 Hi, good afternoon. This is the record Michelle Childs Office of Legislative Council, and I have my new co-worker, Anthea Bestwood-P Cooper, who is working with Peter and Becky, the new kind of money team for Legislative Council. So she has been working on the taxes and still somewhat on the fees on this. And so she's the new person, but she's the expert on the cannabis taxes. Peter. As informed, we are in the area of the bill. Yes, absolutely. So I feel better having you working right next to me. So you should have, I think, a copy of the bills introduced for S54. You'll also have, I think, two other documents that they put in there for you. One is kind of a brief section by section summary of the bill, and then there's also a timeline. So I'm just going to talk a very big picture to give you the context so you can go in and start to talk about the fees and the taxes in here so you can have some context. So I know there's several of you on this committee who have been here through some of the other tax and regular proposals that's been around, kicking around the Senate for at least four years that y'all have passed something annually on this. So a lot of it would sound familiar. One of the major differences with regard to prior bills is that instead of, I think, before, the idea was to put it in one of the existing agencies and have them regulate it. So first proposals were in Department of Public Safety and in that transfer to Agency of Agriculture. One of the big differences with S54 is it envisions a new independent executive agency which would be the Board of Cannabis Control. And that would be, there would be appointments from the Senate, from the House, from the Governor, and from the Attorney General's office. And you'll see on the timeline here, we just go, we just combine the liquor and the lottery. It does not, no. And I think you'll hear this, Jada is here. So he'll talk to you about the commission's recommendation and that was something that Dave talked about, the idea of a board or commission that might be housed in liquor or lottery. This is independent, so it's not within an existing department or agency, it's a whole thing. And so they would get appointed during the summer and get rolling in the fall, hired executive director and administrative assistant. And so that's the staff, that would be the initial staff. And the idea for the sponsors, with the sponsors for this and starting out here is that you start out with the board and they start really all the regulatory round work for getting the program off the ground. So rulemaking. So rulemaking is gonna take at least 10 to 12 months. So that first year, it's really gonna just be the board and their two staff people. Something that is different now in this proposal than earlier when you had to think about the random report that came out. And there was a lot of data in the random report that the Senate used in Chapter 241 in trying to determine what your fees were gonna be for different types of licenses. So in this proposal, there's five different types of licenses for cannabis establishments. There's cultivators, wholesalers, product manufacturers, retailers, and testing laboratories. And so there's, and in the earlier proposals for like 241 is we had some data from the random report in order to do, for JFO and others to do some estimations on canopy size and how many people or regular users of cannabis, what might the market be looking for? But a lot's obviously changed since then. So when the random report came out, we didn't have any legal states around us. And we hadn't yet legalized marijuana here in Vermont. And so I mean, I think now that we have Massachusetts on our southern border, Maine is coming online soon. And then in every other new northeastern state, the governor has come out in support of a tax margillette system in the last state. So it looks as though the northeast is kind of going the way of the west coast. And so what does that mean for the market in terms of how much are you gonna sell? What are people looking for? If you can get it from the neighbors or literally from their neighbors because your neighbor can grow to mature plants and you can trade and you can share up to an ounce of cannabis between people 21 years of age or older, but you can also go to stores in Massachusetts now and you can bring it back to Vermont. So what the proposal does is has the, instead of setting the fees in here, is it has the executive director after kind of coming together with the board, trying to do some work and some estimation, pulling together the data, is that the ED will come before the next January, with a proposal for fees. And so I don't know if you want me to like show you specific language in here or just still talk kind of conceptually, what's your preference? I think kind of conceptually at this point is, this is just our first go-through and I think just to get a conceptual idea of what we're dealing with and then we can do it. I'm just gonna ask, so this committee wouldn't be looking to set fees then on its own until next year, okay? And they wouldn't be doing it. They would be coming to you and saying, this is what we think, you know, we think we're gonna either issue unlimited licenses in these particular categories or we're gonna issue 20 of these types. We're gonna have them tiered in this particular way with regard to cultivators. We think that we're gonna price them in this way. There's gonna be different types of fees, everything from application fees, which will be obviously the first fees coming in, but those still won't come in if you look at the timeline, because you have to wait and have them adopt the rules and then the fees that you guys would adopt next year upon recommendation of the board would go into effect in July 1st, 2020. And so your first fees wouldn't be coming in until fiscal year 2021. Was the fees established, be linked in any way to the estimated costs that might be incurred by the state? Yes, exactly. So do they have a process then of doing that? There is language in there and I think there's some stock language tying it to some language entitled 32Around. It's to, that the fees are to be, they're put into a special fund and they're to be used for the implementation and regulation of the program. But I know what you're talking about in terms of trying to track. Basically trying to calculate what the costs are gonna be, both in terms of software, manpower, and then in terms of determining the cost, is there any mechanism to say what categories would be looked at? For example, enforcement, education, health, prevention, whatever the cost may be, if those are. I don't think it's that detailed in this proposal about how they would do that, but I think that that was what was envisioned by the sponsors, which is why they decided at this point in this proposal, they didn't have the information that they would need in order to get the right fee set at this time in this draft, which is why they're saying, if you have this board come together, collect the information, they're the experts, then they would be better suited to come back to you in January and give you a more accurate estimation of what those fees should be to support the program. So, where was I? So different types of fees, everything from application fees to annual fees, and not only for the new cannabis establishments, but the draft proposes that eventually the medical registry, which is currently under the Department of Public Safety, as well as the dispensary program, that those shipped over from the Department of Public Safety to the Board of Cannabis January 1st in 2021. So once the board is up and fully running and they're in the process of accepting applications and starting to issue permits for the new cannabis establishments, then they would shift to the existing programs over so you'd have all of the regular, all of the cannabis regulations under 1-0. A full sale of the medical marijuana system. Because that's what I've heard through the grapevine that we were just doing the way with it and the cannabis board would be just regulated. They would be regulated, but probably with as much expertise as the Department of Public Safety has, but we aren't dismantling the whole pharmaceuticals. No, and there is language in here specifically that talks about the General Assembly's intent to maintain the medical registry in a dispensary program because the General Assembly finds value in having that in addition to a regulated retail market. But you have to imagine is that we have a lot of rules around the medical registry in terms of who can get on and qualifying conditions and what you have to do and how dispensaries are run. And a lot of things that are done currently in that system don't necessarily make sense alongside a retail system. So if anyone can go to a retail cannabis establishment and purchase an ounce of cannabis, then does it still make sense to make the patient jump through a bunch of hoops in order to do that and make an appointment and do the other things that they have to do under the current system? So there is language in the bill that adopts a new structure, statutory structure for the medical registry and for dispensaries and has the board adopt rules with it. So at the same time that they're adopting rules for the cannabis establishments, they're also doing it for the new medical registry and the dispensary. But the programs should be the goal is to be seamless and shifting over. Would you be selling all the same stuff in a cannabis store as opposed to a cannabis registry? There will probably be a lot of similarities. There's language in here that directs the board to be thinking about where it makes sense to have things the same and where maybe there should be some differences. There's also some statutory language in here that talks about things that dispensaries could do that a retail cannabis establishment couldn't do or a cannabis establishment. So under the proposal cannabis establishments you could have one of each of the five licenses but no more than that. But it doesn't, so you could be vertically integrated but you'd have to get one of each of the five licenses. Right now and the proposal would stay the same in 54 is you could continue to be vertically integrated under for a dispensary license. Also in here is dispensaries would be able to continue to deliver but retail cannabis establishments could not, the board can't allow dispensaries