Legislature(2017 - 2018)HOUSE FINANCE 519
02/20/2018 01:30 PM FINANCE
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HOUSE BILL NO. 273 "An Act extending the termination date of the Marijuana Control Board; and providing for an effective date." 1:37:16 PM ERIKA MCCONNELL, DIRECTOR, ALCOHOL AND MARIJUANA CONTROL OFFICE, introduced the PowerPoint presentation: "Alcohol and Marijuana Control Office." She turned to Slide 2: "Agency and Board Structure:" Alcohol and Marijuana Control Office • Alcoholic Beverage Control Board • Marijuana Control Board The Alcohol and Marijuana Control Office serves both the Alcoholic Beverage Control Board and the Marijuana Control Board. The boards were two separate entities. Ms. McConnell reviewed slide 3: "Marijuana Control Board Accomplishments": • In nine months, developed and adopted the regulatory structure for marijuana licensure through a robust public process • Between being constituted in July 2015 and present, met over 24 times, including in each judicial district each year as required by statute • Between June 2016 and present, approved 278 license applications, denied 8 applications, and revoked 2 licenses • Opened 45 regulations projects, of which 8 are in effect, and an additional 11 are adopted Representative Ortiz asked about slide 3. He referenced the third bullet point and asked how the application approval process worked. Ms. McConnell responded that on occasion the board tabled an application that was deficient or incorrectly done. The applicant was given an opportunity to correctly complete the application and once approved was included in the 278 number. She estimated that between 6 and 12 approved applications had been temporarily tabled. Representative Ortiz asked whether there were currently any applications in an indeterminate state. She recollected that one or two applications were tabled during the last board meeting. 1:41:32 PM Representative Tilton asked for a general idea of how many applications were considered in one board meeting. Ms. McConnell replied that the board reviewed 20 to 30 applications in one meeting. Representative Tilton asked how many applications were currently pending for the next meeting. Ms. McConnell answered that the application process went through certain phases. Once the applications were reviewed and deemed complete by staff they were reviewed at the next board meeting. She was aware of 62 applications awaiting board review but was uncertain how many were in the initial phase. Representative Kawasaki had questions regarding the licensing portion. He referred to a sunset review from July 2016. The audit mentioned 122 issued licenses. He wondered whether approximately 150 licenses were issued since the audit. Ms. McConnell answered in the affirmative. Representative Kawasaki asked if each type of licenses took a different amount of time to review. Ms. McConnell replied that each license application was " extensive" and certain license types took a significant amount of time to review. She relayed that product manufacturers licenses had to obtain approval for each product they produced. One licensee had 91 products that needed approval, so the staff had to review each one for compliance with the regulations. Representative Kawasaki asked about an average wait time from the time the applicant submitted the application until it was reviewed by the board. He shared that he heard from potential licensees waiting for the regulatory approval process. He remarked that more license examiners were not yet hired, and the license application process was backed up. He wanted to better understand where the delays were to help expedite the process. 1:46:12 PM Ms. McConnell referred to a Flow Chart from February 2017 from the control office (copy on file) and explained that the entire process took approximately 6 to 7 months. She elucidated that the primary reason for the lengthy process was staff turnover. As of November 2017, the office only had three license examiners and were granted two more positions in FY 2018 that were hired after November 2017. However, the office had received 950 alcohol renewal applications and the new staff was limited to processing the renewals. Recently, one of the three examiners resigned. The office attempted to keep the application process moving forward. Additionally, the board was very aware of the need to keep the process moving and scheduled an extra meeting to accommodate the review of applicants. The office was arduously working to hire and train examiners. Representative Kawasaki asked how Alcohol and Marijuana Control Office (AMCO) decided what the examiners focused on between alcohol and marijuana. Ms. McConnell replied that ideally every examiner would be able to handle both types of applications. However, examiners relayed challenges when switching between processing for both substances. The office tended to allow specialization. She determined that the best structure was two examiners assigned to alcohol, two examiners assigned for marijuana, and one that floated between the two depending on marijuana license renewal or alcohol license renewal periods. 