BURLINGTON, Vt. — This week, for the first time since medical marijuana dispensaries in Vermont started selling buds, baked goods, topical lotions, and other products, both existing medical marijuana patients and members of the public were briefly able to compare prices and selection between the state’s four licensed medical marijuana dispensaries.

The initial revelation and subsequent investigation by Heady Vermont included communication with representatives from all four dispensaries and the Vermont Marijuana Registry program. The strains of marijuana flowers, edibles, rubs, and oils differ, but when it comes to the high cost of medical marijuana in Vermont, all dispensaries (and their patients) suffer from the same condition: over-regulation.

Although medical marijuana might be big business in other states with much larger populations of patients and fewer regulations, due to the current state and federal framework, Vermont dispensaries (and their principles) are actually in significant debt–in fact, three of the four (CVD/SVW and Grassroots Vermont) owe over $500,000.

Ultimately, those who truly suffer the artificially high costs caused by the state’s policies are the nearly 3,000 registered medical marijuana patients in Vermont, 81% of whom utilize the dispensary system. Those patients — often suffering from chronic illness, pain, and a lack of disposable income — who utilize the dispensaries pay between $10 and $16/gram for marijuana flower (the dried buds that you smoke), meaning that a 30-day supply (of two ounces) can range from $560-$900, none of which is covered by medical insurance.

When it comes to growing medical marijuana, the costs of lighting and fans is fixed and predictable. However, a representative from the Vermont Patients Alliance explained that when you add up the different costs that go into growing a gram of medical marijuana, over half of the cost is from paying taxes and complying with regulations imposed by the state.

Setting The Political Scene

After a disorganized and contentious discussion of recreational marijuana in 2016, that debate appears to be a gateway to serious medical marijuana reforms in 2017.

The update comes at an interesting transition point for the political future of the medical marijuana program in Vermont. The ten-member Joint Legislative Justice Oversight Committee has already hosted the first of six marijuana-focused meetings and on Friday, September 23 are devoting a full day session to addressing medical marijuana.

“We’ve got a pretty closed dispensary system,” said Senator Dick Sears (D-Bennington) at the last joint committee meeting on September 12. Sears has come close to a 180-degree turnaround on the issue over the past decade, and in 2016 emerged as a powerful ally for legalization in the Senate, joining stalwart supporters such as Sen. Jeannette White (D-Windham) and Sen. David Zuckerman (P/D-Chittenden), both of whom have previously sponsored and supported updates and reforms to both medical marijuana and broader legalization laws.

When a fellow committee member noted Sears’ past opposition during the timeline discussion at the first committee meeting, Sears noted that his position “had evolved” as he’s learned more and heard from more people. One of his stated concerns with the present system is the cost of medical marijuana in Vermont, which he noted as being a motivation for expanding the system, “I’m looking at expanding the availability of medical marijuana, but also having the price — if it’s restrictive price-wise, it’s not working.”

Unintended Consequences

When medical marijuana laws were passed in Vermont in the early 2000’s, the state was only the ninth to pass medical marijuana and the frame of reference was the extremely lax medical marijuana program in California, where almost anyone could (and still can) step off the plane and with a backache, about $100, and a 30-minute consultation in order to obtain a California medical card.

The political environment in Vermont at the time (a Republican-controlled legislature and a disapproving Dr. Governor Dean about to run for President) resulted in one of the most conservative medical marijuana programs in the nation, the consequences of which are still being felt today.

In order to pass that medical marijuana legislation in Vermont, major concessions were given to both the health care and law enforcement lobbies with both the language and spirit of the bill. Health care professionals were so uncomfortable and cautious about the prospect of ‘recommending or prescribing’ marijuana, that technically, the law was “marijuana for symptom relief” strictly without the use of the word of “medical.”

Indeed, even as research and acceptance of the medical applications of marijuana continues to evolve around the world (Israel being an example), the Vermont physician form that a medical marijuana patient have signed to join the registry reads more like an indemnification protecting the doctor than an endorsement of the treatment.

