Vermont Legislature SmartTranscripts:

[Matthew Birong (Chair)]: Alright. I'll stop here. Everyone. Welcome back to House Government Operations and Military Affairs. Our 11AM agenda is an overview on the tax structure and components cannabis monies brought into the state and how those are allocated, different mechanisms, prevention, after school, etcetera. We have a large group in here today to track this testimony and this conversation apparently. It was unexpected, but welcome. So, that's the primer for the next slug of conversation for the, for the table. And with that, I will hand things off to chair Pepper.

[James Pepper (Chair, Cannabis Control Board)]: Thank you very much. For the record, my name is James Pepper. I'm the chair of the Cannabis Control Board. I know you guys have a cannabis bill in your possession right now. Actually, when we came over from the Senate, I'm not going to get too deep into the details there. I know that you guys haven't done a walkthrough of the lodge counts yet. I did want to provide just a brief kind of snapshot of where the market is, talk about some of the tax trends, some changes that are happening and then just give just a really brief primer on s-two 70. So I have some slides I did share them. There's a number of documents I shared today but I think just the slides for today will be helpful. If you don't mind sharing my screen, it'd be wonderful. Consider me not minding. Try to. Okay. So again, market overview trends and federal developments and then S278. So this first slide just shows just how many licensees, licensed entities there are in the state. There is a kind of high watermark around April 2025 that reflects a time when we decided to close cultivation and retail licenses, stop issuing new ones. And we always give people thirty days notice before we close any license type. We saw a number of people rush through the door when we voted to close those. And so you see this kind of somewhat artificial spike and then it's leveling off in more recent months. These are the active licensees by type. You can see that over half of our licensees are cultivators. We have a fair number of product manufacturers and retailers to testing labs. These are the retail locations by county and you can see the little flags on the map. That's where they are. One thing that can't see without really zooming in, anyone who's been to Burlington or Morrisville recently will know that there are deep pockets of retail density. There's 12 in Burlington, 12 retail establishments in Burlington, five in Morrisville. I think that was kind of a predictable outcome of the default opt out provision that was in Act 164. So a town is not allowed to host a retail establishment until their citizens actively vote to allow it. And so we've seen, I think, around 80 or 90 towns opt in, whereas the other ones have not. So there's 12 in Burlington, there's zero in South Burlington, zero in Williston, there that those 12 are kind of serving a regional demand for cannabis. Same with Mooresville, only think more so because there's five of them there. It's relatively small town. But they're serving the Stowe population in towns in the surrounding area that have not opted in. So priority status is standard. Social equity for those who aren't familiar, social equity is class of licensees that the legislature called out. These are licensees whose owners, the principles have been historically disproportionately harmed by cannabis prohibition. Most of these folks have been incarcerated for a cannabis violation the past. Economic empowerment, this is something that the board has established essentially the legislature acts 164 called out people who have historically been disproportionately harmed by cannabis prohibition. But in our conversations with a lot of cultivators and just perspective licensees, market entrants. There are a number of people that have been historically marginalized, by cannabis prohibition, but you think about, you know, first Americans, Native Americans, think about women owned businesses, veteran owned businesses. There's a lot of people that haven't been harmed directly by cannabis prohibition, but probably deserve some sort of acknowledgment in this rollout of this brand and market. We created a second class called economic empowerment. They don't have access to the economic development fund that you created for social equity applicants, but they did get priority in our initial licensure. Product registration. One unique feature of our market is that before any product hits the actual retail shelf, it has to be submitted to the board for approval. We look for regulatory compliance with testing standards, packaging standards, labeling standards, making sure that the product itself is not appealing to youth. And that it's just compliant with all of our regulatory requirements. So you can just see here just the numbers 2025 we had over 5,000 products about half of those were unique strains of flour But then we have the vape cartridges, concentrates, edibles as well. There's a piece up there. This shows what the sales for those various types of products has looked like over just a kind of snapshot, a two year period, roughly two year period. You've got on the left hand side, just the kind of cumulative sales over that period. And then on the right side, you have the average monthly spending by consumers between patients and non patients of various product types. Is just a just a again, just a snapshot 2025 all of the some of the compliance work that you've done, we have four forty two complaints, we have an anonymous complaint process, where people can kind of when they notice something that they think might be a little off, whether it's maybe a potential illegal advertising, you can see we had quite a few complaints about advertising. Or if there's just, you know, something suspicious going on, and they usually call us, we are also out investigating these licensees every year. But these are just the complaints. Letters of warning is just the kind of first step in the process. It's usually for unintentional violations of regulations or first time violators. They usually get a letter of warning depending on the severity of the complaint or the issue. We also have graduated sanctions, notices of violation, administrative