Hazy future: Dispensary owners watching as voters decide on local pot taxes for Gallatin County | County

Cannabis business owners are concerned about adding even more tax to marijuana products — recreational marijuana already has a 20% tax from the state, while medical marijuana has a 4% tax.

Some argue there should be no extra taxes, period. Others contend that medical marijuana shouldn’t be taxed, but a tax on recreational sales is okay. Some fear that if the taxes pass the increase in cost that could fall on the consumer would drive people to the black market.

The financial and moral questions that the pair of tax questions raise lead to one destination: What exactly will county officials do with potential marijuana tax revenue?

The county line is that the money will go toward mental health services, but what that might actually look like is unclear. The county predicts combined revenue of $1.3 million annually should both questions pass.

“I think we should all be a little bit upset about that,” said Elliot Lindsey, the owner of Bozeman dispensary Grizzly Pine. “It’s taxation without any real representation about what you’re going to use the money for.”

Montanans have had access to medical marijuana since the early 2000s, but people have only been able to legally buy recreational marijuana in the state since January.

Voters in 29 counties approved Initiative 190 in 2020, which paved the way for the legalization of recreational marijuana in Montana. The following year, the Montana Legislature passed House Bill 701, which established the tax framework and the state approach to the sale of marijuana.

That law also included the ability for counties that approved the sale and use of recreational marijuana to ask voters whether to add a local option tax to marijuana sales.

Of those counties, only four — Missoula, Yellowstone, Park and Dawson — have local option taxes in place for marijuana sales. Missoula County voters opted not to tax medical marijuana.

None of those counties have collected the revenue from the local option taxes yet. Businesses will have to distribute that money by June 15.

This primary election cycle features 12 counties, including Gallatin County, bringing the questions of increasing the sales tax on medical and recreational marijuana to voters.

Lindsey, who owns Grizzly Pine dispensary in Bozeman, said that his big concern is that the marijuana industry will get more and more taxes and regulations added on to it.

For example, marijuana businesses are required to have a minimum of three licenses.

Canopy licenses, which are the main business licenses, come in different tiers, and range from $500 to $20,000. Then comes a fee for registering a dispensary location, which costs $500. On top of that are fees for each location a business operates, which can reach costs as high as $100,000.

Lindsey said that licensing fees are up “1,000%.” He said when he started his business, a license to operate was a combined $150. Now, Lindsey pays about $36,000 a year to maintain his license.

More regulation means more expense for the business, which then falls onto customers in the prices they pay for products.

“It’s gotta come from somewhere,” Lindsey said. “Our only source of income is from our customers, the price point is going to reflect that.”

Adam Arnold is co-owner of Collective Elevation, which has shops in Bozeman, Butte, Billings and Missoula. The Billings and Missoula stores are in counties that already have the local option tax in place. The Bozeman and Butte shops could be next.

Different markets dictate different responses, Arnold said. He said that it is hard to impose a 3% tax on people in Missoula, especially since the business is cash only — that could create scenarios where change is required on a product that used to cost a round number.

“We basically as a business are faced with the choice of eating that 3% or passing it on to the consumer,” Arnold said.

Morality and the black market

While a possible increase in sales tax on recreational marijuana sales may be a hard pill to swallow, increasing tax on medical marijuana could be a bridge too far.

Tax revenue on recreational marijuana far outpaces tax revenue on medical marijuana in the state.

For example, a report on first quarter marijuana sales and tax revenues produced by the Montana Legislature Office of Research & Public Policy showed that state tax revenue for recreational marijuana reached $3.17 million in March. Medical marijuana state tax revenue was just over $394,000.

Local option tax revenue for recreational marijuana in the state was over double the amount of money collected from local option medical marijuana taxes.

Pepper Petersen, president and CEO of the Montana Cannabis Guild, said that the revenue from taxes on marijuana is much needed.

Petersen worked on I-190, and said that his original design of the state’s marijuana program would have seen the 3% local option tax built into the state tax of 20%.

To him, taxing medical marijuana is going too far, however.

“I think it is immoral to tax medicine,” Petersen said.

Arnold and Lindsey agree that medical marijuana shouldn’t be taxed at all.

