Disagreements in the state’s medical marijuana industry over how the regulatory framework has been implemented — and how to fix it going forward — spilled into the Legislature last week.

Montana’s medical marijuana program has gone through several turbulent iterations since voters first allowed medicinal use of the drug by citizen initiative in 2004. This legislative session, Sen. Tom Jacobson, a Democrat from Great Falls, is carrying a bill that would once again revise the program.

It’s been a long road, and one lawmakers are still navigating. Managing medical marijuana is a challenging proposition given marijuana's Schedule 1 status as an illegal drug at the federal level. Plus there are all of the regular obstacles to maneuver when developing rules for an industry coming into existence.

There are 31,186 medical marijuana patients in the state served by 430 providers that have products tested at four laboratories that assess Montana marijuana products for safety.

What Jacobson says he's proposing is to make the safety testing labs more accountable for the work they do and hold the state more accountable for its role as a regulator of that work.

He also wants to clarify the relationship between businesses that grow medical marijuana and the commercial extraction laboratories that turn the raw product into things like THC.

The effort is not supported by all of the companies within the industry. Opponents say Jacobson's bill jumps the gun by not providing enough time for rules implemented less than a year ago to take full effect. The bill also has a 4 percent tax on gross sales, which opponents say is an inhumane fee to charge on medicine.

A substantial piece of Jacobson's bill clarifies that providers who grow medical marijuana for patients can contract with third-party laboratories and commercial kitchens to process their products, as long as everyone involved is properly licensed. 

This is at the heart of a high-profile industry dispute centered in Missoula, first reported by the Montana Free Press, that highlights the lack of clarity about what's legal.

Two medical marijuana providers in Missoula had contracted with a third-party extraction firm, owned by former Missoula state Rep. Ellie Hill Smith. But other providers have been banned from making similar arrangements and went to court to challenge that decision. Because of the timing of their applications to use the third-party firm, among other factors, they lost.

Kate Cholewa, a lobbyist for the Montana Cannabis Industry Association, said clarification is needed for a fair playing field.

Providers who were following the state’s “vertical integration” model, which required growers to process their own products, spent a lot of money for equipment, Cholewa said. The two Missoula groups who were contracting with Hill's extraction lab didn’t have to make that investment.

From Cholewa's perspective, the 2017 legislation didn't allow providers to use third-party labs. But she believes if some businesses can operate that way, everyone should be allowed to. The Montana Free Press reported the heath department was going to issue additional administrative rules on third-party contracts this month, although it's unclear how Jacobson's legislation affects that process.


Financial conflicts of interest are also better defined in Jacobson's bill. The legislation says owners of the labs that test the safety of marijuana (which are different than the chemical extraction labs) can’t have a financial interest in businesses that cultivate and make medical marijuana products.

“If you’re going to be the oversight, if you’re going to be the one that’s testing to ensure (safety of product), you should not have a financial interest … in those growers or those producers,” Jacobson said. “It’s an obvious conflict of interest that obviously wasn’t so obvious, so now we’re going to make it obvious.”

Opposition to the bill came from several sources, including lab operators involved in the Missoula lawsuit, as well as providers from around the state.

John Speare and Tyler Smith are co-owners of White Buffalo Laboratories, one of the four licensed safety testing facilities in the state. Smith is the husband of former Rep. Ellie Hill Smith. 

The Montana Free Press reported in January that Hill Smith was required by the District Court in Missoula to divest from a THC extraction lab called Willow Bark because of a possible conflict of interest if that company's products were tested at White Buffalo.

Speare and Tyler Smith argued last week against changing the law, saying they've invested half a million dollars into equipment to operate their testing lab and they worry about their investment if the program can't be kept consistent. 

Speare said the rules enacted by the state health department to implement the law passed in 2017 haven't even been in place a year, and more time is needed before deciding to scrap them and bring a replacement.

"We've seen progress and would appreciate the ability to sustain that progress and not further convolute the rules and trip people up," Speare said.

Another part of Jacobson's bill would give a different part of the state health department, the Montana State Environmental Laboratory, oversight of the four privately run labs that are responsible for safety testing.

Speare said he would support that move, but only in a separate bill carried by Rep. Mike Hopkins, a Republican from Missoula, that makes only that change to the medical marijuana program.

But Speare also said labs are "thoroughly regulated currently" and Jacobson's bill would add redundancy that would be passed off in time and cost to labs and providers. Speare and Smith also said labs are already subject to an industry-wide accreditation that's recognized as a national benchmark. That requirement is also in Jacobson's bill.

Smith said he sees the bill as "a solution looking for a problem rather than trying to address real issues in the current law and current departmental rules.” 

He then referenced the lawsuit in Missoula and its role in the bill before the Legislature. 

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“Most of the language derived in this bill … really comes out of misunderstanding, misinformation and at worst fear-mongering. There’s a lot of hearsay out in the industry. You’ve heard in a number of testimonies (saying) 'We’ve heard this is going on.' There's no evidence of it, there’s no fact, there's no logic in a lot of the testimony and actually in the language of the bill. There's not a lot of real sound logic for why we would make changes to the current law, which is a good piece of legislation.”

Douglas Felt, who owns Uncle Bucks Dispensary in Yellowstone County, questioned whether the state could lose federal funds if its laboratory was involved with marijuana. Erica Johnston, the operations services branch manager with the health department, said nothing in the bill would require the state lab to process or possess medical marijuana, so it shouldn't be at risk.


Danielle Muggli, who is a microprovider, was one of several who opposed the tax on medical marijuana. The 2017 law put a tax in place, with money going to pay for the health department's costs to operate the program. In the first 13 months about $1.8 million was generated from the tax. Jacobson's bill would divert excess funds toward educating the public on pain management techniques that don't include opioids.

“I don’t feel like the sick and dying of Montana (should) be paying for that program in any fashion. We are not a recreational state; these people have serious medical conditions and using them as a way to fund programs is not right,” Muggli said.

Jacobson countered that it's important to fund a system to ensure Montanans are getting medical marijuana that's safe, similar to other drugs that are regulated by the Food and Drug Administration with tax dollars.

Another piece of the bill would put into law a tier system for square-footage licensing to better track how much marijuana producers grow — something Jacobson said the health department had failed to do in its rule-making process.

The bill would require a grower to show they're selling 80 percent of what they produce before adding capacity.

“You hear of overproduction all the time. We’ve got to nip this,” Cholewa said. That's happened in Oregon, where media reports have chronicled a backlog of unsold medication.


Jacobson and those in the medical marijuana industry both praised work the Legislature did in 2017 to pass a bill to put voter-demanded sideboards on the program. But supporters of Jacobson's bill say the rules written by the health department to enact what the Legislature passed didn’t stand up to what lawmakers and voters intended.

Jacobson said he didn’t want to “beat up” the health department, but that the Legislature needed to step in and provide more oversight.

“We’re helping the department understand. We’re giving it much clearer direction through statue what we needed to do in rule-making and in regulation and in implementation of the medical marijuana program,” Jacobson said.

Johnston, who spoke in support of the bill, said it would clear up pieces of the 2017 legislation that were "open to legal interpretation" and get the department out of a situation where labs were asking it questions "we don't have the expertise to answer."

"This bill closes those loopholes, provides clarity for the department to move forward and continue to make improvements in this program," Johnston said.

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