Legislature(2015 - 2016)BARNES 124

03/09/2016 03:15 PM LABOR & COMMERCE

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as
Download Video part 1. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 3:30 p.m. Today --
*+ HB 188 PERSON W/DISABILITY SAVINGS ACCOUNTS TELECONFERENCED
Heard & Held
-- Public Testimony <Time Limit May Be Set> --
*+ HB 337 MARIJUANA TAXES;EXCESS POSSESSION;BONDS TELECONFERENCED
Heard & Held
-- Public Testimony <Time Limit May Be Set> --
*+ HB 314 AK REG ECON ASSIST. PROGRAM; EXTEND TELECONFERENCED
Scheduled but Not Heard
-- Public Testimony <Time Limit May Be Set> --
**Streamed live on AKL.tv**
         HB 337-MARIJUANA TAXES;EXCESS POSSESSION;BONDS                                                                     
                                                                                                                                
4:23:05 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  announced that  the next order  of business  would be                                                              
HOUSE BILL NO. 337, "An Act relating to taxes on marijuana."                                                                    
                                                                                                                                
4:23:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX,  speaking as the sponsor,  paraphrased from                                                              
the  sectional   analysis   for  HB  337   as  follows   [original                                                              
punctuation provided]:                                                                                                          
                                                                                                                                
     Section  1  amends  AS  17.38.200  by  adding  the  bond                                                                 
     created  in Section  3  to the  marijuana  establishment                                                                   
     requirements.                                                                                                              
                                                                                                                                
     Section 2  amends AS 43.61.020(a) to  require electronic                                                                 
     filing of marijuana tax returns.                                                                                           
                                                                                                                                
     Section 3 amends AS 43.61 adding two new sections:                                                                       
                                                                                                                                
          Sec. 43.61.040 grants the tax division authority                                                                    
          to assess a tax on marijuana plants found in                                                                          
          excess of the possession limit for adults not                                                                         
          licensed under AS 17.38.                                                                                              
          Sec. 43.61.050 requires a marijuana cultivation                                                                     
          facility to furnish a cash bond, to be forfeited                                                                      
          if taxes are not paid. It also makes marijuana                                                                        
          product manufacturing facilities and retail                                                                           
          marijuana stores secondarily liable for taxes on                                                                      
          their marijuana inventory and responsible for                                                                         
          providing proof that their marijuana inventory is                                                                     
          legitimate, upon request by the department.                                                                           
                                                                                                                                
REPRESENTATIVE  KITO   directed  attention  to   proposed  Section                                                              
43.61.040   [text  previously   provided].     He  expressed   his                                                              
understanding  that plants  found in  excess of  the legal  amount                                                              
for  possession  would  engage a  criminal  statute,  which  would                                                              
result in  a criminal  action, and  asked if  the state  would tax                                                              
them as well.                                                                                                                   
                                                                                                                                
4:27:16 PM                                                                                                                    
                                                                                                                                
KALYSSA  MAILE,  Staff to  Representative  LeDoux,  sponsor of  HB                                                              
337, advised  that the  bill does  not specify  one action  or the                                                              
other, the  option is open that  one could be  charged criminally,                                                              
and also assessed  penalties through the Tax  Division, Department                                                              
of Revenue (DOR).                                                                                                               
                                                                                                                                
REPRESENTATIVE JOSEPHSON  inquired as  to whether the  policy goal                                                              
was to  deter black  market competition with  a lawful  market, or                                                              
to raise revenue.                                                                                                               
                                                                                                                                
MS.  MAILE acknowledged  that deterrence  is "pretty  fundamental"                                                              
to  support  a  legal  industry,   and  DOR  has  been  unable  to                                                              
determine what the expected revenue from the industry will be.                                                                  
                                                                                                                                
REPRESENTATIVE  JOSEPHSON referred  to proposed Section  43.61.050                                                              
[text   previously    provided]   and   surmised    "the   primary                                                              
responsibility  is the grower,  and that  person may be  different                                                              
than the manufacturer and seller ...."                                                                                          
                                                                                                                                
