Medical Marijuana Businesses In South Dakota Face A 70% Increase In State Fees

“This increase is so substantial that some small businesses will be forced to close.”

By Joshua Haiar, South Dakota Searchlight

Medical marijuana businesses in South Dakota will soon face a nearly 70 percent increase in their annual state registration fees, rising from $5,310 to $9,000.

“For a business-friendly state, this is not a business-friendly approach,” said Deb Peters, president of the Cannabis Industry Association of South Dakota.

The Department of Health oversees the state’s medical marijuana program. The fee was set at $5,000, with annual adjustments for inflation, when the program began in 2021 after voters legalized medical marijuana in 2020.

During the 2024 legislative session that ended in March, the department proposed raising the fee, and legislators obliged.

“The current establishment certification fee does not provide the revenue necessary for the program implementation and administration,” said the Department of Health’s Lynne Valenti, who testified to lawmakers.

Governor Kristi Noem signed the bill on March 14. The law took effect July 1 and requires the Department of Health to complete rulemaking that will raise the fee to $9,000—an increase of $3,690—by September 30. The rule affects cultivation, manufacturing, testing and dispensaries.

Peters said the fee increase will hurt customers by causing dispensaries to raise prices, and she said it could hurt the entire medical cannabis industry.

“This increase is so substantial that some small businesses will be forced to close as the cost of products and the cost to patients is not sustainable,” she said. “Access to licensed establishments providing medicine will become even more difficult to find.”

Kittrick Jeffries owns Puffy’s Dispensary in Rapid City and Sturgis. He said the state should use medical marijuana sales tax revenue to help support the program, rather than raise his cost of doing business.

“There are other options,” he said.

There are 78 medical marijuana dispensaries, 21 manufacturing sites, 40 cultivation sites and three testing facilities in South Dakota. As of July 19, the state’s medical cannabis website said there were 286 practitioners and 13,257 patient cards.

A November 5 ballot measure would legalize recreational marijuana. Matthew Schweich, who is a leader in that effort, was also behind the effort to legalize medical marijuana.

“This is a reason to pass recreational,” Schweich said. “Those taxes would not only cover the recreational market, but medical as well.”

The state Department of Health did not respond to a request for comment. The department held a public hearing Monday regarding the rule change. The deadline for public comment on the fee increase is August 8, and the legislative rules committee will consider the change on August 20.

For the 2022 fiscal year, the Department of Health reported collecting $1.07 million in registration fees from medical cannabis businesses. Collections dropped to $520,080 in the 2023 fiscal year. The $9,000 fee is expected to generate $846,000 during the remainder of the fiscal year after it takes effect, then $1.2 million during the next fiscal year.

How to submit a comment on the fee increase

• Email DOHAdminRules@state.sd.us or mcquestions@state.sd.us.

• Mail comments to 600 E Capitol Ave, Pierre, SD 57501.

This story was first published by South Dakota Searchlight.

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Photo courtesy of Chris Wallis // Side Pocket Images.