to offer different types of products to medical patients and their caregivers that might not be available on the retail market so it might have a higher THC content or it might be a type of product that normally or that the board wouldn't consider for the retail market. So the sponsors wanted to build in some advantages for dispensaries in order to provide an incentive for there to continue being dispensaries that serve the medical market. Yeah, because of human self-medication you just go to your retail stores and you'll see if that works. Right. You're into self-medication. Well this does allow someone who is a dispensary owner to apply for the retail or one of the other permits in the cannabis establishment as well so they could hold one of each. Yeah, do it. If you have a liquor license it has to be in a separate part of your grocery store. Right and there is language in here that talks about that the board is to establish or I rule some criteria for ensuring patient confidentiality or to think about maybe the special circumstances of maybe you have an elderly patient who's going for the first time and wants to have some counseling services around which products and things like that and doesn't necessarily want to be in the other half. I just remember the stories about the ladies with Robin that didn't want to go into the liquor store to get this sherry and so we let the general store sell sherry. I don't believe we've done that yet but you just didn't want to be seen and I can see where there were people who would not want to be seen going into a cannabis store. Right now we don't. For medical needs or whatever. Yeah, for medical needs. Right now we don't broadcast the locations so I'm going into some blank store front somewhere in Montpelier, I know there's one here, I just don't know where. So if I see someone going in there I don't know what they're going in there for but if it's a big cannabis emporium sign then everybody, then people might not go. And the bill takes note of it but it doesn't say how that has to play out and again because states do it differently. Some have the, can be the same operation but you have one side of the store is medical and the other is retail and it just leaves it up to the board to be looking at other jurisdictions and figuring out what would work. Yeah, because my understanding is that we have probably the best regulated and best medical marijuana system in the country. We haven't had, you know, it was just a way to kind of legalize it wink wink as I've heard in other states and I'd hate in doing this, I'd hate to use what we've done very well in the medical marijuana area. Yeah, a lot of the states that went first, I think we were ninth, I think in 2004 was when we started the registry and then in 2011 was when you passed the dispensary law but a lot of the earlier states were done by ballot initiative so it was more kind of, so voters passed something and then regulators were in the process of just trying to catch up. Figure out what you do with it. And so, you know, in some places like Colorado and Washington, the medical programs that were early on were fairly unregulated. Yeah, and I hate to say to see us move something that we've done well in the process of at least moving too quickly Okay. So I don't know, I think maybe we get to the taxes. If you look at the timeline, you'll see that the board would not start issuing licenses for retailers until April 1st, 2021. So that would be the earliest date under this proposal in which you'd see any retail sales. Right now, cannabis and cannabis products that are sold by dispensaries are not taxed and that would continue to be the case in here. I didn't quite get that. So currently, when the dispensary sell cannabis to patients, it's not taxed and that would continue to be the case under this proposal. So if it's being sold by a licensed dispensary, it would be taxed. Now, is there any requirement in the bill as far as the setting of the tax rates that the tax rate has to produce the anticipated revenue sufficient for all of the expenses? Well, the taxes go to the general fund. So there's no connection then between the expenses that the state will share and the amount of tax revenue that this is targeted to produce. Right, so this is again different from earlier proposals that the Senate has passed where the fees are supporting the regulatory structure and running the program and the taxes would go to the general fund. And is there, there is a requirement that the board provide the legislature with information as to the amount of money that will be raised based on their recommendation and also on the amount of expense that the state would incur as a result of that? Is there a requirement? I don't know necessarily. I mean, I think it anticipates that in terms of the board coming before you and requesting putting their proposal forward with regard to fees. And they're gonna come and they have to bring you their budget and they're gonna come and say, well, it looks like for FY 2021, we're gonna need a plant health specialist. We're gonna need this and that. So I would imagine that all happened, but there's not, I don't think that there's actually specific language like you're talking about. Just to point out part of the dynamic is fees start to come in soon, well before obviously any revenue from sale in Maryland like a year and a half. Yeah, no, I understand that. Very clearly in the beginning of your time to stand on it. Yeah, what I was really looking for is that my understanding is that the board will set the fees to be charged at retail, right? Well, you will. The board is gonna make recommendations to us to do that. But not at retail, is that right? It's no. No, no. The fees would be for an application for different types of licenses. It would be for the annual license fee. It would be for all of those types of things. But not for, but the board would be looking at regulating everything that's done with regard to that retail facility. But I don't know that they would be doing any kind of price controls or anything like that as a routine. Well, I guess what I was really looking at is that once a regiment is established, is anyone looking at whether or not the cost of the state is going to incur is going to exceed the amount of revenues coming from taxation. I would imagine, y'all, that's what y'all do all the time, but I don't think that there's language in here specifically directing them to do that. So you're talking about being across the government, what would the cost be? Basically, how much money are we gonna spend and what are we gonna get? And gee, in terms of study tax policy, that's pretty important. And that's what we're gonna get into. This one, the last bill that came through, I believe the tax money was dedicated to public safety and some prevention education. This one. Yeah, all the fees and all the tax money went into one fund that supported running a program as well as prevention, as well as law enforcement and I think a variety of issues. But this one is, so the tax money comes into the general fund and we do what we do with it and I think we'll be doing the cost benefit. We aren't, I'm sure Jane Kitchell will, to see if that tax is the correct number. I believe we've been told that it is lower than it has been because we're trying to go from a black market to a public market and we're trying to disincentivize black market but I'm still, I need someone to come tell me what things cost on the black market before I know if we're pricing it correctly. I haven't had anyone come for or if anyone can help. Senator Brock, I'm wondering what sorts of costs if you could just give us an example of what sorts of questions. Is there increased cost enforcement that the state might incur? Are there increased spending that needs to be done on education, particularly youth education? Are there increased costs that we might experience based on what other states have done in terms of how health costs, emergency treatment, automobile, all of those things, those are costs and what I just want to make sure of is that we're creating a spending sinkhole without the revenue to pay for it. I don't think that's the intention. No, I'm sure it isn't, but it would be nice to do the kind of ecometric analysis that you need to in order to satisfy ourselves a little bit. I think that's why we've got this bill which one comes to us so we can have the time to, as far as humanly possible, to kind of drill down and figure it out. So I don't want any, and the idea to go through a little bit and talk about the taxes. And also, Senate Judiciary is, you know, they were taking testimony last week, they're taking testimony again this week, they're still playing around with other ideas. They were considering, you know, maybe looking at what Massachusetts was doing with some local fees, but they haven't come up with any additional proposal which you may hear some suggestions, or the Senate Judiciary amendment that comes out perhaps next week might contain some new ideas. I know that there's a, the ability of local communities to say no, is it opt in or opt out? It is opt out, so the way that it would work is that if a municipality decides they do not want to have a cannabis establishment in the town or a certain type of cannabis establishment, that was something that we changed this year, so that maybe they don't want to have a retailer, but they're okay having a product manufacturer or a cultivator in their town. They could put that on the ballot, and they could do that. And the cycle is such that from enactment to the time that you would see the first retail sales, there would be two town meetings where they could put it on the ballot, they could also put a special election if they wanted to. Michelle, did Massachusetts do an old deal? They did something with host community host agreements that if you want to do it, and I am not totally up to date about how they did that with a community host agreement, but that is in large part because the sponsors, the primary sponsors of the bill don't like host agreements and we're not interested in pursuing that, so they were pretty strongly around with being a straight kind of opt-out. Okay, so it's no zoning? You could do things like that, they would be able to, right across the hall, as we speak, they're talking about the municipal authority and whether or not to kind of refine that and detail that a little more in the