penalties. I wanted to talk briefly about the medical program because it sometimes doesn't get the attention when you're thinking about adult use. Again, to be a medical patient, you have to have one of these 14 or so qualifying conditions. A doctor has to verify this. Doctors are not prescribing cannabis. They're not prescribing specific cannabis products. They're not recommending cannabis. They're merely verifying that a person who is in their care for at least three months has one of these qualifying conditions. I know that there's a general kind of question I get quite a bit is why do we even have a medical program anymore now that we have an adult use program? So I'd like to point out what some of the benefits of being a card carrying medical patient are, hey, there's privacy and confidentiality accommodations, you know, there's certain professions or certain, you know, folks that just don't know that they're cannabis users. And so the medical patient has the ability to have a reservation or be the only have specialty hours without going to a store and they'll be the only one in the state. Have medical patients have access to specialty products. There are a number of products that are prohibited on the adult use side, mostly higher potency products. But there's also specialty like transdermal patches, things that we just don't allow on the adult use side that medical patients have access to. There's specialty services, all of our call them budtenders, people that are kind of interacting with patients and adult use customers. Anyone who's interacting with the patient has to have a specialized training about how to have confidential conversations, where the line is between offering medical advice and offering how to deal with product selection. Again, mentioned there's reservation, medical patients are allowed to get deliveries to their home address. And then they also have access to caregivers who could, if you're in a firm, can't get out of bed, you can have designate a person that can go to the dispensary to purchase on your behalf or grow cannabis on your behalf. There's also an ability with parental consent to have a person under the age of 21 get a medical card, get access to cannabis. There's very few of them in the state, but that is a possibility. A few years ago, you guys increased the possession limits and the home grow cultivation allowances for medical patients. So for a typical Vermont adult household, it's two mature, four immature plants per household. Patients have six and twelve. They can grow six plants or and have 12 immature plants. And then of course their purchases aren't subject to the 14% excise tax or the 6% sales and use tax. What kind of trends are we seeing? To mention the 14 sales tax, so what you can see is that 30% of that sales and the excise tax goes to a special fund that's overseen by the Department of Health that's dedicated towards substance misuse prevention. And then the entirety, the other 70% of the excise tax goes directly to the general funds. The entirety of the sales and use tax is direct deposited or actually transferred to this other special funds. So it's dedicated exclusively for universal after school and summer special fund that's administered by the agency of education. And so it's just completely earmarked for expanding access and the number of spaces at after school programs. How are the taxes looking? I'm not going to try and steal too much of JFO's thunder here, but in 2023, this is the forecast, the consensus revenue forecast from 2023 prepared by JFO. Really hard to know what the uptake the consumer interest in regulated cannabis is going to be in Vermont, because we had the highest consumption rates in the country, the highest prior to legalization. So and then we added home grow in 2018. And so pretty much any Vermont adults who wanted to access cannabis already had access to it prior to tax and regulate. And so it was very hard to know how much consumer interest there was going to be in paying a 20% premium on regulated cannabis. So JFO, I think rightly so, it took some very conservative estimates here in 2023. This was this is like three months after the market had officially launched. Numbers are smaller, so I recreated them on the side. This is just what they were projecting back in January 2023. And then this is from this is the same graph just updated to January 2026. You can see the actuals coming in. In FY '23 and again, that was only a partial year because it started in October, 10/01/2022. So the 6,700,000.0, which is 43% above what JFL estimated, FY '24 or 17.4 to 76%. And then FY '25 is 20. That's 40% above and these are the is the forecast for the next couple of years. These numbers don't include the sales and use tax. You can add another 6%, you know, whatever that is. I won't do the math right here, but this is just the excise tax. So we like to look at that number, but honestly it doesn't tell the full picture of the industry. This market is subject to just a few market forces and really structural inequities that make it very challenging, even when sales are good for a cannabis business to succeed. One of the things that we've noted for this committee in the past, this should look like a somewhat familiar slide from years past, is that there are certain times given the preference that we have for outdoor cultivation state, there are certain times throughout the year around harvest time where the supply of cannabis greatly exceeds the demand for cannabis. So what you're seeing here is a the gray line represents kind of a rough estimate of what the demand for cannabis is in the state. And then the blue line represents the amount of cultivators we have in the harvest trends. Those peaks that you see in the blue line, seems the blue line. Those are are around the harvest times where you just have kind of a glut of cannabis coming into the market And that drives down prices and makes it a disproportionate effects that outdoor cultivators who are all trying to sell their cannabis to a wholesaler or retailer at the same time. So it's just something that we try and keep a close eye on and make sure that we're not pushing people out of the regulated market. We're not pushing people towards illicit markets. I mean, there's a lot of pressure to sell illicitly when it's.

