Legislature(2017 - 2018)HOUSE FINANCE 519

02/20/2018 01:30 PM FINANCE

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Audio Topic
01:35:39 PM Start
01:37:16 PM HB273
02:28:48 PM HB299
02:53:04 PM Public Testimony
03:17:20 PM HB301
03:39:11 PM Public Testimony
03:52:26 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Public Testimony --
Heard & Held
-- Testimony <Invitation Only> --
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                   HOUSE FINANCE COMMITTEE                                                                                      
                      February 20, 2018                                                                                         
                          1:35 p.m.                                                                                             
1:35:39 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Foster  called the House Finance  Committee meeting                                                                    
to order at 1:35 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Neal Foster, Co-Chair                                                                                            
Representative Paul Seaton, Co-Chair                                                                                            
Representative Les Gara, Vice-Chair                                                                                             
Representative Jason Grenn                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Dan Ortiz                                                                                                        
Representative Lance Pruitt                                                                                                     
Representative Steve Thompson                                                                                                   
Representative Cathy Tilton                                                                                                     
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Erika  McConnell, Director,  Alcohol  and Marijuana  Control                                                                    
Office;  Hannah  Lager,  Budget  Analyst  III,  Division  Of                                                                    
Administrative Services,  Department of  Commerce, Community                                                                    
and Economic Development;  Kris Curtis, Legislative Auditor,                                                                    
Alaska Division of Legislative  Audit; Sara Chambers, Acting                                                                    
Director, Alcohol  and Marijuana Control  Office, Department                                                                    
of  Commerce,  Community  and  Economic  Development;  Janie                                                                    
McCullough,  Director,  Division of  Corporations,  Business                                                                    
and   Professional   Licensing,  Department   of   Commerce,                                                                    
Community  and  Economic  Development;  Representative  Adam                                                                    
Wool,  Sponsor; Laura  Stidolph, Staff,  Representative Adam                                                                    
PRESENT VIA TELECONFERENCE                                                                                                    
Debbie Cary, self, Ninilchik; Nancy Trump, Latitude 62                                                                          
Lodge, Matanuska Susitna Borough; Allen Choy, Al's Alaskan                                                                      
Inn, Anchorage; Pete Hanson, Alaska CHARR, Anchorage;                                                                           
HB 273    EXTEND: MARIJUANA CONTROL BOARD                                                                                       
          HB 273 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
HB 299    EXTEND: ALCOHOLIC BEVERAGE CONTROL BOARD                                                                              
          HB 273 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
HB 301    ALCOHOL LIC.: BEV DISPENSARY/RESTAURANT                                                                               
          HB 301 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
Co-Chair Foster reviewed the agenda for the day.                                                                                
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                                                                        
  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                                                                         
    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                                                                    
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                                                                    
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                                                                    
    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                                                                         
    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                                                                    
1:59:52 PM                                                                                                                    
Ms. McConnell read from slide 6: "Marijuana Budget                                                                              
    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-                                                                          
    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                                                                     
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                                                                      
          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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                                                                    
Vice-Chair Gara  noted that the  committee had  heard public                                                                    
testimony on HB 273.                                                                                                            
HB  273  was  HEARD  and   HELD  in  committee  for  further                                                                    
HOUSE BILL NO. 299                                                                                                            
     "An  Act   extending  the   termination  date   of  the                                                                    
     Alcoholic Beverage Control Board;  and providing for an                                                                    
     effective date."                                                                                                           
2:28:48 PM                                                                                                                    
KRIS  CURTIS,   LEGISLATIVE  AUDITOR,  ALASKA   DIVISION  OF                                                                    
LEGISLATIVE  AUDIT, referenced  the audit  report pertaining                                                                    
to  the   Alcoholic  Beverage  Control  Board   (ABC)  dated                                                                    
November 17,  2017 [Sunset Review  Audit Control  Number 08-                                                                    
20099-17](copy on file). She read the report conclusions:                                                                       
     In  all areas  except  licensing, the  audit found  the                                                                    
     board was operating in  the public's interest. Meetings                                                                    
     were   conducted   effectively,   investigations   were                                                                    
     processed timely,  and the board developed  and adopted                                                                    
     regulations necessary to  implement statutes. The audit                                                                    
     concluded the  board should improve its  procedures for                                                                    
     issuing  renewals,  recreational   site  licenses,  and                                                                    
     beverage  dispensary licenses  that encourage  tourism.                                                                    
     Testing  found  these  licenses were  not  consistently                                                                    
     issued  in  accordance   with  statutes.  Additionally,                                                                    
     operational improvements are  needed in enforcing laws,                                                                    
     monitoring   board-related    local   law   enforcement                                                                    
     activity, and processing  refunds to municipalities. In                                                                    
     accordance  with  AS   44.66.010(a)(1),  the  board  is                                                                    
     scheduled to  terminate on June 30,  2018. We recommend                                                                    
     the legislature extend the  board's termination date to                                                                    
     June 30, 2022                                                                                                              
Ms. Curtis  cited page 8  of the audit and  reported further                                                                    
on the  conclusions. She  announced the  boards "enforcement                                                                    
efforts had declined, and operational improvements were                                                                         
needed." She read the following:                                                                                                
     The    board,   through    AMCO   investigators,    has                                                                    
     historically   conducted    compliance   checks   where                                                                    
     investigators employ  underage individuals  who attempt                                                                    
     to purchase  alcoholic beverages. Licensees who  fail a                                                                    
     compliance   check   receive    criminal   summons   or                                                                    
     citations. According  to management, the  federal grant                                                                    
     funding for this  program was terminated at  the end of                                                                    
     2012,  and the  board  received  supplemental funds  to                                                                    