bill. They're gonna give, Senate Go-Ops is gonna give recommendations to judiciary this week for possible inclusion into the judiciary movement, but towns could do use their inherent authority around zoning and things like that. There is a concern on the part of Senator Sears that towns don't go around the opt-out by essentially adopting ordinances and zoning. It basically effectively ban them without actually taking a vote, so that's one of the things that they're discussing. But I can see, I know with liquor establishments, it's 200 feet of a church or school or it's more than that for a school, but there's, you can't be near a church or a school or, and I would kind of not like a vaping store or a cannabis store across the street from my middle school. But any towns would have the ability to do that? Okay. Thank you. This bill includes that in relation to federal taxation and adjusting income taxes because certain deductions I gather are not possible under federal law. Could you just discuss what that means in the bill? So this is gonna be in section 18 of the bill. So it's pulling out from what would be your taxable income, deductions that you can't take on a federal level because of the fact that it is still not eased on a federal standard level. Let's, why don't we start with the taxing section? And section one is to work our way through. I think it might be better. So, just two things that I wanna draw your attention to related to fees is, and Michelle did a pretty deep dive into the fees, but the board has the authority to collect the fees and the fees go to the Canada's regulation fund. And I'm just addressing that because all of the other tax revenue either goes to the municipalities or it goes to the general fund. So it's not going into this special fund pot of money. And then within the framework of fee setting, the general assembly needs to approve fees. And in statute there are considerations that need to be taken. And some of the ones that are sort of especially applicable here are going to be what other jurisdictions are doing, budgetary needs, and then a catch all of other considerations. So those are things that the general assembly will be given hopefully information from the executive director on when the executive director makes the fee recommendations. So it's not just out of the blue. It's based on what their needs are gonna be and what other jurisdictions are doing. You're gonna start getting your tax language in section 14. And this bill as it's currently drafted would create two taxes and both of them are at the retail court. So there are no taxes until you get to retail sales. And then both taxes are applied to the retail price and there's no stacking of the taxes. So they're calculated on the retail price independent of one another. One is a 10% what we're calling the cannabis excise tax and that is going to apply to cannabis. And then in the section summary it's saying cannabis-infused products. That language has since been changed to cannabis products. That is to make it clear, and we draw out food and beverages many times in the bill that just because something is a food product or a beverage product that has cannabis in it doesn't mean it's food or beverage that might otherwise be exempt. If it has cannabis in it, it is treated as the whole thing as cannabis and the price that is taxed as the price of, I'll use a brownie for example, the brownie. This bill would allow levels. So it's $10 brownie, 10%? Yeah, so that's the excise tax. And then there is also a 1% cannabis local option tax not to be confused with other local options taxes that already exist that a municipality can adopt through a charter process. Okay, so if I've already got a local option sales tax, rooms and meals would have to be sales. I've got 1%, I can now get 2% of these sales or move up. And the reason you can't is because this bill exempts all cannabis from the sales and use tax. So that 6% tax that goes to the ed fund, that is not applicable here. It's only the 10% excise and the 1% local option tax. But that's a finance issue. We're all working on a draft. And that comes up in the context of the local options tax because that would potentially be the trigger for if you were a municipality that had the local options tax for that to apply. And this local option tax is easier for a municipality to get in that all they need to do is not opt out and then give the tax department 90 days notice before they're gonna start collecting it. Okay, so local options sales don't go to the ed fund anyway at this point right there, go to the town. Yeah, what's that? Stay in sales tax revenue. Okay, so this would not be any different. Yeah, so it's really its own product that's taxed in its own way with no relation to other other taxes. It's probably not good tax policy then. It's a sweeper. But it's automatic. So store opens as long as somebody files a piece of paperwork, it's covered. Is there any initiative? There is not in this that differs from the local option tax with that. I want to say it's a 596 return in the 20% cut that goes back to the municipality. So the center person, you said the store opens and I didn't care the rest of the sentence. Well, we were just learning that the municipality has to file something with the tax department. But unlike my pillar of local option tax that voters have to include, this one, if a retail establishment opens and somebody has filed a piece of paperwork, their 1% is coming in. So it's an automatic thing and it's set up to try to help municipalities. Yeah, so this language is provided notice of the imposition to the department of taxes at least 90 days prior to the first day of the tax quarter when the cannabis local option tax will be collected. And then for purposes of the taxation that's documented, you get a receipt that has both the excise tax and the local option tax aren't. Things that are exempt from the tax, both the excise tax and the local option tax are going to be anything that is sold from a medical dispensary and that's continuing the way that cannabis products are treated now as Michelle explained and that comes from in part what the tax department has currently said, which is that we don't tax things that are prescription and this you can only get through a prescription. It's one of the ways that the medical program would continue to exist sort of separate and apart from the retail establishment. And then the other thing that is exempt from it are sales for resale and that's so that you're not getting taxing on taxing on taxing, so it's only at that point. So those are the two taxes that exist. Some things to just keep in mind with them are they are paid by the purchaser and then they are held in trust for the state by the retail establishment and then it's reported monthly back to the tax department. The local option tax, same deal and then it's quarterly distributed back to the municipalities that are having a local option tax collective. Samus for the sales tax. Okay, very, very similar standard language in there about liability and about if there's a mistake in the collecting of the taxes and who's responsible. So it mirrors sales and use tax very closely except it's sort of a special tax for this different product. Just so I understand what happens at the wholesale level. Let's say when someone throws marijuana and sells it to a retailer under this and whatever bill we have, there would be no federal tax deduction or no federal tax deduction wouldn't apply on their federal income tax return, right? So you have just the gross sales that would be taxable for federal income tax purposes. Can you say that one more time? Yeah, the wholesaler sells cannabis to retail. Yes. For the wholesalers tax return, federal tax return, the income is taxable but they're not able to do many of the deductions that you would normally do for any other agricultural or other similar operation. So they would then have a higher net income which would pass through to Vermont. Right, except. So on their Vermont tax return and then what you would do is deduct that, those deductions that they would ordinarily have been able to make on the federal tax return in order to get Vermont taxable income. Is that correct? No, it's more it's reducing it for what the deductions are not able to be. Yeah, it's reducing it to the level that it would have been had those then deductible for federal income tax purposes. Yes. Okay, that's just what I understand how this is structured. We just made it simpler and now we're gonna. It's too, too, too simple. Now we're gonna go back to it. I look at it and we're gonna come over here and force it. Okay. One of the other things this bill does is it addresses bundled transactions. So much like you're saying your $10 brownie is taxed at its full $10 price if it's a bundled transaction. So if you're getting a T-shirt and you're getting an ounce of cannabis, you would be taxed on that full bundled price unless the retail establishment could establish this is the price of one, this is the price of the other and then whatever the discount that's pulled out needs to not decrease the price of the cannabis. So there's not a tax loophole by saying that the cannabis costs a dollar and the T-shirt costs $27 and you're only taxing on the dollar. Okay, separately from my ginger ale, then whiskey is two machines at the liquor store. Okay. All right. So there's also language in here that's required which is since you are not taxing everything you've got these exemptions for the non-resale for the resale purposes and for the cannabis registry. There needs to be language in there sort of explaining why you're not taxing it. It's called tax expenditure language and there's language in there saying that you are not wanting to double tax and that you are not wanting to sort of interfere with lower or you don't want to increase the cost of medical products to support the health and welfare of Vermont residents. When you say there's no tax for resale what does resale mean exactly? So that would be it's only at the point of retail but if you've got someone who's selling and Michelle can probably explain the structure of the sales more but you've got your grower that's going to sell it. Okay, but it's not somebody could buy a store and sell to his friends. And there would be no way that point of sale would be treated as a retail sale what you do with it afterwards. Like a lemonade stand, what you can't tax. No, but