[Unidentified committee member]: I'm just wondering how that compares to other things that are harvested. Does that same trajectory happen with apples or other things?

[James Pepper (Chair, Cannabis Control Board)]: I would only be guessing. But yes. The thing about apples is there's a lot of value added products that you can convert those into. It will help preserve it. And that's what we're seeing here in cannabis to outdoor cultivators or flash freezing their cannabis to make it last for longer. They're converting it into distillate others so that they can be added to cannabis products and trying to find ways to smooth that supply chain problem that supply. There's demand volatility, this is a purely intrastate market, meaning, you know, it's there's only a fixed demand for THC and cannabinoids in the state because there are you can't ship products across state lines. You can't try and create new market opportunities regionally. And so there's a somewhat significant portion of our of that demand for cannabis that's driven by tourists that are visiting the state, or the people that live along the border. And New Hampshire has not legalized. So lot of the demand for cannabis in New Hampshire is driven by people driving across the border and purchasing in New Vermont. Same similar with New York, although New York more recently has now opened a lot of their retail stores along our border. But, you know, when we see weather events or certain or on the flip side, you know, good snow, good ski season, we see the demand for cannabis fluctuate. And it's really challenging for our cultivators and our product manufacturers to really know these things to forecast these things. You just never know what's going to happen. But this graph right here is from the tax department. It's a little bit outdated at this point, but you can see it'd be easier to see if you really zoomed in on these, but you can somewhat see that there are these fluctuations that coincide with a lot of our other tours and trends around, you know, leaf peeper season and ski season. And then on the flip side, kind of mud season and stick season, you see lower sales. Also, this market is in competition with both the illicit market and the intoxicating hemp dry market. So we worked with some consultants last year to do some surveying of consumer behavior in Vermont. And they found through a number of surveys that they did that were capturing a decent chunk of the cannabis consumers on the regulated side, about 68%. That number may be a little high given the way that the survey was conducted, but it's probably in the ballpark. But you can see, you know, about thirty percent of cannabis consumers have stayed on the illicit market or the unregulated market. These are some of the reasons why they choose to stay. Price, of course, is a major driver. I mean, cannabis, because of those taxes is at a minimum 20% higher. But also, you think about all the regulatory costs and licensing fees that are baked into the final price of cannabis. And, you know, we're all like the regulated markets always going to be more expensive convenience. I can get the products I like more on the unregulated side. I won't read these all out, but you can see the major drivers of consumer preference. I mentioned that we're in competition with the Alissa market. We are also in competition with intoxicating hemp market. I'm going to go through this quickly because it's complicated and it causes usually leads to more questions than I can even answer. But 2018, there was a desire to grow hemp for non intoxicating purposes for no seed oil, hemp creeds and CBD. And so the federal government responded by creating a legal fiction between hemp and marijuana, which is the same plant. Just based upon that distinction is based upon the number, the amount of THC is in the plant. Hemp is supposed to have virtually no THC in it. Marijuana schedule uncontrolled substance can have any amount of THC in it, but you know, it's if it's below a certain level, which was meant to be virtually zero, then it's not on the control subs exact at all. It's not scheduled, it's legalized, any agricultural. But I think what we saw since 2018 is that the market for hemp was not as large as the hemp growers thought it was. And we're seeing people try and poke holes in that definition of hemp to create products that claim to be hemp, but are really just marijuana cannabis products. This is so I mentioned that the definition of hemp was based upon 0.3% THC in the flour That makes sense for flour. But when you start converting that same ratio to cannabis products, all you have to do is increase the weight of the product and you can pump in more and more THC, hemp derived THC, and it is theoretically compliant with that ratio. So this is a three hundred milligram chocolate bar. You can see if you look down a little bit, it's one hundred and fifty milligrams delta nine THC and one hundred and fifty milligrams of CBD. This product even if it was grown by a cannabis cultivator and made by a cannabis manufacturer in the adult use system would be illegal to sell here because we have a one hundred milligram per package limit. But these are being produced and sold online shipped into the state, none of our packaging labeling testing requirements, theoretically apply. These are untaxed products. You know, people that make these things claim that they're no cannabis. This is another one, this is a little bit complicated, but THCA is a precursor to THC, the definition of hemp focused only on Delta nine THC. So it didn't say anything about THC. But when you burn THC, it converts into Delta nine THC. So this for all intents and purposes is just a cannabis joint that's masquerading as a joint because they're only looking at the ThCA. And as you can see, it just says on it, US Farm Bill compliant, shipped through the mail sell the kids, you know, no, no testing, no taxing. And then the last one, the derivatives loophole, if you recall, the definition said all parts of the plant, including derivatives, extracts, are hemp. So you can create delta eight delta ten, you can create other intoxicating cannabinoids by processing CBD in a lab, hitting it with a high hydrochloric acid and converting it into intoxicating cannabinoids. That's happening, people are taking CBD and converting it and then claiming that it's a derivative. So it's hemp, it's not cannabis. And major companies have gotten in on this, we got Willie Nelson, Snoop Dogg, Seth Rugent, Cheaching Chong, edible arrangements, sells intoxicating hemp products. Arrangements got in the game. I put all of these up here, again, because every single one of these products, I could have chosen, but there's a million products, choose from. But every single one of these would be illegal in a Vermont regulated dispensary because they exceed our per serving limits or per package limits. And these are the reputable companies, frankly, these are the people that very likely are testing their products and are cGMP certified where they're producing them. But there's a whole lit laundry list of, like the bad products that are intentionally trying to copycat popular food stuffs, they're intentionally trying to mimic popular candies be appealing to youth. And, you know, skills one thousand milligrams of THC in a package. You know, we still use five hundred milligrams of THC, these just we wouldn't even, you know, not just because of the per package limits, we just don't have any product that could be confused for a non cannabis product in the adult use market. So in the two agencies, the DEA and the FDA that are supposed to be policing this have essentially thrown up their hands and said, we can't, can't rein this in.

[Matthew Birong (Chair)]: Revenue just

[Unidentified committee member]: AI is worth just wondering, does the state police and the CCB have the ability to enforce when that kind of thing comes into the state? I assume there's resource

