Lawmakers hear cannabis market, tax and S.278 primer as regulators flag market and enforcement pressures

James Pepper, chair of the Cannabis Control Board, told the House Government Operations & Military Affairs committee that Vermont's regulated cannabis market has matured but faces structural pressures that affect licensing, prices and tax revenue.

"For the record, my name is James Pepper. I'm chair of the cannabis control board," Pepper said, and walked the committee through slides on license counts, market geography and regulatory requirements.

Pepper said the state briefly saw a spike in license applications in April 2025 when the board stopped issuing some new cultivation and retail licenses, and that cultivators now make up more than half of active licensees. He pointed to retail density in Burlington and Morrisville as an expected outcome of Act 164's default opt‑out rule, which requires an affirmative local vote to allow retail stores.

On regulatory controls, Pepper described Vermont's product registration system that requires all products to be submitted to the board for approval before reaching retail shelves and said the board registered "over 5,000 products" in 2025 across flower strains, vape cartridges, concentrates and edibles. He also told the committee the board had 442 complaints in its system and uses a graduated enforcement process from letters of warning to notices of violation and administrative penalties.

Pepper summarized how the taxes on retail cannabis flow: Vermont levies a 14% cannabis excise tax and a 6% sales tax. "Thirty percent of that, sales or the excise tax goes to a special fund that's overseen by the Department of Health," he said, describing that fund as dedicated to substance-misuse prevention. The remaining 70% of the excise tax goes to the general fund, and the sales and use tax revenue is directed to the universal after‑school and summer special fund administered by the Agency of Education.

The chair also reviewed S.278, a bill before the committee. Key provisions Pepper highlighted include proposals to increase per‑package THC limits from 100 mg to 200 mg, raise single‑transaction flower limits from 1 ounce to 2 ounces, create two‑year pilot permits for cannabis events and delivery, reduce outdoor cultivation fees by half, expand municipal authority over certain establishments, broaden the cannabis business development fund to include economic empowerment applicants and tier‑1 cultivators, authorize the governor to negotiate interstate commerce compacts (subject to four triggers), and prohibit landlords from banning non‑smokeable cannabis use in leases.

Pepper cautioned that several S.278 measures are contingent on triggering events (for example, a change in federal law or an advisory opinion), so the interstate-commerce authority would not take effect immediately. He framed the bill as a mix of technical cleanups requested by the Tax Department and substantive changes that alter per‑package and per‑transaction limits and business supports.

On business viability, Pepper described federal tax constraints under Internal Revenue Code section 280E, which bars federal deductions for businesses trafficking in Schedule I or II substances and can leave cannabis companies taxed on gross income rather than net profit. He said that federal law has been a major headwind for regulated operators and cited about 70 relinquished licenses last year.

The committee paused for a Joint Fiscal Office presentation for more detailed revenue forecasts and will reconvene for further testimony in the afternoon on related bills.