     keep  the  program  going  through  June  2014.  AMCO's                                                                    
     enforcement  section  continued to  conduct  compliance                                                                    
     checks  funded by  program receipts  until April  2015.                                                                    
     Although   there   is   no  statutory   or   regulatory                                                                    
     requirement   to   conduct  compliance   checks,   AMCO                                                                    
     management  reported  it is  an  integral  part of  the                                                                    
     enforcement   of  alcoholic   beverage   laws  and   is                                                                    
     evaluating   alternative   means  for   providing   the                                                                    
     enforcement   through   shared  services   with   other                                                                    
     agencies.   The  audit   noted  the   board  and   AMCO                                                                    
     management have  not established a  written enforcement                                                                    
     plan  to  direct  its  limited  enforcement  resources.                                                                    
     (Recommendation  4)  For  example, the  board  has  not                                                                    
     formally  established   how  often   licensed  premises                                                                    
     should  be inspected.  Furthermore, the  control office                                                                    
     does  not monitor  and track  all complaints  to ensure                                                                    
     complaints  are  assessed  for  follow  up  action  and                                                                    
    investigated in a timely manner. (Recommendation 5)                                                                         
Ms. Curtis turned to page 9 and read:                                                                                           
     As  discussed   in  the  Background   Information,  for                                                                    
     designated  as a  restricted area  for controlling  the                                                                    
     availability   of   alcoholic  beverages,   the   board                                                                    
     enforces limits  on alcoholic beverages  purchased from                                                                    
     package stores. However, the audit  found the board and                                                                    
     control office  staff have not  maintained the  list of                                                                    
     restricted purchasers within  the statewide database of                                                                    
     written   orders   in   accordance   with   regulation,                                                                    
     potentially  allowing  persons convicted  of  illegally                                                                    
     selling  alcoholic  beverages  to  continue  purchasing                                                                    
     alcohol via written order. (Recommendation 6)                                                                              
Ms. Curtis indicated that the audit contained 8                                                                                 
recommendations for improvements that began on page 12.                                                                         
2:30:47 PM                                                                                                                  
Vice-Chair Gara handed Co-Chair Foster the gavel.                                                                               
Ms.  Curtis continued  to provide  details  about the  audit                                                                    
report.  She   addressed  the  first   recommendation.  "The                                                                    
authority  to  renew  licenses  should  be  limited  to  the                                                                    
board." She read the following from page 12:                                                                                    
     Per  AS 04.11.070,  only the  board  may issue,  renew,                                                                    
     transfer, relocate, suspend, or  revoke a license under                                                                    
     AS   04.   Alaska   Statute   04.06.080   states   that                                                                    
     notwithstanding  AS 04.11.070,  the board  may delegate                                                                    
     authority to the director to  temporarily grant or deny                                                                    
     the  issuance, renewal,  or  transfer  of licenses  and                                                                    
     permits. In  a past board  meeting, the board  voted to                                                                    
     delegate  its  authority  to   renew  licenses  to  the                                                                    
     director  under the  incorrect understanding  that such                                                                    
     delegation  was  legal.  The AMCO  director,  in  turn,                                                                    
     assigned the function to license examiners.                                                                                
Ms.  Curtis  highlighted  the  second  recommendation:  "The                                                                    
board should issue recreational  site licenses in accordance                                                                    
with  statutory requirements."  She  reported the  following                                                                    
     Ten of 29 recreational  site licenses active during the                                                                    
     audit  period were  judgmentally selected  for testing.                                                                    
     All  10 did  not  meet the  statutory  definition of  a                                                                    
     recreational site?.  This same finding was  reported in                                                                    
     the   prior   2014   sunset   audit.   Alaska   Statute                                                                    
     04.11.210(c)  defines recreational  sites as  locations                                                                    
     where  baseball games,  car  races,  hockey games,  dog                                                                    
     sled racing  events, or  curling matches  are regularly                                                                    
     held  during a  season. The  10 noncompliant  licensees                                                                    
     noted  above included  travel  tour companies,  bowling                                                                    
     alleys,  an art  council, a  pool hall,  movie theater,                                                                    
     and a spa?.                                                                                                                
     Review  of board  meeting minutes  revealed that  board                                                                    
     understood   these   businesses   did  not   meet   the                                                                    
     definition of a recreational  site license yet believed                                                                    
     it  to  be  in  the  public  interest  to  issue  them.                                                                    
     Furthermore,  board  members anticipated  the  criteria                                                                    
     for recreational site licenses  would be addressed in a                                                                    
     future  rewrite  of AS  04.06.  The  issuance of  these                                                                    
     licenses   expanded   the  number   of   establishments                                                                    
     licensed  to sell  alcohol over  the number  allowed by                                                                    
Ms. Curtis  summarized recommendation  3: "The  board should                                                                    
issue  beverage  dispensary   licenses  in  accordance  with                                                                    
statutory requirements." She read:                                                                                              
     In a sample of 169  of 126 beverage dispensary licenses                                                                    
     issued  to  encourage  tourism, the  audit  found  five                                                                    
     licenses were transferred and  six were renewed despite                                                                    
     not  meeting  statutory  requirements.  Alaska  Statute                                                                    
     04.11.400(d) states the board  may approve the issuance                                                                    
     or  transfer  of  ownership of  a  beverage  dispensary                                                                    
     license without  regard to statutory  population limits                                                                    
     if  it  appears  that  the issuance  or  transfer  will                                                                    
     encourage  tourism. Statutes  provide  for the  minimum                                                                    
     number of rental  rooms that must be met  by a business                                                                    
     to   encourage  the   tourist  trade.   Alaska  Statute                                                                    
     04.11.330(a)(4) states  the renewal of a  license shall                                                                    
     be  denied  if  the  board finds  the  issuance  of  an                                                                    
     existing   license  under   AS  04.11.400(d)   has  not                                                                    
     encouraged  the tourist  trade. The  board believed  it                                                                    
     was  appropriate  to  approve   the  licenses,  as  the                                                                    