MS.  MAILE  said  correct.   The  cultivator  is  responsible  for                                                              
paying the tax,  and the secondary liability goes  to the retailer                                                              
or  the product  manufacturer,  who  must be  able  to prove  that                                                              
their  source  of marijuana  was  from  a  legal cultivator.    In                                                              
further response  to Representative  Josephson, she said  there is                                                              
nothing   in   HB  337   inconsistent   with   [Alaska   Marijuana                                                              
Legalization Ballot Measure 2 approved 11/4/14].                                                                                
                                                                                                                                
REPRESENTATIVE HUGHES  asked how many  ounces a plant  weighs, its                                                              
value, and the annual value of "excess plants."                                                                                 
                                                                                                                                
4:30:35 PM                                                                                                                    
                                                                                                                                
MS.  MAILE  said  AS  11.71.080  establishes  that  the  aggregate                                                              
weight  of  a live  marijuana  plant  is  one-sixth of  the  plant                                                              
weight  after the  roots  have been  removed.   She  said she  was                                                              
unsure how often excess plants are found.                                                                                       
                                                                                                                                
4:31:47 PM                                                                                                                    
                                                                                                                                
KEN  ALPER,   Director,   Tax  Division,   DOR,  in  response   to                                                              
Representative  Hughes,   based  on  information   from  a  recent                                                              
arrest, estimated  a weight  of 5 ounces  per plant;  therefore, a                                                              
$50 per  ounce excise  tax would garner  a $250,000  civil penalty                                                              
to the grower.                                                                                                                  
                                                                                                                                
CHAIR   OLSON   suggested   that   taxes   could   be   based   on                                                              
tetrahydracannabinol (THC) content rather than weight.                                                                          
                                                                                                                                
MR.  ALPER  responded  that  illegal  marijuana  is  not  normally                                                              
processed in a  laboratory, and the division seeks  to confiscate,                                                              
destroy,  and penalize  by  an efficient  procedure.   In  further                                                              
response  to  Co-Chair  Olson,   he  said  the  division  has  not                                                              
considered processing  illegal marijuana  for the purposes  of the                                                              
prosecution.   In fact, the  goals of the  tax authorities  are to                                                              
provide the  tax division with the  ability to charge  the penalty                                                              
on illegal marijuana.  He remarked:                                                                                             
                                                                                                                                
     If the  committee would prefer  to somehow find  a means                                                                   
     of calculating  THC we  can do  that.   Let me be  clear                                                                   
     though, that  the legal marijuana industry is  silent on                                                                   
     the robustness  of the product.   You know, it's  a flat                                                                   
     $50 an  ounce regardless of  the quality of  THC content                                                                   
     of  what it is  that's actually  being grown.   In  some                                                                   
     ways,  our   marijuana  tax  favors  the   high  quality                                                                   
     manufacturer  because  it's a,  the more  valuable  your                                                                   
     product, the  $50 an ounce becomes less burdensome  as a                                                                   
     percentage of the value.                                                                                                   
                                                                                                                                
CHAIR OLSON observed  that other states measure,  label, and check                                                              
for herbicides.                                                                                                                 
                                                                                                                                
MR. ALPER  said Alaska  has testing  requirements  as part  of the                                                              
legal  marijuana system;  furthermore,  the aforementioned  states                                                              
have sales  taxes based on  the percentage  of the value  as their                                                              
primary revenue  source, whereas  Alaska chose  a "by  weight" tax                                                              
mechanism.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  JOSEPHSON inquired  whether a  fine is  consistent                                                              
with   proposed    SB   91;    he   characterized    SB    91   as                                                              
"friendlier" and  HB 337 as punitive  for those who  possess drugs                                                              
illegally, including a jail term.                                                                                               
                                                                                                                                
4:35:27 PM                                                                                                                    
                                                                                                                                
MR. ALPER  advised that marijuana  possession remains  criminal in                                                              
Alaska  beyond the  six plants  for personal  use.   In a  certain                                                              
case a person  was found possessing 1,000 plants  with no evidence                                                              
of  illegal dealing.   If  the criminal  justice  system does  not                                                              
seek a felony  indictment, there is no disincentive,  but the bill                                                              
is  a means  of deterrent  to encourage  Alaska marijuana  growers                                                              
into a legal system.                                                                                                            
                                                                                                                                