As a result of this conservative framework, when legislation allowed dispensaries to open in 2011 (answering the patient question of ‘where do I get my medical marijuana’), the state strictly forbade any advertising. As Director Lindsey Wells of the Vermont Marijuana Program explained, the intention was to avoid a situation like California, where a relatively healthy person could abuse a program that was initiated and passed to serve medical marijuana patients suffering the most:

“The spirit of the law and the advertising restriction was to dis-incentivize people to sign up for the registry because of a sale or because of prices, it should be for legitimate treatment purposes. You’re not allowed to advertise, but provide information —if there’s a sale or a bumper crop, that information should only be for existing patients, not the public.”

Advertising Versus Informing

In the conservative context of the Vermont medical marijuana registry, the dispensaries have all taken extreme cautions to avoid actions that might be construed as advertising. So much so that until this week’s website updates, neither registered Vermont patients, nor inquiring lawmakers, could view compare the prices or selections.

This information is especially significant because presently, when a patient choses his or her dispensary, he or she is initiating a monogamous relationship: The patient can only buy the products available at that dispensary. Until this week, a patient at the Montpelier dispensary would have no way to know the differing strains, edibles, oils, salves, or other products that might be available in Burlington, Bratttleboro, or Brandon. Even if he/she was able to view the lists of available products online, patients still can’t purchase from a different dispensary without changing their affiliation, a process that takes 30 days and costs a $25 processing fee.

So the question at the heart of the issue: If a medical marijuana dispensary displays its prices and selection passively on their own website, is it displaying information or engaging in the kind of California walk-in medical marijuana advertising the state sought to discourage?

When Wells was posed this question directly, she confirmed that, yes, dispensaries could display their websites and prices, and noted that in the spirit of the law, the state just doesn’t want the dispensaries using discounts to incentivize people to register as patients.

“For example, if a dispensary had a bumper crop of a strain and was able to offer a discounted or sale price, they could share that information privately to their registered patients … A website shouldn’t have a banner ad showing ‘10% off’ or something to that effect, but showing prices and their selection is information, not advertising.”

The lack of ability to advertise, and the concern about walking the line are a huge factor for Vermont dispensaries: When asked about their biggest challenges in serving patients, all four Vermont dispensaries indicated that the inability to advertise as a major obstacle.

Indeed, the Vermont Patients Alliance (who changed back their website to limit the menu to registered patients since speaking to Heady Vermont) representative said the dispensary would prefer to be more transparent to the public and their members and display their prices and selection publicly, but did not because of concerns they might be interpreted as ‘advertising.’

Lisa Marien is the director of operations at Grassroots Vermont, the Brandon-based dispensary that is the smallest in the state. As a relevant aside, Grassroots Vermont currently has the most comprehensive statewide delivery program, presently bringing medical marijuana products to a few dozen patients from Derby Line to Stamford for a maximum cost of $20. Earlier this year, CVD/SVW rolled out their delivery service, which they plan to expand as time increases; VPA also intends to provide delivery services.

Unlike the other three dispensaries, Grassroots Vermont had previously posted their price range ($10 – $14.50/gram across the board for flower, depending on strain) and a sample menu online. Marien and her partners had (correctly) determined that displaying a menu and a price range on the website was permitted, and explained that while they’re not advertising, displaying information online can help discourage stigmatization, a big obstacle for potential patients hesitant to formally register as patients.

Without the ability to advertise, we are stunted in our outreach efforts, so creating the site is a way we can educate the general public about the medicine and services we provide and how they can join the program. So far the patient feedback on the website is more centered on the instantaneous online scheduling feature, but we certainly get comments on how the pictures of the flowers and the descriptions of the medical benefits inspired them. We find a lot of patients are still responding to the stigma of the “pot head” and to see that real people are accessing real medicine at Grassroots Vermont is giving folks the courage to try it themselves.

