New Market: Montana’s MMJ industry rising from the ashes, awaiting major changes

This is the third article in a series looking at the potential cannabis market in each of the eight states that approved recreational or medical marijuana initiatives in the 2016 election. Check back each week through mid-January for new entries. Click here for previous installments

By Bart Schaneman

The campaign to revive Montana’s medical marijuana industry has succeeded, but state lawmakers still need to write the many rules that will govern businesses in a market that must be rebuilt.

Last month, some 58% of Montanans approved a ballot initiative to legalize and regulate commercial MMJ cultivation operations and dispensaries.

Within a few years, annual sales via dispensaries in Montana could hit $25 million-$35 million, according to initial estimates by Marijuana Business Daily.

The vote repealed a law that decimated the state’s medical cannabis industry this past summer.

That law, passed by Montana lawmakers in 2011, didn’t take effect until the end of August, following a protracted court battle. It limited each dispensary to just three patients, a cap far too small to maintain a business.

Since the Nov. 8 vote, Montana’s MMJ industry has faced a circuitous path. Initially, dispensaries weren’t expected to reopen until next June, owing to a drafting error in the wording of the ballot measure, I-182.

Then, last week, state Judge James Reynolds accelerated that timeline by ordering officials to immediately drop the three-patient limit, saying a drafting error shouldn’t prevent people from getting medical cannabis.

Dispensary owners who were forced to close “had great faith that we would be able to get this done in the courtroom and had keys in their hands ready to unlock their doors again,” said Kate Cholewa, a spokeswoman for the Montana Cannabis Industry Association.

Some dispensaries immediately reopened after the judge’s ruling.

Many unknowns

Montana’s medical cannabis businesses are eager to rebuild the industry. But MMJ entrepreneurs face several unknowns and hurdles.

MMJ businesses that were shuttered last August ultimately will have to apply for licenses. But state lawmakers must first finalize the rules, probably by next summer. Businesses also will face new regulations. Previously, MMJ businesses faced no statewide regulations, although some local municipalities imposed their own rules.

It’s not clear, however, what rules lawmakers ultimately will pass.

The legislature has immense power over Montana’s MMJ industry – given that I-182 is a statute versus an amendment to the state constitution – and lawmakers are expected to confront a flurry of bills.

“There’s so much to work out now. We’re almost starting from scratch again,” said Bob Devine, president of the Montana Cannabis Industry Association and a dispensary owner in Bozeman.

On the plus side, entrepreneurs will have opportunities to launch ancillary businesses like testing labs, lighting supplies, accounting practices and other firms.

The initiative’s addition of post-traumatic stress disorder to the MMJ conditions list should have a notable impact on the patient pool. Also, a more tightly regulated market could reassure consumers and inspire more to try medical cannabis.

“I’ve always felt that regulations and requirements are a win-win for everybody in the state,” Devine said.

Business opportunities

The revival of Montana’s medical cannabis industry will no doubt open new opportunities for dispensaries, growers, and a variety of ancillary businesses.

Lab testing could provide a new line of business, for example, although no ground rules have been established for that sector.

The 2011 law wiped out the state’s labs, and testing is expected to become part of the industry again. But new legislation must be approved to make testing mandatory.

“Chances are we will have mandatory testing here, so I see a great opportunity there,” Devine said. Under I-182, dispensary owners can’t have a financial stake in a lab.

For out-of-state entrepreneurs, Devine doesn’t consider Montana as lucrative as other markets with higher population densities.

The state is the fourth-largest in land mass, but with just over a million people it ranks 44th in population.

Setting up a storefront in a modest-sized Montana town, for example, won’t reap the kind of rewards that an investor could see in more populous states like California or Florida.

Number, type of licenses

As of early this year, Montana had 50-60 dispensaries, according to the Marijuana Business Factbook 2016.

Until lawmakers draft the rules, it’s unclear what types of licenses – for cultivation, infused manufacturing, etc. – will be available and in what quantities.

Currently, there is no limit on licenses or the number of dispensaries MMJ businesses can own.

The lack of a license cap could change, based on what lawmakers decide. Lawmakers also must spell out rules governing the licensing process for new entrants. Devine said any new rules could include application fees, canopy limits and a seed-to-sale system.

As noted, MMJ businesses that were closed last August ultimately will have to apply for a license.

Conditions list, patient count

MMJ advocates for years have sought to add PTSD to the medical conditions list.

The state’s other conditions include:

  • Cancer
  • Glaucoma
  • HIV/AIDS
  • Cachexia or wasting syndrome
  • Intractable nausea or vomiting
  • Epilepsy or an intractable seizure disorder
  • Multiple sclerosis
  • Crohn’s disease
  • Painful peripheral neuropathy
  • Central nervous system disorder resulting in chronic, painful spasticity or muscle spasms
  • Admittance into hospice care
  • Severe chronic pain with proof in the form of lab tests or imaging and a second opinion

Before the law imposing the three-patient limit, Montana had 13,200 registered MMJ patients, according to the Marijuana Business Factbook 2016. After the patient cap, that plummeted to an estimated 800 because people had trouble locating an MMJ provider or growing their own.

Industry officials anticipate the patient count ultimately will rebound to 13,000 or more, which would spur the industry’s revival. But Devine noted: “It’s definitely going to take some time to build the patient base back up.”

As of Dec. 14, the Department of Public Health and Human Services had received 1,300 new applications for MMJ cards.

Timeline

The initiative was structured to allow the basic system to relaunch immediately.

The other regulations in the initiative, such as testing and inspections, don’t go into effect until the end of June at the earliest, when the state’s legislative session ends. Many of the regulations probably won’t take effect until the end of 2017 or the beginning of 2018.

Biggest challenges

Dispensaries will have to wait for Montana’s health and human services department to process about 10,000 patient applications over the next several weeks.

And once lawmakers finalize the regulations by June, the entire framework of the state’s market will change, “without question,” Devine said.

Bart Schaneman can be reached at [email protected]

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