     original  licenses  were  issued  before  June  1985;10                                                                    
     however,   there   was   no  statutory   provision   to                                                                    
     "grandfather"  the   licenses.  The  issuance   of  the                                                                    
     licenses   expanded   the  number   of   establishments                                                                    
     licensed  to sell  alcohol over  the number  allowed by                                                                    
Ms.  Curtis  reviewed  Recommendation 4:  "The  board,  AMCO                                                                    
director,  and enforcement  supervisor should  work together                                                                    
to formally  establish an enforcement plan  to direct AMCO's                                                                    
limited  enforcement resources."  She  noted  that the  same                                                                    
recommendation along with recommendation  5 were included in                                                                    
the   Marijuana   Control   Board  audit.   She   moved   to                                                                    
Recommendation  5:  "The  board  and  AMCO  director  should                                                                    
implement  a  process to  monitor  and  track complaints  to                                                                    
ensure  they   are  assessed  for   follow  up   action  and                                                                    
investigated  in a  timely  manner."  Ms. Curtis  underlined                                                                    
Recommendation  6:  "The  board  and  AMCO  director  should                                                                    
develop  written  procedures   for  updating  the  statewide                                                                    
database   with  restricted   purchasers."  She   cited  the                                                                    
Background Information  section of  the audit  and explained                                                                    
that  the  section  described   the  Statewide  Database  of                                                                    
Written Orders. She explained that  the database was used to                                                                    
control and monitor the sale  of alcohol to restricted areas                                                                    
of  the   state.  Furthermore,  regulation  3   AAC  304.645                                                                    
requires the board  to maintain a list  of persons convicted                                                                    
of   a  violation   of  AS   04.11.0103  [illegal   sale  or                                                                    
manufacture  of alcohol]  and provide  the listing  of these                                                                    
restricted  purchasers to  package store  licensees. Package                                                                    
store  licensees  were  prohibited  from  selling  alcoholic                                                                    
beverages  to a  person who  is identified  as a  restricted                                                                    
purchaser  in   the  statewide  database.  She   noted  that                                                                    
restricted  purchasers were  not  entered  in the  statewide                                                                    
database,  and reports  of  convictions  were not  routinely                                                                    
forwarded to the office from the Court System.                                                                                  
Ms. Curtis pointed to Recommendation  7: "The board and AMCO                                                                    
director should improve  procedures to ensure municipalities                                                                    
report violations of alcoholic  beverage laws." She reported                                                                    
that  municipalities  must  report   the  information  as  a                                                                    
condition  to receive  half of  the  biannual license  fees.                                                                    
The  audit  discovered  that  only   four  of  40  locations                                                                    
submitted reports in FY 17  regarding enforcement efforts by                                                                    
municipalities, yet the fees were routinely funded.                                                                             
2:36:28 PM                                                                                                                    
She summarized  Recommendation 8: "The AMCO  director should                                                                    
develop  and  implement  procedures  to  ensure  refunds  to                                                                    
municipalities  are appropriately  reviewed." She  indicated                                                                    
that the audit found one  employee in the control office was                                                                    
responsible for  calculating the  amounts to be  refunded to                                                                    
municipalities, and  the calculation was not  reviewed prior                                                                    
to  processing the  refund. By  not  having procedures  that                                                                    
require  a  separate  review, the  risk  that  refunds  were                                                                    
inaccurate was increased.                                                                                                       
Ms. Curtis  highlighted the Agency Response  from the Office                                                                    
of  the  Governor on  page  27,  of  the audit  report.  She                                                                    
relayed  that  the  administration  agreed  that  the  board                                                                    
sunset  should  be  extended.  She   pointed  out  that  the                                                                    
department's response  was found  on page 29.  She indicated                                                                    
that  the  agency concurred  with  all  the audit's  finding                                                                    
except  Recommendation 1.  The  commissioner [Mike  Navarre}                                                                    
believed  that  an  alternative  interpretation  of  statute                                                                    
existed but  agreed to move forward  with corrective action.                                                                    
She mentioned  that the board's  response was found  on page                                                                    
33.  The board  concurred  with  all recommendations  except                                                                    
Recommendation   3   that   related  to   issuing   beverage                                                                    
dispensary licenses  to encourage  tourism. The  board chair                                                                    
felt  that grandfathering  the licenses  issued before  June                                                                    
1985   was  appropriate.   In   response   to  the   board's                                                                    
conclusions  regarding  recommendation  3, the  division  of                                                                    
audit wrote a  letter found on page 35,  that reaffirmed the                                                                    
audit's conclusion  and recommendation.  She noted  that the                                                                    
board chair provided no legal basis for his disagreement.                                                                       
2:38:26 PM                                                                                                                    
Representative Wilson asked if  the last audit was performed                                                                    
in   2014.  Ms.   Curtis   answered   in  the   affirmative.                                                                    
Representative   Wilson  thought   the  audit   had  several                                                                    
recommendations  that were  very serious.  She asked  when a                                                                    
board  "could  finally  get shut  down"  due  to  repeatedly                                                                    
ignoring findings and  recommendations. Ms. Curtis qualified                                                                    
her  earlier   statement.  She   revealed  that   the  audit                                                                    
originally granted the board  a conditional 6-year extension                                                                    
that  was reduced  to 3  years if  the marijuana  initiative                                                                    
passed. She interpreted  Representative Wilson's question to                                                                    
mean  how  bad findings  would  have  to  be to  reduce  the                                                                    
extension to one year. She  specified that a bad audit would                                                                    
never  receive less  than a  two-year extension  due to  the                                                                    
time it took  to perform an audit. She referred  to the list                                                                    
of "License Count  by Type" on page 7. She  noted that there                                                                    
were only  27 recreational site  licenses out of a  total of                                                                    
1,800  licenses.   She  indicated  that   "materiality"  was                                                                    
factored into  the audit  conclusions. The  issues regarding                                                                    
enforcement plans  and complaint  tracking was a  symptom of                                                                    
the  two  boards  lack  of  resources,  sharing  staff,  and                                                                    
