“We believe this is necessary to keep the program running as we are entirely funded by fees.”

By John Hult, South Dakota Searchlight

South Dakota lawmakers voted 4-1 on Tuesday to increase the fee for a medical marijuana business license by nearly 70 percent.

Senator Red Dawn Foster (D-Pine Ridge) was the only member of the Legislature’s Rules Review Committee to oppose the increase. The price change was made possible by a law 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 amount up from the original $5,000 annual fee set by lawmakers in 2021, a year after voters opted for a medical marijuana program in the state.

The change brings the annual price to $9,000.

Emily Kerr, the program’s administrator, told the committee that the price change is intended to cover the program’s administrative costs. The health department has three new employees to oversee the program, including tasks such as processing marijuana card applications, inspecting dispensaries and cultivation facilities and investigating complaints.

“The program has grown and been used much faster than originally predicted,” Kerr said.

There are an average of 13,000 cardholders in the state, Kerr said. She also told lawmakers that there are 68 dispensaries, 38 cultivation sites, 18 manufacturing facilities and two independent testing facilities in the state.

“This includes a thorough review of initial annual renewal applications, the provision of technical advice and customer service, and our inspection program to investigate complaints to ensure that we schedule an appointment at least once a year, if not more often,” Kerr said.

Senator Jim Mehlhaff (R-Pierre) moved to finalize the rule change with the higher fee.

“The industry supports the fee increase,” said Mehlhaff. “Not necessarily that they agree with it, but they understand it.”

The change is expected to generate additional revenue of $346,860 in the first partial year and $490,770 annually thereafter.

“New money”

Kerr also spoke about the fee increase during a meeting of the state’s Medical Marijuana Oversight Committee on Monday and provided more details about the work of the program’s staff when explaining the increase that day.

“We believe this is necessary to maintain the operation of the program as we are entirely funded by fees from cardholders and facilities,” Kerr said.

Cardholder fees will not increase as a result of the rule change.

Marijuana industry lobbyist Jeremiah Murphy told the committee that the industry understands the situation and appreciates the help of the three new employees, “but my client paid for them.”

A 70 percent increase in fees is higher than what South Dakota residents would expect in other areas, he said.

“That’s really quite a leap in a state like South Dakota that is against taxes and over-regulation, but that was our commitment because the law was written in such a way that it will be completely self-funding,” Murphy said.

Murphy also said the program is a significant source of sales tax revenue in a market that previously didn’t pay it. Murphy cited statistics from the U.S. Department of Health and Human Services that show the number of marijuana users in South Dakota is 93,000 or more. Some of those users are served by tribal programs – Murphy estimated about 19,000 – and another 13,000 are in the state program. Those who buy on the illegal market don’t pay sales tax, he said.

The oversight committee also learned that after an initial increase, the number of applications for marijuana cards has stagnated and even declined – industry leaders attribute this to the growth of the market for hemp-based marijuana alternatives.

Patient advocate Brad Jurgenson asked Monday why the program would raise fees when it had not made a loss the previous year. Kerr responded that the price had to be increased to keep up with ongoing costs and to ensure that health department staff can process applications and conduct inspections efficiently.

At Tuesday’s hearing on the rules, Senator Foster struck a similar tone, asking Kerr whether the permit fee increase was based on calculations or was “arbitrary.”

Kerr told Foster that the department had calculated its needs, but added that the fee increase was set high enough to save the department from having to make annual visits to the Rules Committee.

“It’s a big jump, but we don’t necessarily want to go to the legislature and talk about fluctuations,” Kerr said.

This story was first published by South Dakota Searchlight.

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