More than two dozen pot businesses face ruin, snared by lawmakers’ loophole
GLENDIVE (Daily Montanan) — The owners of as many as 28 small businesses, mostly “mom-and-pop” Montanans, may lose their retirement, their investments and have to file for bankruptcy because of a small, but significant tweak to the Treasure State’s evolving marijuana laws.
In the flurry of lawsuits and controversies that spun out of the 2021 Legislature – where laws from transgender athletes to voting rights were challenged – one of the most significant pieces of legislation was the new framework that would regulate Montana’s entry into recreational marijuana.
The Republican majority, chastened by repeatedly being rebuffed by voters who solidly wanted pot to be legalized even though it ran contrary to many of their personal beliefs, developed a system that supported both recreational and medical marijuana. That system, though, was hammered out late into the session and forced marijuana regulation, which had been overseen by the Department of Public Health and Human Services, into the Department of Revenue.
The burgeoning marijuana industry in Montana, which had been limited to medical sales, urged lawmakers to safeguard the nascent businesses against large, out-of-state corporations in places like California, Colorado and Oregon, which could come in and crush local competition.
Originally, lawmakers said they would only approve recreational licenses that had been accepted and approved before Dec. 21, 2020.
Recreational pot would become legal in Montana beginning on Jan. 1, 2022. Yet lawmakers also worried that between Montana’s overwhelming approval of recreational marijuana at the ballot boxes on Nov. 3, 2020, and the deadline for paperwork on Dec. 21, a rush of owners trying to make a fast buck might sneak in the system, edging out those businesses and providers who had went to the trouble of getting licensed before the referendum. So, they reversed course and required any recreational business to have completed the paperwork on or before Election Day, regardless if it was in process.
The good intentions have created a fast lane to hell for more than two dozen marijuana business owners who insist they were following the rules only to be destroyed by the state’s new system.
The Daily Montanan traveled around the state talking with several of the businesses affected, and all of them said without immediate attention from the Legislature to correct or grandfather-in their businesses, they stand to lose hundreds of thousands of dollars and face certain financial ruin. Some have sold cars. Some eat from a $1 fast-food value menu instead of shopping at a grocery store.
The legislation has created a specific type of loophole in which these vendors were told their paperwork was in process when the change was made. But the switch from DPPHS to the Department of Revenue, coupled with the law’s specific language, has forced these handful of marijuana providers to be licensed only for medical patients.
With the differences between medical marijuana card holders and recreational customers being just a matter of a slight sales tax, most former card-holding patients have opted to forego the doctor’s visit, the fees and the paperwork associated with getting a card, and simply live with a slightly higher tax.
“Through no fault of their own, the rules shifted,” said Christopher Young, a Bozeman-based attorney and one of the leading experts on marijuana law in Montana. “The rug was pulled out from under them.”
‘One woman force of nature’
Kaari Fulton co-owns Armadillo Buds in Glendive with her husband.
When historians write the story of marijuana’s expansion in Montana, she may well deserve a chapter all on her own.
When Fulton’s husband was laid off in August 2019 after much of the oilfield work in Montana transferred to Texas, the former cosmetologist and her family drained their retirement accounts and set up this business as a way to stay in the area and make money.
While medical marijuana had been legal in the state, conservative Dawson County in eastern Montana had originally voted down the expansion into recreational marijuana.
Unwilling to let the issue rest and lose her investment, Fulton researched what it would take to “flip” the county from “red” — the nomenclature used for counties that have chosen not to approve recreational sales – to “green” so she could continue.
Fulton began the painstaking and complicated process of collecting signatures to get the issue on the ballot in a special election.
For weeks, she’d position herself outside events around Glendive. She had several other dedicated community members who helped collecting signatures, sometimes going door-to-door in the rural area, even when that meant the doors were sometimes miles down the road.
She became a fixture at the local Albertsons grocery store, standing outside even in a blizzard to collect enough signatures.
When the local elections administrator discovered a problem with the petition language, even though it had been reviewed by county officials, she had to restart the signature collection process in just days.
And on Dec. 23, 2021, Fulton – and Dawson County – had flipped from red to green.
She still remembers when she heard – it was a call at 11:04 on Dec. 23 from the local newspaper, the Glendive Ranger-Review, which said voters had flipped the county. Armadillo Buds, she said, was assured they could start selling because the county flipped.