defining their organizational structure.  She wanted to give                                                                    
at  least 4  years  to  allow time  to  establish a  working                                                                    
structure  between the  two boards  and allow  the Marijuana                                                                    
Control Board  to become functional. She  was very concerned                                                                    
about  the decrease  in enforcement  activities and  how the                                                                    
issue  factored into  the public's  interest. Representative                                                                    
Wilson  responded that  if there  was not  enough money  for                                                                    
enforcement  then  the  fees  needed  to  be  adjusted.  She                                                                    
related  that  the  lack  of  enforcement  was  her  largest                                                                    
concern. She wondered whether money was the issue.                                                                              
2:42:59 PM                                                                                                                    
Representative  Kawasaki contended  that the  audit was  not                                                                    
"clean" and wanted  the bill held over. He  repeated some of                                                                    
the  findings. He  commented that  in  Recommendation 3  the                                                                    
auditor sampled  16 of 126 beverage  dispensary licenses and                                                                    
discovered that  11 did not meet  statutory requirements. In                                                                    
Recommendation 1, 36 out of 40 licenses were renewed by                                                                         
AMCO license  examiners without board approval,  contrary to                                                                    
statute.  All   10  of  10  recreational   sites  tested  in                                                                    
Recommendation  2  did  not meet  statutory  definition.  He                                                                    
believed  the  audit  was "bad."  He  wondered  whether  the                                                                    
issues were  related to  AMCO and  the consolidation  of the                                                                    
functions  between both  boards. He  discerned that  merging                                                                    
two  boards   under  one  administrative   organization  was                                                                    
problematic.  He questioned  how AMCO  was functioning.  Ms.                                                                    
Curtis responded that  she did not routinely  hear that AMCO                                                                    
was "the cause of findings."                                                                                                    
Vice-Chair Gara  apologized for not allowing  the sponsor to                                                                    
present his bill before Ms. Curtis testified.                                                                                   
2:45:32 PM                                                                                                                    
LAURA  STIDOLPH, STAFF,  REPRESENTATIVE  ADAM WOOL,  thought                                                                    
that  the members  had already  heard  a significant  amount                                                                    
about how the  ABC Board functioned. She  reiterated some of                                                                    
the  findings. She  related that  the sponsor  felt the  ABC                                                                    
Board  served an  important function  in  public safety  and                                                                    
appreciated the support of the committee.                                                                                       
Vice-Chair Gara  mentioned the testimony that  the marijuana                                                                    
board set its license  fees for marijuana through regulation                                                                    
and  the  ABC  board  fees  were  set  through  statute.  He                                                                    
mentioned  a  change  in  the ABC  board's  fees  and  asked                                                                    
whether the fees were changing.                                                                                                 
REPRESENTATIVE  ADAM WOOL,  SPONSOR,  remarked that  renewal                                                                    
fees  remained the  same and  acknowledged  that other  fees                                                                    
were increasing but did not have access to the information.                                                                     
Representative Pruitt opined that  there were 2 policy calls                                                                    
beyond an  extension. He  asked why the  director was  not a                                                                    
member  of  the board  and  what  regulation the  board  was                                                                    
annulling. Representative Wool responded  to his question as                                                                    
to  why the  director  was no  longer able  to  cast a  tie-                                                                    
breaking vote nor  a voting member. The  related statute had                                                                    
been  repealed,  but  the  regulation  remained.  He  wanted                                                                    
regulations to remain consistent  with statute. He indicated                                                                    
that  the  board  hired  the director  and  he  thought  the                                                                    
director's tie-breaking vote was  a conflict of interest. He                                                                    
deferred to Ms. Stidolph to answer his second question.                                                                         
Ms.  Stidolph cited  the  Administrative  Code, AAC  304.025                                                                    
"Conduct  of   Board  Meetings"  Section  C   and  read  the                                                                    
     For the  purposes of  AS.04.06060 the  whole membership                                                                    
     is all persons  appointed in serving as  members of the                                                                    
     board   if  necessary   the  director   shall  cast   a                                                                    
     tiebreaking vote with consent  of the board executed at                                                                    
     the beginning of the meeting.                                                                                              
Ms. Stidolph identified  the regulation as the  one that was                                                                    
2:50:44 PM                                                                                                                    
Representative  Guttenberg asked  for Representative  Wool's                                                                    
perspective  on   the  audit  based  on   his  own  personal                                                                    
experience from the  industries' perspective. Representative                                                                    
Wool remarked  that he agreed  with the staff's  handling of                                                                    
the renewal process  due to the high volume  of renewals. He                                                                    
had been satisfied  with the answer form  the board chairman                                                                    
and  director  regarding  the issue.  Overall,  even  though                                                                    
there were  administrative issues  with the board  and AMCO,                                                                    
he believed  the entities were  working through  the initial                                                                    
growth  stage  of  the   new  organizational  structure.  He                                                                    
thought it  was a heavy lift  to combine the two  boards and                                                                    
previously   shared   some  of   Representative   Kawasaki's                                                                    
concerns but believed that things were leveling out.                                                                            
^PUBLIC TESTIMONY                                                                                                             
2:53:04 PM                                                                                                                    
Co-Chair Foster OPENED Public Testimony.                                                                                        
Co-Chair Foster CLOSED Public Testimony.                                                                                        
2:53:34 PM                                                                                                                    
AT EASE                                                                                                                         
2:53:58 PM                                                                                                                    
Representative   Wool   had   an  additional   response   to                                                                    
Representative  Guttenberg's question.  He  referred to  the                                                                    
questions regarding  enforcement and  whether the  board had                                                                    
adequate resources  to carry out  the function  properly. He                                                                    
surmised that  considering its  limited resources  the board                                                                    
should prioritize enforcement of more serious violations.                                                                       
Representative  Wilson  declared  that  the  board  had  the                                                                    
authority to raise fees. She  was concerned that ABC was not                                                                    
