03/11/2015 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Adjourn | |
| Start | |
| HB67 | |
| HB123 |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 123 | TELECONFERENCED | |
| *+ | HB 67 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 11, 2015
3:18 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Shelley Hughes, Vice Chair
Representative Jim Colver
Representative Gabrielle LeDoux
Representative Andy Josephson
Representative Cathy Tilton
Representative Sam Kito
MEMBERS ABSENT
Representative Mike Chenault (alternate)
COMMITTEE CALENDAR
HOUSE BILL NO. 67
"An Act relating to product warranties and required updates to
products; and relating to dealers, distributors, and
manufacturers."
- MOVED CSHB 67(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 123
"An Act establishing the Marijuana Control Board; relating to
the powers and duties of the Marijuana Control Board; relating
to the appointment, removal, and duties of the director of the
Marijuana Control Board; relating to the Alcoholic Beverage
Control Board; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 67
SHORT TITLE: PRODUCT WARRANTIES & REQUIRED UPDATES
SPONSOR(s): REPRESENTATIVE(s) HAWKER
01/21/15 (H) READ THE FIRST TIME - REFERRALS
01/21/15 (H) L&C
03/11/15 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 123
SHORT TITLE: ESTABLISH MARIJUANA CONTROL BOARD
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/23/15 (H) READ THE FIRST TIME - REFERRALS
02/23/15 (H) L&C, JUD, FIN
03/04/15 (H) L&C AT 3:15 PM BARNES 124
03/04/15 (H) Heard & Held
03/04/15 (H) MINUTE(L&C)
03/11/15 (H) L&C AT 3:15 PM BARNES 124
WITNESS REGISTER
REPRESENTATIVE MIKE HAWKER
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions as prime
sponsor of HB 67.
JULI LUCKY, Staff
Representative Mike Hawker
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions on behalf
of the prime sponsor of HB 67.
CLYDE (ED) SNIFFEN, JR., Senior Assistant Attorney General
Commercial/Fair Business Section
Civil Division (Anchorage)
Department of Law (DOL)
Anchorage, Alaska
POSITION STATEMENT: Provided comments and answered questions
during the discussion of HB 67.
CHAD GERONADALE
Construction Machinery Industrial
Anchorage, Alaska
POSITION STATEMENT: Testified during the discussion of HB 67.
MICALEA FOWLER, Legislative Liaison
Office of the Commissioner
Department of Commerce, Community & Economic Development (DCCED)
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions on HB 123.
CYNTHIA FRANKLIN, Executive Director
Alcoholic Beverage Control Board (ABC Board)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Testified and answered questions during the
discussion of HB 123.
JAMES BARRETT
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 123.
ELLEN GANLEY, Member
Alcoholic Beverage Control Board (ABC Board)
Department of Commerce, Community & Economic Development (DCCED)
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 123.
KIM KOLE, Coalition for Responsible Cannabis Legislation
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 123.
FRANK BERARDI, Chair
Coalition for Responsible Cannabis Legislation (CRCL)
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 123.
GIONO BARRETT
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 123.
GIRARD GAUL, Senior Spokesman
Coalition for Responsible Cannabis Legislation (CRCL)
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 123.
BRUCE SCHULTE, Public Relations Manager
Coalition for Responsible Cannabis Legislation (CRCL)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 123.
BRANDON EMMETT
Executive Director
Coalition for Responsible Cannabis Legislation (CRCL)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 123.
ACTION NARRATIVE
3:18:09 PM
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at 3:18 p.m. Representatives
Josephson, LeDoux, Tilton, Kito, Hughes, and Olson were present
at the call to order. Representative Colver arrived as the
meeting was in progress.
HB 67-PRODUCT WARRANTIES & REQUIRED UPDATES
3:18:29 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 67, "An Act relating to product warranties and
required updates to products; and relating to dealers,
distributors, and manufacturers."
3:18:59 PM
REPRESENTATIVE MIKE HAWKER, Alaska State Legislature, speaking
as prime sponsor, stated that HB 67 came about as a result of
concerns expressed by retail construction equipment companies
with respect to the responsibility for performing warranty work.
