Just a few months ago, Andrew Subin and Tim Fair, Burlington attorneys who specialize in the cannabis industry, were juggling telephone calls from growers and processors, looking forward to the day that the Legislature would pass a bill legalizing a commercial trade in adult-use cannabis.
“Pre-Covid, on March 3, we had a conference committee ready to go on S.54,” said Fair, referring to the bill that has passed the Vermont House and Senate. “We were at the finish line for the first time in five years; we were starting to scout locations for adult use dispensaries, and we were really getting excited about the possibility that this could happen.”
The two were planning to attend and speak at an array of industry conferences and were working with entrepreneurs planning to grow cannabis, the plant that in various forms is used to make hemp products; to make cannabidiol, or CBD; or to make the product that contains psychoactive ingredients, popularly known as marijuana.
Post-Covid, things aren’t nearly as dynamic at Vermont Cannabis Solutions, the firm that Fair started in 2017. Fair spends a lot of time these days going for walks with his fiancé, writing a blog, listening to music and watching TV. Subin is building a treehouse, playing his guitar, and working for the Pennywise Foundation, where he serves on the board.
“We have signed a handful of clients, a small fraction of what we would have done (without the Covid-19 pandemic), and we’ve managed to keep our heads above water,” said Fair. “But yeah, I have a lot of spare time.”
A massive build up, and then a big crash
It’s been clear since last fall that this year’s cannabis-growing season wasn’t going to be as active as last year’s, when nearly a thousand people paid $25 to register with the Agency of Agriculture to grow cannabis to process into CBD. After the federal government redefined hemp as a regular agricultural commodity in 2018, new growers surged into the market, eager to cash in on the interest in CBD, one of the many compounds in the hemp plant thought to have health-giving properties.
The number of Vermont growers doubled from 2018 to 2019. Food and personal products manufacturers were adding CBD to hundreds of products for humans and pets.
But a wet spring, lower-than-hoped-for demand, and processing problems put a damper on the season, and many growers in Vermont last fall ended up leaving plants standing in the field because it didn’t make financial sense to process them. Meanwhile, prices for CBD have been dropping nationally since last year.
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This year, some of the newcomers have been weeded out of the field, said Subin, who has been processing hemp applications – most for under 5 acres – over the last few weeks.
The two attribute that to the general uncertainty generated by the Covid-19 pandemic; to new Vermont registration fees that run as high as $1,500 and average $500 per grower; and to last year’s gold rush mentality, which led to a lot of people losing money.
“My impression from the calls we’ve been getting: No out-of-staters, and we’re not seeing the, ‘I’m going to give this a try, let me throw down $25,’ like throwing craps on the table at Vegas,” said Fair. “We are not seeing as many new people. The clients tend to be growers who have done it once or twice or three times.”
Vermont businesses are reopening this month after the state closed them in March to suppress the spread of Covid-19. But there’s fear a second wave of infections could hit in the fall, when it’s time to hire people to harvest and process the plant, Fair said.
“That uncertainty and that fear has changed the equation for people, especially people who might have been getting into this for the first time,” Fair said. “Honestly, a lot of people are staying home.”
Heather Darby, the UVM agronomist who advises many new and experienced cannabis growers who are hoping to sell the plant for CBD production, said she has spoken to a few first-time growers this year, but in general her call traffic is way down, allowing her to focus on more humdrum crops, like soybeans.
“There’s still action, but certainly not the same sort of feverish intent that we saw last year,” said Darby, who expects many people to start getting their seedlings out of the greenhouse at the end of May to plant in the fields.
Other states like Colorado, Montana and Oregon have also seen hemp acreage drop this year, according to hempbenchmarks.com, a business publication focused on the cannabis industry. Covid-19 and the cooling market for products such as CBD were seen as the main reasons for the slowdown.
Darby said she knows there’s still a large contingent of farmers in the Northeast Kingdom planning to grow the plant this spring. And some of the processing bottleneck that stymied growers last year is expected to slowly ease with the arrival of new processing businesses, said Darby.
But in general, the businesses that make, promote and sell CBD products have been shut down by the Covid-19 crisis, and are just starting to reopen, Darby said. That suppresses demand.
“The whole Covid-19 thing is bringing a lot of uncertainty to the marketplace,” she said.
Dillon Robinson, chief operations officer at one of Vermont’s largest cannabis companies, Northeast Hemp Commodities, expects to grow about 180 acres of the plant this year, about the same as last year. The Middlebury company, which has 60,000 square feet of warehouse for drying and 15,000 square feet of greenhouse space, sells the cannabinoid CBG.
The partners, four of whom graduated from Middlebury High School together, started 50,000 seeds this year and are in it for the long haul, said Robinson, adding that the price for CBG is a little higher now than for CBD, which helps.
“It’s a struggle for us, but this is what we are passionate about, and we can’t just back down from a challenge,” he said. “We’re working on our weak points and solidifying other aspects of our company to try to be sustainable even as prices drop.”
Two lines of business grow from cannabis
The legalization of psychoactive cannabis – known as “tax and regulate” in Vermont – is one area of business for Fair and Subin; growing the plant for the production of CBD and other cannabinoids, such as CBG, is another.
The Vermont House and Senate have approved a bill that would establish a legal market for marijuana in Vermont and clear the way for dispensaries to open up shop in the state as soon as 2022. The bill mandates a 20% tax, gives a head-start on retail sales to current medical marijuana dispensaries and allows saliva testing for drivers who are suspected to be impaired. Gov. Phil Scott has said he could support the legislation as long as it also includes investments in roadway safety and initiatives to educate youth about drug use.
Marijuana has been legal to possess and grow in small quantities since 2018, but sale of the drug has remained illegal in Vermont. Proponents of legalizing commercial sales say it would suppress the black market in marijuana. Marijuana users say the illegal trade is booming; people are giving it away.
“There’s a huge supply of black market-grown cannabis; delivery services are thriving,” Fair said. “People want to smoke weed. If you’re stuck at home, it’s better to smoke weed than to drink.”
If Vermont had legalized marijuana already, that trade could be taxed and serve as a revenue source, said Fair.
“We don’t know what is happening with S54. The excitement about a legal market has died down quite a bit,” Fair said. “And that’s unfortunate, because the more entrenched the black market gets, the more difficult it’s going to be to transition to a legal marketplace.”
About 20 Northeast Kingdom farmers worked together last year to combine their selling power. Now, that group is down to eight or nine, said Eric Paris of Tamarlane Farm in Lyndonville, who grew 30 acres last year and plans to do the same this year.
“We all know no one is going to get rich doing this,” he said. “It’s an agricultural enterprise. Nobody gets rich milking cows or making maple syrup or growing any crop I’m aware of.” But with the right marketing, the right input costs, and the right luck, the business, like any other, can make money, Paris said.
“Any business can survive or fail,” he said. “I see our situation as a positive cash flow situation.”
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