Stakeholders in Montana's medical marijuana industry brought forth concerns on Wednesday as department administrators gave updates on an ongoing rule-making process.
The Revenue and Transportation Interim Committee of the Montana Legislature heard testimony on Senate Bill 333, which outlined new rules for the program and was passed earlier this year.
While some new rules are already in practice, some larger changes passed by the Legislature are still being drawn up by regulators. The Montana Department of Public Health and Human Services has until the end of April to finalize rules on larger provisions like product tracking and testing.
“We are putting a lot of effort into getting this regulatory framework in place,” said Brian Watson, quality assurance division administrator for the health department.
He said that most rules should be ready for public review by the end of the year.
Testing, tracking product
Rules around medical marijuana testing and so-called seed-to-sale tracking will require the most regulatory planning, leaving some prospective and current business owners waiting to make investments.
The state has already started issuing temporary licenses to testing laboratories. At Wednesday's committee meeting, two lab owners requested more clarity on what they will be testing for — particularly heavy metals and pesticides, which require expensive equipment.
The law calls for testing of pesticides, solvents, water levels and mold but leaves the door open for "other contaminants."
Others raised concern about the extent to which medical marijuana providers could hire third-party businesses, and how that would relate to complete tracking of the product.
Committee chair Rep. Tom Jacobson, D-Great Falls, and Sen. Jill Cohenour, D-East Helena, questioned whether an employee, as defined in the bill, included a third-party company.
Jacobson said that during the legislative session, his impression was that seed-to-sale tracking would be an in-house process.
“This would be under one roof," he said. "Whoever is owning the dispensary would be growing it from seed to sale and then doing all the work for the concentrates.”
Watson said a third party could be considered an employee under the law, and an entity in that situation would then come under the health department's oversight.
Kate Cholewa, a lobbyist for the Montana Cannabis Industry Association, said that much of the "wild west" industry in Montana prior to 2011 stemmed from third-party companies acting as employees.
“We are extremely sensitive to people trying to work around the laws to have subcontractors call themselves employees,” she said.
She was concerned that it left room for abuse of the system if medical marijuana products were being transferred, and potentially sold, between providers and third parties without adequate oversight.
She added that cannabis tracking, set for April, should help avoid potential abuses.
A representative of the Montana Department of Revenue also gave the committee and update on one part of the new program already in progress: tax collection on medical marijuana gross sales.
Lee Baerlocher, administrator of the business and income taxes division, said that the department's transition largely involves educating providers on how to collect and pay the taxes.
SB 333 set up a 4-percent tax on the gross sales, which providers needed to add to their books on July 1. The first quarterly returns are due Oct. 15.
The tax will become 2 percent in July 2018.
Baerlocher said that collection has been set up much like other taxes, except that they're anticipating a large amount of cash from medical marijuana providers.
Marijuana businesses, both in the medical and recreational industries, have been cash-heavy operations. One reason is that some banks, which are federally regulated, have been uneasy about working with a business that deals in federally illegal substances.
The environment is more friendly to marijuana businesses than it once was, Baerlocher said, but Montana providers still might bring in large amounts of bills. It's still unclear how much.
“We think we have a resolution on that," he said. "I’ll let you know come October, but we anticipate that we will be busy on the cash side.”
As far as taxation in third-party transactions, Baerlocher said the medical marijuana tax applies only to providers who sell to registered patients. Income tax, however, would be assessed normally for a third-party business.
According to the health department, there were 18,953 registered medical marijuana patients and 616 providers in the state as of August. There were about 7,500 patients in November, when voters approved a ballot initiative to expand and regulate the program.