He offered his belief that financial obligations that should
belong to manufacturers are being pushed down on local vendors.
3:20:49 PM
REPRESENTATIVE HAWKER stated that HB 67 was modeled on the
current statutes regarding boat and recreational vehicle
warranties. The bill would define the relationship and
responsibilities between vendors and manufacturers of equipment,
tools, and off-road vehicles used in construction, resource
extraction, development, snow removal, forestry and similar
functions. Within the bill are carefully crafted delineations,
he said, that will help to ensure that Alaska's dealers are
sufficiently and appropriately reimbursed for work and expenses
incurred on behalf of a manufacturer of certain equipment. He
asked to place very clearly on the record that this bill does
not apply to motor vehicles registered for highway use since
those vehicles fall under a separate class.
3:22:26 PM
REPRESENTATIVE HAWKER stated that HB 67 was limited to warranty
work on defective products and upgrades on those products. The
bill substantively sets a minimum reimbursement rate for parts
and labor, requires the manufacturer to send the necessary parts
that a dealer or distributor does not possess, sets deadlines
for approval and payment of claims, and clearly delineates and
identifies the responsible party - whether it is the
manufacturer or the vendor. He reported that 36 states have
enacted similar laws, which he characterized as commercial
protection laws regarding warranty work performed by dealers and
distributor for manufacturers. In addition, this bill would
extend the state's "lemon law" provisions for boats, ATVs and
new motor vehicles to the products covered in this bill.
However, this bill does not change the law with respect to motor
vehicles, but simply would extend the umbrella of protections
for inherently defective products, he said.
3:23:43 PM
REPRESENTATIVE HAWKER anticipated that the committee will hear
testimony that the major manufacturers object to this
legislation. He stressed that this bill would prevent
manufacturers from dictatorially exercising undue influence and
economic hardship on independent vendors in Alaska. Many
Alaskans depend upon the heavy equipment industry to support the
state's resource base. He characterized this an instance of
evolution and growth of state warranty protection laws, which
expands the laws that have been in effect for motor vehicles to
boats and recreational vehicles. He offered his belief that it
is now time to extend protections to heavy equipment
manufacturers.
3:25:33 PM
REPRESENTATIVE JOSEPHSON understood the focus of the bill was on
industrial equipment. He asked whether these changes could also
apply to stereos.
3:26:07 PM
JULI LUCKY, Staff, Representative Mike Hawker, Alaska State
Legislature, on behalf of the prime sponsor of HB 67,
Representative Mike Hawker, suggested that the committee first
adopt the proposed committee substitute (CS) for HB 67 since one
of the changes in the CS was to narrow the items covered by the
bill.
3:26:30 PM
REPRESENTATIVE HUGHES moved to adopt the proposed committee
substitute (CS) for HB 67, labeled 29-LS0129\E, Bannister,
3/6/15, as the working document [Version E].
CHAIR OLSON objected for the purpose of discussion.
3:27:00 PM
REPRESENTATIVE COLVER referred to a letter of support in
members' packets that points out the manufacturer's flat fee for
dealers to make repairs in the field causes a hardship in
Alaska. He asked to be directed to the language in the bill
that would cure this and allow dealers to charge reasonable fees
to perform the warranty work.
REPRESENTATIVE HAWKER deferred to Ms. Lucky.
MS. LUCKY stated that there is no minimum time or reasonable
time for field repair work; however, the bill would set a
minimum labor rate and clarify that there must be a certain
amount of time allowed for dealers to perform administrative
work. She directed attention to the labor rate in Version E,
beginning on page 2, line 28 to Sec. 45.45.777. She read, " ...
the manufacturer shall pay the dealer or distributor providing
the service at a rate that is not less than the highest of the
following for the labor of the technicians: ...." Thus the
manufacturers must select a rate that was at least as high as
one of the three rates listed in paragraphs 1-3, whichever is
the highest. In addition, the bill would require payment for
cleanup, preparation, diagnosis, disassembly, repair, testing,
and final cleaning as needed to provide a quality result.
