Montana bill would regulate kratom sales, add licensing and tax; fiscal impacts unclear

Representative Nelly Nickel, sponsor of House Bill 407, told the House Appropriations Committee that the Kratom Consumer Protection Act would create a regulatory framework for kratom in Montana, including registration of processors, distributors and retailers, labeling requirements and an age limit on sales.

The bill sponsor said the measure grew out of public and law-enforcement concerns about kratom and of accounts of addiction and a small number of violent incidents relayed to the committee. "This bill is intended to regulate the sale and distribution of kratom products in Montana," Representative Nelly Nickel said, and the text she offered seeks to keep products free from harmful additives while preserving access for consumers.

Why it matters: the bill converts an unregulated market into a licensed one. That change creates up-front administration and IT costs for the Department of Revenue and could add a new tax type and collection requirements. The department told the committee the fiscal note it previously prepared is no longer pertinent because the bill was substantially rewritten and now includes licensing, fees and taxes.

Department of Revenue Deputy Director Scott Mendenhall said the amendment rewrote the bill and made the earlier fiscal estimate obsolete. "The fiscal note before you was written prior to the amendment," Mendenhall said, "so I would say [it] has no pertinence to the discussion today." He described the practical work required if the bill becomes law as including a licensing application process, an inspection and enforcement program, audit and reconciliation functions, and software changes to GenTax to accept a new tax type. He said a GenTax upgrade to add a tax type is typically "about a half a million dollars." He also noted that an enforcement program would require investigators and inspectors and could require memoranda of understanding for prosecution.

Proponents who testified said the measure separates natural kratom from dangerous synthetic products and would keep the natural product legal but regulated. Scott Bollinger of the American Kratom Association told the committee the bill aims to put "sideboards and regulations on legal safe kratom." Bollinger and others argued the biggest harms being reported to ERs and law enforcement arise from synthetic products, not from properly produced natural kratom.

Isaac Hammer, chief operating officer of Kava Roots (Billings/Laurel), said business owners expect licensing and registration fees to offset some of the program costs and asked the committee to scrutinize the fiscal assumptions. Hammer said he believes the department's allocation of nine full-time employees in an earlier fiscal note is "high given the current number of entities and kratom products in Montana" and that licensing fees and registration fees added in the amendment should offset some costs.

Industry witnesses described local "tea houses," natural-leaf retail venues that sell kratom beverages and provide community space. Hammer said his business and others would accept reasonable taxation and regulation in exchange for a stable, legal market. Bollinger offered a rough statewide estimate used by proponents: approximately 97,000 Montana consumers and an illustrative 5% excise tax, which proponents said could cover program costs after start-up.

Committee members pressed staff on implementation options. Representative Nave asked whether the state could house the program in existing regulatory units; Mendenhall said the bill contemplates housing administration in the Alcohol Beverage Control Division but cautioned that kratom is a different substance with different lab and inspection needs and that efficiencies from co-location are uncertain.

Several members focused on the fiscal note. Vice Chair Mercer asked whether the rewritten bill would require more administrative effort than the prior draft; Mendenhall said the amended bill is "a significant and large expansion" of regulatory duties and would be "significantly higher" than the prior fiscal estimate. Committee members asked the Department of Revenue for a sketch of potential costs and a harder estimate if possible by midafternoon of the hearing day; Mendenhall said the department could not commit to that tight a timeframe.

No committee action (vote) on House Bill 407 appears in the transcript excerpt. The hearing closed after sponsor and proponent testimony and the committee moved on to executive actions on other bills.

Ending note: HB 407 remains at the hearing stage in the appropriations committee after the fiscal discussion. The department described substantial front-end costs to stand up licensing, inspection and tax collection systems, and proponents urged that licensing fees and a modest excise tax could make the program self-supporting once established.