Pot law ‘pinch points’ include dispute over cultivator growth

Crow Nation raises concerns about prohibitions on tribes

By: - February 10, 2022 5:56 pm

David Burr demonstrates removing leaves on marijuana plants to allow more light for growth at Essence Vegas’ 54,000-square-foot marijuana cultivation facility on July 6, 2017 in Las Vegas, Nevada. (Photo by Ethan Miller/Getty Images)

Regulators, lawmakers and business owners are still struggling to clear up ambiguities in Montana’s pot law, with a legislative panel tasked with reviewing the first year of recreational marijuana in Montana submitting comments to the state Department of Revenue on Thursday disputing the agency’s approach to regulating how quickly a marijuana cultivator can scale up production.

Comments approved by the Economic Affairs Interim Committee assert that the intent of House Bill 701, the state’s marijuana law, is for marijuana cultivators to be able to rapidly increase their canopy sizes in the next year and a half in order to establish themselves in the market before larger out-of-state firms move in.

The motion by the committee followed testimony in a meeting Wednesday from marijuana business owners and industry representatives decrying the fact that the Department of Revenue had seemingly taken a more restrictive interpretation of state law, one that stipulated a cultivator could only apply to increase to the next tier of production when they went to renew their license.

When we negotiated these bills, it was very obvious we were creating an 18-month ramp up period for existing license holders,” said J.D. “Pepper” Petersen, the president of the Montana Cannabis Guild and a main backer of I-190, the ballot initiative that first legalized recreational marijuana in Montana, at Wednesday’s meeting. “I’ve been disturbed by reports from people saying DOR is saying you’re only gonna be allowed one tier increase per year as a licensee right now. That doesn’t jive with the ramp-up period we designed.”

At the root of the discussion are three key sections of House Bill 701. One of those provisions creates for an 18-month grace period, ending in July of 2023, in which only Montana medical marijuana dispensaries that existed before full legalization can apply for licenses to sell to recreational customers. The second lays out a series of tiered canopy licenses that signify how much a given cultivator can grow: a tier one canopy license allows a licensee to cultivate an area of 1,000 square feet, a tier two license allows for 2,500 square feet at up to two facilities, and so on.

And the third section concerns when licensees can apply to increase their canopies. Generally, a cultivator can only climb one tier at a time, only when they hit capacity under their current license and only concurrent with their regular renewal application. However, the bill creates one caveat: “Between January 1, 2022, and June 30, 2023, a cultivator may increase its licensure level by more than one tier at a time, up to a tier 5 canopy license, without meeting (those requirements).”

Or at least that’s one interpretation. In the department’s eyes, the way the bill was written exempts licensees seeking to tier up from two requirements — that they use their full canopy amount and that the state’s tracking system shows they sold at least 80% of the marijuana they produced over the two previous quarters — but not from the requirement that they can only increase canopy size in conjunction with their license renewal.

Solid month of sales    Recreational marijuana went live in Montana on January 1. Since then, sales between medical and recreational markets have totaled more than $22 million, generating around $3 million in tax revenues, according to the state. “I think things are coming off pretty well thus far,” said Petersen.

“The interpretation by the department is if the Legislature intended for that to be at the discretion of the cultivator, they should have said so,” Jameson Walker, a legislative attorney and committee staffer, told lawmakers on EAIC. 

It’s a very minor technical difference in how the state interprets which provisions the exemption refers to, one rooted practically in the syntax of certain sentences in the bill, but it’s an issue that marijuana businesses said this week has significant implications. In the eyes of Petersen and others, if local marijuana businesses can only increase their canopy by one tier per year, why have an 18-month ramp up period at all?

“Fundamentally the DOR argument goes against the obvious intent of 701 to allow homegrown businesses the opportunity to become competitive in the (period),” Petersen said.

Department officials stood by their interpretation but said DOR is only trying to follow the plain language of the bill, not invent new provisions in law.

“If the plain language of the statute says something, that’s the Legislature’s intent,” department director Brendan Beatty told lawmakers. “Whether they intended to do something else, if it’s clear, that’s what I’m stuck to. If we need to change the intent, please change the language of the statute.”

The committee’s vote on Thursday, the final day of the two-day meeting, was not to change the statute. But a firm signal from lawmakers involved with drafting the bill that they feel the department is veering from the legislation could be significant — pushback from the EAIC during administrative rule-making to implement HB701 has resulted in DOR changing course in the past, specifically following concern that language put forth by the department wouldn’t allow tribes in Montana with licenses to tier up, but that was before pot went live on January 1.

“It’s really now back in the department’s hands to say if they’re gonna take that,” said Rep. Derek Harvey, D-Butte, the committee’s vice chair. 

Other concerns about the fledgling recreational market’s first 40 days came from a delegation from the Crow Nation, the first tribe in Montana to approve a separate ordinance legalizing marijuana. Under HB701, each tribe can hold one marijuana business license and can operate a storefront within 150 air miles of reservation boundaries. But while the Department of Revenue and lawmakers resolved the conflict on whether tribes can increase cultivation under their licenses, the law still regulates tribal marijuana businesses more strictly than non-tribal businesses.

“For the tribe to have only one facility prohibits any opportunity fo the tribe to start a tribal cannabis franchise or to open facilities in various high demand locations,” testified Frank White Clay, the chairman of the Crow Tribe. “It prohibits the tribe form being able to compete with any other entity that wants to operate more than one cannabis facility.”

He and other members of the delegation also called for the Crow and other tribes to be able to enter into compacts with the state so each nation can develop its own approach to regulating marijuana, something not addressed in the bill.

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Arren Kimbel-Sannit
Arren Kimbel-Sannit

Arren Kimbel-Sannit is an Arizona-bred journalist who has covered politics, policy and power building at every level of government. Before getting his dose of northern exposure, Arren worked as a reporter in all manner of Arizona newsrooms, for the Dallas Morning News and for POLITICO in Washington, D.C. He has a special interest in how land-use decisions affect working-class people, which he displayed through reporting on the epidemic of pedestrian deaths in the U.S. for the Los Angeles Times and PBS Newshour. He's also covered housing, agriculture, the Trump presidency and more.