Adoption Notice: MAR No. 2026-445.2

Notice Of Adoption

MAR Notice No. 2026-445.2

Summary

Proposed Amendment of ARM 42.39.203 Regarding Seed-to-sale Tracking System Reconciliation Clarifications and Improvements for Tracking Accuracy and Compliance

Previous Notice(s) and Hearing Information

On April 24, 2026, the Department of Revenue (department) published MAR Notice No. 2026-445.1 pertaining to the public hearing on the proposed rulemaking in the 2026 Montana Administrative Register, Issue Number 8.

On May 18, 2026, the department held a public hearing to consider the proposals.  The following persons appeared and provided verbal testimony: Joanna Barney, Sacred Sun Farms and Montana Cannabis Coalition; Adam Arnold, Collective Elevation; and Jennifer Hensley, Hensley and Associates on behalf of Fidelity Diagnostics Laboratory (Fidelity Diagnostics).

The department also received written comments from: Ms. Barney; Ms. Hensley/Fidelity Diagnostics; Kate Cholewa, Montana Cannabis Industry Association (MTCIA); Sarah Sriraman, Dancing Goat Gardens; Evan Kajander, Apogee Gardens, and Emma Pierce Petioni.

Final Rulemaking Action – Effective August 22, 2026

Amend With Changes

The agency has amended the following rules with the following changes from the original proposal, stricken matter interlined, new matter underlined:

42.39.203 SEED-TO-SALE Tracking and Reconciliation

1. A licensee must use the department's seed-to-sale tracking system as the primary inventory and record keeping system. Licensees must use a unique identification number tag purchased from the seed-to-sale tracking system vendor for all seed-to-sale tracking purposes.  For purposes of this rule and reconciling marijuana plant or package inventories in the seed-to-sale tracking system, the terms “plant tag” or “package tag” may be used as an abbreviated reference to either a unique identification number plant tag or a unique identification number package tag, where appropriate.  If the more generic term “tag” is used, it applies to both marijuana plants and packages.
2. Each individual marijuana plant that reaches a height of twelve inches must be issued a plant tag in the seed-to-sale tracking system. The plant tag may be staked in the soil or otherwise placed with the plant until the plant reaches a height of 18 inches, at which point the tag must be physically affixed to the plant.  The plant tag must follow the plant through all phases of cultivation until the harvested flower is assigned a package tag.
3. All marijuana items, test batches, harvest lots, and process lots must be issued a package tag in the seed-to-sale tracking system.
4. Tags cannot be reused, photocopied, or otherwise replicated for seed-to-sale tracking purposes.
5. Each marijuana item, test batch, test sample, harvest lot, and process lot that has been issued a package tag must have the tag affixed to it.
   1. Packages of marijuana flower and usable marijuana, including trim and manicure, must be individually packaged, tracked, and tested.  These packages may not exceed five pounds, except for:
      1. packages designated solely for concentrate and extract production that will forego testing pursuant to ARM 42.39.614; and
      2. whole, wet marijuana plants packaged directly out of harvest.
   2. Packages of process lots may not exceedinserted: :, end inserted
      1. inserted: (i) for weight-based products:, end inserted 5,000 deleted: units of sale, end deletedinserted: grams;, end inserted
      2. inserted: for count-based products: 100,000 5 mg pieces; 50,000 10 mg pieces; 5,000 100 mg pieces, etc, end inserted.
6. A licensee may not create or distribute any sub-packages until the source package has successfully passed all required testing.
7. Multiple process lots may not be combined and tracked under one package tag after testing unless the process lot will be manufactured into a new product in conformance with these rules.  All new products must be submitted for testing pursuant to ARM 42.39.614.
8. All tags must be unaltered, legible, and placed in a position that can be clearly read and must be kept free from dirt and debris.inserted:   A licensee may not obscure, deface, or otherwise alter a tag in a manner that renders it illegible or unreadable., end inserted 
9. inserted: Except as otherwise provided in (10),, end inserted deleted: All , end deletedinserted: all , end insertedon-premises and in-transit marijuana item inventories must be reconciled in the seed-to-sale tracking system by 11:59 p.m. each day. Examples include:
   1. plant counts recorded in the seed-to-sale tracking system match actual plant counts at the licensed premises;
   2. marijuana product quantities recorded in the seed-to-sale tracking system match actual marijuana product quantities at the licensed premises;
   3. all marijuana inventory physically matches its recorded location in the seed-to-sale tracking system;
   4. information on marijuana facts panels matches the corresponding product test results;
   5. each marijuana product item is recorded in the seed-to-sale tracking system within the variance provided for in 16-12-224;
   6. depleted packages are recorded as finished in the seed-to-sale tracking system on the same day the package reaches zero quantity;
   7. process lots are accurately recorded in the seed-to-sale tracking system the same day they are started;
   8. rejection of any inaccurately manifested products and receipt of a corrected manifest from the originating licensee;
   9. harvest lots and process lots are recorded as finished in the seed-to-sale tracking system on the same day they are completed; and
   10. identification of all test failed product as remediated prior to additional testing or manufacturing.
10. inserted: A licensed marijuana testing laboratory is permitted to complete the required inventory reconciliations in (9) at the end of the applicable testing period instead of the end of each calendar day, provided the reconciliations accurately reflect the total amount of sample consumed during testing., end inserted
11. deleted: (10), end deletedinserted: (11), end inserted For each marijuana sale or transfer to a registered cardholder, the licensee or its employee must verify the registered cardholder's eligibility and daily and monthly purchase limits and record in the seed-to-sale tracking system at the time of sale or transfer:
    1. the quantity of each item sold or transferred to a registered cardholder;
    2. the price before tax; and
    3. the date of the sale or transfer to a customer.
12. deleted: (11), end deletedinserted: (12), end inserted Licensees must record in the seed-to-sale tracking system:
    1. wet weight of each harvested marijuana plant the same day the plant is harvested;
    2. information for marijuana items by unit count;
    3. weight per unit of a product;
    4. the schedule date for a plant harvest at least 72-hours before beginning the harvest;
    5. strain specific harvests;
    6. theft or loss of marijuana items; and
    7. other information as may be reasonably required by the department.
13. deleted: (12), end deletedinserted: (13), end inserted Package adjustments must be accompanied by an entry in the seed-to-sale tracking system that accurately details the reason for the adjustment. Package adjustments shall not be used to resolve:
    1. inaccurate sales;
    2. moving marijuana or marijuana products between packages; or
    3. discrepancies in the quantity of transferred inventory.
14. deleted: (13), end deletedinserted: (14), end inserted All samples taken for quality assurance testing must be recorded in the seed-to-sale tracking system.
15. deleted: (14), end deletedinserted: (15), end inserted Licensed testing laboratories must record all testing results in the seed-to-sale tracking system.
16. deleted: (15), end deletedinserted: (16), end inserted Licensees must monitor all compliance notifications from the seed-to-sale tracking system and must resolve any compliance notification issues within 30 days.
17. deleted: (16), end deletedinserted: (17), end inserted All packages under administrative action must be quarantined and may not be sold, altered, or manufactured, except that such packages may be destroyed pursuant to ARM 42.39.310.
18. deleted: (17), end deletedinserted: (18), end inserted A licensee must utilize the seed-to-sale tracking system in conformance with this rule and inventory tracking system procedures, including but not limited to accurately recording:
    1. harvest lots, including but not limited to number of plants in the harvest, amount of waste generated from the harvest, amount of moisture loss during the harvest period, and packages derived from the harvest;
    2. the manufacture of process lots, including but not limited to when the manufacturing process begins, the package tag numbers of all input and output packages, and the amount of manufacturing waste;
    3. the item category for all marijuana and marijuana products;
    4. all remediation steps taken to resolve marijuana or marijuana products that have failed testing; and
    5. detailed documentation explaining the destruction of marijuana plants, marijuana, and marijuana products.
19. deleted: (18), end deletedinserted: (19) , end insertedOnly seeds may be accepted from outside the seed-to-sale tracking system. Licensees must contact the department to request the input of seeds into the seed-to-sale tracking system.

Authorizing statute(s): 16-12-112, MCA

Implementing statute(s): 16-12-105, 16-12-108, 16-12-112, 16-12-203, 16-12-209, 16-12-210, 16-12-515, MCA

Statement of Reasons

The agency has considered the comments and testimony received. A summary of the comments received, and the agency’s responses are as follows:

inserted: COMMENT 1, end inserted: The department received comments from Ms. Barney that the reasonable necessity statements accompanying this notice were detailed and informative, and they are very much appreciated. Ms. Barney contends that the majority of the proposals are beneficial because they will bring continuity to inspections and clear up compliance errors that, based on the department's rationale, appear to be occurring chronically within the industry.

inserted: RESPONSE 1, end inserted: The department appreciates the comments and agrees with Ms. Barney’s assessments and the necessity of the proposals in the rulemaking for an evolving industry.