enforcing  serious violations  like  underage drinking.  She                                                                    
asked whether  he discussed the  matter with the  board. She                                                                    
wondered what it  would take to change the  fees to maintain                                                                    
sufficient   staff  to   carry  out   adequate  enforcement.                                                                    
Representative  Wool  replied  that  he did  not  engage  in                                                                    
discussions over the  issue and was uncertain  how much fees                                                                    
needed  to  increase.  He related  his  personal  experience                                                                    
paying licensing fees and would  not advocate for the amount                                                                    
to increase. He  knew that some of the  fees were increasing                                                                    
and was  uncertain whether the increases  were sufficient to                                                                    
provide  adequate  enforcement. Representative  Wilson  knew                                                                    
that licensees  would not want fees  increased. She imagined                                                                    
that a  budget would be  proposed by the board  that enabled                                                                    
them  to carry  out its  statutory duties  and generate  the                                                                    
fees  from the  bottom line.  She  wanted to  know how  much                                                                    
would  be  needed  to  comply  and  fix  the  concerns.  She                                                                    
requested budgetary  information and reiterated  her concern                                                                    
over  lack of  enforcement.  Representative Wool  understood                                                                    
her request.                                                                                                                    
2:58:29 PM                                                                                                                    
Representative  Guttenberg  ascertained that  currently  the                                                                    
board's  resources were  spread across  both boards  causing                                                                    
the  loss of  priorities by  the  ABC. He  guessed that  the                                                                    
problem was created by combing  the two boards since the ABC                                                                    
was self-sustaining when it operated  as a single entity. As                                                                    
a license  holder, he  wondered whether  Representative Wool                                                                    
thought things were  in a state of flux  until the marijuana                                                                    
board's  costs were  determined and  if ABC  was "suffering"                                                                    
under  the   combined  organization   and  newness   of  the                                                                    
marijuana  board.  Representative  Wool had  not  heard  any                                                                    
concerns   from  the   alcohol   industry  consistent   with                                                                    
Representative  Guttenberg's  supposition.  He  referred  to                                                                    
"sting operations"  to determine whether underage  youth was                                                                    
being  served alcohol.  He understood  that a  large federal                                                                    
grant  previously supported  sting operations  and had  been                                                                    
eliminated, which  affected the  frequency of  current sting                                                                    
operations. He did not feel  that his industry lacked proper                                                                    
enforcement  and oversight  and believed  the industry  "had                                                                    
done a good job" carrying  out enforcement. He was uncertain                                                                    
whether the limited  resources were due to  the inception of                                                                    
the  marijuana  board. He  related  that  most ABC  revenues                                                                    
collected  were from  license  renewals  and that  marijuana                                                                    
licenses were  new and there  were more revenue  streams for                                                                    
its board. He suggested that  an examination of whether less                                                                    
revenue from  some of  the ABC fees  could be  directed from                                                                    
municipalities  and   more  redirected  to  the   state.  He                                                                    
believed  that the  issue of  limited  resources should  not                                                                    
fall directly on the alcohol industry to raise fees.                                                                            
3:03:22 PM                                                                                                                    
Co-Chair Seaton  referred to the  analysis on page 2  of the                                                                    
fiscal note that  stated the license fee were  mostly set in                                                                    
statute. He  wondered whether the  issue was related  to the                                                                    
statutory fee structure  and if he thought  it was necessary                                                                    
for a  fee structure change in  statute. Representative Wool                                                                    
deferred to the AMCO director for the answer.                                                                                   
Ms.  McConnell  reported that  the  fiscal  note was  almost                                                                    
identical  to  that  of  HB   273.  She  reiterated  that  8                                                                    
positions  would   be  eliminated  if  one   board  was  not                                                                    
reauthorized and  noted that the positions  were detailed in                                                                    
the fiscal note  analysis as well as the  portion of travel,                                                                    
services  and commodities  that would  not be  expended. She                                                                    
reported that  the ABC was  fully supported  through license                                                                    
and application fees  and if the board was  not extended the                                                                    
revenue loss  would total of roughly  $1.6 million. Co-Chair                                                                    
Seaton  inquired whether  "it  was a  characteristic of  the                                                                    
board that  it did  not set  the fees  to actually  fund the                                                                    
enforcement  by  the  department." Ms.  McConnell  clarified                                                                    
that  the  license  fees  for alcohol  were  set  mostly  by                                                                    
statute  and the  application fees  were set  by regulation.                                                                    
She was  uncertain of when  the last statutory  fee increase                                                                    
occurred.  She explained  that  ABC  recently increased  its                                                                    
application fees for  FY 2019. She listed  the fee increases                                                                    
from  $200   to  $300  totaling  $570   thousand  for  1,900                                                                    
applications.  She   informed  the  committee  that   SB  76                                                                    
(Alcoholic Beverage  Control; Alcohol  Reg) was  a "re-write                                                                    
of Title 4" statutes that  included a reexamining of alcohol                                                                    
license  fees,  but  she  was  uncertain  whether  the  fees                                                                    
increased. Prior  to the inclusion  of the  marijuana board,                                                                    
ABC had 5 enforcement  officers that had "clear" priorities.                                                                    
Currently,  AMCO  had  8 enforcement  officers.  She  shared                                                                    
Representative  Wilson's  concerns   about  enforcement  and                                                                    
agreed with  the audit's findings  on the need  to establish                                                                    
priorities  on  how  resources  would  be  distributed.  She                                                                    
thought  8  enforcement  officers  based on  the  number  of                                                                    
licenses in  the state might  be inadequate but  deferred to                                                                    
the  legislature to  make the  determination. She  commented                                                                    
that marijuana  licenses were generally  on the  road system                                                                    
due  to challenges  related  to  transporting the  substance                                                                    
that was  still illegal  on the  federal level.  The alcohol                                                                    
licenses  were  much  more   distributed  around  the  state                                                                    
including  many  rural areas  and  travel  costs related  to                                                                    
enforcement was  higher. She indicated that  the matters she                                                                    