Fulton talked with her contacts at DPHHS to make sure that when recreational sales became legal, she’d be ready. The state said there’d be some paperwork and a $12,000 licensing fee, but she thought the hardest work was done.
Armadillo Buds made one recreational transaction on Jan. 1 before the state’s system locked her out. That’s when she discovered that new rules and the legislation had made it so that marijuana businesses that had either applied or been in process between Election Day and New Year’s in 2020 would be prohibited from recreational sales.
Meanwhile, businesses that had been previously granted a license were cleared to sell to both medical and recreational patients. The law hadn’t contemplated counties switching — or flipping from red to green.
Fulton said she’s tried to make contact with her own legislator, Republican Rep. Bob Phalen, but he wasn’t interested in helping a marijuana business.
She phoned 150 legislators. She made notes about calling them.
She said Rep. Brad Molnar, R-Laurel, told her to quit smoking her own product.
“I told him, ‘You took my money,’” she said.
Even during an interview in the shop outside Glendive on Highway 200, several customers walked through the door. Fulton asked them for their medical cards. Not one of them had a card, so she told them about two other shops – all established after hers – which could sell to anyone.
“You can’t?” one man with a long white pony tail asked.
“No, but there are others that can help you,” Fulton said, giving the man directions.
So she is forced to send potential customers out the door, to her competitors. She said it happens every day for months. She wonders even if lawmakers fix the loophole, is it too late for her business?
Now, credit cards have been maxxed out as she’s waited. She and her husband have sold personal items to keep the dispensary going. A good day may have two to four customers walk through the door.
“My husband trusted me with our retirement,” Fulton said. “It’s destroyed my credit and it’s destroyed my standing with the bank because of this.”
She sold jewelry – including a gold chain – just to pay the electricity for the growing operation, which needs plenty of power to keep the tropical plants warm in the bitter Montana cold.
“My credit is so bad, the bank won’t even loan me $2,000,” Fulton said. “Do you know how humiliating that was?”
A very different situation
Young represents many marijuana-owned businesses and has worked in the state since 2013 – about the time Montana and other states started considering legalization.
He complimented DPHHS, which had developed a well-trained staff and system prior to the implementation of legalized recreational marijuana.
“They were not interested in playing gotcha, and when they did need something, it was trying to correct deficiencies. I really felt like they made it a priority to make sure medicine and medical treatment were available,” Young said.
But that changed under the Department of Revenue.
Multiple requests to the Department of Revenue for an interview about this subject by the Daily Montanan were ignored.
“There were no rules, so that made it very difficult to comply with the law,” Young said about the expansion of marijuana into the recreational arena. “The Department of Revenue – its priority is its name. It’s a completely different landscape and they’re not particularly interested that people can get medicine. That’s ancillary.”
Young and Fulton have praised Rep. Kenneth Bogner, R-Miles City, for trying to find a solution and understanding the problem.
However, the rules and the law have seemed to create a situation that can only be undone by legislative action, Young said.
Moreover, he said the state’s approach to dealing with marijuana vendors has taken a decidedly different tone: It’s about punishments and fines.
“We’re seeing it repeatedly where there are fines from $100 to $3,000 for each infraction,” Young said. “We’re seeing it where small operators make several good faith errors and accumulated more than $10,000 in fines. They’re overcharging them and not working with them at all when the goal should be to come into compliance.”
Cindy Coleman started Sean’s Way in Helena, named for her son who died of brain stem cancer in 2017.
Sean was 33 and given a terminal diagnosis in California where he lived. Coleman became his caretaker, watching her son slowly die. Pharmaceuticals didn’t help much. There were seizures and vomiting.
She remembers when a doctor had a one-on-one conversation with her. He said that he would deny it if asked, but he suggested the only thing that might ease the symptoms was marijuana.
“We can’t help him. He’s very sick and he’s going to die,” Coleman recalls.
When the doctor suggested marijuana, Coleman gasped: She knew nothing about the drug and didn’t know where to even obtain the illegal substance.
“He said that a man with briefcase would visit. From there I could get it and Sean could vape it,” Coleman said.
Sean didn’t live longer, she said, he lived better.