would that be illegal to set up a little supply store and start marketing is that would that be the black market? Right. You cannot do that under this. You would have to have your own, the only sales to the public would be you have to be licensed to the board. I think what we're talking about is that so you could have a cultivator who is selling to a product manufacturer or cannabis and then that product manufacturer may sell to a retail establishment or maybe they're going to sell to a medical dispensary. So the theory is, so the tax is collected at the 10% is collected at the retail level? Exclusively. So the theory is that it's just going to get kicked back up in the supply chain in terms of the cost of doing business, right? And that you're only selling. So is there, in all the other states that have this, they have varying levels of, well some of them have varying levels of excise taxes, right? Is there any studies that have been done to show what the influence on the black market is depending upon what the size of the taxes? There is a lot of information out there. I'm not your person for that, but I think probably, the witnesses I think probably, the commissioner can speak to that. Jake might be able to talk a little bit about that. There's a lot of information about that and that's been something that states have really been grappling with since they first started doing the retail sales is trying to figure out where is that sweet spot. So you're trying to bring as many people as possible from the illegal market into the legal market and you set them too high and people aren't gonna come. You set them too low, you've got issues and so, and then what's going on with the neighboring states? So if your neighboring state has a much lower tax rate and you've got a lot of borders or people are gonna be going to the store that's right across the border instead and there is a lot of information out there that we can get the right people here to talk to you about that and get the information for you but it's not the point. It'd be good to at least know what our neighboring states and our neighbor to the north is doing which is a whole different system but it's there. Oh, the last bill, probably the first bill we did not the last, we did a consumer protection cradle to grave kind of thing where we had a chain of command for the product. So we knew, is that still in this one? So we aren't finding fentanyl laced or whatever laced. I see the sale tracking that's required and the board will be adopting rules with regard to the chief custody. And I heard that when it came to grading, supervising plants that we were having some trouble getting a state department that wanted to be responsible. Who's responsible for checking the plants, checking the TCB level, checking who's gonna do that? So right now the regulatory authority is solely with the board but the board on this proposal is just getting kind of started but it's not so the proposal isn't built out for year two, year three when you're gonna need people doing inspections of facilities. Maybe the board will come to you and say, well there's no sense for us to be doing testing, we have an ag lab that can do that. So let's, so we think that we should be partnering with the agency of agriculture and they should be doing the batch testing, maybe they should be doing the plant health, things like that. So this, and I don't know if you remember but with 241 it kind of, it was a two and a half year kind of scoped out rollout but you didn't put everything in place in that one first bill knowing that you're gonna kind of build it for that first year then folks are gonna come back and say, now that we understand that we have a little more information and we know what our needs are we're gonna come back and ask for these particular positions for our second year we're gonna need this type of funding for our second year. But we ought to be able to do some rough estimating as to what that built up cost is gonna be. I mean, what are the functions the board's gonna have to do, somebody's gonna have to test, somebody's gonna have to supervise, somebody's going to have to collect and process. The potential for kingdom building is great here. And I'm just, is there anything in here that says using available state resources as far as possible? Again, there is a provision here with regard to rulemaking that there to be coordinating and working with other state agencies that have expertise in particular areas but in terms of assignment of particular duties to another state department or agency it does not do that. I think it's important to keep in mind that there's this phase in, right? So this gets up and running in the proposal here by the fall, they spend three or four months coming up with some of the basic structure and they then come here and say, here's what we think the feed should be for anybody that wants to have a dispensary or a retail outlet to be a producer and so forth and then we wrestle with that. It's going to be hard, it's presumably to your point relatively straightforward to figure out how many, what kind of lab capacity you need and what kind of inspection people. It is, I would guess, much harder to predict how many people will apply to fill those slots and each one of them is paying a fee even if they're not granted. I think, well, I guess that's a question down the road but certainly earlier versions of this proposal have had fees when you apply. And so there is just going to have to be some give and take as this evolves and the best estimates become more refined over time. I understand that. When is the State Ag Lab opening? Are we building a new lab in a federal lab at VTC? Yes. So when's it opening? It's supposed to be open this month. Six equal buildings? Yeah, and I know that Senator Rogers and that's the store and institutions has been keyed in. I tried to get in but they started at one o'clock. They keyed in on hemp testing and so that discussion is happening, I don't know. I should say a full disclosure, my daughter is now doing some of that testing. She's the agrochemical, she's been doing hemp testing all summer. To your point with regard to who's gonna be doing all these different functions is over time, I mean, back with 241 and still currently and with the commission's report and now agency of agriculture is saying, well, this is what we think you would need to get started, how many positions, they're envisioning about it like within their own agency if you were doing it with them having the board within the agency of agriculture or contracting with them. But I think there are resources of people who are looking at currently about what are the positions and resources that you would need to be doing the rollout. But again, there's still kind of a lack of information really around what's the capacity gonna be. Okay, well, I think there's a few basic things like this shouldn't go in until we've got the state ag lab open. And if it's going to take some special testing equipment, we should know that now and we should make sure that that testing equipment goes in to the ag lab. I don't think that's the case. I think it's that you just, and I think it's, I have some language that from the agency of agriculture around just modifying the existing language that allows them to test hemp and you just add a cannabis in there for the cannabis establishments and that they would have the ability to do that. Okay. I think those are just questions that as we're looking at the finances. Just, I'm having a hard time getting a fence around this at all. And there seems like there's some knowns or should be knowns, couldn't be knowns if we looked at it. That we could know upfront looking at other states perhaps so we have an estimate as to what possible, what predictable expenses are. And then no, because if they get too high and our license fees get too high, then we're even taking tax money to run the system. And I think we want to make sure we don't do that. I mean, there's also going to be license fees out there somewhere that would give us something to look at. Just only because we were talking about this morning in the Senate Ag in relation to hemp, there is clearly a role for the state lab, but I don't think the vision is that all testing comes through one state lab that would more likely be state licensed labs that are also helping. Because you're gonna, it's not just testing the flat, it's testing the ground. You know, so there's, you know, it's not all of it comes through. You're more a testing facility, so the idea I think is complicated so that regulators would look at, well, you would have the ag lab doing certain types of compliance testing to make sure that it's, so if the board recommended that the ag lab be doing the testing on behalf of the state for compliance work, so they say this is labeled as having five milligrams of THC per serving and they want to test it and make sure that that's accurate. But that would regard to other types of testing that the rules could prescribe that a licensee may have their products independently tested by another licensee so that it wouldn't all be as low as the lab can't be a home industry where I had friends who made chocolate chip cookies and sold them at the farmer's market. She had to meet some basic health standards in her kitchen but she didn't have to ever chocolate chip cookies tested. If I'm going to make marijuana brownies, I wouldn't have to have the rules around testing. If you want to sell them. If I want to sell them, I want to... Make all the brands you want for yourself. How about my kid's birthday party? Hopefully they're of age. Okay, so I cannot serve them brownies if they are not of age. All right, okay. You can't sell chocolate chips to your race, right? Can I just ask a question? Can you remind us what taxes are on booze? It's different beer and I mean there's two different tax rates. We can get that for you, but it's all depending on... I remember it's more complicated than that. You have someone coming in this week to talk about, because we were asked to have them. Damien is going to go in and talk about how we tax alcohol. Don't worry, I'll get it from you, thanks. Yeah, I will say that the initial 10% here as the starting point for the discussion, Senator Sears did kind of base that on, I know that when you're at a bar or something like that and you're served a drink at the 10% tax on your booze. Yeah, but before they