Technically, it’s not. Connecticut’s “official nickname”—there is such a thing—is the “Constitution State” because of historian John Fiske’s claim that the Fundamental Orders of 1638/1639 were the first written constitution in history.
But now to the issue at hand, the spiced sobriquet: Connecticut’s most popularly used unofficial nickname is that of the Nutmeg State. During the 18th and 19th centuries, several associations between the state and the spice emerged. Early sailors would bring the valuable seed back on their foreign voyages. Over time, Yankee peddlers developed a reputation for selling fake nutmegs made of carved wood.
The first recorded instance of this accusation was in a popular newspaper column of the mid-1800s, "The Sayings and Doings of Samuel Slick, of Slickville," which appeared in the Novascotian and featured the wry observations of a character created by Thomas Haliburton. In a column entitled “The Preacher that Wandered from His Text,” Samuel Slick accuses a fictional Captain John Allspice of Nahant of having "carried a cargo once there of fifty barrels of nutmegs: well, he put half a bushel of good ones into each end of the barrel, and the rest he filled up with wooden ones, so like the real thing, no soul could tell the difference until HE BIT ONE WITH HIS TEETH, and that he never thought of doing, until he was first BIT HIMSELF. Well, its been a standing joke with them southerners agin us ever since.”
Later, it was suggested that it was the confused Southerners to blame for these mix-ups. In a 1980 issue of Connecticut Magazine, Elizabeth Abbe suggested that Southern customers were unaware that nutmeg had to be grated, and instead wrongly thought that the Yankee merchants were trying to scam them.
She writes, "unknowing buyers may have failed to grate nutmegs, thinking they had to be cracked like a walnut. Nutmegs are wood, and bounce when struck. If southern customers did not grate them, they may very well have accused the Yankees of selling useless ‘wooden’ nutmegs, unaware that they wear down to a pungent powder to season pies and breads.”
Finally, it’s possible that no one tried to sell wooden nutmegs and no one accused anyone of selling wooden nutmegs but that the term simply derived as reference to the fictional Samuel Slick column as shorthand for how shrewd Connecticut residents were—suggesting that, like Captain John Allspice, they would have attempted such a stunt.