MS.  MAILE  added  that  other  proposed  legislation  related  to                                                              
marijuana deals primarily  with the criminal code;  HB 337 imposes                                                              
a civil penalty.                                                                                                                
                                                                                                                                
REPRESENTATIVE  KITO directed  attention to  the bill  on page  2,                                                              
lines 24-29, which read:                                                                                                        
                                                                                                                                
     (c)  A  marijuana  product   manufacturing  facility  or                                                                   
     retail  marijuana store  is secondarily  liable for  the                                                                   
     taxes on marijuana  that is sold by or to  the marijuana                                                                   
     product  manufacturing  facility   or  retail  marijuana                                                                   
     store.  If requested  by the  department, the  marijuana                                                                   
     product  manufacturing  facility   or  retail  marijuana                                                                   
     store shall  provide the department with proof  that the                                                                   
     taxes have been  paid on the marijuana inventory  in the                                                                   
     possession  of   the  marijuana  product   manufacturing                                                                   
     facility or retail marijuana store.                                                                                        
                                                                                                                                
REPRESENTATIVE KITO  recalled that  the commerce of  cigarettes is                                                              
facilitated by tax  stamps, and alcohol is also  marked when taxes                                                              
are paid.   He surmised  there is a  regulatory process  to inform                                                              
consumers that taxes have been paid on a marijuana product.                                                                     
                                                                                                                                
MS. MAILE said  DCCED is in the  process of setting up  a seed-to-                                                              
sale system.                                                                                                                    
                                                                                                                                
4:38:07 PM                                                                                                                    
                                                                                                                                
CYNTHIA FRANKLIN,  Director, Alcohol  & Marijuana Control  Office,                                                              
DCCED,  informed  the  committee   that  a  seed-to-sale  tracking                                                              
system  will involve  radio-frequency  identification (RFID)  tags                                                              
attached  to marijuana  plants  over  eight inches;  the  tracking                                                              
number  will  stay with  the  plant  as  it is  harvested,  dried,                                                              
manufactured into a  product, and sold by the retail  store.   The                                                              
tracking software  is capable of  generating the  reports required                                                              
of licensees by  DOR, thus by this system,  cultivation facilities                                                              
will  be  tracking and  filing  monthly  reports  with DOR.    Ms.                                                              
Franklin  concluded that  the seed-to-sale  software will  provide                                                              
back-up documentation  for tax  reporting to  DOR, to  ensure that                                                              
taxes  have  been  paid.    Labels  and  marijuana  products  will                                                              
indicate  to consumers  the  tracking  system.     In response  to                                                              
Chair Olson, she  said the system is the same as  used in Colorado                                                              
and Oregon,  and information  can be read  with a handheld  device                                                              
within ten feet of the tag on each plant.                                                                                       
                                                                                                                                
REPRESENTATIVE  KITO questioned  the validity  of tracking  a RFID                                                              
tag  that becomes  part of  a process  which  combines plants,  or                                                              
separates plants  into various  components such  as an  extract, a                                                              
leaf, or a bud.                                                                                                                 
                                                                                                                                
MS. FRANKLIN  stated that  the tags  are robust  and as  the plant                                                              
evolves, the tag  may change, but the tracking number  stays.  She                                                              
assured the committee the system works.                                                                                         
                                                                                                                                
MR.  ALPER  returned   attention  to  the  concept   of  secondary                                                              
liability, which  is a  power currently held  by the  tax division                                                              
for alcohol  and tobacco  taxes.   For example,  if a retailer  is                                                              
found in  possession of  alcohol or cigarettes  that did  not come                                                              
from  a licensed  distributor,  the tax  division  can charge  the                                                              
taxes to  the retailer.  The  division seeks to extend  this power                                                              
to the  marijuana industry to create  a deterrent against  a black                                                              
market.   The difference is that  the marijuana will be  grown and                                                              
sold  in Alaska,  and  the software  tracking  system will  ensure                                                              
that the marijuana came from a licensed grower.                                                                                 
                                                                                                                                
REPRESENTATIVE  JOSEPHSON asked  whether  the amount  of the  cash                                                              
bond is comparable to what is assessed to alcohol vendors.                                                                      
                                                                                                                                
