Vermont’s Cannabis Market Overview

While not the first state to legalize adult-use marijuana – that honor is shared by Washington and Colorado – Vermont was the first state to do so via the state legislature in 2018 (H511). Previously this had always been achieved via ballot measure, and while legalization through state or territorial legislature is no longer uncommon (most recently Rhode Island in May 2022), it was noteworthy at the time. Yet oddly enough, adult-use marijuana sales are not slated to begin until the end of 2022 at the earliest, and the only legally-operating marijuana businesses in the state are the five vertically-integrated medical dispensaries that have operated seven locations across the state following the legalization of medical marijuana in 2004 (SB76). This is because passing the law (or statute) is only the first step, which is followed by the publishing of the rules and regulations that dictate the day-to-day operations of the program. There is always some delay between legalization and the publishing of regulations, but never before has it been to the extent seen in Vermont. That left Vermonters in a paradoxical situation where they could possess, consume, and even grow their own marijuana plants for personal use, but there was nowhere in the state where adult-use marijuana could be legally purchased.

Finally, with the publication of regulations (Act 164) in 2020, the Vermont Cannabis Control Board started accepting applications for adult-use marijuana licenses in April 2022, and by the end of June the state had issued around 40 to cultivators and testing laboratories. As most states have done, Vermont made the decision to stagger the issuance of licenses in the logical order of how products will eventually make it to store shelves with those for manufacturing and wholesale opening up in July and those for retail (is.e. adult-use dispensaries) in September. The first retail licenses are set to be issued in October, at which point the state’s cannabis supply chain will be up and running, ready to provide marijuana products to Vermonters that have essentially waited four years to be able to legally buy something locally that they’ve long had the right to possess and consume.

That pent up demand, both on the part of consumers and cannabis entrepreneurs, has analysts bullish about the growth of the Vermont adult-use market. While the number of medical licenses available is limited by the number of patients registered in the program, (a new license won’t be available until that number hits 7,000) there is no such cap imposed on adult-use. Although the licensing process has just begun, if the number of applicants that have already submitted their business and operational information for “pre-qualification” is any indication — 546 as of June — then it looks like Vermont is primed for explosive growth. In a report from October 2021, the Cannabis Control Board estimated that adult-use sales in 2023 will exceed $103 million in contrast to an estimated $14 million for medical. By 2026 they estimate that gap will grow exponentially with the adult-use market generating over $200 million in sales, while medical sales will slowly fall down to $12.5 million that year. This may seem small compared to first year adult-use sales in neighboring Massachusetts, ($393.7 million), but it is also worth noting that the population of Vermont is approximately 9% of that in Massachusetts. Massachusetts was the “only game in town” for adult-use sales at that time, drawing in consumers from Vermont and other neighboring states.

This market opportunity will impact financial institutions in the state even before licenses are issued, as entrepreneurs need banking services even before they submit them for a few key reasons. First, the expensive application fees (as high as $75,000 for a large-scale indoor cultivation license) can’t be paid for in cash, only check or money order. Further, because of extensive documentary requirements, applicants often retain the services of consultants, lawyers, and/or accounting professionals to ensure the best chance of success. Accordingly, while there are risks associated with banking these pre-licensed accounts (aka seedling accounts), the benefit can easily outweigh the risk.  Financial institutions interested in banking this industry should act now and not wait for all of the licenses to be issued because by the time they’re licensed many cannabis businesses have secured access to financial services.  It can be difficult to get cannabis businesses to switch institutions, so establishing relationships with pre-licensed businesses is critical. The choice to offer seedling accounts is a competitive advantage that can position institutions  to serve an industry poised to aggressively grow in 2023 and beyond.