1:49:36 PM Representative Kawasaki asked about what the legislature could do to ease the process. Ms. McConnell was not sure there was anything currently necessary. The staff should be adequately trained, and the backlog reduced in the time it would take to hire and train new staff. Representative Grenn complimented Ms. McConnell and felt that AMCO had accomplished a lot in a short time period. He inquired about sensitive business information that was required by applicants. He asked whether the board acted to protect the information or change the process. Ms. McConnell responded that several break-ins had occurred at various marijuana facilities. There was a suspicion with one burglary that occurred in December 2017, that the thieves accessed the floor plans from the application proposal. In response, AMCO took two steps to mitigate the problem. One action revised the application form and eliminated the requirement to show the location of security cameras and devices on the floor plan. The second step was that once an application was considered by the board the floor plan diagram was removed from the website. The application was included online for the public to provide input during the application process. Representative Ortiz asked whether the staff recommended approval or denial after the initial reviewing process. Ms. McConnell responded that the staff completed a cover memo that highlighted dates and included opportunities to raise issues. The staff did not engage in the approval or denial process but might urge the board to take a particular look at something specific in an application. Representative Ortiz asked whether there was a "commonality" in board rejections. Ms. McConnell answered in the negative. Representative Tilton asked whether the staff spent a significant portion of time reviewing initial applications and requesting more or corrected information from the applicants. She wondered whether the licensing process could be streamlined in any way. Ms. McConnell indicated the staff had not seen a "perfect" application when initially submitted. When staff discovered errors a list of what was needed was sent to the applicant. The office recently revised its forms, resulting from what was learned and experienced through the application process to date. She recommended that applicants should listen to or attend board meetings prior to submitting their application and felt that the applicants had a certain level of responsibility for a correct application. 1:56:22 PM Vice-Chair Gara pointed out that the cost of labor or commodities did not change from 2019 to 2023 according to the fiscal note. He wondered whether the board would increase license fees as wages and costs increased. Ms. McConnell replied that she was not certain of future needs and therefore left the numbers the same in the out years considering the board's authority to alter fees as necessary. Co-Chair Foster asked members to hold their questions until the end of the presentation. Ms. McConnell turned to slide 4: "Alcohol and Marijuana Control Office: Current Organization." She explained that the organizational structure included 3 sections: Enforcement, Administration, and Licensing and Education. The enforcement section included one Special Investigator, five Special Investigators, and one Criminal Justice Technician based in Anchorage, two of the special investigators were based in Fairbanks and one in Juneau. The licensing and education section included a Local Government Specialist that performed community outreach for both alcohol and marijuana programs that was added in FY 17. The remaining positions were comprised of Occupational Licensing Examiners and one administrative assistant. Ms. McConnell continued to slide 5: "Marijuana Regulation History": • November 2014: Voter initiative to regulate marijuana like alcohol passes • April 2015: HB123 establishes the Marijuana Control Board (Sec. 2 Ch. 4 SLA 2015, primarily changes AS 17.38) • February 2016: Marijuana Control Board establishes regulations, including fees for marijuana businesses (enacted as 3 AAC 306) • February 2016: Marijuana licensing begins (applications are accepted) • July 2016: Commercial marijuana operations begin • October 2016: First retail marijuana store opens • June 2017: First renewal period for all marijuana licenses 1:59:52 PM Ms. McConnell read from slide 6: "Marijuana Budget History": • November 2014: Voter initiative to regulate marijuana like alcohol passes • Spring 2015: UGF funding appropriated for FY2015 and FY2016 for program implementation ($2,360.1 UGF, supplemental multi-year appropriation for FY2015- FY2016) • Spring 2016: UGF and GFPR funding appropriated for FY2017 for continued program operations ($1,470.7 UGF, $100.0 GFPR) Component retitled from Alcoholic Beverage Control Board (ABCB) to Alcohol and Marijuana Control Office (AMCO) • Spring 2017: UGF and GFPR funding appropriated for FY2018 ($1,052.5 UGF, $756.6 GFPR) Intent language in the budget regarding marijuana fees • Spring 2018: UGF and GFPR funding requested for FY2019 ($532.8 UGF, $1,282.6 GFPR) HB273 introduced to extend the Marijuana Control Board HB299 introduced to extend the Alcoholic Beverage Control Board Ms. McConnell reported that AMCO expected to be fully supported by program receipts and carry forward funds by FY 2020. Ms. McConnell read from slide 7: "Marijuana Fees": • License and application fees are set by the Marijuana Control Board in regulation (3 AAC 320) • Fees were last set in February 2016 • Annual fees