inserted: COMMENT 2, end inserted: Ms. Barney requested the department confirm an operational practice that she believes is consistent with the proposals in (2) but would benefit from explicit clarity: that once plants are harvested, the plant tag — though technically dead in the seed-to-sale tracking system — physically follows the plant material through post-harvest processing. The same principle applies to process lots: all of the tags associated with a processing job stay grouped with that job until it is complete and finished-good package tags are assigned.

inserted: RESPONSE 2, end inserted: The department agrees and confirms that (2) is intended to codify and clarify existing operational practice, not to create a new requirement. Under current and continuing practice, harvested plants must retain the harvested tag until the harvested flower is packaged, and the same principle applies to process lots and processing‑job tags.

inserted: COMMENT 3, end inserted: Ms. Barney and Mr. Kajander commented that the department’s proposals in 42.39.203(5)(a) & (5)(b) regarding package and process lot size limits (the 5-lb flower package limit and 5,000-unit process lot cap) are already present in SOP-001 v.4, which the department adopted and incorporated by reference into ARM 42.39.610(14). The commenters believe duplication of the requirements is unnecessarily redundant and adds regulatory red tape. The commenters recommend the department strike (5)(a) and (5)(b) entirely and rely on SOP-001 v.4.

inserted: RESPONSE 3, end inserted: The department respectfully disagrees that (5)(a) and (5)(b) are redundant with SOP‑001 v.4 for the following reasons: SOP‑001 v.4 describes harvest lots being separated into 5‑pound test batches for sampling purposes, but it does not establish a 5‑pound flower package limit or require that harvested flower be packaged and tracked in 5‑pound increments. In practice, some licensees have created large harvest lots (for example, 40‑pound lots) and pulled multiple test samples from those lots, which is inconsistent with the department’s intent and undermines traceability and testing integrity.

By placing explicit package and process‑lot size limits in rule, the department provides clear, uniformly applicable standards that can be readily understood, implemented, and enforced across all licensees. These provisions also respond to concerns from licensed testing laboratories, which have indicated that verifying package weights before sampling falls outside their responsibilities. The rule clarifies that licensee responsibility, promotes consistency and uniformity in testing practices, and improves the department’s ability to identify and address faulty testing or lot‑creation practices by licensees.

Based on this rationale, the department declines to strike these provisions from the rule.

inserted: COMMENT 4, end inserted: Similar to Comment 3, Ms. Barney and Mr. Kajander stated the proposed 5,000-unit process lot cap in (5)(b) is vague because “units" or "each" are not a meaningful measure for concentrates. And concentrates are tested prior to packaging, so the rationale for the unit cap doesn't fit into that product category.

The commenters recommend the department strike (5)(b) entirely as with (5)(a) and rely on SOP-001 v.4. Alternatively, if the department retains (5)(b), clarification should be provided to address how “unit” applies to concentrates.

inserted: RESPONSE 4, end inserted: The department appreciates these comments and agrees that clarity is needed. Sections (5)(a) and (b) have been amended upon adoption in response to these comments.

inserted: COMMENT 5, end inserted: Mr. Arnold questioned the department’s actual understanding - as stated in the rulemaking - that the proposals reflect what should be industry best practice. Mr. Arnold’s concern is that best practices are often for smaller providers, are not scalable for larger companies, and become unnecessary regulatory restrictions for licensees looking to expand their business.

inserted: RESPONSE 5, end inserted: The department appreciates Mr. Arnold’s comments and perspective regarding scalability and business growth. In describing the proposals as reflecting best practice, the department’s intent was to signal that the rules codify reasonable, sound operational standards that support compliance, product safety, and traceability across licensees of all sizes. The department believes the amended rule strikes an appropriate balance between regulatory oversight and operational flexibility. Accordingly, no changes have been made in response to this comment.

inserted: COMMENT 6, end inserted: As an extension of Comment 5, Mr. Arnold argued the practicality of the package/subpackage tag proposals. Mr. Arnold states under the current rule, he can label the THC potency of 40 pounds of packages under the same sticker. But under the proposal, the rule would require him to intermittently stop and change labeling based on each 5-pound batch result for each variance in THC potency.

