Vermont Marijuana Business

What is the Demand for Marijuana in Vermont?

The demand for cannabis in Vermont has grown since the state began the sale of adult-use cannabis in late 2022. Licensed recreational dispensaries have often experienced long lines since October. Due to licenses not being available until the middle of the growing season, the state has experienced high demand and limited supply of recreational cannabis. According to the Vermont Cannabis Control Board, although 120,000 square feet of indoor canopy for growing cannabis were licensed, approximately 88,000 are being used as of early 2023. Also, while 450,000 square feet of outdoor cultivation were licensed, only 225,000 were estimated to be in use.

Vermont experienced a significant surge in retail cannabis sales during November, marking the second month of such operations. Retailers across the state successfully generated over $3.8 million in revenue from the sale of cannabis products, surpassing the figures from October by a significant margin. In October, a state report revealed that sales topped $2.6 million. Also, within the initial three months of the legal market's operation—spanning October, November, and December, Vermont's retail cannabis sales exceeded a remarkable $6.1 million.

At the beginning of November, there were only around 9 or 10 dispensaries operational in the state. However, by the month's end, this number had nearly doubled. The Vermont Control Board continuously issued dispensary and manufacturing licenses, allowing for a steady expansion of the market. While only three cannabis dispensaries were licensed to sell cannabis as of the opening weekend for legal adult-use cannabis sales in October 2022, today, there are over 50 licensed cannabis dispensaries in Vermont.

Vermont expects demand for recreational cannabis to keep increasing for the foreseeable future, with a state report projecting that while medical cannabis sales will flatten out between the $12 million and $15 million mark, recreational cannabis sales are expected to top $220 million before 2026.

How is Marijuana Taxed in Vermont?

Vermont has implemented a 14% excise tax on the retail sale of marijuana and marijuana products, which includes any food or beverages containing cannabis or cannabis derivatives. During a taxable sales transaction, cannabis retailers and integrated licensees are required to collect the excise tax directly from the purchasers. The responsibility of paying the cannabis excise tax falls upon the retail purchasers, while the businesses conducting the sales have an obligation to collect and remit the tax to the state Department of Taxes. Note that the purchase or sale of cannabis for the purpose of resale, such as when a cultivator sells to a retailer, is exempt from cannabis excise tax since it does not qualify as a retail transaction. Still, a cannabis cultivator may be required to pay sales tax on all parts of the cannabis plant, including:

• The resin extracted from any of the plant parts
• Seeds
• Compound, manufacture, derivative, salt, mixture, or preparation of the plant, its seeds, or resin

Vermont allows some limited exemptions to the cannabis excise tax. A sale is exempt from cannabis excise tax if it is:

• Made by a licensed medical cannabis dispensary and only to a registered qualifying patient or through a registered caregiver
• A sale where the State of Vermont lacks the authority to impose a tax on a purchaser. This could occur if the State or federal government makes a purchase and on some other rare occasions

Businesses engaged in retail sales of cannabis and cannabis products are also required to collect the following taxes from customers at the point of sale:

• Sales and Use Tax: Sales Tax in Vermont is applicable to the retail sales of tangible personal property unless specifically exempted by law. The current sales tax rate is set at 6%. Additionally, Vermont imposes a Use Tax on buyers at the same rate as the sales tax.

  In Vermont, the sales tax exemption for food does not extend to cannabis and cannabis products, even if they are infused into food items. According to Vermont law, retailers are obligated to collect sales tax at the time and point of a sale. The sales tax is determined based on the destination where the buyer takes possession of the item or where it is delivered. Businesses have the responsibility of collecting sales tax from their customers and subsequently filing and remitting the tax to the State.

  Regarding cannabis businesses, they may be subject to sales and use tax on their purchases for business purposes. The state’s exemption on sales and use tax on agricultural machinery and equipment do not apply to an item purchased to be used for cannabis cultivation. However, the state may allow the exemption to apply if the agricultural machinery and equipment if these items are used to produce another crop for 75% or more of the time.

