get her. Was that our original plan? I had thought we were supposed to be getting more tax revenue that would cover more of your expenses and we did not need as much dental.

[James Pepper (Chair, Vermont Cannabis Control Board)]: So all I can do really is to point you back to the early JFO consensus revenue forecast, which the twenty twenty three one from January '23, which was there was, you know, the market launched in 10/01/2022. So you had about three months of sales data to help inform that consensus revenue. We have exceeded those tax estimates by in the first year, 43%, second year, 76%, the fourth year, FY '25 by 40%. The tax revenue is coming in significantly higher than what was anticipated. The second part of your question is, should our budget be more compensated by licensing fees potentially?

[Rep. Robin Scheu (Chair)]: That was how we That's actually how it was originally thought, was that the

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: The fees fee was the It was

[Rep. Robin Scheu (Chair)]: the fees, but we always thought that it wasn't going to cover it, and there was going to have to be a fix on that, because we couldn't charge enough fees to cover the costs of running this program. And so that was sort of a short term, and I don't know whether ways and means is putting something else in about how we do this or whether this is just how we've decided to fix it. But we knew early on, within a couple of years, that the fees

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: were never going to cover the costs themselves, the fees themselves.

[James Pepper (Chair, Vermont Cannabis Control Board)]: And that was not our analysis, that was JFO's analysis well. 2020, they submitted a report when you guys when people were contemplating fees, the market structure. And they suggested that you essentially can't set fees high enough to cover the full cost of the regulatory agency. Because if you set them at, say, dollars 100,000 for a retailer, you're not going to have enough retailers that are going to The entrepreneurial interest will be depressed. So you can either choose between having a vibrant market that's accessible and has a diversity of products and a large number of people participating with lower fees and supplant with general fund or tax revenue, Or you can have very high fees with a very less vibrant market. And even then, you'll probably still have to supplant some amount with the general funds.

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: I can submit that report to this committee if you wanted to just look back at it, the kind of historical I would be curious because I'm maybe misremembering some of what we discussed back in 2020. Nothing's changed.

[Rep. Robin Scheu (Chair)]: Dave, do have a question?

[Rep. David Yacovone (Member)]: Yes. Is it still your plan to defer until July your rulemaking around the quantity that a consumer can purchase? Yes. So would you file the rule in July or would you implement? No.

[James Pepper (Chair, Vermont Cannabis Control Board)]: I mean, I think what we want to do in July is get a very clear picture from the legislature. You're either gonna pass legislation on this or not. And when we have that clear picture, start the process all over again. That's fine. So you're pursuing that in committees and jurisdiction that conversation. Right. There's a very kind of market reform bill in the Senate right now that they're contemplating that touches on not just transaction limits, which is what you're talking about, how much a person can purchase in a single transaction, but also changes to advertising, potency caps, presale opt in, opt out, just the whole kind of whole picture of the market. And some of those things, you know, they're policy choices, but they will almost with a flip of a switch increase the amount of revenue that the market will generate. And we just did a recent analysis on why people are staying on the illicit market, continuing to purchase not from a regulated source, but from an unregulated source. And one of the number one reasons is they don't have access to the products that the illicit market provides. Now, those are generally speaking, high potency products. So you need to just balance whether you want those sales in the regulated market and what the consequences of that would be against the tax revenue implications and providing people a regulated choice, a choice of a regulated product or not. But these are historically been sensitive issues.

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: You

[Rep. Robin Scheu (Chair)]: very much. This is pretty straightforward and great to have that data and then if we can

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: just get that other info out. Yes. That would be great. Okay.

[Rep. Robin Scheu (Chair)]: Thank you very much.

[Olga Fitch (Executive Director, Vermont Cannabis Control Board)]: Thank you. So, committee, we have full sec, but I think we're coming at 10:50.