Although it doesn't necessarily specific a minimum amount of
time, it does require that the time must be adequate to perform
all of these services, she said. In addition, she referred to
subsection (d), on page 3, lines 13-15, which requires
manufacturers to pay a dealer or distributor an hour for
administrative services.
3:29:47 PM
REPRESENTATIVE LEDOUX understood the sponsor's intent, but asked
for the rationale used to interfere with contractual rights.
It's easy to say, "This is the little guy and there's this big
bad corporation out there that's going to do really mean awful
things to the little guy so like let's change the law." She
said she once lived on an island and prices were higher but
government didn't set rate or price controls because people
trusted the free market system. She asked why the free market
system wasn't working.
3:31:02 PM
REPRESENTATIVE HAWKER suggested Representative LeDoux was likely
aware of the five legal elements of a valid contract, with one
being the absence of any form of duress on one of the
contracting parties. In fact, duress was a broad subject that
has been examined extensively in the legal system. He noted
there are certainly levels of what might be constituted as
duress in relation to a contracting entity, such as when one
party was in such a position that the other party is unable to
fairly negotiate the terms of an agreement. In those types of
circumstances one party can dictate the terms of the agreement.
Essentially this is what has been occurring with the vendor
relationships when one mega company is the manufacturer of a
product. He asked to refrain from using a specific
manufacturer, however, it could apply to any one of major
national or international manufacturers who dictate the terms of
their franchise agreements in the state. These franchisees
really don't have any choice except to say yes since these
contracts are not negotiable items due to the weight and
influence of one party to the contract. Thus these contracts
are not contracts negotiated at an "arms-length" among parties
of equal standing. He offered that HB 67 would provide
guidelines for the contracts that can keep them within sidebars.
This bill was crafted to provide guidelines and a reasonable
basis for the relationships between manufacturers and venders
without getting overly prescriptive, and without trying to
dictate a fixed rate or other terms; instead, to provide a
framework and a rubric of guidelines to create a fair economic
relationship between the manufacturers and vendors.
3:33:50 PM
REPRESENTATIVE LEDOUX asked how she obtains equal standing with
a bank [under contracts], since the bank is a corporation and
she is an individual. She pointed out that government doesn't
tell the banks what to charge consumers.
REPRESENTATIVE HAWKER replied that the banking industry, in
particular, the commercial loan industry, the residential loan
industry, or the consumer loan industry represent some of the
most heavily regulated industries in terms of tax codes, usury
statutes, and non-discrimination statutes under FIRREA, [the
Financial Institutions Reform, Recovery, and Enforcement Act of
1989]. Under FIRREA any holder of property always has recourse
against the previous property holder for environmental damage,
he said. He respectfully requested that the financial
institutions between small individuals and the mega-banks is
exactly the kind of relationship being discussed here and
exactly why so many financial protection laws are in place at
the state and federal level.
3:35:37 PM
REPRESENTATIVE JOSEPHSON asked how disagreements are ultimately
resolved between the manufacturer and the ultimate purchaser.
MS. LUCKY replied that Ed Sniffen with the Department of Law
could more fully answer that question; however, the language in
this bill was based on current laws regarding ATVs,
snowmachines, and boats.
3:36:24 PM
REPRESENTATIVE JOSEPHSON asked about the issue of electronic
notice to the manufacturer from the vendor when there was a
defect or need for repair. He asked whether that was something
that could reasonably be added.
MS. LUCKY offered her belief that Representative Josephson was
referring to the certified mail requirement for the lemon law
provisions. She explained that the certified mail requirement
exists in all lemon law provisions in current statute and it
provides a proof of mailing and proof of receipt. However,
there currently isn't any standard for a proof of mailing for e-
mail and proof of receipt. For example, the aggrieved party in
this case could send an e-mail that shows the date stamp, but
the manufacturer could say it never received the e-mail.