for marijuana licenses are $1,000 for limited cultivation, concentrate manufacturing, or testing licenses, and $5,000 for retail, unlimited cultivation, and product manufacturing licenses • Application fees are $1,000 for new and transfer applications and $600 for renewal applications • Half of each application fee is transferred from AMCO to the appropriate local government o This is different than alcohol licensing revenue transfers, which are transferred from the Department of Revenue's tax • collections to the appropriate local government • Intent language in the FY2017 budget • The board will likely revisit fees in FY2019 or FY2020 Ms. McConnell advanced to slide 8: "Alcohol Fees": • License fees are set by statute for all license types in statute; licenses created by regulation have license fees set by regulation • Application fees are set by regulation • Application fees were raised for the first time in at least 20 years, to take effect 7/1/18 • Biennial fees for alcohol licenses range from $400 (golf course license; wholesale-malt beverage and wine license) to $2,500 (beverage dispensary license) • Application fees are $100 for new and transfer applications and $200 for renewal applications; these are increased to $500 for new and transfer applications and $300 for renewal applications, beginning 7/1/18 • License fees are transferred to the appropriate local government from the Department of Revenue's tax collections upon showing of local enforcement of applicable laws 2:04:55 PM Ms. McConnell highlighted the intent language on slide 9: "2017 Legislative Intent Language": Development, Alcohol and Marijuana Control Office Operating Budget (CCS HB 256) It is the intent of the legislature that the Department of Commerce, Community and Economic 7 Development, Alcohol and Marijuana Control Office, set marijuana application and licensing 8 fees to cover the cost of regulation and recover unrestricted general fund appropriations made 9 in prior fiscal years while the program was being established. Ms. McConnell moved to slide 10: "AMCO Budget History and Projection." She highlighted that in both FY 2016 and FY 2017 expenditures were less than revenues and some funds were returned to the general fund (GF) for alcohol operations. 2:05:43 PM Ms. McConnell indicated that slide 11 "Alcohol and Marijuana Control Office: Current Organization" was a duplicate slide from earlier in the presentation. She turned to slide 12: "Alcohol and Marijuana Control Office: Organization to Support One Regulated Substance." She offered that slide 12 was the same duplicate denoting the positions that would be eliminated if one of the boards were not extended. She detailed that three special investigators and the criminal justice technician would be eliminated from the enforcement section, two occupational licensing examiners and one supervisor from the licensing and education section, and the administrative assistant from the director's office would all be eliminated. Representative Kawasaki cited the fee structure on slide 10. He asked why license fees for alcohol were set by statute and the marijuana licensing fees were set by regulation. Ms. McConnell was unable to answer the question regarding alcohol licensing. She explained that the marijuana statutes were initially adopted from the voter's initiative and were limited. Some of the statutes were further developed by the legislature in 2016. Many of the rules relating to the marijuana program were in regulation unlike alcohol, where most were in statute. Representative Kawasaki asked whether the alcohol program had the same rules when setting fees. Ms. McConnell explained that the alcohol program was required to be self-supporting like the marijuana program. Representative Kawasaki asked if the alcohol fee structure was in statute. Ms. McConnell was uncertain and would follow up. Representative Kawasaki reported that the marijuana program was required to repay the initial general fund expenditures. He asked how repayment would be accomplished through the fee structure. Ms. McConnell replied that essentially the office had one year of data with all the licenses renewing. However, she was uncertain how the licensure would settle out; how many licenses would remain viable and supported by the public. She needed a few more years of data to be able to project expenses and revenues and set fees that would recover the funding. Representative Kawasaki asked if the board would set the fees to meet the goals and requirements of the repayment mandate. Ms. McConnell responded in the affirmative. 2:09:58 PM Representative Wilson asked whether the Department of Commerce, Community and Economic Development (DCCED) was planning to submit a new fiscal note that reported the $1.5 million in GF expense that would eventually be repaid to the general fund. Ms. McConnell explained that because the office was still requesting GF to support the program. The office was proposing to delay repayment until the program was self-sufficient. 