OK, so 3.5 of RetroPie auto expands the SD’s file system, so if you want to host RetroPie from USB, you have to boot from SD and let it auto expand the FS and reboot.
Though you can not let it reboot back into EmulationStation because if you set up the controller, then copy the file system to USB and boot off of it; then EmulationStation will claim that no controllers are detected. For what ever reason, you have to set them up when booting fully into EmulationStation off USB, not SD, for the first time.