Therefore, there currently is not any real standard of proof
except for certified mail, she said.
3:38:49 PM
CLYDE (ED) SNIFFEN, JR., Senior Assistant Attorney General,
Commercial/Fair Business Section, Civil Division (Anchorage),
Department of Law (DOL), introduced himself said his
responsibilities included enforcement of consumer protection
laws, including ATV and motor vehicle lemon law statutes. He
said he has been doing consumer protection for about 15 years
and has encountered some situations that might address some
questions previously asked.
3:39:22 PM
REPRESENTATIVE LEDOUX acknowledged that what Representative
Hawker was addressing were instances when significant disparity
exists, which she referred to as an adhesion contract.
MR. SNIFFEN agreed.
REPRESENTATIVE LEDOUX asked whether the courts or the state
normally substitute their own provisions or if the courts simply
declare that the contract is null and void, which would be a
method of getting out of the contract.
3:40:23 PM
MR. SNIFFEN answered that it can be a little tricky. He
explained that the courts look to the intent of the parties when
they decide what a contract should look like if a contract of
adhesion issue arises. He said the Alaska Supreme Court has
handled contracts in different ways. If the consumer couldn't
reasonably understand the contract and there was not any
"meeting of the minds," contracts could sometimes be voided, he
said.
3:41:11 PM
REPRESENTATIVE LEDOUX asked what would happen if the consumer
understands the process, but doesn't have any other alternative.
MR. SNIFFEN answered that she just identified the reason for
lawyers, but in the event a factual or legal dispute arises and
it is a legitimate dispute, a jury or judge will ultimately
decide.
3:41:45 PM
REPRESENTATIVE LEDOUX related a scenario in which a small
community with one grocery store charges really high prices.
She asked whether the state or the court would intervene on
behalf of the customers.
MR. SNIFFEN answered that he also enforces anti-trust statutes.
He stated that with the recent closure of one grocery store in
Bethel there will only be one store left, which creates a
natural monopoly. He suggested that the state doesn't rate
pricing on products for a monopoly so the store will likely
charge whatever rates it feels the customers will bear; however,
the state would only get involved if predatory pricing contract
exists. For example, if the store was engaging in some type of
unilateral conduct to force out another competitor, or if the
price was set through some collusion to artificially raise
prices without the benefit of true market competition, the state
would intervene. In terms of an equipment supplier entering
into a warranty contract with a retailer, he suggested that what
the bill attempts to do is similar to laws pertaining to ATV or
auto manufacturers, who have so much power that they can
essentially dictate terms of the contracts. This bill would
provide some mechanism for vendors to be paid fairly, which of
course, are all policy decisions. The Department of Law has
reviewed HB 67 and believes it would provide good consumer
protection and did not find anything inconsistent with this bill
that isn't already done with other manufacturers.
3:44:48 PM
REPRESENTATIVE LEDOUX asked whether HB 67 would be
philosophically inconsistent, assuming there weren't any
predatory practices occurring, pointing to the earlier scenario
in which one store in one community can charge what it wanted to
charge.
MR. SNIFFEN understood the concern, but answered that it would
be a policy decision whether to regulate pricing in those types
of situations.
3:45:28 PM
REPRESENTATIVE HAWKER commended Mr. Sniffen for his accurate
portrayal of the bill. He clarified that this bill was not
about regulating pricing or transactions that relates to bulk
commodities, but it specifically relates to the relationship
between manufacturers and sellers that involve products with a
product warranty from the manufacturer. For example, Quaker
Oats doesn't put a warranty on oatmeal, he said. This bill does
not regulate any industry, pricing, or specific terms between
the manufacturers and vendors; however, the bill does put on
some sidebars to provide reasonable protections for vendors in
instances in which a dictatorial opportunity for the
manufacturer exists. Again, it would only apply to product
warranty issues and is limited to warranty issues, he said.