[James Pepper (Chair, Cannabis Control Board)]: challenges. Yes. Theoretically, yes. In practical application, no. I mean, direct to consumer online sales are nearly impossible to police. And certainly, the less reputable companies just don't care about cease and desist letters. The more reputable ones, Snoop Doggs, Cheech and Chawms, if we sent them a cease and desist letter, they would almost certainly not deliver it to Vermont. But with these types of products, impossible. And then you just think about our local law enforcement willing to even waste their time figuring out what these products are. Are they illegal or not? And then referring it to a state's attorney to prosecute. It's just just probably not going to happen. So those are the market challenges. There are structural challenges. Be quick. I know time is short. But obviously, compliance is a major factor that drives when a business relinquishes their license, we interview them, and they talk about the reasons why they weren't successful. And it almost always comes down to expensive regulation, seed to sale tracking testing is very expensive. Banking and finance, because these are considered federally illegal businesses. These companies don't have access to traditional banking or insurance companies and they just extraordinary fees and premiums to get even very basic services. There's no very minimal small business support. You guys created a state run using state money cannabis business development fund that offers technical assistance to a certain small class of our licensees, that's pretty much all they have access to as far as business assistance or revolving loans or anything along those lines. And then 280E of the tax code says somewhat of a unique history. There is a drug trafficker convicted in 1981 And after his conviction, he went to tax court and was successfully argued that all of the kind of all of his guns and private security and scales and everything that enabled him to be a drug trafficker where he could write those off on his federal tax returns. And the court actually agreed with him. And Congress, the very next year, quickly passed this section of the tax code, which just says if you're trafficking in a schedule one or schedule two controlled substance, you cannot write off your business expenses on your federal tax returns, which makes sense, except when you think about the practical implication of this for a cannabis versus a non cannabis business, you look at the line. So you have 2,000,000 in revenue, gross profit of 1.4 after the cost of goods sold. Salary, rent, insurance on a non cannabis business would be written off and your income would be taxed on your income of 200,000 here. For a cannabis business, your income is this number right here. And so you're actually in this scenario losing money after you pay your taxes if you have $2,000,000 in sales. So it's just really important to kind of, I don't know how many cannabis businesses really understood the implications of this when they got into it, but it is very challenging to be successful because of this. So this is just a number last year license relinquishments, we've had 70 people that relinquished their licenses, so went out of business last year for various reasons. I wanted to touch briefly on some of the federal developments. This will be brief. I think, you know, made some headlines back in December when the President issued an executive order directing his attorney general to reschedule cannabis, move it from schedule one to schedule three. That has not happened yet. I should say where a substance falls on the schedule of the Controlled Substance Act is purely administrative rule making decision as is the Department of Justice. So the Biden administration actually started this process to move it from schedule one to schedule three. They had a rule file that was in the public comment period. And then when the new administration came in, they just put a pause on it. In December, President Trump asked the Attorney General to restart that process. So what does this mean if it is to happen? Well, the big thing is we eliminate that 280E because that only applies to schedule one and schedule two controlled substances. So that kind of that tax scenario would immediately flip in favor of it would make cannabis businesses more traditional small businesses on the federal tax side. Theoretically, we'll see what the DEA says, but if it was Schedule III, it should be theoretically a lot easier to possess cannabis at federally funded research institutes for the purposes of doing research on cannabis. What it does not do, this is where we get a lot of confusion here, lot of confusion does not immediately mean that adult use consumers will need a prescription in order to access cannabis products. The FDA was schedule one or schedule three will consider all of the products that are in cannabis retail establishment to