2:11:21 PM Representative Wilson suggested a current fee adjustment in anticipation of repayment might be necessary. She reiterated that the fiscal note did not reflect the GF obligation. She wanted the board to become self-sufficient sooner rather than later. Representative Wilson inquired about the exorbitant cost of an alcohol permit. Ms. McConnell responded that alcohol licenses were capped based on population. She explained that certain types of alcohol licenses; beverage dispensary licenses (bar licenses) and package store licenses were limited by population. The situation created a secondary market for the licenses and was a private transaction between two individuals; the money was not part of the licensing program. Representative Wilson wondered whether the board tracked active licenses and licenses that were not being utilized. Ms. McConnell indicated that minimum operation requirements were established that mandated operating a certain number of hours each year or a waiver was necessary. The board only issued a limited number of waivers via regulation. The licenses could not be hoarded. 2:15:38 PM Vice-Chair Gara asked how the boards attempted to be cost neutral through its fee structure. Ms. McConnell replied that for the alcohol program the refund to the local government came from taxes and did not affect the board's budget. She elaborated that the marijuana program collected 2 fees; a licensing fee and an application fee. The license fee was higher than the application fee. The licensure fees were retained entirely, which could be adjusted to help the program become self-sufficient. Vice-Chair Gara asked for clarification. He inquired about remittances to local governments. Ms. McConnell clarified that on the alcohol side, local government assessed and collected taxes and was a function of the Department of Revenue (DOR). She clarified that on the marijuana side the money came from the application fees and half of the amount collected was refunded to the local government. The state retained the other half of the fees. Vice-Chair Gara referenced the same issue as the inquiry made by Representative Grenn regarding floor schematics as part of the marijuana licensure. Ms. McConnell reiterated that the marijuana application was placed online for the benefit of the public and the regulation deeming application documents public records was set in statute. She reminded that the licensees premise was part of the application but once the board ruled on an application AMCO removed the diagram online and was only made available via a public records request. Vice-Chair Gara asked why a floor plan had to be posted. Ms. McConnell replied that the internet was the easiest way to provide access to the public and the regulations provided for a thorough public process that included viewing the entire application. 2:19:53 PM Representative Ortiz asked whether the use of marijuana on site was not allowed anywhere in the state. Ms. McConnell answered that the prohibition for onsite use covered the entire state. Representative Ortiz asked about the reasoning behind the on-site consumption ban and if the board considered the revenues gained through elimination of the prohibition. Ms. McConnell answered in the negative. She related that the provision in statute contemplated onsite consumption as part of a retail outlet but was subject to development of the regulations. The board embarked on a regulation development project in February 2016 that was open to public comment and voted against adopting the regulations. In March 2017, the board reopened a new regulatory project on onsite consumption that was in progress. Representative Ortiz asked if the number of alcohol licenses was capped. Ms. McConnell responded in the affirmative. Representative Ortiz questioned whether the marijuana licenses would be capped. Ms. McConnell responded that she was uncertain whether a limit would ever be established. Representative Thompson cautioned that a bill [SB 63 Regulation of Smoking - Adopted 5/12/2018] that prohibited smoking in public buildings was moving through the legislature. He asked how a smoking prohibition would be affected by adoption of onsite marijuana consumption. Ms. McConnell understood that the bill contained a "carve out" provision that allowed for marijuana consumption in a stand-alone marijuana retail store. However, smoking marijuana in a marijuana store that was not "discrete" would be prohibited. She reminded committee members that other methods of marijuana consumption existed and might be universally legal in marijuana retail stores. Representative Thompson asked about common walls and the exclusion. Ms. McConnell understood that the retail store was supposed to be an entirely separate and standalone building. 2:24:17 PM Representative Ortiz asked how often the board met to review licenses. Ms. McConnell responded that once an application was deemed complete the board had 90 days to offer a ruling. She added that the board met approximately every two and one-half months. Representative Ortiz asked whether the board could meet more often to clear a backlog of applications. Ms. McConnell observed that currently the backlog was produced at the staff level and she was not sure if adding board meetings was an effective way to address a backlog if the applications were not ready for board review. The board typically still met if the number of applications was lower than what was usually addressed in one meeting. 2:26:30 PM AT EASE 2:27:53 PM RECONVENED Vice-Chair Gara noted that the committee had heard public testimony on HB 273. HB 273 was HEARD and HELD in committee for further consideration.