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Medical marijuana 'growing pains' move from Legislature to state courts

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Jason Schager of Montana Medicinals file

Jason Schager, the owner of Montana Medicinals, a medical marijuana provider in downtown Missoula, is shown in this April file photo.

Recent changes to Montana's Medical Marijuana Act were supposed to clean up what was once considered the Wild West for providers, doctors and patients alike. But the last two years have brought contention to the industry. 

Most recently, in May the Montana Department of Public Health and Human Services took action against the state's largest medical marijuana provider, Lionheart Caregiving, which has reportedly never been in full compliance with state regulations, apparently because of flaws found during DPHHS inspections at its facilities last year.

DPHHS spokesman Jon Ebelt declined to comment on the nature of the action taken against Lionheart's license, citing ongoing administrative processes over the matter.

“How do you have the largest provider in the state that’s never been in compliance?” said Tom Jacobson, Democratic senator from Great Falls, who sponsored the bill to revise the Montana Medical Marijuana Act this session. “We’ve got a lot of providers in the state who have worked really hard and spent a lot of money to be in compliance, even when the department was struggling," Jacobson said in a phone interview with the Missoulian.

The health department's disputes with Lionheart are just one example of how some in the industry have been grappling with the state over the new industry rules between legislative sessions. Jacobson's Senate Bill 265 in the 2019 session made several pivotal changes, from how patients are able to shop dispensaries to how DPHHS can address compliance issues.

A quick refresher on how Montana got here:

  • 2004 — Montana voters pass a ballot initiative establishing medical marijuana in the state.
  • 2011 — After years of little enforcement of state rules, federal agencies raided dispensaries across the state and the Legislature passed measures so rigid that eventually 93 percent of patients lost access to their providers. These provisions were tied up in courts until 2016, when the state Supreme Court ruled in favor of the law.
  • 2016 — Eight months after the Supreme Court ruled in favor of the law, voters again passed Initiative 182, reopening the medical marijuana industry.
  • 2017 — Lawmakers pass Senate Bill 333, the first considerable effort at creating enforceable regulation and transparency in the industry.

In the meantime, drawing the line in the gray areas left around that first blueprint for regulation has been up to the health department, which had some noted delays in doing so. But depending on who you talk to, those gray areas can mean room for criminal exploitation or innovation, and providers looking to challenge the department’s interpretations of that line have already gone to court to do so.

This year, SB 265 brought lawmakers, patients, providers and everyone in between back to the table to continue working on that blueprint set out in 2017.

For patients, SB 265 effectively untethers them from a single provider and allows them to shop freely among dispensaries as they would a brewery or grocery store.

Proponents of the change say it gives the greatest access to patients with more acute needs.

Opponents argue it’s a step closer, a “gateway,” perhaps, toward momentum for weed to go recreational in Montana. The change mandated by the bill takes hold in 2020.

It also addressed, in a very direct way, challenges to the rules that have been playing out in court, including a high-profile industry lawsuit in Missoula District Court and previously reported by the Montana Free Press. Former state Rep. Ellie Hill’s extraction company, Willow Bark Sciences, had been leasing its high-caliber equipment to growers, creating what’s been termed a third-party extraction arrangement.

In this case, medical marijuana providers take their plants to Willow Bark, which has specialized equipment to extract components of the plant to be used in edibles or other marijuana-infused products. 

This partnership between Hill’s Willow Bark lab and providers — notably Bozeman-based Lionheart, far and away the largest medical marijuana provider in the state — took on scrutiny last year. Hill and Willow Bark associates contend that the 2017 law for regulations (Senate Bill 333) allowed third-party extractions, but the health department argues its interpretation found the contrary.

The companies took the department to court on the matter in November, and Missoula District Judge Robert “Dusty” Deschamps signed off on a temporary deal that allowed the third-party arrangement to continue, further complicating the question across the industry.

With the passage last month of SB 265, third-party extractions are off the table. 

The other component accompanying SB 265’s travels through the Legislature was enforcement of noncompliance issues. Lionheart, which has 19 separate facilities in the state and approximately 4,100 patients, has never been in compliance with the state, but has meanwhile grown and is trying to add new facilities.

Lionheart’s court filings against DPHHS state the department denied it access to the state’s seed-to-sale tracking system and to the state’s registration system. Without access to these programs, Lionheart is out of compliance and can’t be approved for its new facilities.