be illegal anyway. So it's not this isn't you need to go to a pharmacy to get cannabis, know, you don't need a prescription to get that kind of adult use products. It does not change anything with respect to insurance or banking, and that is governed by a whole different set of guidelines at the Treasury. So changing from Schedule one to Schedule three will probably signal to FDIC insured banks that they should start dealing in cannabis business leads, but it could probably lower their apprehension about it. But that move along doesn't direct them to start banking cannabis money. I mentioned the intoxicating hemp products in a shock to I think everyone both in the hemp worlds and the cannabis worlds, the bill that reopened the federal government back in November actually systematically shut down all three of those loopholes that I discussed that are allowing the proliferation of intoxicating hemp products. It it left the 0.3, but it also took said we're looking at total THC concentration, including THC. It said there's a now going to be a per container limit for THC. So those hundred milligram bars of chocolate, the entire package now can only contain zero point four milligrams THC. So that really just shuts down all of those products that I was showing earlier. And then it closes the synthetic loophole, the derivatives loophole. But they put a year delay on the effective date of this. And this is a $28,000,000,000 industry that intoxicating hemp, which means that there's going to be a strong pressure, lobbying pressure to either delay this further, the implementation this further, or to change it. And so we just don't know what's going to happen between now and November 12. And then I'm just going to give a quick summary of this. No more detail than this. But Act two seventy eight is a bill that is in this committee now to pass pass the Senate on a voice vote. In the key provisions of it, there's a there's a few technical aspects to it. The tax department asked for a little bit of cleanup. We've asked for a little bit of cleanup to existing statutes, but they're non substantive changes. But the key provisions that are substantive are it increases that per package limit in cannabis products currently set at one hundred milligrams per package. This increases proposes to increase it to two hundred milligrams per package. It also proposes to increase the per transaction purchase limits. So currently the person walking into a cannabis store can only purchase one ounce of cannabis flower. The S278 proposes to raise that to two ounces. It creates a pilot program, a two year pilot around cannabis events and a delivery pilot permit. You guys looked the language for the events will look similar to what you this committee looked at last year, but with a few changes. It proposes to reduce the outdoor cultivation fees by half, And there's a provision that expands municipal authority over certain cannabis establishments. You guys will see that and deal with it however you want. Expands access to the business support. The cannabis business development fund is exclusively for social equity applicants. The bill proposes to expand that to include the economic empowerment candidates and all tier one cultivators. It authorizes the governor to negotiate and execute interstate commerce contacts. So we've seen three states now adopt an authorization that under certain circumstances, their governor can negotiate with another state to allow interstate commerce products under certain circumstances between those two states. And it's really about what sort of health and safety requirements are required from products that are coming into the state from foreign state. What who's collecting taxes? What do do about product recalls? The language doesn't go into effect unless one of four triggers happens. So it's not an immediate ability to do this. It would be if there's a change in federal legalization, if the DEA D schedules cannabis completely, the Department of Justice. If there's a new cold memorandum, for instance, the Department of Justice comes out with a guidance document that says, we're going to deprioritize the interstate commerce of cannabis products among legal states, which is they've done, which is currently why we're allowed to have a cannabis market at all is because of guidance from the Department of Justice. Or if Vermont Attorney General has an opinion, releases an advisory opinion saying that interstate commerce between two legal states is okay. So there's four ways to trigger this. Now it just allow us to negotiate probably just regionally with our New England states how we're going to allow across the states. And then the last thing that the bill does is it prohibits landlords from prohibiting the use of cannabis products, not smokable products, but just like edibles and things in research. That's it. Anyone has any questions, I'll stop sharing my screen.

