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What Does Recreational Marijuana Mean to Medical Marijuana Providers?

What does recreational marijuana mean to medical marijuana providers?

On November 3, 2020, the people of Montana overwhelmingly passed the Adult Use, or recreational, marijuana initiative I190, and the companion Constitutional Resolution CR118. I thought this would be a good time to explain what this new law means to the current medical marijuana providers n Montana.

Timeline

Certain sections become effective January 1, 2021 – those dealing with possession and cultivation of limited amounts of marijuana by individuals, forfeiture of usable marijuana and marijuana plants, expungement of criminal records (which applies retroactively), and modifications to other statutes. The remainder goes into effect on October 1, 2021. The Department of Revenue will be the agency to regulate Adult Use of marijuana and it has until October 1, 2021, to write administrative rules.

When the rules are published, the Department will begin to accept applications for licensure, the Department has 30 days after receiving an application to conduct a pre-license inspection. Then and only then may the Department issue an Adult-Use provider license. As a practical matter, the first licenses will be issued in December 2021 at the earliest.

License Eligibility

The Adult Use market will initially be served only by existing medical marijuana providers:

For the first 12 months after the [Dept. of Revenue] begins to receive applications, the [Dept. of Revenue] shall only accept applications from and issue licenses to providers, marijuana-infused products providers, and dispensaries licensed under [the Montana Medical Marijuana Act], that are in good standing with the department of public health and human services.

Thus, current medical marijuana license holders will be the only persons who can be Adult Use providers until at least October 1, 2022. The Department must approve or deny an application or renewal within 30 days if the applicant is an existing license holder and within 90 days for a new applicant. These provisions will keep the market closed for quite some time to new providers, so if you are interested in establishing an Adult-Use business and are not already licenses by the DPHHS, now is the time to act.

Licensing Tiers

Like medical marijuana providers, Adult-Use providers will be licensed by tier. A tier establishes the minimum and maximum cultivation canopy for a provider. When a provider reaches capacity in a given tier, it may apply to the Department to move up to the next tier. A provider may advance only one tier at a time. New licensees may not be licensed initially at greater than tier 2 unless the person is purchasing a business already licensed higher than tier 2 or the person is already licensed higher than tier 2 under the MMMA. Licensing tiers range from micro tier, allowing up to 250 square feet of the canopy at one registered premises to tier 10, allowing up to 30,000 square feet at seven registered premises.

The Department will utilize a seed-to-sale tracking system. That will likely be METRC because that is the system used by the DPHHS for medical marijuana

Business Activities

The Adult Use law is much more friendly to business transactions. Under the MMMA, a medical marijuana provider may sell a business, including live plants, but the license itself is not transferrable, meaning that the purchaser of a medical marijuana business must start over at tier 1. In addition, the DPHHS does not allow the transfer of inventory. Not so under the Adult Use law. The sale of a business can include “live plants, inventory, material assets, and all licenses.”

The Adult Use law allows limited provider-to-provider sales in a quasi-vertical integration model. Marijuana cultivated by a provider must account for at least 50% of its total annual sales. However, the provider may sell up to 50% of the marijuana it cultivates to other providers. Moreover, providers are allowed to contract with third parties to process marijuana into marijuana-infused products or concentrates. In the case of a catastrophic crop loss or other unforeseen circumstances, the Department may adjust the percentages for an individual licensee.

Advertising remains off-limits, subject to administrative rules to be established by the Dept. of Revenue.

Local Government Regulation

The Adult Use law restricts local government regulation. While the law allows regulations to protect public health, safety, or welfare, a local government may not impose any regulations that are “unduly burdensome.” What’s more, those regulations only apply to dispensaries; they do not apply to cultivation registered premises. Although local governments may not outlaw Adult Use businesses – such restrictions would be unduly burdensome, indeed – a municipality, county or consolidated city-county may prohibit Adult Use dispensaries, but only if the voters approve the prohibition in an election. Local governments are not allowed to prohibit the transportation of marijuana by persons licensed to do so through their jurisdictions.

In sum, the Adult Use law will present both opportunities and challenges to medical marijuana providers. I would be happy to discuss the implications of the new law with you to see if preparing for an Adult Use business is right for you.