just mentioned were the types  of issues needed to be worked                                                                    
out  in  terms of  setting  priorities  as directed  by  the                                                                    
3:10:42 PM                                                                                                                    
Co-Chair  Seaton   asked  whether  the  extra   $570,000  in                                                                    
increased  revenue  was  sufficient enough  to  fulfill  the                                                                    
recommendations   listed  in   the   audit.  Ms.   McConnell                                                                    
apologized for  the mix-up and  clarified that  the $570,000                                                                    
was  the total  revenue over  a two-year  period. Currently,                                                                    
AMCO  collected $280,000  in renewal  fees and  the increase                                                                    
amounted  to  approximately  $310,000.  The  board  had  two                                                                    
programs and 8 enforcement  officers and believed that there                                                                    
was only  a certain  amount the board  could do  to mitigate                                                                    
the  situation, since  some  of its  fees  were set  through                                                                    
statute. Co-Chair  Seaton inquired whether the  $310,000 was                                                                    
sufficient  to   address  the  audit   recommendations.  Ms.                                                                    
McConnell determined  that the additional funds  would help.                                                                    
She could not  speak to the decisions that would  be made by                                                                    
the board.                                                                                                                      
3:13:13 PM                                                                                                                    
Representative  Kawasaki  compared  the two  board's  fiscal                                                                    
notes and  highlighted that  both boards  showed each  had 8                                                                    
full-time  positions.  He  referenced   slide  12  from  the                                                                    
previous  bill  and  asked what  the  yellow  lines  through                                                                    
certain  position  titles  denoted. Ms.  McConnell  answered                                                                    
that the  yellow "X" represented those  positions that would                                                                    
be eliminated if one board was not extended.                                                                                    
Co-Chair  Foster   relayed  that  amendments  were   due  on                                                                    
Thursday, February 22, 2018.                                                                                                    
HB  299  was  HEARD  and   HELD  in  committee  for  further                                                                    
Representative  Wilson   wondered  whether  the   policy  to                                                                    
combine  the two  boards was  appropriate. She  believed the                                                                    
question  was over  sufficient resources  and understood  it                                                                    
was  difficult  to  determine  given   the  newness  of  the                                                                    
marijuana board.  She wanted  to ensure  that one  board was                                                                    
not being disadvantaged due to  the other board's inclusion.                                                                    
She   requested   further  information   regarding   whether                                                                    
combining   the    board's   administration    and   sharing                                                                    
enforcement was the reason for  the lack of enforcement. She                                                                    
did not want to "stifle" either industry.                                                                                       
Co-Chair Foster  agreed with getting things  right the first                                                                    
time and wanted the committee to take deliberate action.                                                                        
3:16:29 PM                                                                                                                    
AT EASE                                                                                                                         
3:17:14 PM                                                                                                                    
HOUSE BILL NO. 301                                                                                                            
     "An  Act  relating  to  the  renewal  and  transfer  of                                                                    
     ownership   of  a   beverage   dispensary  license   or                                                                    
     restaurant or eating place license."                                                                                       
3:17:20 PM                                                                                                                    
Co-Chair   Seaton   MOVED   to  ADOPT   proposed   committee                                                                    
substitute  for  HB  301,  Work  Draft  30-LS1217\E  (Bruce,                                                                    
Representative Wilson OBJECTED for discussion.                                                                                  
LAURA STIDOLPH,  STAFF, REPRESENTATIVE ADAM  WOOL, indicated                                                                    
that  the changes  were recommended  by DCCED.  She reviewed                                                                    
the changes in the committee substitute (CS):                                                                                   
     Section 3                                                                                                                  
     Page 3, Line 27, remove "established village"                                                                              
     Removes the  phrase established  village from  the room                                                                    
     rental  requirement  calculations. This  is  consistent                                                                    
     with how the statute has  been applied in the past, and                                                                    
     removing  it  maintains  the  status  quo  rather  than                                                                    
     requiring  the recalculation  of  populations and  room                                                                    
     requirements, further disrupting the industry and                                                                          
     current licensees.                                                                                                         
     Page 4, Line 16, remove "on the licensed premises,"                                                                        
     after "holder of the license"                                                                                              
     This was removed to ensure that the entire                                                                                 
     establishment wasn't considered the licensed premises,                                                                     
   otherwise it is possible that a cottage or hotel room                                                                        
Representative Wilson did not  understand why the language "                                                                    
established village" was removed.                                                                                               
Ms. Stidolph deferred to Ms. McConnell.                                                                                         
3:20:12 PM                                                                                                                    
Ms.  McConnell clarified  that  an  established village  was                                                                    
defined  in   statute  as  "to  include   an  unincorporated                                                                    
community  and  organized  borough   that  has  25  or  more                                                                    
permanent residents and is either  on or off the road system                                                                    
depending on  its distance to  a unified  municipality." She                                                                    
explained that  her research determined that  the concept of                                                                    
an established  village was included  in the  calculation of                                                                    
population  for the  application of  license limits  and the                                                                    
number of  rooms for a  beverage dispensary  tourism license                                                                    
but had  never been implemented. Including  the language had                                                                    
a  significant  effect  on  the  location  and  transfer  of                                                                    
licenses and would cause momentous disruption.                                                                                  
Representative Guttenberg  had recently heard that  if there                                                                    
was  a  10-room hotel  a  person  would  be eligible  for  a                                                                    
license  to serve  alcohol. He  wondered whether  the matter                                                                    
was  related   to  the   deleted  language.   Ms.  McConnell                                                                    
explained  that  the  Beverage  Dispensary  Tourism  license                                                                    
cited in  AS.04.11.400d was an  exemption to  the population                                                                    
licenses  if certain  requirements  were  met including  the                                                                    