MS. MAILE  said the alcohol  industry must  post a surety  bond to                                                              
ensure  that  alcohol  taxes  are paid.    She  characterized  the                                                              
$5,000 cash bond  as "significantly lower than that  you would see                                                              
with alcohol."   In further response to Representative  Josephson,                                                              
she  said the  marijuana cash  bond  may be  more burdensome  than                                                              
that of a new  liquor business; however, a surety  bond requires a                                                              
premium  to be paid,  and over  the long  term a  cash bond  could                                                              
cost less.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  LEDOUX  advised that  the  bill sponsors  set  the                                                              
cash bond for  marijuana lower than a $25,000  surety bond because                                                              
the marijuana industry  won't be able to get a surety  bond.  This                                                              
amount will cover the tax liability, but is not overly onerous.                                                                 
                                                                                                                                
MR.  ALPER  stated  that  the bill  offers  the  division  similar                                                              
authorities  as are established  for alcohol,  as directed  by the                                                              
initiative.                                                                                                                     
                                                                                                                                
4:48:14 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON opened public testimony on HB 337.                                                                                  
                                                                                                                                
4:48:21 PM                                                                                                                    
                                                                                                                                
BRIAN OLSON,  Owner/Operator, Alaska  Berries Winery,  stated that                                                              
the $5,000  cash bond for a  cultivation license is onerous  to an                                                              
applicant.    Previously the  "MTF  board"  discussed  the use  of                                                              
surety bonds,  which he used to  obtain his federal license  for a                                                              
winery  business.   However,  a  $5,000 cash  bond  for a  limited                                                              
cultivation  license,  in  addition   to  a  nonrefundable  $1,000                                                              
application fee and  $1,000 license fee, would  hamper a beginning                                                              
industry.     He  opined  that   those  who  are   establishing  a                                                              
legitimate business  have a lot invested already,  and although he                                                              
supports the  proposed regulations, he  said the cash  bond should                                                              
be a surety  bond which can be  collected by the state  from those                                                              
who renege on their taxes.                                                                                                      
                                                                                                                                
                                                                                                                                
REPRESENTATIVE LEDOUX  asked how marijuana growers  or cultivators                                                              
would  be able  to  obtain  a surety  bond  and  if not,  for  his                                                              
opinion on the amount of a more reasonable cash bond.                                                                           
                                                                                                                                
MR.  OLSON said  he got  two  surety bonds  to  satisfy state  and                                                              
federal requirements for  a winery and a liquor license.    On the                                                              
state  level, any insurance  company  will issue  a bond based  on                                                              
the individual's  ability  to pay.   Even without  a surety  bond,                                                              
any  legitimate  business must  submit  its  taxes, and  a  $5,000                                                              
surety bond would cost about $150 annually.                                                                                     
                                                                                                                                
REPRESENTATIVE  LEDOUX related that  if the  sponsors of  the bill                                                              
thought marijuana  growers could obtain a surety  bond, they would                                                              
have made that choice.  She restated her previous question.                                                                     
                                                                                                                                
MR. OLSON  said there  is recourse  for the  state to  recoup lost                                                              
revenue due  to nonpayment  of taxes, and  it is not  necessary to                                                              
have a bond for taxes on any business.                                                                                          
                                                                                                                                
4:55:45 PM                                                                                                                    
                                                                                                                                
DOLOYNDA  PHELPS  stated  her  concern  was  related  to  proposed                                                              
Section  43.61.050  [text  provided  previously].   She  said  the                                                              
$5,000  cash bond  is  problematic,  and asked  for  understanding                                                              
that   potential   business   owners  are   aware   of   financial                                                              
commitments  and  have  a  lot  at  stake.    The  cash  bond  and                                                              
compounded  fees are  difficult for  business owners  who want  to                                                              
pay  their taxes  so the  industry ends  up with  a legal  market.                                                              
Ms.  Phelps said  proposed Section  43.61.050 does  not favor  the                                                              
legal taxpayer, or  encourage a transition into  a "good, healthy,                                                              
regulated industry here in the state."                                                                                          
                                                                                                                                