Lionheart’s May 30 court filings also mention that the health department inspections at its facilities did not pass in July and August, but argue the state can’t bar them from the tracking and registration systems because an inspection found flaws.

When asked how Lionheart was able to continue operating despite compliance issues, Ebelt said the MMMA had "minimal oversight requirements" prior to the 2017 Legislature. 

"The department worked with existing registered providers to remain in operations while becoming compliant with new laws," he said in an email.

The 2019 bill's remedy was to give the health department the ability to suspend or freeze licenses if inspections find flaws and go to administrative mediations if the department and providers are in a dispute. That process is now at hand for Lionheart.

The department has had its troubles rolling out the program. It didn’t even spend all its $2 million in implementation funding, Jacobson said in a House committee hearing in April, which led lawmakers to bump the tax on medical marijuana up to 4% until 2021. Legislators instead raided the rest of that $2 million for other program purposes. 

It had also issued some licenses prior to inspecting facilities, although it wrapped up its inspection rounds earlier this year, according to legislative testimony.

Recognizing the department’s stutters in rolling out the rules and regulations, SB 265 put a moratorium on licenses for new providers until all current license holders are aboard the tracking system. Ebelt said Friday the department expects to see all licensed providers complaint with the tracking system "within a few weeks."

Josh Van de Wetering, representing Lionheart in its cases against the state, contended that Lionheart is compliant with statutes by tracking its own operations, on its own system, while it had to bang on the state’s door to get into that tracking system. In December, Deschamps ordered DPHHS to let Lionheart into its tracking system.

Van de Wetering also said Lionheart has challenged the department on its inspection findings, but has not heard back. 

These challenges against DPHHS have built up in Missoula District Court. A week before filing for an injunction to allow Lionheart to grow at the unapproved new facilities, Lionheart via Van de Wetering filed to strike the emergency rules DPHHS enacted, arguing its case for such rules didn’t pass muster for what the law requires.

“It’s an absolute thumbing your nose at what the law requires,” Van de Wetering said.

Four dispensary operators who spoke with the Missoulian last week said they welcome the changes that came with SB 265, especially untethering patients from a single provider.

The changes eliminating third-party extracting have been both criticized and lauded by smaller providers. A provider with just 33 patients told a legislative committee that products from third-party extractions make up as much as 40 percent of her income.

Jason Schager, of Montana Medicinals in Missoula, said he invested in his own extraction equipment because of the language in legislation passed in 2017.

"Clarification (on third-party extractions) was welcome and necessary because we've had some providers following vertical integration (which required growers to process their own products) and others not and it hasn't been an even playing field," Schager said in an email. 

Schager said the ongoing lawsuit in Missoula over third-party extractions creates risk that the department might develop more heavy-handed rules in response, causing problems for the other providers who have paid up front to stay in compliance.

"It feels a bit like we're at a disadvantage for following the law, which isn't right," he said.

While the case to remove third-party extractions from the industry in Montana leaned heavily on the risk for cross-contamination among providers who use the equipment, Jacobson said in committee hearings that it could be presented again in the future. But for right now, while the department is still catching up with the program's rollout, untethering patients was the imperative this session. 

This week, Willow Bark attorney Brian Miller shifted the company's argument in the Missoula District Court case on third-party: What if instead of extracting for providers, they simply rent or lease the equipment to providers, like an equipment rental company? Jacobson said in committee hearings that SB 265 would not allow that, but Miller wants a judge to hear Willow Bark out.

"We see that as allowed under the law," Miller told the Missoulian.

DPHHS has not responded to Willow Bark's shift in its argument, and it's unclear if a judge will allow the argument to go on. Either way, Miller deems recent changes to industry's regulations a "state-run economy," and said he hopes the 2021 legislative session sees a swing in the other regulatory direction. After all, it's still a fairly new industry.

"I think when the people passed the law they just wanted a transparent system that was going to provide safe products," he said. "Make sure it's clean and tracked, those are totally legitimate functions, but I think people had a different vision for this."

Jacobson said the rough rollout of the program has not been directly the fault of the health department, but simply "growing pains" that come with implementing a new program. At the pace things have changed since the 2016 ballot initiative reviving the medical marijuana program, any new legal questions will likely be uncovered before the Legislature meets again.

"I'm sure by 2021 if there is any, we'll be aware of it," he said. 


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