number  of rooms  a hotel,  motel, or  resort had  available                                                                    
predicated  on the  location of  the hotel.  The larger  the                                                                    
community the more rooms were  required. She understood that                                                                    
in  1985, the  number of  rooms  changed to  more rooms  per                                                                    
larger community  to halt the  increase in  alcohol licenses                                                                    
in   large   communities  like   Anchorage.   Representative                                                                    
Guttenberg   asked  what   effect  eliminating   established                                                                    
village  had on  licensing. Ms.  McConnell answered  that it                                                                    
did not affect  how Title 4 was implemented  since 1980. She                                                                    
delineated that it  appeared that unincorporated communities                                                                    
like Talkeetna  and Nikiski  inside a  borough would  have a                                                                    
population limit  applied to them  that did not  apply prior                                                                    
to the addition of the language.                                                                                                
3:24:29 PM                                                                                                                    
Co-Chair  Seaton   asked  whether  the  definition   of  the                                                                    
population area  established under  (a) of this  section [in                                                                    
the  bill] was  the same  as the  definition DCCED  used for                                                                    
community  assistance and  whether the  list was  inclusive.                                                                    
Ms.  McConnell   suggested  he  was  referring   to  statute                                                                    
concerning established villages as  it related to refunds to                                                                    
municipalities.  Co-Chair  Seaton   clarified  that  he  was                                                                    
referring  to  page  3  of  the bill  and  referred  to  the                                                                    
definition Ms.  McConnell read  for established  village and                                                                    
thought  it sounded  like the  definition  of "a  community"                                                                    
that  was used  to  determine  DCCED's Community  Assistance                                                                    
Program. He wondered whether  the same population parameters                                                                    
applied. Ms.  McConnell was not familiar  with the Community                                                                    
Assistance Program but offered to provide the information.                                                                      
Representative Wilson WITHDREW her OBJECTION.                                                                                   
CSHB 301 (FIN) was adopted as the working draft.                                                                                
3:27:14 PM                                                                                                                    
Representative Wool  explained the bill. He  reiterated that                                                                    
under  the tourism  dispensary license  an establishment  in                                                                    
any size  community could provide  a facility with  10 rooms                                                                    
and  obtain  a  liquor  license   and  the  number  of  bars                                                                    
proliferated. As a result,  the population determinates were                                                                    
added to  statute. He detailed  that the limit  in Anchorage                                                                    
and Fairbanks  was 50  rooms; the  number of  rooms required                                                                    
depended on the size of  the municipality. He qualified that                                                                    
34 establishments obtained  their tourism dispensary license                                                                    
prior to  1985. He communicated  that when the room  law was                                                                    
rewritten the  34 establishments were not  grandfathered in,                                                                    
were in areas  such as Fairbanks and other  locations in the                                                                    
state. Allowing  the establishments  to continue  to operate                                                                    
was challenged and  the ability for the them  to renew their                                                                    
licenses was  in question. House Bill  301 would grandfather                                                                    
hospitality  businesses that  have been  operating prior  to                                                                    
1985 except  for a "couple" business  that obtained licenses                                                                    
in  1986  with  an  inadequate number  of  rooms  that  were                                                                    
included in the  bill. He reported that  many businesses had                                                                    
been operating for  over thirty years and he  wanted them to                                                                    
remain in business.  The legislation primarily grandfathered                                                                    
in the 34 businesses.  In addition, current statute mandated                                                                    
that alchohol licensed businesses  remain open for 30 8-hour                                                                    
days per year. He noted  that some businesses were only open                                                                    
on  weekends, and  one  was being  fined  for not  operating                                                                    
under  the  8-hour day  requirement.  The  bill changed  the                                                                    
statute to  state that the  business had to operate  for 240                                                                    
hours  per   year.  Finally,  a  provision   added  "outdoor                                                                    
recreation  lodge licenses"  to the  list of  establishments                                                                    
that  could be  voter approved.  He noted  the its  omission                                                                    
from  statute was  an oversite  and the  outdoor lodges  had                                                                    
been issued licenses.                                                                                                           
Representative  Thompson  asked  whether  the  grandfathered                                                                    
licenses  were  eligible  to be  sold.  Representative  Wool                                                                    
answered   in   the   affirmative   and   added   that   the                                                                    
establishment  must remain  in the  location and  operate in                                                                    
the same manner.                                                                                                                
3:33:33 PM                                                                                                                    
Representative  Pruitt  wanted   further  clarification.  He                                                                    
wondered  whether the  businesses  would  operate under  the                                                                    
previous  provisions   in  place  at  the   time  they  were                                                                    
licensed. Representative Wool replied in the affirmative.                                                                       
Ms. Stidolph interjected that section  3, lines 8 through 10                                                                    
of the bill  specifically addressed the issue.  She read the                                                                    
      however, an  application may not  be denied  because a                                                                    
     prospective  transferee under  AS 04.11.400(d)(2)  does                                                                    
     not   have  the   qualifications   required  under   AS                                                                    
Representative    Pruitt    asked   if    a    grandfathered                                                                    
establishment could sell  to a newly built  lodge in another                                                                    
location  meeting  the  requirements  of  the  grandfathered                                                                    
licensed. Representative Wool responded in the negative.                                                                        
Representative  Pruitt  asked  for   the  definition  of  an                                                                    
outdoor recreation  lodge. Ms. Stidolph read  the definition                                                                    
from statute:                                                                                                                   
    Sec. 04.11.225.   Outdoor recreation lodge license.                                                                         
          (a)   An   outdoor    recreation   lodge   license                                                                    
     authorizes the holder to sell alcoholic beverages to a                                                                     
     registered  overnight guest  or off-duty  staff of  the                                                                    
     lodge for  consumption on the  licensed premises  or in                                                                    
     conjunction    with   purchased    outdoor   recreation                                                                    
     activities  provided   by  the  licensee.   An  outdoor                                                                    