[Matthew Birong (Chair)]: No, it's good. No, I just want to be conscious of time and before the opportunity for JFL. I just want to say for myself, as a member who's owned multiple businesses over the course of time, the portion with taxes and the issues with the the deduct expenses really resonated. I think that's like a modern example of an old adage, Like, don't hate the player, hate the game.

[James Pepper (Chair, Cannabis Control Board)]: And you guys, I should say the previous the Act 164, which created the board did fix the two eighty problem for state taxes. Can't do much about the federal tax situation until it's released. Yep.

[Matthew Birong (Chair)]: And that's a big impact on your year end operating balance sheet. Okay. Thank you, sir.

[James Pepper (Chair, Cannabis Control Board)]: Thank you.

[Matthew Birong (Chair)]: How are you? All right. Good to see you. We don't get to have you in here often. So this is my first time this session. This session? Absolutely. Session. Yeah. Have we seen you in here since we

[Ted Barnett (Joint Fiscal Office)]: were living in Room 10? That feels like the universe go. I think I was here maybe once or twice. Okay. I'll hook him back. Thank you. I'm gonna hope there is a way to

[Matthew Birong (Chair)]: plug in. So I'm running along. Right back there. We gotta

[Unidentified committee member]: And then Right here.

[Matthew Birong (Chair)]: We gotta Or right here. Ray Ray, in front of you, Ted.

[James Pepper (Chair, Cannabis Control Board)]: Right here.

[Matthew Birong (Chair)]: You want us just behind the placard.

[Ted Barnett (Joint Fiscal Office)]: Yeah. I would I guarantee you. Oh, yeah. There it is. That's fine. I would I would have been the one who tripped.

[James Pepper (Chair, Cannabis Control Board)]: That was that.