buy the alcohol, there's already excise tax on it. We'll probably be digging a little bit into that. Okay. Establish your gut for us, Mark. So I thought the committee that was being established is kind of limited if you don't have any growers on there or black market people or consumers. They're lucky to sort of get their side of the story and if they're not on the stakeholders. We're talking about on the control board? Who? Who are we talking about? We're talking about makeup. So on page five. That's one of the things Senator Sears talks a little bit about and the Gov Ops is to discuss it now is whether or not some states have an advisory board to the control board or the control commission and folks are different minds of that. They say, well, the board can talk to whoever they wanna talk to and hold public hearings and hear from everybody and then other people think, in Massachusetts that for their campus control commission, they have an advisory board that would like 25 people on it that has, you know, specifically represent different types of constituencies. So there's a lot of models out there. And then if I wanna look at those, I'm just thinking of a liquor control board which I see as somewhat of a compact organization. And then I think of Green Mountain Care which just seems to be less, maybe they're just more obvious, but they seem to have a lot of employees. Well, they do regulate six trillion dollars. So I, but I just wanna make sure that we have some handle on what we're creating. The example that gets me is the example that was to advise on automobile inspections and the new car dealers were the ones who dominated the committee to come up with the recommendations and were in our second year of cleaning up after them because they didn't have the local shops and the people who maintained second use cars were not represented. Okay, well, we'll be looking at the whole thing. Michael, you have? Not a finance question, but, so right now the retail stores in Massachusetts open? Yes. Okay, and can you, I? I feel true. There you go. Can you buy in Massachusetts and safely drive into Vermont with the product? Yes, I mean, it's against federal law, but it's not against Vermont law. As long as you're under, as long as you possess an ounce or less, either in cannabis or cannabis products in the aggregate, you can go to mass and bring it back. Is it per person? Yes. Take the family. But Canada, because of border issues, you can't do that, right? Right, there's, you know, there are, it's been in Montreal lately, there's signs. It's interesting when you're going north, there's a sign before you go through that says that you have to declare your cannabis at the, with the Canadians. So you have to let them know, just like when they ask you if you have any tobacco or firearms, things like that, they want you to declare going from a legal state into another legal jurisdiction. And I don't understand why people are so confused by this, but I guess people just think if it's legal, it's legal and they can go anywhere they want. It's legal, so, but, so you're supposed to declare your cannabis and I don't know what they do with it. Maybe they take it. It doesn't say don't, but when you're coming back into Vermont, there's a big sign that says you can't bring it back and that's not because of Vermont, obviously, but because you're crossing the federal border. Yeah, it's a federal law. Thank you. Judiciary's been working on this for what? Four years, six years, a lot. Yeah. So we're just starting. So we'll get, we'll get focused in. Okay, next is Craig Bolio from the Department of Taxes. Okay. Yes. Chair, if you have someone who's on my view. Yes, I brought her. All right, good. And you've got a routine, just introduce yourself. Yeah. So I'm Craig Bolio, I'm the Deputy Tax Commissioner. And I'm Abby Shepard, I'm in Tax Policy Analysts at the Department of Taxes. Okay. Good to see you. Nice to see you. Okay, well, we had gone through some of the revisions and made some notes, is that, that be useful to go through? Yeah. Okay, I'll hand it over to Abby mostly. Sure, so we were sort of the primary leaders on the Tax and Regulate Subcommittee of the Marijuana Advisory Commission. So we've been following this in a lot of detail under Jake's provision for the last year and a half. And we did put out the report and it's available online. There are some of the questions that you were asking that are in that report that we researched and compiled different charts on that might be helpful. Okay, we'll get that here and get it up online. Sure. So I know just one question just off the top of my head you're asking about liquor taxes. There is a wholesale excise tax on the manufacturers who for liquor at least, this is separate from the other beverages tax. So there are several layers to that tax and it is baited into the final tax. So that's a different structure than this. That's in that report as well. So what we had understood from this proposal which is slightly different from what the commission had proposed is that there would only be this one 10% tax and that sales tax would not apply. So just from a more technical standpoint the way that we are interpreting this language without an explicit exemption in those firm's tax while really the meal's tax may still apply to edibles for various specific circumstances. In particular because there is an exemption for baked goods that are sold in quantities of three or more that would be exempt from the meal's tax but if they're sold just one or two cookies or one or two brownies, meal's tax would still apply. So there would need to be some exemption put in there as well. So it's a very specific. There's a whole section of law just knowing some of the confusions that have gone on that we ever get a few minutes I'd like to walk through because if the law is written in a way that is not clear, then we are to blame. We don't like how you would force it, you're to blame, but we need to be very clear about what we intend. So this may be a chance to take three or more but you gotta have it tested by an outside testing facility which I think will probably do away unless they're very expensive brownies with sales of less than three or more and they don't have. Well, not each brownie probably doesn't need to be tested, right? Well, you gotta, how do I know you're not just putting a little bit of marijuana in the brownie in the next batch, I just. It's like a quality test brownie. Yeah, I mean, but you would have to have some. It's a good brownie. Outside. It's a dual. Tested. And a dual, let me put duals in there. Okay, that'll be a real crowd for us to see. It'll be a big one. It is. We have a few suggestions. We did propose some language in that report and just because of the differences, the way this is drafted and in the fact that you're not intending to have sales tax apply, that there might be some ways to bring over some of the sales tax definitions, for example, that would be useful to have in this new tax. That's the main, but that's fairly simple. It would just be. But no sales tax except for the local options tax. So that's where we also had a few comments and potential suggestions just from an administrative perspective because there is the existing local option tax and that has its own administrative provisions. It's not entirely clear for this new local option, totally separate tax, what provisions would apply, whether it would be the sales and use tax administered provisions or the local option tax or both, and what would happen in case of a conflict. But notably, we were concerned about the administrative costs because there are no fees. We're a general fund reliant. We do have the local option tax per return fee that is paid for mostly by municipalities, partly from some of the revenue generated by the local option tax. In this proposal, there is no administrative fee for us to pay for that cost. And this was something that was discussed in the Marijuana Advisory Commission, how to allocate revenues if it were, once the revenues have been collected, giving a fortune to town or creating a separate new authority for the local option tax to be levied, so just different options. Can you stress the symbolic points of what you would like or issues we need to deal with? Absolutely. And if you just email that to Faith, she'll get it to all of us. Yeah, and I think the concern about the administrative fee is really just that there are many costs that we bear and it's also a compliance issue at that point, right? Because our staff is able to do auditing at local option tax when it applies in an audit, and then those fees are passed on to the municipality as well, so there's benefits to the municipality if we have resources to be able to do audits on those fronts as well. Yeah, happy to provide a breakdown of. Yeah, I thought that would be, because this is a whole new, and I'd like to avoid any issues with somebody thinking they didn't because it's a bakery product and they didn't owe sales tax, but they did because they sold X number, but nothing else goes to sales tax or bills and mills, and yeah, a gummy bears candy. Candy has its own exemption, so generally candy would not be subject, but it depends on how it's sold, how it's packaged. But we said a marijuana product is gonna be taxed no matter what, correct? If that's the intent, it would be much easier to administer and for the retailers to say they would always be the cannabis tax, it would never be mail tax, that's it. I believe what the intent is. That's what I heard. Just a question. No, okay. Usually when it's, I can read you the language. No, that's okay. So anything in cannabis? I think what you're doing is taxing. We are gonna be allowed to put those on the impulse find on the way out of the grocery store, right? From a tax administration standpoint, and also from the cost that you would incur for building and administering a program, would it be possible, although I know this doesn't do it, to treat marijuana exactly the way we treat alcohol, and thereby use the same kinds of systems, programs, and methodology that you use to deal with the dispensing outcome? Boy, I hadn't put a lot of thought into that. I wonder what it might do to compliance efforts, but it certainly could have some efficiencies to bear if we're able to utilize these systems. We would have to raise entirely new systems. Yeah, I think the cost challenge that you're gonna hit, regardless, is