     recreation lodge license may not be transferred.                                                                           
          (b)  The biennial  fee for  an outdoor  recreation                                                                    
     lodge license is $1,250.                                                                                                   
          (c)  In this  section, "outdoor  recreation lodge"                                                                    
     means  a  licensed  business  that  provides  overnight                                                                    
     accommodations  and  meals,  is primarily  involved  in                                                                    
     offering  opportunities   for  persons  to   engage  in                                                                    
     outdoor recreation activities and  has a minimum of two                                                                    
     guest rooms.                                                                                                               
Representative  Kawasaki  asked  about   the  value  of  the                                                                    
licenses.  Representative Wool  clarified that  the licenses                                                                    
were not separate from beverage  dispensary licenses, and if                                                                    
the business  was sold the  license would have to  remain at                                                                    
the  same  address. He  was  uncertain  of the  sale  price.                                                                    
Representative Kawasaki  was confused because of  the number                                                                    
of  different  types  of  licenses. He  asked  if  all  were                                                                    
considered  beverage  dispensary  licenses and  whether  the                                                                    
tourism  dispensary license  was  not limited  to caps  that                                                                    
were  currently assessed  per community  for other  beverage                                                                    
dispensary  licenses.  Representative  Wool replied  in  the                                                                    
affirmative.  He  affirmed that  there  were  many kinds  of                                                                    
beverage dispensary licenses and agreed it was confusing.                                                                       
^PUBLIC TESTIMONY                                                                                                             
3:39:11 PM                                                                                                                    
DEBBIE   CARY,   SELF,   NINILCHIK   (via   teleconference),                                                                    
supported the legislation. She owned  one of the licenses in                                                                    
question.   She   was  a   bar   owner   and  operated   her                                                                    
establishment  for  28  years; the  license  was  originally                                                                    
issued in 1963.  She argued that the 40-room  update was not                                                                    
possible on  the Kenai Peninsula  due to lack  of supporting                                                                    
infrastructure  such  as  wells   and  septic  systems.  She                                                                    
related that her business served  her community by providing                                                                    
a  meeting place,  hosting weddings  and  funerals. She  had                                                                    
personally provided her  services for fund raisers  as a way                                                                    
of "giving back" to the community.                                                                                              
3:41:17 PM                                                                                                                    
NANCY TRUMP,  LATITUDE 62  LODGE, MATANUSKA  SUSITNA BOROUGH                                                                    
(via teleconference), had owned  her establishment since May                                                                    
1986.  She was  not just  a  bar but  a full-service  motel,                                                                    
restaurant,  and bar.  She characterized  her business  as a                                                                    
"town meeting place" and  hosted weddings, birthday parties,                                                                    
baby  showers,  and much  more.  The  location was  near  an                                                                    
elementary school, which  enabled the lodge to  be listed as                                                                    
a  safe  place  for  school evacuation.  She  operated  year                                                                    
around and employed 15 to  20 people. She maintained that it                                                                    
would  be   difficult  to  stay  in   business  without  the                                                                    
grandfathered  license.   She  thanked  members   for  their                                                                    
3:43:12 PM                                                                                                                    
ALLEN    CHOY,   AL'S    ALASKAN    INN,   ANCHORAGE    (via                                                                    
teleconference),  spoke  in  favor of  the  legislation  and                                                                    
provided a  history of his  business. He explained  that his                                                                    
father moved to Anchorage in 1956  and at the time there was                                                                    
a severe lack  of housing. Anchorage had no  hotels south of                                                                    
13th Avenue. He believed  the tourism dispensary license was                                                                    
provided as an incentive. His  father opened the business in                                                                    
1964 then  called the  Candle Inn. He  spoke to  the 10-room                                                                    
requirement  and  explained  how  it was  changed  based  on                                                                    
population after  Atlantic Richfield Company  discovered oil                                                                    
on the  North Slope in 1968.  He agreed with the  change and                                                                    
did not want a "bar on  every corner." He indicated that the                                                                    
intent of the legislature in  1985 was to grandfather in the                                                                    
prior  tourism licensees.  He believed  that  the ABC  board                                                                    
"misinterpreted" the intent of the  law by deciding that the                                                                    
pre-1985  license holders  were currently  non-compliant. He                                                                    
argued  that it  was not  economically feasible  to add  the                                                                    
rooms  in  Anchorage.  Currently  in  Anchorage  there  were                                                                    
hotels   on   every   corner.   He   emphasized   that   the                                                                    
legislature's intent in 1985 was  for the pre-1985 licensees                                                                    
to be grandfathered in.                                                                                                         
3:50:17 PM                                                                                                                    
PETE HANSON,  ALASKA CHARR, ANCHORAGE  (via teleconference),                                                                    
favored  HB 301.  He  noted that  the  bill supported  long-                                                                    
standing  business.  He  believed  that the  intent  of  the                                                                    
legislature   wanted   grandfathered  protection   for   the                                                                    
existing business and "the  unintended ambiguity" existed in                                                                    
the law. He thanks the legislature for it consideration.                                                                        
3:51:18 PM                                                                                                                    
Co-Chair Seaton CLOSED Public Testimony.                                                                                        
He reviewed the agenda for the following day. He also                                                                           
indicated that amendments for HB 301 were due to Co-Chair                                                                       
Foster's office by Friday, February 22 at 5:00 P.M.                                                                             
3:52:26 PM                                                                                                                    
The meeting was adjourned at 3:52 p.m.                                                                                          

Document Name Date/Time Subjects
HB299 Supporting Document Audit 11.17.17.pdf HFIN 2/20/2018 1:30:00 PM
HB 299
HB301 Supporting Documents ABC Memo Tourism BDL 9.13.17.pdf HFIN 2/20/2018 1:30:00 PM
HB 301
HB301 Supporting Documents ABC Memo Duck Inn 1.23.18.pdf HFIN 2/20/2018 1:30:00 PM
HB 301
HB301 Sponsor Statement 1.24.18.pdf HFIN 2/20/2018 1:30:00 PM
HB 301
HB301 Supporting Documents ABC Memo Tourism BDL 1.23.18.pdf HFIN 2/20/2018 1:30:00 PM
HB 301
HB301 Supporting Document Tailgaters Sports Bar Letter 1.31.18.pdf HFIN 2/20/2018 1:30:00 PM
HB 301
CSHB301 ver M Sectional Analysis 2.12.18.pdf HFIN 2/20/2018 1:30:00 PM
HB 301
HB299 Sponsor Statement 1.29.18.pdf HFIN 2/20/2018 1:30:00 PM
HB 299
HB 273 Alcohol and Marijuana Control Office House Finance 2-20-18.pdf HFIN 2/20/2018 1:30:00 PM
HB 273
HB 273 MarijuanaFlowChart.pdf HFIN 2/20/2018 1:30:00 PM
HB 273
HB 273 HB 273 HFIN Followup final.pdf HFIN 2/20/2018 1:30:00 PM
HB 273
CSHB301 Explanation of Changes ver M to ver E 2.19.18.pdf HFIN 2/20/2018 1:30:00 PM
HB 301
CSHB301 ver E 2.16.18.pdf HFIN 2/20/2018 1:30:00 PM
HB 301
CSHB301 ver E Sectional Analysis 2.19.18.pdf HFIN 2/20/2018 1:30:00 PM
HB 301