Medical dispensaries first to sell recreational marijuana

After voters approved two legalization measures in November, many of Montana's medical marijuana dispensaries are expected to seek licenses to sell their products for recreational use beginning next fall.

While that presents some big opportunities for pot sellers, it also could bring some significant challenges.

Initiative 190, which passed with 57% of the vote alongside a companion amendment to the state constitution, gives the Montana Department of Revenue until Oct. 1, 2021, to begin accepting license applications. Growers and retailers already licensed to deal in medical cannabis will be first in line; others will be able to apply after the first year.

Some Flathead County dispensary owners say they're excited about the prospect of opening sales to recreational users, but they worry about the potential for larger competitors to swoop in from other states and dominate the market. Many expect medical marijuana patients will continue using their medical cards, as prices for recreational products are expected to be higher at first due to limited competition and a 20% sales tax. Some dispensaries will be allowed to sell pot for both recreational and medical use.

"We're concerned about many medical patients," said Jamie Boles, manager of the Modern Medicinal MT dispensary near Columbia Falls. "The recreational will [have] a 20% tax, which is pretty steep for quite a few patients that we see. So I think there will still be a pretty big medical following. I think a lot of people will keep their medical cards rather than going recreational. So I don't know how it's going to affect the industry right off the bat."

Zackary Block, who owns the Montana Canna dispensary along U.S. 2 west of Kalispell, said he anticipates some "growing pains" as his business moves into the recreational market. In addition to that initial price disparity, Block said he worries about an influx of low-quality marijuana products flooding the market.

Block opened his shop in 2019, just before Montana moved to "untether" patients from medical marijuana providers, allowing them to purchase from any provider in the state and resulting in a previously unseen degree of competition.

"I got into the business knowing that it was going to be this brand-new industry with a lot of rapid changes," Block said. "And that's been exactly the case – a lot of changes."

BEFORE THE Department of Revenue begins accepting applications, it will have to establish rules and heed any additional direction from the Legislature, which will begin its 2021 session early next month. Department spokesman Sanjay Talwani said lawmakers will have to allocate funding to implement the licensing program, but other actions related to recreational marijuana are yet to be seen.

"We have begun assessing the large job ahead to implement the initiative, and we will follow any direction from the Legislature. So, it is far too early in this process to speculate on possible details of this program," Talwani said in an email.

Dozens of bills related to marijuana are in the works, though it's unclear whether the Republican-controlled Legislature will have an appetite to approve major restrictions on the recreational market. Rep. Derek Skees, R-Kalispell, drafted a bill to repeal I-190 before it passed, but later said he was abandoning the proposal because he didn't want to contest the will of voters.

Sen. David Howard, R-Park City, who has called marijuana "the most dangerous drug there is," is again pushing a bill to "reaffirm that Schedule 1 drugs are illegal in Montana."

J.D. "Pepper" Petersen, a consultant who led the New Approach Montana committee that backed I-190, now leads the Montana Cannabis Guild, a trade group that will lobby lawmakers in Helena next year. He said he anticipates some lawmakers will wage an "ideological war" over marijuana. But he suggested some might be reluctant to inhibit a new industry that promises to generate tens of millions of dollars in tax revenue.

With declining tax revenue from the coal industry and a large percentage of Montana's businesses at risk of closing due to the COVID-19 pandemic, "where's the money going to come from for mental-health services and Medicaid expansion and school bonds?" Petersen asked.

He also emphasized that local governments will have the power to restrict where cannabis businesses can be located. And he said the state will be able to manage the market's early growth. After recreational licenses are granted to existing medical businesses during the first year, he said, new applicants will be subject to Montana residency requirements.

"It's going to continue to be this group of people that we already have in the system for the next five years at minimum," Petersen said.

"Our initial big concern was big business would move in and put out all the little guys that have worked so hard to mold the medical industry," said Boles, with Modern Medicinal MT. "But they kind of addressed that."

Petersen said a legal, regulated and taxed recreational pot industry is better than a black market.

"We're not creating a new market," he said. "We're legitimizing an existing market."

And while that industry won't begin taking shape until next fall, Petersen noted that Montana's adults 21 and older will begin seeing changes much sooner thanks to I-190.

"As of Jan. 1, you can grow eight plants at your house. Four per adult," he said. "You have to keep them out of sight and stuff like that. But, I mean, we've decriminalized successfully. And that's before the Legislature even starts."