  Vermont Use Tax is a tax levied at a rate of 6% on taxable items when a seller does not collect sales tax on those items within Vermont. Although the regulated retail sale of cannabis is not likely to involve the use tax, it may be applicable to businesses engaged in the sale and purchase of non-cannabis products

• Local Option Tax, if applicable: Apart from the state sales and use tax, businesses may have an additional responsibility of collecting and remitting a 1% local option tax imposed by certain municipalities in Vermont. These municipalities have the choice to impose a local option tax on meals and alcohol, accommodations, and any items that are subject to the sales tax. While cannabis is subject to local option sales taxes, it is not subject to local option meals tax. Local option tax is determined based on the destination of the sale

Both cannabis excise tax and sales tax are based solely on the product's price. The total tax rate should be 20% of the sales price before taxes. However, if a local option tax is applicable in the municipality where the sale takes place, the combined tax rate increases to 21%. Note that the cannabis excise tax must be clearly distinguished and listed separately from the general sales tax on the receipt provided to the purchaser.

For instance, if the worth of a cannabis product procured from a retailer is $50, the retailer must state on the receipt a $7 (14%) excise tax and $3 (6%) sales and use tax in a municipality where local option tax does not apply. Hence, the total fee paid for the product becomes $60. In a municipality where a local option tax applies, the addition of an extra $1 local option tax means the price for a $50 cannabis or cannabis product becomes $61.

As mandated by state legislation, a portion of the excise tax revenue serves to fill any shortfall in the control board's budget. After addressing the deficit, 70 percent of the remaining funds are allocated to the state general fund, while the remaining 30 percent is designated for a "substance misuse and prevention fund." Additionally, the sales tax revenue generated from cannabis sales is specifically earmarked for after-school and summer learning programs.

For more information on cannabis taxes in Vermont, see the Vermont Cannabis Tax Guide.

What is the Agency Taxing Marijuana Business in Vermont?

The Vermont Department of Taxes carries out the collection of cannabis tax in Vermont. Before starting their retail cannabis operations, businesses are legally mandated to register with the Department of Taxes to establish the necessary tax accounts. The registration process allows businesses to register for multiple accounts simultaneously, and it is free of charge. The Department of Taxes Business Center offers resources and tools to assist businesses in getting started.

Cannabis retailers and integrated licensees must register for both cannabis excise tax and sales and use tax accounts. If a business already has a sales and use tax account, there is no need to register for a separate account when registering for the cannabis excise tax. Additionally, if a business plans to hire employees, the entity must also register for a Vermont withholding tax account. However, a meals and rooms tax account is only necessary if the business offers rooms or sells meals unrelated to cannabis. Once registered, the Department of Taxes will issue licenses for the cannabis excise tax and sales and use tax, which must be prominently displayed on the business premises.

Retailers and integrated licensees are obligated to file a monthly cannabis excise tax return by the 25th of each month for sales made in the previous calendar month. For example, sales made in July must be reported by August 25th. The filing is done electronically through the myVTax portal, following the instructions provided to the licensee during the business registration process. The tax payment is remitted electronically at the time of filing the return. Individuals involved in business operations hold personal and individual responsibility for ensuring the proper payment and collection of the tax. In the case of corporations or similar entities, personal liability extends to any officer or agent associated with the entity. Failure to comply with tax regulations can result in penalties and interest for the business arising from the incorrect collection or remittance of the tax.

Furthermore, retailers and integrated licensees are required to maintain accurate records documenting all transactions subject to the cannabis excise tax for a minimum of three years. These records are subject to inspection by the Department of Taxes during regular business hours.

For more information about tax payments in Vermont, contact:

Vermont Department of Taxes

133 State Street

1st Floor

Montpelier, VT 05633-1401

Email: tax.business@vermont.gov

Phone: (802) 828-2551

Fax: (802) 828-5787