Montana's small-scale medical marijuana businesses this week are decrying a court ruling in favor of the state's apex provider, saying the result of that ruling, however temporary, could put some of them out of business.
Josh Saksa, grower and part-owner of A Perfect Cure MT in Helena, just invested in extraction equipment to diversify the products on his shelves, but can’t get a license. That’s because last month, legislation updating the Montana Medical Marijuana Act put a moratorium in place on any new licenses for providers until every provider is compliant with the state’s seed-to-sale tracking system.
That tracking system was supposed to be the gold standard for transparency in Montana's medical marijuana industry. By tracing the product from a seed to growth, every time the plant physically moved, all the way to which patient bought it, the Montana Department of Public Health and Human Services would be able to see if any product slips out into the black market.
The largest provider in the state with more than 4,000 patients, Lionheart Caregiving is not fully aboard this tracking system. That’s why DPHHS rejected applications for five new Lionheart facilities — four grow operations and a dispensary — in March.
But Lionheart filed a civil action against DPHHS in Missoula District Court asking a judge to override that rejection and allow farmers to get seeds in the ground. Judge Robert “Dusty” Deschamps ordered DPHHS approve those sites until June 21, and scheduled a hearing on the matter for Wednesday.
Saksa, meanwhile, just invested between $3,000 and $5,000 in new extraction equipment but can’t fire that new equipment up without a license, and DPHHS won’t issue him one until all providers are compliant with the tracking system.
As Lionheart pushes back on the health department, amid reports by the department in recent court documents describing “unlawful conduct” and "blatant violations," court orders continue to fall its way.
At A Perfect Cure MT, on a starved budget and no return on his investment, Saksa said he can’t afford an attorney to take on the health department in court. He didn’t even see the moratorium coming when Senate Bill 265 clarifying the state's medical marijuana regulations passed the Legislature, so A Perfect Cure’s timing on its investment was uninformed. Now?
“We’re at a point already where we’re pretty detrimentally hurt,” Saksa said. “We’re really at the bottom.”
A DPHHS spokesman said Lionheart is not the only provider with compliance issues, "which may or may not be related" to the state's tracking system. As of Friday, 27 providers are facing compliance issues and 238 are compliant.
Talyn Lang, owner of Heirloom Remedies in Victor, has been active in the medical marijuana industry since 2007, both in business and policy reforms. He thinks Deschamps' ruling goes against what lawmakers and stakeholders have tried doing in recent years in promoting transparency and cracking down on non-compliance.
"Unfortunately, I think the message that's being sent to the rest of the medical marijuana community because of this judge's ruling is it's OK to thumb your nose at the law and not follow it and be compliant," he said. "That profits are going to come before compliance."
So while providers say the big-picture problems that follow this litigation in Missoula District Court could turn the tide on legitimizing the industry or maybe attract the attention of federal law enforcement, Saksa just wants to avoid falling victim to the industry's growing pains.
"I'm not against Lionheart, I think there's a place for everyone in this system," he said. "But I also don't want to be affected personally by a ruling that came out because of this giant mess."
Lionheart argues it's trying to comply with state regulations and is tracking its products in its own system as it tries to transfer that data to the state. Josh Van de Wetering, who represents Lionheart in three separate civil actions against the department, said that Lionheart and the smaller providers are basically on the same side; Lionheart simply has the resources to push back on the department's interpretation on compliance.
"They're right about that, they shouldn't have to hire a lawyer to operate their business," he said. "Lionheart shouldn't either.
"This stuff has to be sorted out," he added. "Not to act like litigation is an offense somehow, but when you have new rules there is invariably going to be interpretation."
The health department’s response to Lionheart, filed in April, outlines “blatant violations” of state rules over the Montana Medical Marijuana program. They include:
- Out-of-state transactions
- Provider-to-provider transactions
- Selling marijuana that hasn’t been tested, packaged or labeled in compliance with state regulations
In one inspection earlier that month, Lionheart employees could not explain to inspectors the source of 3.7 pounds of marijuana at the Bozeman dispensary. The product was outside the state tracking system, even though Deschamps had ordered DPHHS to allow Lionheart into the tracking system four months earlier.
Department attorney Andrew Huff also described the department’s “serious concerns about diversion,” and how it was unable to track marijuana and marijuana product when it moved from Lionheart’s facilities. In March, inspectors also found a package of marijuana product that was labeled as if it had been entered into the tracking system, although it had not, according to court documents.
Van de Wetering countered that the health department and others who allege wrongdoing on Lionheart's part have not provided factual evidence.
"Here's the bottom line — Lionheart has not done the things it's been accused of doing," Van de Wetering said. "Where's the damn proof?"
He said Lionheart has brought this case into the sunlight of open court to defend itself and, if he's right, that result should then benefit all providers from mishandling by the state.
"What do they want Lionheart to do?" he said, "roll over and let the state lie about them?"
In early June, when asked how Lionheart is able to operate at all considering compliance issues, DPHHS spokesman Jon Ebelt said the department is working with providers while it installs a relatively new regulatory system that had “minimal oversight” prior to new laws in 2017.
“The department worked with existing registered providers to remain in operation while becoming compliant with new laws,” he said.
The department last month took action against Lionheart’s license and is addressing those compliance issues in an administrative process; the department has declined to describe the nature of that action, but said Lionheart is still allowed to continue existing operations while that process is ongoing.
Meanwhile, Matt Martin, owner at Elevate in Billings, said conducting business this way means patients — of which Lionheart has the largest share in the state — could be subject to federal prosecution.
“It’s maddening,” he said. “It puts us all in jeopardy because the feds don't care. It’s the risk of federal enforcement or the state throwing their hands up and saying, 'That's it.’”
The health department said in a June 7 email it anticipated being able to lift the moratorium on new licenses in the coming weeks, but Saksa said this week he might not have that much time.
“We’re losing patients, we’re losing money and we’re losing time and we're still not getting our license,” he said. “This was supposed to clean all this mess up and all it's done is dirty the water even more.”