Montana Finalizes Marijuana Operational-Control and Residency Rule, Citing Major Ninth Circuit Ruling
- The Montana Department of Revenue finalized new rules defining who has day-to-day operational control of a marijuana business, requiring licensees to identify such individuals and prove Montana residency.
- The updated definition of day-to-day operational control includes those with authority to direct or influence management, operations, or policies, such as general managers and store managers, but excludes occasional or temporary oversight roles.
- Licensees must provide information on individuals with operational control during application, renewal, and within 30 days of any change, an extension from the initially proposed 10-day reporting period due to concerns from smaller businesses.
- The department rejected constitutional challenges citing the Commerce Clause, referencing a Ninth Circuit ruling that dormant Commerce Clause protections do not apply to interstate marijuana commerce due to federal prohibition, affirming Montana's residency requirements.
Montana regulators have finalized new rules clarifying who is considered to have day-to-day operational control of a marijuana business, while citing a major federal appeals court ruling to reject arguments that the state’s residency requirement violates the U.S. Constitution.
The Montana Department of Revenue adopted the changes this week, with the new rules scheduled to take effect September 26. They require marijuana licensees to identify every person with day-to-day operational control of the business and provide documentation showing that each is a Montana resident.
Under the new definition, “day-to-day operational control” includes people with the authority or ability to direct or materially influence the routine management, operations or policies of a marijuana business, regardless of whether they are an owner.
The definition specifically includes people who have primary responsibility for supervising employees or managing a licensed location, make routine decisions involving cultivation, manufacturing, testing, distribution or retail sales, control business bank accounts or approve expenditures, or serve in positions such as general manager, operations manager, store manager or head cultivator.
The department said occasional oversight or temporary changes in employee duties would not necessarily qualify. For example, employees who temporarily handle cash, close a business or provide short-term oversight would not automatically be considered to have day-to-day operational control.
Licensees must provide the information when initially applying, during each renewal and whenever the person exercising day-to-day operational control changes.
Regulators initially proposed requiring businesses to report such changes within 10 days. Following public comments raising concerns about the burden on smaller marijuana businesses, the department extended that deadline to 30 days.
During the rulemaking process, Pepper Petersen of The Coldwater Group argued that requiring the person exercising operational control to be a Montana resident violates the U.S. Constitution’s Commerce Clause.
The department rejected that argument and pointed directly to the U.S. Court of Appeals for the Ninth Circuit’s January decision in *Peridot Tree WA, Inc. v. Washington State Liquor and Cannabis Control Board*.
In that case, the Ninth Circuit upheld the dismissal of challenges to marijuana dispensary residency requirements in Washington state and Sacramento, California. The three-judge panel held that the dormant Commerce Clause does not extend to interstate commerce in marijuana because Congress continues to prohibit the market under federal law.
Montana regulators said the decision supports the state’s continued enforcement of its own residency requirement, noting that the Montana Marijuana Regulation and Taxation Act has contained residency provisions since voters approved Initiative 190 in 2020.
The department said its responsibility is to enforce the law as it currently exists and that it would implement any future changes resulting from legislation or court action.