our biggest concern at the tax department is that the federal prohibition, we believe will lead to a lot of cash transactions which our building is simply not equipped to handle right now, so I mean, we have two major costs as a tax department going into this if it really lies. One is standing up new software, so some efficiencies may be able to be gained there, and the other is upgrading the security in our building substantially, and we've used other states to scale down to Vermont to try to estimate those costs, and it's between 700,000 and a million just to get security for the building, and then there are ongoing costs as well, cash managers, armored car services, things like that, so even if we were able to stand up existing systems, that would still be a significant cost that we would have to figure out. So obviously the problem about forcing cash transactions is the inability of the marijuana industry to use the banking industry right now. What about credit unions? So I think it's up to them individually, right, and I certainly don't wanna speak for them. There's a credit union that is engaging with the medical marijuana industry now, and I think it's really a decision for each bank and credit union in their own risk profiles to determine whether or not they want to enter into that industry. Is there any experience with credit card companies as to whether they have their own prohibitions as opposed to the way federal laws do? So I may be mistaken on this, but my understanding is that the credit union that operates now doesn't do payment processing, they only do deposit processing. So I think that there's one major issue of depository accounts in that payment processing can be potentially an even bigger challenge, but I'm certainly not an expert in that area. Would it be okay for somebody to take their credit card and take $25,000 off of it to build a company in some way or contribute to any regulations there? That would be the Department of Financial Regulation. They were part of our subcommittee and they would be able to give you more detailed breakdown because they wouldn't be able to tell about the federal banking law and how banks have to provide different types of suspicious activity reports, something where any financial transactions are regulated by different internet networks. So it's... Yeah, it's big transactions. Any big deposit of money, the FBI comes to visit you the next day. I know that from housing. I also understand you major... Deposit or the FBI will follow up because of federal law. So I'm assuming some of these will be good size deposits. In terms of tagging on to an alcohol tax, were you, if we were to do that alcoholic beverages tax, I think it wouldn't fit into this structure of not allowing public consumption because that's sitting down and having a drink whereas you wouldn't be able to consume in public. Otherwise it would be potentially a wholesale excise tax like on the liquor side that, but I'm not sure that that would give you the same amount of revenue or capture the types of sales that you want that are higher. Well there's a certain liquor though that you certainly sell and you sell as a package or for that matter a convenience store. I think it would have to be that excise full sale level. The state run liquor stores. And then sales tax on top of it. And then, well... Well again, I guess that's again another question in terms of a mode of distribution that already exists that's not beyond the realm of at least considering. You mean put it in the state liquor stores or just set up a... Well I create a whole new regimen that you don't have to... First thing they'll say is mask store doesn't have enough room. It's interesting. I would think the closer we could parallel the sin taxes. The sin store. The sin store. I would take it to sell liquor to sell marijuana. All in one place. One stop shopping. We can put the party store next door. But there's an excise tax. And that's what this proposes. We can say yes, no, and how much. This one does not propose an additional sales tax. We can say yes, no, or how much. And we can talk about how that would get costed. And again, the meals tax and when that applies and that's when things get sticky. If they also serve tea and I eat my marijuana brownie on site or if I buy my marijuana brownie to take home, are we in two different tax routes? This is a hot or cold. You could get a bag of chips with it. That's right. I think that... You mean a scone versus a prop? I mean, I want to make sure as far as possible, we don't set some retailers up to get in to trouble because we were not clear. I'm going to be watching the drafting on this very closely because I think we need to be clear about what we intend and how it gets written. I don't know if you've looked into it, but I thought I remembered reading that Oregon allowed customers to pay, at least on Democrats. And somehow maybe there's a distinction between the credit card and the Democrat card. I think there's some time is, but I'm certainly not an expert in that area. I think the F.R. is fairly well-versed in this area. And you said about accepting cash payment, why wouldn't we just insist that payments just think of women? I'm fine with that. It may be challenging for people who are operating in that industry to be able to comply with that. So certainly that is easier for the tax department if there's a requirement to have a depository account to have a license. The discussions in the subcommittee, we were really hoping to be able to make that recommendation, but with input from far, we didn't feel that it would be able to be fully realized that way with them. So maybe what we'll do is, I know this was a lot of concern and it's gotten a lot of bluster from Washington, but I don't know of any action. But maybe what we'll do is have someone who is producing medical marijuana and somebody, if we can, from the dispensaries to tell us how it's going and what's worked out. And I think if you could get the credit unions and banks to say that they would be willing to operate in this market once it's legalized, then that may be a very viable strategy which we would certainly appreciate. We may be able to do that with state, there's state and there's federally licensed banks. Right. And I think the same system goes for credit unions, but I'm not sure. So state banks we might be able to work with. We may, or we could set up a state bank. And just to finish up, which is a great idea. The parallel to liquor I think is helpful, but we also have to remember we wholesale, like we have warehouse, right, where every bottle of liquor that goes out of a shelf goes through, that's a pretty big undertaking. And go back, I think they have paralleled it to the SAQ, the liquor outlets, but that would be tricky for us also because of the federal prohibition. That there must be, I mean we do need some expertise on the whole federal navigator. Navigate, and I don't know why. We'll start with DFR and see what they can tell us. So, thank you back. So if we get a chart that shows what the tax rates are and all the states that have this, and also maybe, at least in Vermont, with the comparable syntaxes are, drive for tobacco and liquor. Is that in your report? Yes, it's in the report. Okay. So, can you fund that report or if they can, if you can send that to Faith, then she can send it to us. That's a state by state comparison also. Yes. Right at the very beginning, I think the liquor taxes in tobacco taxes would be around the appendix. Who does liquor now in Vermont? Between all the taxes. It's the whole sale, it gets 25% on gross receipts of wholesalers above 750,000, which I believe is one of the lowest and the most, but I don't know. Right, except for the lower tax. Right. And then there's the sales tax also. Yes, that's correct, that's 6%. And then if there's a tobacco tax. But that's it. And then you have a tobacco tax. And a deposit, except don't want bottles. All right. Other questions? Senator McDonald. I had two, one was just technical about the difference between a sales tax and an excise tax. An excise tax is when you purchase, is for the purchase of the product. And is a sales tax not a consumer tax, which is a tax on consumption, rather than the nature of the thing being purchased? Yes, so that's getting into more of the conceptual tax definitions. So an excise tax typically is at the manufacturer wholesale level. And it's often on the weight as opposed to the price, whereas sales tax are typically at the lower, which is what is proposed here. But excise tax is maybe at the lower as well. Concentration, the tax on the product. That's not. Where the sales tax is a tax on the consumer. Regardless of what is you choose to be consuming. The other. So the federal laws recognize those two separations. No, there's no. So when you commit sales tax money, the federal government attaches what it happens to you. Is concerned about what you're consuming or when you have an excise tax and it taxes marijuana, they go, now it's a marijuana tax, but still. There's no distinction. It's the product itself. It's the marijuana itself. The schedule one classification of marijuana is for the cannabis plant. So anyway, you guys have sales taxes based on? Sales taxes, but sales tax is all local. So it never goes to the feds. Neither would wholesale. These are all state wholesale taxes. All those are local taxes. So the feds never touched them. So there's no argument that this is not a tax on marijuana. It's a sale of marijuana. It's a sale. No. So the other question was, you seem to be recommending that this not be a sales tax. Am I mischaracterizing your testimony as a recommendation? Just in terms of our administration of it, the policies I would leave up to you, obviously. I'm just reading what I'm seeing in the bill and what it seems like the legislative intent is. From our perspective, I think it's been consistent over the years is that it's easier for us to administer a retail, so retail level tax. We took, I think three or four years ago, we did speak to Washington and they had originally had a multi-tier. They had an excise tax that they moved to a purely retail sales tax and they actually kept the name excise tax. They still call an excise tax because it's a sin. They consider it a sin tax, but they had it too hard to administer. It was too costly. Right, so the shop's an excise tax. Exactly. It's just the final tax on the consumer in Washington