[Ted Barnett (Joint Fiscal Office)]: Yes. I JFO generally doesn't do slapstick, but on request. Open mic night. Yeah, exactly. Ted Barnett, joint fiscal office. Good to see you all. I absolutely cannot compete with dog treats and Funyuns and etcetera, and instead going to talk about taxes, which hopefully are at least a bit interesting. So I'm going to talk about both the cannabis sales and excise tax and where those taxes are allocated and broad level how much we're bringing in. Pepper shared some of that information, Chair Pepper. And so, yeah, I'm going to provide a little more context. Very high level, there are two taxes on the retail sale of cannabis. One is the 14% cannabis excise tax, the other is the 6% sales tax, the general state sales tax. Important point of nuance, the 1% local option sales tax does apply to cannabis sales. And so within the local option tax structure, municipalities that have a local option tax are receiving some revenue from cannabis sales that happen within their municipalities if they have a local option tax and have opted in to the adult use market. And so the total combined rate between those two taxes, they don't have a local option tax, is 20% on the sale of retail cannabis. On this slide, I provided two other examples of how states tax cannabis. Other states place schedule of tax rates depending on THC content. That's the example here in Connecticut. I won't go line by line. And then Maine has, in addition to their retail excise and sales taxes, they have an excise tax on essentially plants, plant parts or seedlings. And those are in various rates. One small point of more wonky tax nuance is generally when you hear the term excise tax, it refers to a tax on wholesale at the wholesale level. Are, even though it's called a cannabis excise tax in Vermont, it applies at the retail level. So some folks will get stuck on that little piece of nuance. But yes, even though it's an excise tax in Vermont, it applies on retail transactions. Very broad level, so showing the trajectory of collections in both the sales and excise tax. Starting in the early parts of the market, we saw cannabis market ramp up. And in fiscal year twenty six, the consensus revenue forecast for January has the excise tax at $22,600,000 The sales tax estimate here is simply inflating that excise tax estimate and then applying 6% to it. And so with $22,600,000 in expected excise taxes, that backs into an estimate of $9,700,000 in sales tax. About 80 Vermont municipalities have opted into the market. So I think my next slide, yes, talks about this. You'll see that the projections are within the same ballpark, pretty much as far as the legislative and executive branch economists see it when they're doing the consensus revenue forecasts, we're seeing that the market is pretty much at maturity. Tax revenue collections are largely going to grow, all else equal, if we maintain this trajectory that we're on, along with some sort of inflation with sale prices rather than large changes in the base. So yes, initially, we were seeing month over month consistent increases in tax revenue collections. This was as more municipalities opted into the market, more retailers started selling cannabis products across the state. And you'll see a little bit, Cheap Pepper referenced the oscillations and correlated, might see a little bit more in the summer, see a little bit more during ski season, right after tourism seasons. There's certainly a correlation there. Other committees have, when I've done this presentation, asked about the spike in August. I think that's just the data source we're using. It's kind of the first draft of tax revenue collections, and so it might just be where that's portion. It's not really August was a super special month. When that nets out and you true up in the fiscal year, all the revenue sources light up. But it's probably a little bit of a noise rather than a signal. Yes, and to the point that excise tax or tax revenue collection overall will be more steady as she goes, the January 26 revenue forecast estimated that cannabis excise tax revenues would grow by 4.3, 3.2% in fiscal years 2829. The excise tax has two allocations. 70% goes to the general fund, 30% to the substance use prevention fund administered by the Department of Health. This table shows the split between the general fund and revenues that are going to the substance misuse prevention fund. So from $22,600,000 the general fund receives 15.8. Substance misuse prevention fund receives almost $6,800,000 In fiscal '27, the current budget year, it increases slightly. General fund receives 16.5. Substance misuse prevention, almost $7,100,000 So this structure where it's a clean split between general fund and excise substance misuse prevention, there's been a whole epic narrative arc in how tax revenues were allocated. I don't necessarily need to go through history unless you all want to get into the nitty gritty details. The current system is pretty straightforward of the excise tax revenue. You get 70% general funds, 30% misuse prevention fund. The cannabis sales tax flows to the Universal Afterschool and Summer Special Fund created Act 87 of '24. This is the Budget Adjustment Act. Previous sales tax