“It’s unheard of to tax medicine,” Arnold said. “That’s directly impacting people who are at risk and already down on their luck.”

Lindsey said that his business works to maintain a price point for medical consumers, and have a lower tier of marijuana with more accessible prices for people.

He said that taxing medical marijuana was “a major overreach.”

“There are medical patients that really truly need this and your insurance isn’t covering it,” Lindsey said.

Insurance companies generally do not cover the costs of medical marijuana because of its federal classification as a Schedule 1 drug.

That means that it has “no currently accepted medical use and a high potential for abuse,” according to the U.S. Drug Enforcement Agency.

Heroin, LSD, ecstasy and peyote are also Schedule 1 drugs.

Adams and Lindsey are also worried that increased prices from increased taxes will push people to the black market — something that has been happening in California in recent years.

“Look at a model like California where there is so much tax that people are going to the black market, then everybody loses,” Lindsey said.

California has a more robust tax rate for marijuana sales, starting with a 15% excise tax and then an additional 7.25% sales tax. The state also has a cultivation tax, which increased at the beginning of this year.

Petersen, however, supports a 3% tax on recreational marijuana. He said that Montana has the third-lowest taxes in the country for marijuana, and those taxes only happen at point of sale.

“It’s a fantasy that a 3% tax is going to drive people to the black market,” he said.

The local option tax system solidifies a county’s participation, Petersen said. He added that if local governments don’t have an incentive to keep the tax dollars in the county, they might move to get rid of recreational sales.

What counties could do with that tax money has yet to be tested.

The din and dust generated by road construction was replaced with the skunk-like smell of marijuana inside of Paradise Organics, a dispensary in Livingston.

Park County is one of the four counties in the state with a local option tax already in effect.

Savannah England, a budtender at the dispensary, said that prices at the shop have stayed the same since the new taxes were added — the tax is generally built into the price or the business eats the cost.

She said that the shop serves a lot of people on fixed incomes and the medical tax has affected some.

England wondered where the recreational and medical tax money was going.

The breakdown of local option taxes for marijuana has 50% retained by the county, 45% distributed to cities and towns and 5% to the Montana Department of Revenue for administration purposes.

Steve Caldwell, the chair of the Park County Commission, said that half of the county’s share of the tax money would go to law enforcement. The other half would go to the county’s general fund.

The decision to put money toward law enforcement was made because of the perception that marijuana use would put a strain on law enforcement resources, Caldwell said.

However, none of the counties that have local option taxes in place have actually received any of the money yet — the first filing is June 15.

“We haven’t seen a dime of that yet,” Dawson County Commissioner Brad Mitchell said.

Similar to Park County, Dawson County is putting the money into public safety. That means the money could go to bolster fire services, ambulance services and law enforcement, Mitchell said.

Jennifer Jones, the assistant finance director for Yellowstone County, said that the landing spot for the marijuana tax money has not been decided yet.

Yellowstone County will have budget hearings later in the month, which could give a clearer idea of where the money is headed. However, voters in that county are being asked whether they want to continue allowing recreational sales on June 7.

Jones said that even if voters choose to shut down recreational marijuana sales, the county can still collect the local option tax money for 90 days until the decision comes into effect.

Missoula County, which only has a local option tax for recreational marijuana, could put some of the money toward the county’s public works road budget, county spokesperson Allison Franz said.

A more definitive answer on how the money will be used could come later in the summer once Missoula County completes its budgeting process, she said.

The Gallatin County Commission has committed to putting the money toward mental health services, but what that actually looks like remains unknown.

Whitney Bermes, Gallatin County spokesperson, said that the county commissioners did not want to comment on the marijuana ballot questions outside of what is available on the county’s “frequently asked questions” website.

Lindsey wanted to know how the additional tax could benefit people in the county. He said that he liked Denver’s model for local marijuana taxes.

Arnold said that his business wants to contribute to the local community and pay its fair share of taxes. He said that he supports money going toward mental health, but would prefer if the tax revenue went toward educating kids to not use drugs or alcohol.

Still, he doesn’t like the idea of a pair of 3% tax increases.

“I don’t care if it’s alcohol or cheeseburgers, it wouldn’t be fair to tax anything else at a 3% rate,” Arnold said.