His seizures stopped within two days and the cancer patient who had a rough time keeping down food was actually hungry.
Coleman was still having to give him pain pills. He still needed his diaper changed because he was paralyzed. But he wanted his favorite eclairs brought to him.
“I had a little quality time with my son,” Coleman said.
Because of that, she decided to begin her own business to help others who needed medical marijuana. Maybe they could get a similar kind of relief.
She named her business as a tribute to Sean’s memory, and when recreational marijuana was approved, she put in to expand in November, the day after the initiative passed. Coleman said she was assured by officials that since she was already operating, “going recreational” was no problem.
Until the laws were changed.
“I turn around people every day,” Coleman said from her business in the capital city. “Every day, I know they tell me they hate to walk away.”
She said she can’t even give the product away to people who need it.
“They have kind of destroyed me,” Coleman said of the government. “We didn’t want to hit rich. We wanted to help people who were dying. We wanted to help with PTSD and seizures and those who can’t eat.”
She said that while recreational marijuana users may enjoy the high sensation, she said that many people don’t realize that many of the clients she’s spoken with have a different purpose.
“It’s about feeling better,” she said.
For her business, it’s meant her husband has helped by working a job and working at the store – they had to let employees go because sales tanked after full legalization.
“It’s a no-win situation: We have to stay open, but we can’t make it off two or three people per day,” she said.
Like the other dispensaries, she turns customers away daily, if not hourly.
“How do I even get those people back?” she asked.
She now sells T-shirts, tie-dye accessories even gloves to try to make a little money to keep the store afloat. She doesn’t need a license to sell those things. Her family now knows fast-food menus and good deals on gas station food.
“My license is up and hope the legislature does something. I don’t know if I can afford the fees,” Coleman said. “I’m out of money. I will have to file bankruptcy, and all we wanted to do is help people feel good.”
A costly rebooking
When Holistic Harvest Cannabis Farms in Clinton began their business well before Election Day, co-owner Jessica Swearingen said that the state would only accept completed applications – all the paperwork at once.
Part of that application includes fingerprinting for any owners. Swearingen, along with her husband, Michael Gochis and another couple, Daniel and Shanna Coyle, were scheduled to get fingerprinted at the Missoula Police Department.
But a scheduling conflict meant their fingerprints would have to wait until after their original appointment on Nov. 3.
They were able to reschedule for the next day, Nov. 4. But that was the day after Election Day.
They sent the complete application at 2:47 p.m., Nov. 4 – and have the email and paperwork to prove it. But that one-day difference was one day beyond the cut-off, and they were denied, even though they had leased the building, had the inspections and had each given up or sold four businesses to start the new venture.
“We said that we had begun the process – even had their own inspectors and talked with them,” Swearingen said. “We showed them that we were delayed because of the police, not us. We asked them to backdate everything, but they didn’t. They told us we’d have to take them to district court.”
But hiring a lawyer and filing suit involves two things that the couples don’t have a lot of – money and time.
“This is our retirement,” Swearingen said. “We enjoy it and we believe in the medical purpose and we’re happy to pay our own way.”
Instead, customers come in without a medical card and leave to another business – but not just any business, a competitor.
They estimate they’ve put more than $100,000 into the business, and have had to start working jobs again just to keep financially afloat. Swearingen sold her car just to keep the business afloat.
“We’re barely hanging on,” Swearingen said.
“They’ve said it’s out of their hands,” Daniel said.
“We were just doing what we were told,” Swearingen said.
‘We can’t hold on till 2025’
Originally marijuana legislation set a moratorium on new recreational marijuana licenses for any business that wasn’t approved before the deadline. That moratorium was set to expire on June 30, 2023. In theory, that means that Fulton and any other business that has been holding on should be able to expand.
However, Montana is now contemplating extending that moratorium to June 2025 to give the industry more time to develop amid concerns about out-of-state, large marijuana companies expanding.
Ironically, lawmakers concerned that large corporations might crush local residents who have made the investment may end up being the thing that causes businesses like Armadillo Buds to crater.
“We can’t hold on until then,” Fulton said.
“Very conservative Republicans believe in a smaller government footprint and they’re very much in favor of small business succeeding,” Young said. “Cleaning up the unintended consequences this legislature is essential.”