revenue went into the Education Fund. The Special Fund was created because there is a part of statute around the education fund. The education fund dollars have to be essentially distributed to folks within the public education system. And so this after school money was intended to go to maybe a nonprofit, maybe an after school center that's outside of the public school system. And so this special fund was created to give that sales tax revenue from cannabis a place to go. This, a small point, know Kirby and I talked a little bit about this, small point of, so this cannabis sales tax applies to the sale of cannabis and cannabis products. If you were buying something else that isn't specifically cannabis at an adult use retailer, those supplies or things that aren't directly cannabis would go to the education fund. The sales tax from the sales of the product would go to the education fund along with the rest of the sales tax. The agency of education takes money that goes into the after school and summer special funds. They administer a grant program. And this will be, I think you all will hear S-two 32, which is We'll probably hear a lot more about this in the context of that bill, but Agency of Education, as they essentially have a certain cohort of awardees, and they give that specific cohort funding for multiple fiscal years. So if they're a program, they receive funding for three point five years, centers receive funding for five years, and the cohort for fiscal year twenty five received $2,500,000 As you add additional cohorts that receive funding for multiple years, you scale up the amount of grant funding that is awarded. And so you'll remember from our slide on the sales tax, they're receiving about almost $10,000,000 around $10,000,000 year over year. And so by stacking cohorts with multiple grant years of awards, that'll get distributions out of the fund to the full scale of revenue that's coming in. And I would defer that is the full extent I know about the grant program at AOE. If you all have questions about it, certainly defer to the agency to talk about their program. Finally, there is various fees on cultivators, manufacturers, retailers. There are different tiers for these fees. And so in total, revenue is $2,500,000. There is consistently so the overall goal of this slide is to go a bit into the A lot of folks say they imagine that fee revenue is intended to fully cover the expenses of the board. However, the control board, their budget request is $7,100,000 They have a lot of work to do to regulate the adult use market. There were policy decisions to ensure that both, that the fee structure rather than fully funding the cost of running the board would be set up to advantage smaller cultivators and folks in the market. And so it was essentially a policy choice. Generally, when we talk about fees within the context of the control board, folks are like, Oh, wait, wasn't this intended to cover the expenses of the board? What happened? But I would say there are policy choices in the intervening years that meant that the current fee structure, unless you increase fees pretty substantially, wouldn't meet the amount of expenses at the control board. That's kind of it in terms of a general overview. There are two resources from JFO that provide additional context on revenue or, generally speaking, taxes on cannabis. One, this is a new document type of JFO, super exciting, called Fast Facts, two pages or less on various subjects. We have five, one of which is on cannabis tax revenues. The second is we do have on our website, we post a monthly revenue tracker. So if you're ever wondering in the future or right now, month by month, how revenues are doing, how they compare to the previous fiscal year, you can take a look at that tracker. And so if you click on these links, it would bring you to that document. And so I can pull at least the revenue tracker up. So yes, it's a more granular view of how tax revenue collections are doing. So you're more than welcome to check that out if you would like. Thank you so much, Ted. Yep.

[Matthew Birong (Chair)]: Exactly what we were looking for is sort of just like a a primer for the pending work pending work we have on the bill. So really appreciate that. Any questions for JFO? I love the two resources as well. That's a great tool to have. So, appreciate it. And I would like to take a second to defer back to Chair Pepper for a moment before we close, before lunch.

[James Pepper (Chair, Cannabis Control Board)]: My apologies. This is just a really brief thing. I forgot, to introduce my other board members in the room, Julie Mulvert. She's one of the inaugural board members of the Cannabis Control Board and our general counsel, Dave Gilman. They were up and pulled in many different directions. And they are probably going to be covering for me a few different times throughout the year. I want to make sure you guys put a face to an aim. All right.

[Matthew Birong (Chair)]: Thank you. Yes. Look forward to working with both of you more as we go. Deep into that senate bill they sent us. So, with that committee, we will be back at 2PM to take another slug of witness testimony on s two five five. And until that time, enjoy your lunch.