Lawmakers make it official: Annual fees for Medical pot businesses will jump 70%
Health department says price hike is meant in part to address future needs.
Lawmakers voted 4-1 on Tuesday to finalize a nearly 70% hike to the price of a medical marijuana business license.
Sen. Red Dawn Foster, D-Pine Ridge, was the lone member on the Legislature’s Rules Review Committee to oppose the increase. The price change was made possible by a bill passed this winter at the urging of the state Department of Health, which administers the state’s medical marijuana program.
The current fee is capped at $5,310, an inflation-adjusted figure to the original $5,000 annual fee set by lawmakers in 2021, the year after voters opted to endorse a medical pot program for the state.
The change puts the annual price at $9,000.
Emily Kerr, the program’s administrator, told the committee that the price change is meant to cover the program’s administrative costs. The health department has three new employees who oversee the program, doing things like processing marijuana card applications, inspecting dispensaries and grow operations, and investigating complaints.
“The program has grown and been utilized at a rate that was much faster than initially projected,” Kerr said.
The state is averaging about 13,000 cardholders at any given time, Kerr said. She also told lawmakers that there are 68 dispensaries in the state, 38 cultivation sites, 18 manufacturing sites and two independent testing facilities.
“Those require thorough review of initial annual renewal applications, providing technical guidance and customer service, as well as our inspection program to investigate complaints, to make sure that we’re getting in there at least annually, if not more,” Kerr said.
Sen. Jim Mehlhaff, R-Pierre, moved to finalize the rule change with the higher fee.
“The industry is supportive of the fee increase,” Mehlhaff said. “Not necessarily loving it, but understanding it.”
The change is expected to return $346,860 in increased revenue in the first, partial year, and $490,770 a year in increased revenue after that.
‘New money’
Kerr also spoke on Monday about the fee increase during a meeting of the state’s Medical Marijuana Oversight Committee, on that day offering more details on the work of the program’s employees as she explained the increase.
“We feel this is necessary to sustain the operations of the program, because we are funded completely by fees through cardholders and establishments,” Kerr said.
Cardholder fees will not be increased through the rule change.
Marijuana industry lobbyist Jeremiah Murphy told the committee that the industry understands the setup and appreciates the help the three new employees offer, “but my client paid for those.”
A 70% jump in fees, he said, is higher than South Dakotans might expect in other areas.
“That’s really quite a jump in an anti-tax, anti-overregulation state like South Dakota, but that was our commitment, because they wrote that law to say that it will be fully self-funding,” Murphy said.
Murphy also said the program is a significant source of sales tax revenue in a market that wasn’t paying them before. Murphy cited statistics from the U.S. Department of Health and Human Services that put the number of marijuana users in South Dakota at 93,000 or more. Some of those users are served by tribal programs – Murphy guessed around 19,000 – with another 13,000 in the state program. Those buying on the illicit market aren’t paying sales tax, he said.
The oversight committee also learned that marijuana card applications have leveled off and even declined after an initial spike – something industry leaders attribute to the growth in the market for hemp-derived marijuana alternatives.
Patient advocate Brad Jurgenson asked on Monday why the program would increase fees if it hadn’t lost money in the prior year. Kerr replied that the price needs to go up to keep pace with ongoing costs and to make sure health department employees can process applications and manage inspections efficiently.
During Tuesday’s rules hearing, Sen. Foster sounded a similar note, asking Kerr if the permit fee increase was based on calculations or “arbitrary.”
Kerr told Foster that the department calculated its needs, but also said the fee increase was designed to be high enough to help the department avoid annual visits to the rules committee.
“While this is a big jump, we don’t necessarily want to go before the Legislature to talk about fluctuations,” Kerr said.
