Six months before adult-use marijuana market opens, supply worries loom

A few times a day, someone from out of town will walk into one of Paulson Palmer’s three dispensaries in northwest Montana asking if they can buy marijuana. The answer is almost always no. 

While Palmer’s Fruit Factory can sell cannabis to Montana residents with a medical marijuana card, it will not be legal to sell it for non-medical adult use until Jan. 1, 2022 — a message that might not be clear to out-of-state tourists who may have heard that weed has been legalized in Big Sky Country but haven’t closely followed the new law. 

For adult-use marijuana advocates, the fact that customers are already trying to buy is a sign that their forecast of legalized cannabis becoming a multi-million-dollar industry in the state was correct. But pent-up demand also brings up another concern: Will Montana’s dispensaries be able to meet that demand come January? 

“I think we’re going to run out of weed in less than a week,” said Pepper Petersen, president and CEO of the Montana Cannabis Guild. “That’s what happened everywhere else when the recreational market opened up. We’re barely keeping up with demand [for medical marijuana] right now.” 

Within days of recreational cannabis becoming legal in Illinois last year, some dispensaries in Chicago ran out of product and shortages persisted for weeks and months. The same thing happened in New York and New Jersey this year. 

According to a 2020 study from the University of Montana’s Bureau of Business and Economic Research, Montana adults consume between 30 and 33 metric tons of cannabis annually for medical and recreational purposes (even while recreational use remained illegal). During fiscal year 2020, medical marijuana users consumed about 12 metric tons of cannabis. Petersen and others involved in the industry estimate that the adult-use cannabis market will be three to five times bigger than the current medical market once it opens up next year. 

The UM study said legal cannabis will also draw tourists to Montana, as it has in other states. According to a 2019 study from the Colorado Tourism Office, 6% of tourists said legal marijuana was one of the main reasons for their visit, and 15% of all tourists visited at least one dispensary. The UM study estimates similar numbers will be seen in Montana. 

But cannabis can’t be grown overnight, and there are limits to how much a dispensary can grow. Producers can grow only a specific amount of cannabis at a time based on a tiered system, according to Montana Code Annotated. A tier 1 producer can grow up to 1,000 square feet of product, and a tier 9 producer can grow up to 20,000 square feet across as many as six locations. Only a few producers in the state are growing at that level, Petersen said. 

Besides the legal limits, there are also financial limits. Growing that much cannabis is capital intensive, and not everyone has the resources to ramp up production to the legal maximum. Because cannabis is still illegal at the federal level, it’s nearly impossible for producers to get traditional financing, since banks are hesitant to work with dispensaries because of the federal prohibition. The federal ban also prohibits dispensaries from importing cannabis across state lines, even from states where marijuana is legal. 

Shortages could persist for a while. House Bill 701, the legislation that set the framework for the recreational market, gave existing producers an 18-month head start on everyone else, meaning new adult-use producers won’t be able to get into the market until July 2023. 

Michaela Schager, owner of Montana Medicinals in Missoula, said she is doing everything she can to ramp up cultivation in the months before the adult-use market opens. She said it takes a minimum of seven to nine weeks for a cannabis plant to fully flower, and she worries there won’t be enough. 

“I think we’ll see some disruption in the market in January and February, and it will probably take a few months for everything to mellow out,” she said. 

Schager said the recreational market will create a “completely different landscape” for her and other established medical providers. Perhaps the biggest change will be a transition from a vertical market — where dispensaries had to cultivate, produce and sell all their own products — to a horizontal market where businesses can sell wholesale to each other and focus on specific market niches. The state Department of Revenue — which is managing the adult-use market and taking over the medical system starting July 2 — will be issuing five different types of licenses to producers, including for cultivation, manufacture (of edibles and other marijuana products), sale, laboratory testing and transport. It will be possible for a single company to hold multiple types of licenses.

Montana Medicinals will be applying for a number of different licenses initially, but Schager said she hopes her business can focus on one or two different products while sourcing other types of marijuana products from other dispensaries. She said Montana Medicinals currently specializes in edibles, and she wants to continue that focus.

Palmer, who runs Fruit Factory locations in Columbia Falls, Evergreen and Libby, echoed the hope that dispensaries will start to work together more. 

“I think dispensaries will really start to focus on the products they’re best at,” he said. 

Supply shortages may be just one of a number of challenges that lay ahead for the state’s cannabis industry. In the coming months, the Department of Revenue will be drafting administrative rules, and Schager said many details remain to be worked out. For example, Schager said it’s still not clear what exactly will be allowed on recreational marijuana packaging (House Bill 701 said it must include a white label with a logo, the name of the product and its THC content, and House Bill 249 requires that packaging not be attractive to children). Until the Department of Revenue offers more guidance, she’s holding off on designing and purchasing packaging materials. 

Kristan Barbour, the Cannabis Control Division Administrator for the Department of Revenue, said the agency anticipates starting the rulemaking process in the coming weeks and will hold administrative hearings on advertising and other issues in August and October. Barbour encouraged the public to visit MTRevenue.gov/Cannabis to sign up for updates on the process. 

Schager and other providers will be watching it closely.

“This is going to be a totally different ball game,” she said. “There’s a ton of excitement in the community right now, but I’d say most providers are pretty stressed.”