Mr. Arnold also believes a product label should be able to reflect total inserted: potential, end inserted psychoactive THC and the department should adopt a 10 percent variance, just like with concentrates and edibles. Not only would this variance reflect industry best practices of stricter THC tolerances, but listing the total inserted: potential, end inserted THC would be informative to the consumer and reduce overconsumption; akin to proof-rating alcoholic beverages which Mr. Arnold contends deters overconsumption of higher proof products.

inserted: RESPONSE 6, end inserted: The department appreciates Mr. Arnold’s detailed comments regarding testing, labeling, and batch size. The rules require that each 5‑pound flower test batch be sampled, tested, and labeled with the test results specific to that batch, including total potential psychoactive THC, so that the information on the label accurately corresponds to the contents of that package. Allowing a broader variance or labeling based on the highest result obtained across multiple batches would not reflect the actual tested potency of each package and could mislead consumers about the strength of the specific product they are purchasing.

The department recognizes that individual consumption experiences will vary and that not all of the theoretical potential THC is realized in practice, but the labeling requirement is designed to provide accurate, product‑specific information tied to the test results for that batch, not to theoretical maximums or aggregated lots. For these reasons, the department will maintain the proposed batching and labeling approach and is not making changes to the rule in response to this comment.

inserted: COMMENT 7, end inserted: Ms. Barney, Mr. Arnold, Mr. Kajander, and Ms. Sriraman all commented concern with the proposed requirement in (8) that all tags be unaltered. The commenters contend operators affix printed labels to METRC tags containing critical operational data: strain name, product name, batch number, manufacture date, quantity, and test ID — this has become standard industry practice. This practice is so embedded in industry SOPs across distribution, warehousing, and retail that there are commercially marketed printers specifically for this purpose.

And while the rule's stated intent is narrow, as written it appears to ban any affixed label, even ones that only add information without obscuring the original tag. A blanket prohibition would force operators to build entirely separate (i.e. parallel) identification systems to METRC — introducing new error risks and operational burdens.

Commenters question why the issue cannot be addressed through targeted enforcement rather than administrative rule. If the section is eventually adopted, then the commenters request the department refine "unaltered" to cover only modifications that obscure, deface, or change vendor-issued tag data but allow affixed labels that keep the underlying tag fully legible.

inserted: RESPONSE 7, end inserted: The department appreciates the commenters’ explanation of current industry practices and agrees that the rule should not prohibit affixed labels that preserve the visibility and legibility of vendor‑issued tags. The department’s intent is to ensure that tags remain readable and not obscured, defaced, or altered in a way that compromises the integrity of the tracking system; not to prevent licensees from adding operational information. In response, the department has revised (8) upon adoption to clarify that all tags must remain legible, placed so they can be clearly read and kept free of dirt and debris, and that a licensee may not obscure, deface, or otherwise alter a tag in a manner that renders it illegible or unreadable.

inserted: COMMENT 8, end inserted: Fidelity Diagnostics commented its understanding of the proposal in (9) for daily inventory reconciliation of marijuana inventories, but noted logistical implementation may be untenable even in a laboratory setting because testing samples are incrementally consumed over the course of a 2-3 day test regimen. Fidelity Diagnostics questions how METRC is to be updated daily by exceedingly small amounts and whether the administrative burden is worth the considerable employee time performing the evening reconciliation.

Fidelity Diagnostics suggests that testing labs be permitted to update METRC at the end of the testing period, as its research from both Oregon and California indicates there is no effect on the precision of the reporting at the end of the testing period and allows the lab to operate more efficiently.

Additionally, Fidelity Diagnostics requests an industry-acceptable reconciliation variance in the accuracy of initial sample weight minus testing amounts consumed to account for realistic commercial laboratory conditions. Fidelity Diagnostics opines it was instrumental in the allowed variance for product referred to in the suggested amendment, however that does not extend to product in the testing process. In that circumstance, while a package can be commercially produced with a variance, the testing accuracy remains exact.

inserted: RESPONSE 8, end inserted:  The department appreciates Fidelity Diagnostics’ comments and its explanation of how testing samples are incrementally consumed over multi‑day test regimens. The department agrees that requiring laboratories to perform full reconciliation by the end of each day, rather than at the completion of the testing period, could create unnecessary administrative burden without improving the accuracy of inventory records.

In response to this comment, the department has amended (9) and included new (10) upon adoption to allow licensed testing laboratories to complete inventory reconciliation in the seed‑to‑sale tracking system at the end of the applicable testing period instead of by the end of each calendar day, while still requiring that reconciliations accurately reflect the total amount of sample consumed during testing.

inserted: COMMENT 9, end inserted: MTCIA likewise commented its understanding for proposed (9), but requests a 24-hour grace period - some small window for post-closing reconciliation corrections – be allowed to leave room for realities that can arise in the course of running a business, such as the inability to get a hold of a manager or technical support to help resolve system errors, downtime, etc.