now. And theirs is 37%, which is one of the highest. Although other states have sales tax as well. So the effective rate tends to be in the difference. When we make the choices, this committee, it affects whether the percentage of the tax goes or if it's property taxes or it's skimmed off to before it gets into the debt fund and leads for something else. This one is all dedicated because there is no sales tax. It's a local option. I'm not sure we're caught. We're just, the witnesses just said that they were recommending some choices and one of them was sales and another is in the product. Yes, the local tax. But your one concern, you'll administer whatever we tell you to administer. But with the present local option tax, you get a fee to administer that. That's correct. And I switch. The percentage. So it's a proletariat of $5.96. Which is paid, 70% of that fee is paid by the, sorry, 70% is paid by the municipality and 30% is paid out of the pilot fund and after that fee is paid out, then it gets split 70% to the town's 30% to back to the pilot fund. So it's sort of self-funding and stuff. But not all towns get a piece of the pilot funding and goes to payments and move taxes where the state has property or not every town. Even the towns that have the local option tax, they don't necessarily get the pilot fund. So I think that was a concern that towns had about dropping cannabis local option tax into the existing structure. Was there any reporting done in the study that compared the cost of the tax department of creating a system using the XIS tax in this way versus a simple retail sales tax? So I think it's, well, are you saying actually administering an XIS tax like by weight? Yeah, in other words, doing the XIS tax, the way is envisioned here compared to the cost of the tax department, both administratively, software-wise, and otherwise, of creating a new system. I think I may be confused by your question because the way we see this tax is it's really just a semantic difference between the, I mean, it really is going, would be administered very similarly to a retail sales tax, right? Which is the easiest version of the tax for us to administer to be able to take gross sales and calculate the percentage of land. It would be more challenging for us to administer an actual weight-based XIS tax. It creates more difficulty with compliance for sure. Yeah, you're not going to have to go out in a way a truck loaded marijuana. We appreciate that. That's good. So, no, this is getting clearer for me. So this is, we're calling it an XIS tax, but it's not paid until the product is sold. Right. Therefore, it really is a 10% sales tax, correct? An XIS tax. It's an enhanced. The age is similar. That's what it's an XIS tax. Yeah, so I can certainly see what that is. It's some confusion. I think naming it differently is trying to avoid another set of confusion, which we can call them in both sales tax than people. Yeah, so anyway. I'm not sure which is the right way to do that, but it's a good thing. Go ahead. Yes. Well, there's a, you got a stamp when you consider it's in the warehouse to be paid tax. Yes. So it's right. There's a floor tax. Thank you for having us. Thank you. Thank you, Madam Chairman. The committee, thanks for having me here today. My name is Jake Perkinson. I am your co-chair along with Tom Little of the Governor's Advisory Commission on Marijuana. That commission and its various subcommittees that have worked on the report since August of 2017. I've issued a final report in December of 2018. I just want to check with the chairwoman on how much time we have, I think 15 minutes or so. 10 minutes. The break is just, if they're good and don't ask too many questions, then they get a break. Okay. You get as much time as you need. Thank you. I did have more extended comments, but given the time, I think I can truncate them and kind of key off on the questions that have been raised here. And I think, first and foremost, the difference between the bill under consideration today and the recommendations of the commission go in large part to questions about what are the costs? And I think Senator Brock and the chairwoman both raised that question of, how are we gonna pay for the cost? And in the analysis of the commission, those costs were very broad. We included what is the impact on the tax department? What is the impact on the agricultural department? What is the impact on schools? And what can we do? What do we think are necessary in order to address the existence of a commercial public cannabis market with respect to youth attitudes and youths? And so if you look at the report, which I know will be sent to you, they do set forth many of the expected costs that we believe would be associated with the regulated market. None of this is to say that we recommend against the regulated market. That was not the purview of the commission. It was only to assume that if a regulated market was in existence, what would be the best way to approach that? And so the 20% it was an excise tax, 20% excise tax recommended by the commission was in some ways reverse engineered, but also with a keen eye towards the policy of not incentivizing activity towards the illicit market. And so what we did was we, the tax department took a lot of time to look at what was the situation in other states and looked at what the expected sales curve would be with respect to initial sales and year after year sales, apply that to the demographics and realities in Vermont, and then match that up against what the expected costs would be with respect to the other reports of various members of the commission, including the health department, representatives of education and the department of public safety. And in the end, we came up with a 20% excise tax and recommended the application of the 6% sales tax. We, I believe the recommendations to include the 6% sales tax was that there was no philosophically rational reason to exclude marijuana from that tax just because it's marijuana, except for potentially the fact that it also has that 20% tax. But again, this goes back to the philosophy of why that 20% tax was recommended. It was recommended to take the opportunity, in this instance, to have a product that can't wholly fund what are perceived to be the effects of that product, so that instead of spreading the cost of activity across society as a whole, we saw it as an opportunity to target the users, producers, the people that are profiting and benefiting from the use and production of the product to bear the weight of what the insular effects of that would be. Do you have fees in your recommendation? There were fees, there was a recommended that there'd be a fee structure. However, there was no quantification of what those fees would be. I think they took. They were envisioned. Yes, and we think we took the same approach as the Senate bill, although I think the consensus among the committee members was that they weren't able to envision a fee scheme but they were able to adequately fund the programs that were being recommended in connection with a tax and regulated system. And so, for instance, if you wanted to have an administrative agency that was funded up to $500,000, that's probably doable under a fee structure. If you wanted to include the education programs or the prevention programs that were recommended, now you're up to nine, 10, $12 million and there's no fee structure that would credibly be used. That was what my concern was getting to is, there's a limit. The guy growing, and I understand some of the vision is we take the folks that are growing legally now but that we have a yeoman system of small producers producing the last one. I think we had big producers and warehouses. But if you're only growing so much, then the fee has gotta fit into your cost benefit structure or you're gonna go maybe back to being a little illicit or go into growing something else, maybe industrial hemp. So the fee structure has to be in line with the profit structure of the business. And I think that's the base concern I was getting at with if we have to add one or two people to the department of ag to test or we have to add somebody else and then we've gotta inspect farms or we've gotta do other things, those are costs. And those are costs we need to be looking at. I think that's right. And I think with respect to the fees that you're looking at it as a practical matter, there's a dual policy analysis. One is, as you said, it needs to be affordable within the business structure and you also alluded to the fact that it needs to incentivize operators in the illegal market to participate in the legal market. So there is the challenge of if somebody is operating in an illicit market and is invited to participate in a legal market, what is the incentive? And while it's not directly emphasized in the report, I think as I've watched the debate develop, I believe personally, this is not, as I said, not necessarily the commission's report, but although it is assumed in that report is that enforcement is an absolutely critical part of the scheme and the funding for that enforcement has to be provided for. I don't think that you can rely on local police departments to do more than they're already doing in monitoring the situation. And I feel that the opportunity is available in a tax scheme to tax the operators and participants in this market to fund the necessary efforts to address that. I was just looking into the tax department did do a budget, a consolidated budget, and they estimated that in the first year if the recommendations of the commission were adopted, which may be perceived by some as too much, although I think that it's, to me, it's the minimum. I understand there's a difference of opinion. Pre-retail sales, they're estimating 7.7 million, would be necessary to ramp up in departments such as health, public safety, municipalities, tax, agriculture, and the regulatory body itself. In the second year that raises, that goes up to 14 million. The first year of retail sales, 14 million, second year, 15 million, and then 17 million in year three. Now, one thing that the commission report also points out is that even the 20% excise tax does not fully fund the recommended programs to address the existence of a legal market. And so there still may be some requirement that they'll be funding from other sources. And that's, that really was perhaps this informed my position in presenting to