Legal Cannabis Grows Legal Loopholes, as well as Profits

by Mike Dunphy

Marijuana advocates had much to cheer on July 1, when Act 86 come into force, eliminating “all penalties for possession of one ounce or less of marijuana and two mature and four immature marijuana plants for a person who is 21 years of age.” Entrepreneurs may have even more to celebrate, as the legalization opens up new avenues of business and exploding profits, even in a non-taxed and regulated system.

While Act 86 does detail acceptable quantities of marijuana and hashish and lays out penalties for infractions, it also creates a virtual Wild West in Vermont, thanks to enormous gray areas left by the law, at least until the next legislative session either clarifies existing language or replaces it with a comprehensive tax-and-regulate system. Until then, a growing number of entrepreneurial weed-slingers are busy lassoing loopholes and major profits. 

“What we’ve seen in the last two months is an absolute explosion,” says attorney Timothy Fair, owner/founder of Vermont Cannabis Solutions, the state’s first law practice devoted to cannabis. “My original business plan back in 2016 [when it opened] was signing six to twelve clients, and that was wildly optimistic. I’ve now got over 24 clients signed and another two dozen just waiting.”

A similar refrain comes from Matt Leonetti, co-owner of HomeGrown Consulting—“a firm of highly educated and experienced master cannabis growers, contractors, and medical professionals blending their dedication and talents to bring you the best skill set for indoor cannabis growing”—who notes that his phone has been “ringing off the hook.”

So too is business booming for Kelsy Raap, general manager of Green State Gardener, which sells growing equipment and seeks to “empower our customers to grow, process,  and use their own plant-based medicines by providing the best tools, materials, kits, and expert advice.” As soon as the law passed in January, she notes, “We saw an evident uptick in interest and inquiries, and in the last couple months, our overall sales, month over month, have just about tripled. And that’s only increasing from what I can see right now.”

One of the fascinating aspects of it all, Raap points out, is who the customers are. “You’d think maybe it would be the younger college students or young adults who would be more into it, but, in fact, our fastest growing demographic is 55–75 year-olds, who are coming in and getting themselves set up.” Leonetti sees a similar trend.  “The vast majority of people who I speak with,” he explains, “are probably aged 50 to 65. I would say it’s a much older demographic than I had anticipated.”

There are many reasons for this, according to Leonetti. “Most of them said they were children of the ’60s and ’70s. This was something they had done when they were younger. Others say, ‘I just want to because I can, and the law says I can.’ Or ‘I don’t care to smoke it; I’m just going to give it away.’ Some people just want to juice the leaves and the rest of the plant is junk for them. Some people just think it’s a neat looking plant and a flower. So it’s a very diverse range of reasons.”

Property also plays a role, thinks Raap. “To be legal in Vermont, you have to grow it on property that you own or have expressed permission from the land owner. So all those folks who say, ‘I own my house, my kids are out, I’m retired or working less, got some time on my hands, and looking for a hobby that’s both recreationally fun and has therapeutic value.’”

Cost is undoubtedly a factor, too, as creating a proper grow room is not cheap, and most definitely out of the budget of most younger people. “For a full build, you are looking at close to $2,700,” Leonetti says, at least if you want to do it right. “I have a carpenter and a master electrician who will make sure everything is fully legit because we don’t want someone’s house burning down.” Raap agrees. “To put together a kit that we would consider high-quality equipment that will give you good results and be appropriate for Vermont’s limit of two flowering plants, you are looking about $1,100 to $1,200 for everything.”

Playing a large role in this new economy is a “gifting” loophole, which seeks to remedy a significant problem with Act 86. “If a commercial market is illegal,” Fair points out, “how then does someone who wants to grow get the seeds or plant cuttings to do so?” The answer is to simply “give” the marijuana, seeds, or plant cuttings, and then charge for other services, be it consulting, equipment, or other.

This system is nothing new in the world of legal cannabis in the United States. Indeed, that’s what’s happening now in Washington, DC, and Maine, Fair notes, where cannabis dispensers are sometimes charging $100 for a Snickers bar and then giving the marijuana as a freebie. “This is what happens when there’s only a half measure and you legalize without a mechanism for a tax-and-regulate system; you get entrepreneurial ingenuity. I fully anticipate seeing $50 t-shirts and $50 massages that include a free gift of cannabis.”

To be clear, Act 86 does not expressly allow this, but it does not prohibit it either. “The “gifting” loophole is created by an omission in the current statutory framework. The law specifically prohibits the sale of cannabis in any quantity, and the penalties for breaking that law are based on the quantity involved. But when it comes to giving away without compensation, it fits into the possession framework, which allows up to an ounce.

Nor is this approach without precedent in Vermont. In the 1990s, tattoo artists in Vermont effectively did the same thing, by providing the tattoo for free while charging for ink, design, and other elements, thereby getting around the prohibition at the time. The result was a repeal of the previous law and the establishment of a new one.

Experienced growers can also take advantage of another loophole regarding the two flowering plants allowed by Act 86 with techniques such as “air layering,” a method of growing new plants, with roots and all, from stems still attached to the parent plant. “That would keep your numbers completely compliant even though you could potentially have tens, or possibly a hundred, depending on the size of the plant,” Leonetti explains. “You could easily snip off those that are fully rooted and that wouldn’t constitute an additional number to your system. So I think some interesting propagation techniques can get around those numbers in a sense.”

Although people may be complying with the letter of the law, as it stands now, Raap doesn’t think people should feel 100 percent comfortable. “There is a lot of room for interpretation, but there’s also a lot of room for the state to try to prosecute if they feel like people are abusing the loopholes.” Legal crackdowns may also vary throughout the state, because each county essentially has its own state’s attorney, each with differing interpretations of the law. So what might fly in Burlington may not in Bennington.

For Fair, Raap, and Leonetti, the solution to these issues is a tax-and-regulate system. “I really hope the legislature does pass one,” says Rapp, “so we can be more helpful to customers who are wondering what they are allowed to do. Until that time, our best recommendation to those who want to grow but don’t know how to legally obtain the genetics is to make friends with growers. There’s nothing stopping us from sharing genetics amongst ourselves.”

For Leonetti, the tax-and-regulate model would also address both the quality of the material and control of the existing hemp, CBD, and medical market. “I would absolutely prefer tax and regulate,” he says. “We have the loosest hemp regulations in the entire country, and a lot of people’s products are not even testing remotely to what’s on their label.”

He also hopes a tax-and-regulate bill will help address issues with the current medical marijuana distribution system in Vermont. “I think the current dispensary owners have a monopoly as it is. They should not be the ones who have everything sold through them. This is a brand new industry, everyone wants to get involved, and all ships should rise together.”

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