In Burlington, a new shop recently opened on the Burlington bike path called the CVD Shop. That store is adjacent to the CVD dispensary and shares ownership, but as a separate entity that does not engage in medical marijuana activities, they’re free to advertise their legal cannabis products (CBD-only salves, patches, and even dog chews) to the public and encourage them to ‘ask about medical marijuana.’ The management of those shops is presently working on opening a similar space in Brattleboro, adjacent to the SVW medical marijuana dispensary, which cannot advertise publicly.

For Executive Director Shayne Lynn of CVD/SVW, displaying the prices and selection on the web site was a part of updating the website, not a strategic shift.

“Our last website was three years old, and in redesigning our site we took the approach to just provide more information,” Lynn said.

Dispensary Dues

The dispensaries note that their issues start with the structure their organizations are forced to take — although they’re nonprofit organizations, because of federal restrictions surrounding controlled substances, they actually pay more taxes than a conventional business.

Lynn explained that due to federal restrictions, unlike a ‘normal’ business, marijuana businesses can’t deduct any of their costs.

“Annual application of IRS Code 280E which states that any trade or business consisting of trafficking in controlled substances can only deduct those costs directly associate with the cost of production (cost of goods sold). Meaning, all dispensaries will pay tax on their gross sales and cannot deduct any administrative or overhead expenses. This poses an enormous burden on dispensaries and is a large driver of additional cost of the product.”

The Vermont Patients Alliance representative concurred, noting that over 25% of their sales go directly to taxes.

Furthermore, both VPA and Lynn noted that because the dispensaries must operate as nonprofit organizations, they’re unable to sell equity and raise capital to operate. But because of the IRS 280E restriction, they don’t realize any tax advantages to being a nonprofit.

The VPA rep noted they certainly are a nonprofit in the truest sense, and that for many of their products, the margins are actually negative. “With Rick Simpson oil, for example, a product that’s intensive to make (requiring a lot of marijuana plant material, not to mention the expertise), we take a huge loss. We make it because we know that our patients need it, and we keep the price low.”

The VPA also noted that part of their costs come from the fact that despite the razor-thin margins, they’re committed to paying their employees a livable wage and offer insurance. Lynn too noted that his company had started offering employees health and dental insurance and has the goal to pay a livable wage by January.

The major costs faced by all four dispensaries are institutional: an annual licensing fee of $25,000 and a biennial audit (that Grassroots Vermont said costs them approximately $20,000 to undertake). In addition to those base costs, Lynn also noted the high costs of the testing and the other required

Weekly batch laboratory testing on-site

Annual fingerprint and state card fees incurred for all employees of the organization

Robust security system and monitoring fees

Going back to the original concerns with diversion into the criminal market, Lynn also noted that the state had previously not wanted to encourage too low of a cost for medical marijuana. “The state of Vermont frowns upon prices that are too low as it may cause diversion to the black market (patients buying our product legally and turning around and selling it on the black market),” he said.

The Future

Today, the Joint Legislative Justice Outreach Committee is hearing a full day of testimony related to the medical marijuana program. On Friday morning, all four dispensaries testified, asking the state to remove the pointless nonprofit distinction, as well as remove the ban on advertising.

A representative of the Vermont Patients Alliance who testified today also noted that instead of the list of qualifying conditions, the state should allow medical professionals to recommend medical marijuana directly.

In addition to the existing dispensary groups, “Vermont Pharma,” a company (on paper only) established in 2016 with a Bennington mailing address, and a Pennsylvania address of incorporation, spent 45 minutes making the case to the powerful committee that there need to be more dispensaries in Vermont.

With broad agreement that the program faces structural challenges, and that reforms would benefit patients — present and future — the pace of reform for the Vermont medical marijuana program seems to be gaining steam. A full report on today’s Committee testimonies and discussions will be available next week.