Judge temporarily blocks cumulative fee hike for Montana marijuana dispensaries

A district court judge last week granted a 60-day preliminary injunction blocking the State of Montana from assessing and collecting increased fees from businesses that operate multiple marijuana dispensaries across the state – changes passed by the legislature this year in the final days of the session.

The state and attorneys for three Montana marijuana businesses last Tuesday agreed to ask Lewis and Clark County District Court Judge Mike Menahan to issue the 60-day preliminary injunction because the renewal fees are coming due, and the businesses say they would be forced to close several locations, lay off workers and keep medical marijuana patients from getting their products in the event the have to pay the fees. He granted the request on Wednesday.

Attorneys for the plaintiffs – Granite Peak Holdings, Inc. doing business as Elevated; TSB Montana LLC, and MariMint LLC – challenged the new fee structure passed through an amended version of House Bill 903 in the final two weeks of the 2023 legislative session, in a lawsuit initially filed in August.

For several months, attorneys for the plaintiffs and Department of Justice have argued about whether the new fee structure was illegally implemented by the Legislature and if another law the Republican supermajority legislature passed,  Senate Bill 191, which was aimed at setting a new burden for preliminary injunctions in Montana, is constitutional.

In the final two weeks of the session this past spring, lawmakers amended HB 903 to add a cumulative fee structure for each dispensary a company owns and operates. Under the previous law, each dispensary carried a licensee fee of $5,000 no matter if it was the lone dispensary or the 10th.

But lawmakers changed the language so that the first location carries a $5,000 fee, but each additional license carries a cumulative increase of $5,000 – meaning a second would carry a $10,000 fee, the third a $15,000 fee, and so on.

Under law, the Montana Department of Revenue cannot impose fees or taxes beyond what is necessary to cover the costs of regulating the state’s marijuana industry. The plaintiffs in this lawsuit contend that the increased fees the state would collect under the new version of the law go far beyond the costs of regulation.

Attorneys for the three marijuana companies — each of which operate multiple dispensaries across the state, some which are building or renovating buildings to open more, and collectively employ hundreds of Montanans — say their fees would go up each year by tens, or hundreds, of thousands of dollars.

All three companies also had their renewal fees come due during the past month-and-a-half, and though the companies are allowed to pay a 20% down payment, they say they will have to close stores and lay off employees to make a down payment using the cumulative rate structure.

“Enforcement would require Plaintiffs to cease many of their business operations through the state; it jeopardizes their licensure with the state and would result in the loss of their interest in those licenses; it would cause the loss of hundreds of jobs and expose Plaintiffs to liability based on their inability to continue to honor their leasehold interest in those dispensaries and it would jeopardize the medical marijuana patrons that they serve,” attorneys wrote in their latest amended complaint.

They also argued that since the bill was amended after its committee hearings in which the public could comment, the legislature violated due process rights by changing the bill substantively, while lawmakers hardly commented on the changes during House and Senate floor discussions. The final version of the bill was passed by the House on the final day of the legislative session in a 49-47 vote.

Before the agreement to place a hold for 60 days was filed, the state, represented by the Attorney General’s Office, had argued that since Montana is the fourth-largest state in terms of land mass, the Department of Revenue has to regulate the industry across a broad state and needs extra money to do so.

“All of this takes time and resources for which the taxpayers of Montana should not be on the hook,” the state argued in a previous brief opposing a preliminary injunction.

The state also argued that plaintiffs’ claims of injury because of the cumulative fees should not hold up because they could choose simply to operate one marijuana dispensary instead of multiple, and that the lawsuit was solely about money.

“There exists one reason and one reason only that Plaintiffs seek to open different marijuana industry locations under the same license – they want to make money,” the state had previously argued in an Oct. 24 filing. “Logic dictates that if a fee of $5,000.00 for a new location is going to make or break that location, then it is not a profitable location and should not be opened in the first place. Plaintiffs just want to make more money at the expense of the taxpayers.”

But on Nov. 3, the plaintiffs filed another updated brief that also challenged SB 191, which lawmakers had said was an effort to use the same standard in a preliminary injunction at the state level as is used in the federal court system. However, attorneys for the dispensaries say that SB 191 is also unconstitutional because the lawmakers were dictating court procedures that should be solely in the judiciary’s hands.

And last Wednesday, a day before a hearing in the case, the two sides filed the stipulated motion for the 60-day preliminary injunction blocking enforcement of the fees collection, which Menahan signed the same day. They asked the injunction apply not only for the plaintiffs, but all dispensary licensees.

The order signed by Menahan allows him to extend the preliminary injunction beyond 60 days if both sides agree, but keeps the rest of the provisions of HB 903 in place. It also puts back in place the old structure fee for the time being and says that the Department of Revenue should return any fees collected under the currently enjoined provision of law if it is permanently struck down.

The sides also said they are working on negotiating a settlement that they hope to resolve over the next 60 days.

Blair Miller is a Helena-based reporter. The Daily Montanan is a nonprofit newsroom. To read the article as originally published, click here.