4:58:10 PM                                                                                                                    
                                                                                                                                
JAMES BARRETT  said he was  applying for cultivation,  processing,                                                              
and  retail marijuana  licenses.   He  brought  up several  points                                                              
related to  the bill:   tax based on  weight includes  the flower,                                                              
and "doesn't  really line up"; if  a person pays a tax  after they                                                              
are  found  guilty,  the  cannabis  would  have  to  be  preserved                                                              
because it can change  in weight over time; whether  cash would be                                                              
accepted for  the bond;  the importance of  the effective  date on                                                              
those  who  are presently  starting  a  business; the  tax  should                                                              
really be  called a fine,  and he questioned  the legality  of the                                                              
tax.                                                                                                                            
                                                                                                                                
5:00:10 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON, after  ascertaining that  no one  further wished  to                                                              
testify, held public testimony open.                                                                                            
                                                                                                                                
MR. ALPER  advised that  DOR would  accept a  surety bond  if that                                                              
option is  in the  legislation; however,  many taxpayers  will not                                                              
be able  to open  a bank  account, and  thus will  not be  able to                                                              
secure a bonding agent either.                                                                                                  
                                                                                                                                
CHAIR OLSON recalled  at one time the state  accepted certificates                                                              
of deposit (CDs) in lieu of cash.                                                                                               
                                                                                                                                
[HB 337 was held over.]                                                                                                         
                                                                                                                                

Document Name Date/Time Subjects
HB188 ver A.PDF HL&C 3/9/2016 3:15:00 PM
HB 188
HB188 Sponsor Statement.pdf HL&C 3/9/2016 3:15:00 PM
HB 188
HB188 Sectional Analysis.pdf HL&C 3/9/2016 3:15:00 PM
HB 188
HB188 Supporting Documents-GCDSE Presentation.pdf HL&C 3/9/2016 3:15:00 PM
HB 188
HB188 Supporting Documents-Letter-GCDSE 02-01-16.pdf HL&C 3/9/2016 3:15:00 PM
HB 188
HB188 Supporting Documents-Letter-Alaska Autism Speaks 02-01-16.pdf HL&C 3/9/2016 3:15:00 PM
HB 188
HB188 Supporting Documents-ABLE summary.pdf HL&C 3/9/2016 3:15:00 PM
HB 188
HB314 ver N.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter Kalskag 11-13-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter Organized Village of Kake 10-26-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter Organized Village of Kasaan 10-21-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter SE Delegation 10-29-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter Thorne Bay 10-26-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter Yukon-Kuskokwim Economic Development Council 11-12-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Assorted Letters-compiled.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter AK Fisheries Dev Foundation 01-19-16.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter Alakanuk Traditional Council 11-12-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter Aniak Traditional Council 11-12-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter City of Coffman Cove 11-03-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter City of Craig 10-27-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter City of Hydaburg 10-26-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter Hooper Bay 11-12-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter Huna Totem 11-02-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter Sealaska 10-27-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter Village of Eek 11-16-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Letter AVCP 11-12-15.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB337 ver W.pdf HL&C 3/9/2016 3:15:00 PM
HB 337
HB337 Sponsor Statement.pdf HL&C 3/9/2016 3:15:00 PM
HB 337
HB337 Sectional Analysis.pdf HL&C 3/9/2016 3:15:00 PM
HB 337
HB337 Supporting Documents-Letter Tax Division Dir Ken Alper 02-26-16.pdf HL&C 3/9/2016 3:15:00 PM
HB 337
HB337 Supporting Documents-Article Homer News 02-16-16.pdf HL&C 3/9/2016 3:15:00 PM
HB 337
HB337 Fiscal Note-DCCED-AMCO-03-08-16.pdf HL&C 3/9/2016 3:15:00 PM
HB 337
HB188 Fiscal Note-DCCED-DBS-03-08-16.pdf HL&C 3/9/2016 3:15:00 PM
HB 188
HB314 Sponsor Statement.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB314 Supporting Documents-Report FY15 ARDOR Annual Report.pdf HL&C 3/9/2016 3:15:00 PM
HB 314
HB337 Fiscal Note-DOR-TAX-03-09-16.pdf HL&C 3/9/2016 3:15:00 PM
HB 337
HB314 Fiscal Note-DCCED-DED-03-08-16.pdf HL&C 3/9/2016 3:15:00 PM
HB 314