you today, but the tax presented to the commission by the governor was to find a way where it would be no net impact financially on the state from a regulated market. That might be an plausible dream, but. We were starting out with this entire process. We were saying this is a cash cow that was going to refuse money from the state and now it's become, we just don't want it to cost us money. I think that's the experience of the majority of states that have legalized has been that at best it's a wash. It's not a, it's not a water resource that can fill any holes or anything like that. And necessarily as it expands, there'll be more resources that are necessary to dedicate to it. And I would say that it's somewhat heartening to see the discussion at least anticipate what are the known risks of entering into this. And that's why it would be, you know, the cost estimates are so much more expensive than simply saying, okay, here's a regulatory budget and we're done. And so, you know, I acknowledge that's a, it pulls us off the shift from a lot of legislation, but I think it's worth a while investigating. I just have to say, I think it's a mistake to assume that all these expenses are at zero today and are going to show up. There's hundreds of thousands of Vermonters using marijuana on the regular. So, you know, we really have approaches to make far too often pretending we're at zero and we're going on. That's just not going to exist. Right. Did the commission have any ability to do an analysis that was outside of the direct revenue? In other words, you hear reports out of Denver that HVAC, you know, they can't possibly fill HVAC jobs and electrician jobs and you can't rent warehouses anymore. I mean, there's just like the economic activity that is sort of ancillary to the industry around cannabis has been a major economic driver. I don't have the foggiest idea how you measure that, but clearly that shows up in state revenue in Colorado. Did we look at that sort of the stuff outside of just the direct sort of production line? Right. That was explicitly excluded from any revenue estimates either directly to the cannabis fund as recommended by the board or anything else. So that was not, as you say, a very typical thing. I would like to address a comment of it going from zero to something. I don't think that the commission made the assumption that nothing's happening now and that everything would be a disaster if you legalize. I think the assumption, the working assumption was there's a problem now that's not being addressed and that the revenue from this is an opportunity to address that. And I would also add that the position of the health department is that not only will it help to address the issues of the cannabis abuse accessed by minors and public safety, but also other illicit substances and drugs. And so I think that there's some benefits that this provides an opportunity to address. So I certainly don't want to suggest and I don't think that anybody's come up with a credible ratio of what is going to be the increase. There's lots of studies that different people can point to that says use has gone up, use has gone down, crime has gone up, crime has gone down. We're too short, we have too short of time period of legalization at this point in order to make for anybody, I think to make an absolute claim as to what's going to happen. So that same question I sort of had before, they said there's a lot of studies out on this. What is the elasticity between the price of drugs and I want to sold on the regulated market as to people making their choices to whether to get it. On the black market, I would assume that there's a lot of people who if it was regulated would pay a premium, I could get a premium price to get it in a place where they'd know it's seed to sell and not have to take the risk of buying something with fentanyl elastin for 10% less or something. Right, I think there is certainly at least anecdotally the assumption that and certainly reports that people prefer to have a market that has some consumer protections and some testing and some reliability. As far as the price elasticity, you have seen, I think in every market where it's been legalized that after an initial price set that it goes quickly down year over year, the price of a legal product goes down except with respect to animals. The legal market, right, the legal market goes down but at the same time, tax revenues go up because the price goes down because consumption or sales. I want to make that important point. It's not necessarily the consumption of the laws going up, it's that the purchases in the legal market are going up as the market matures, while the price goes down. Because I think we have always operated alcohol and necessary evil and we did not want to encourage use at least in theory. I know we have done that with that play responsibly right around the on the lottery. But in this one, it sounds like we're not regulating the price, it's going to float. And we don't know if it's consumption or just more people are going to do it because we keep raising the price of cigarettes. So maybe we'll switch, but again, we don't know. But there's definitely a kind of a different mindset dealing with this. Yes, and our recommendation was to house the Kennedy's control board within the department liquor and lottery under the rationale that it made sense. I forget which center it said the sin shop. But just because of the philosophical approach to that would be more in line with liquor and lottery. The challenge in applying a straightforward liquor model as it exists in Vermont is the fact that the liquor department, as I understand it, becomes a ballet of the warehouse materials and they were great concerned that state employees becoming ballies of a federally prohibited product would be problematic. And so that would be, I think that's where most of the money that the operations generate from the liquor come from. So that would not be available in the cannabis market unless they were willing to take control. Why does the price go down after a couple years, just efficiency and market? I think it's supply and efficiency, yes. Is there any concomitant evidence that there is a similar reduction in the volume in the black market at the same time? I'm not aware of any really reliable studies. Again, just on Colorado did some of it. I think they have and they may be out there. I'm not aware of any off the top of my head, but my sense is that in the legal markets the consumers in the legal markets tend to buy from the legal purveyors which leads and excess of illegal product in the existing estate as well as legal product which goes across state lines. And while people can certainly as a practical matter go to Massachusetts and purchase cannabis and bring it to Vermont, as a legal matter it's just as illegal to do that as it is to bring it into Canada. The only difference is that there's more enforcement along the Canadian border than the result of the Massachusetts border. I think part of this, because we've been told the reason the taxes are proposed to be lower than alcohol is because we're trying to get away from the black market. I assume, and I know Damien did a whole rewrite of our liberal laws which hadn't been updated since prohibition or the end of prohibition. I gathered they were interesting. But I would assume at the end of prohibition we were trying to do the same thing. And I'm also assuming unlike cigarettes in a pack where you have a tax stamp that defined buying an ounce in a baggie, is there anything that says that this is regulated or black market? I mean, once I've got it in my pocket, I mean, right now the threat is somebody stops you and you've got, or not, perhaps not now, but two years ago, you get pulled over in a traffic stop, you've got marijuana, the police are gonna wanna know where you've got it. So there's a risk to the buyer or the grower because they're doing something illegal. Right now, if you get the year from now, if I get stopped and I've got a baggie, I can say, well, I bought it at my local store. There's nothing on, there's no marker on that product that says this was purchased legally. I believe the commission recommendations were to have a handling of products including the harvest date and the amount of content to see a particular product as well as to provide for child-proof packaging and to have the original symbols that indicate that it was. And I believe, I don't want to mention anything else that we can testify to this, but I believe in Colorado that a specific receipt fit. Okay, so that should make it clear. And I think the point about the prohibition is directly on point. I think those same conversations we've had that we're having today, in fact, I just picked up the biography of Bruce Brandeis, he testified before the Massachusetts legislature in the 1891 about reforming their liquor laws. And the quote that stood out to me in that was, no law can be a good law, every law must be a bad law that remains unenforced. And that really resonated with me in watching the debate here. Again, with I'm not Justice Brandeis, but I think that it would be very important to ensure that any of all of these pasts has resources to effectuate its enforcement. Yeah, enforcement, yeah. Thank you, Madam Chairwoman. For our first day, I'm just interested in watching the debate. You know, one of the, I read this very quote that I'll John Stevens gave me, which was the history of ending prohibition that was written by I think the Rockefeller Commission that was sort of like, we're supportive of prohibition, but if you're gonna do it, here's ASU. And it was a lot of interesting lessons, but one of them, to your point kind of, is that alcohol is a social thing, right? That's why there were speaking of these. It's different with cannabis. It's, you pick it up and you put it in your pocket and go. You know, it's just an entirely different nature, so it's easy to hide in that sense. Whereas, you know, the speakeasy was an open joke that required corruption up and down the regulating food chain. And ultimately, that's why we repealed prohibition. Right. And I think that makes it a little more challenging when I read the cannabis producers into a legal market because if that's 60 years operating in a legal market, and any broke, don't fix it. And, you know, so it's a challenge. I don't envy the folks charged with drafting the final legislation. So good luck.