A cannabis strain called Blueberry Hashplant at 8 weeks of flowering and about to be harvested. The plant was grown in soil, indoors, under LED lights and intended for medical use. Credit: CHAD HARDER / MTFP file photo

MISSOULA — A lawsuit brought by a group of Missoula medical marijuana providers against the Montana Department of Public Health and Human Services last November has revealed disagreement in the industry about how Montana’s laws regulate business between providers and independent THC extraction labs.

A medical marijuana lobbyist claims the health department told one extraction lab it was legal for them to work with providers while telling the rest of the industry it wasn’t allowed. Those associated with that lab say they’ve done nothing wrong, and that a recent reversal in the department’s interpretation of the law is the lobbyist’s fault.

Last August, DPHHS rejected permit applications for two medical marijuana dispensaries, Big Sky Herbals and Edibles, and Lionheart Caregiving, to partner with Willow Bark Science, a Missoula THC extraction lab registered to former Democratic state Rep. Ellie Hill Smith.

According to the complaint the providers filed in Missoula District Court, the state health department rejected the permit applications until the tracking system mandated by the Legislature “is implemented and operating efficiently.” In the meantime, according to the petitioners’ complaint, the department said it “cannot consider approving licenses or endorsements that appear to create third-party contracting arrangements.”

Hill said that while the Willow Bark lab is not technically part of the state’s new online medical marijuana tracking system, known as Metrc, the lab technicians doing the extracting are legally employed by all the providers that lease the lab, allowing those providers to use their own Metrc profiles to track the product they process.

Ellie Hill Smith

Hill said language in I-182, the 2016 referendum that resurrected Montana’s medical marijuana program, and 2017’s Senate Bill 333, a bill further regulating the program, allows providers to hire corporations as employees.

According to an affidavit in support of the providers filed by Hill’s husband Tyler Smith, owner of White Buffalo marijuana testing lab, Willow Bark’s principal investors encouraged Big Sky and Lionheart to sue DPHHS in November 2018, claiming Willow Bark had previously received permission from the health department in the fall of 2017 to enter into third-party contracts with providers.

Smith’s affidavit said that after thorough research by DPHHS legal counsel Flint Murfitt into the legislative history of the Montana Medical Marijuana Act, Murfitt produced a memo greenlighting such partnerships. The plaintiff’s attorney, Brian Miller, said he hasn’t seen the Murfitt memo. Neither has Hill.

“But everyone talks about it and everyone knows it’s real,” Hill said.

DPHHS denied a public information request for the memo.

“The memo is not public information. This is information that was provided as legal advice by an attorney, which is protected by the attorney work product and attorney-client privileges,” department spokesperson Jon Ebelt said.

DPHHS declined to answer questions about the lawsuit, saying the department does not comment on ongoing litigation. The department also refused to answer questions about third-party contracting, tracking systems, and the Murfitt memo.

In his affidavit, Smith said Murfitt’s memo was written in response to claims made by Kate Cholewa, a lobbyist for the Montana Cannabis Industry Association, that third-party contracting is not legal under the Montana Medical Marijuana Act.

Smith claims Cholewa “was exerting influence inside the Department, contrary to the plain language of the law” and influenced medical marijuana regulators to reject permits for Willow Bark’s business partners to give MTCIA members a competitive edge.

Similar allegations were made by Brian Watson, the former health department official in charge of implementing new medical marijuana regulations in 2017, in an affidavit he filed in support of Willow Bark’s business partners.

Watson was removed from that role in December 2017 and quit the following April, according to his affidavit. The health department refused to comment on Watson’s changing roles, calling it confidential employee information. Watson did not respond to a request for comment by press time.

Cholewa, who is not a party to the lawsuit, attempted to respond to Smith and Watson’s allegations in an unsolicited court filing in the case, which was denied by District Judge Robert “Dusty” Deschamps.

In that denied response, which she provided to Montana Free Press, Cholewa said the health department told Ellie Hill and Tyler Smith that third-party contracting is legal, and told the opposite to the rest of the medical marijuana industry, giving the Smiths an unfair competitive advantage.

“The plaintiffs, Big Sky Herbals and Edibles and Lionheart Caregiving are
being utilized to forward a history of special arrangements provided to the Smiths and
the cover-up of the provision of those arrangements exclusive to the Smiths and their
Clients,” Cholewa stated in the response that was denied by the court.

Parties on both sides claim they’re interested in supporting providers, helping sick patients, and clarifying the law, while accusing the other side of influencing the health department’s interpretation of the law — or breaking it — to make money.

Hill and Miller say there was nothing improper about their negotiations with the health department, which they say took months.

“Anyone else could have tried that,” Miller said.

Hill called it a smart investment.

After the permits for Lionheart and Big Sky were rejected in August, Hill said, she began negotiating with the health department and reached an agreement to grant the permits. Hill, who is also an attorney, said when process dragged on, the plaintiffs decided to sue.

The parties agreed to a stipulated preliminary injunction in December that granted permits for Lionheart and Big Sky in exchange for a commitment for the providers to follow tracking regulations via Metrc when using Willow Bark’s lab. Another stipulation was that Hill divest from Willow Bark, as the health department did not want a conflict of interest if marijuana products produced at Willow Bark were tested at White Buffalo, the marijuana testing lab owned by her husband.

Since the preliminary injunction, three more providers — Green Tree, Urban Farmer, and Spark1 — have signed on to the lawsuit, prompting a hearing in Missoula on Feb. 1 during which Hill hopes Judge Deschamps will extend the department’s agreement with Lionheart and Big Sky to additional providers.

“The law is on our side, the department is on our side, and it’s just a matter of time,” Hill said.

Hunter Pauli is a Seattle-born, Missoula-based freelance investigative reporter and a graduate of the University of Montana School of Journalism.You can follow Hunter on Twitter.