MTCIA and Ms. Sriraman both requested clarification of how the specific examples in (9) would be interpreted in practice. Ms. Sriraman notes the inclusion of examples referencing physical inventory matching system records may be interpreted as requiring full physical inventory verification across all inventory as part of daily reconciliation. She also believes the proposed amendments require detailed explanations for adjustments and prohibit their use to resolve inaccurate sales.

MTCIA and Ms. Sriraman both request clarification that the examples provided are illustrative of reconciliation objectives, rather than prescriptive requirements for daily physical verification of all inventory, which would reduce the potential for inconsistent interpretation.

inserted: RESPONSE 9, end inserted: The department appreciates MTCIA’s and Ms. Sriraman’s comments and concerns regarding reconciliation timing and practical implementation. In response to similar feedback, the department revised the proposal from requiring reconciliation by close of business to allowing reconciliation until 11:59 p.m. on the same day, which provides additional flexibility while still ensuring that records remain timely and accurate. A rolling, item‑by‑item deadline is not practical from a compliance or enforcement standpoint, because it would result in hundreds of different reconciliation times across packages and plants and would be difficult for both licensees and the department to administer.

By this response, the department clarifies that the examples in (9) are intended to be illustrative of reconciliation objectives and common scenarios, not to mandate a full physical inventory of all items as part of every daily reconciliation. Licensees remain responsible for ensuring their records accurately reflect their physical inventory, and adjustments must be used appropriately and documented, but the rule does not require a complete daily count of all inventory solely because examples mention matching physical and system records. The department believes the rule, as revised, provides a clear, workable deadline and guidance while avoiding inconsistent interpretations, and therefore is not making additional changes in response to this comment.

inserted: COMMENT 10, end inserted: Mr. Arnold commented that the 72-hour harvest requirement in (11) is not practical as a blanket requirement. He listed circumstances such as potential spoilage of product due to molds, mildew, hermies, etc. that require immediate harvest which would preclude a 72-hour notice. Mr. Arnold argued that staffing and other realistic operational considerations often arise unexpectedly, which requires acceleration or postponing product harvest. Mr. Arnold also asks what are the consequences for a delayed harvest or non-harvest?

And like his other comments about the necessity for certain proposals, Mr. Arnold claims the rule amendments would penalize the entire industry for the actions of a few non-compliant businesses and is a regulatory burden.

Mr. Arnold suggested that an improved alternative would be to create a “harvest job” within METRC which would notify the department of a licensee’s intended action to harvest product.

Similarly, Ms. Sriraman commented that harvest timing for outdoor cultivation is often driven by weather and temperature and may not be known 72 hours in advance and changes beyond the licensee’s control. She requested clarification on how licensees should proceed when harvest timing cannot be determined within that timeframe to ensure consistent implementation.

inserted: RESPONSE 10, end inserted: The department appreciates these comments regarding operational flexibility and outdoor cultivation. The 72‑hour harvest‑notice requirement is intended to provide predictable advance notice so the department can plan inspections and monitor compliance, while still allowing licensees to adjust their operations as needed. Licensees may update or void a scheduled harvest and create a new harvest entry in the system when circumstances change, including weather‑driven changes for outdoor grows or unforeseen operational issues.

In the department’s experience, most licensees generally know their anticipated harvest windows sufficiently in advance to provide 72 hours’ notice, and the ability to reschedule provides a practical mechanism to address unexpected conditions. The department does not intend to treat good‑faith adjustments to harvest schedules made through the system as violations, but rather to ensure that harvest activity is planned, documented, and visible for regulatory purposes. For these reasons, the department is maintaining the 72‑hour notice requirement in (11) and is not amending the rule further upon adoption in response to this comment.

inserted: COMMENT 11, end inserted: Ms. Pierce Petioni submitted comments that refer to the potential reclassification of marijuana by the federal government and her opinion about how the proposed changes do not strengthen the marijuana industry or serve the public.

inserted: RESPONSE 11, end inserted: The comments do not pertain to the rulemaking, lack specificity, or are outside the scope of the rulemaking. Accordingly, the department declines to respond.

Contact

Todd Olson, Rule Reviewer - Department of Revenue, Legal Services Office

(406) 444-7905

todd.olson@mt.gov

Rule Reviewer

Todd Olson

Approval

Brendan Beatty, Director of Revenue