3:47:21 PM
MS. LUCKY said the bill would cover warranty work and required
updates in instances when the manufacturer wants something done
and the dealer provides that work on behalf of the manufacturer,
such as a product defect fixed, a safety modification, or
necessary improvement must be done. The first half of HB 67
covers this work, she said, and the second half of the bill
would address lemon law provisions, she said.
3:48:11 PM
MS. LUCKY referred to Version E and stated that the bill will
require the manufacturer to provide warranty to the dealer and
the dealer to provide the warranty and necessary manuals to the
ultimate purchaser of the item, with the dealer or distributor
to subsequently provide warranty service on behalf of the
manufacturer.
3:48:40 PM
MS. LUCKY described the "meat of the bill" as the provisions
related to minimum payments. She said the manufacturer would
not be allowed to restrict the parts, the number or type of
parts necessary to perform this work. The payment for required
services must meet a minimum payment in terms of labor rates and
time. For example, the bill would provide a minimum of one hour
for administration of the claim, plus reimbursement for
transportation and lodging costs when providing this service in
the field. In instances in which a product cannot be shipped
back to the dealer or distributor for warranty work, the vendor
has currently been bearing the cost of sending a technician to
the field, often via a flight to a remote site. The dealer
loses the employee's work for the day plus has not been
reimbursed adequately for any travel and lodging costs incurred.
MS. LUCKY related that the bill would establish a timeline for
the payment of claims, specifically the manufacturer will have
30 days to approve or deny the claim, and if not denied within
30 days would be deemed approved, with an additional 30 days to
remit payment.
3:50:05 PM
MS. LUCKY referred to page 4, line 15, which addresses the lemon
law provisions. She commented that the lemon law provisions are
similar to ones for other items, such as boats, ATVs,
snowmachines, and motor vehicles. She explained that the
purchaser can send a letter to the manufacturer that states that
despite a reasonable number of attempts the product still is not
functional. The manufacturer shall either provide the new
product or reimburse the purchase price minus an amount for the
use of the product.
3:51:02 PM
MS. LUCKY directed attention to page 6, lines 9-19, of Version
E, which outlines the exemptions and establishes a rebuttable
presumption for "reasonable number of attempts" to remedy a
defect in order to claim a replacement or refund.
3:51:21 PM
MS. LUCKY directed attention to page 7, lines 2-19, to proposed
Sec. 45.45.787, that defines what products are covered by this
legislation, which read, "(1) equipment, tools, or motor
vehicles if the equipment, tools, or motor vehicles are designed
to be used primarily for construction, road building, snow
removal, mining, oil projects, gas projects, forestry, resource
development, or a similar type of project. in this paragraph,
"motor vehicle" means a motor vehicle that is not 8 subject to
registration under AS 28.10.011; or".
3:52:06 PM
REPRESENTATIVE LEDOUX asked whether motor vehicles are covered
under a similar act.
MS. LUCKY answered yes; she was unsure how similar the law
covering the auto industry was; however, she related her
understanding that the auto industry has been working on details
of their warranty provisions under AS 45.45.
3:52:45 PM
REPRESENTATIVE LEDOUX asked whether the dealers are working with
the manufacturers.
MS. LUCKY answered that she was not privy to any specifics
between the auto dealer franchises and their manufacturers,
since the auto dealers are clearly exempted from this bill.
However, she related her understanding that the auto industry,
wanted an exemption from this bill since the industry has a
separate provision in statute.
3:53:41 PM
REPRESENTATIVE HAWKER reiterated that he was not aware of any
work being addressed related to automotive warranties. This
bill was developed specifically to exempt automobile warranties,
and HB 67 relates to qualified equipment under AS 45.45.787 as
previously discussed, he said.
3:54:36 PM
REPRESENTATIVE HUGHES referred to page 7 of Version E, and said
she noticed that construction and road building was covered, but
she did not notice road maintenance; however, she did notice
language "or a similar type of project." She asked whether the
sponsor was confident that will cover projects such as equipment
that places gravel on roads as well as other big equipment used
in road maintenance.
REPRESENTATIVE HAWKER answered that was absolutely the intent.
The bill doesn't delineate specific tools, but mentions
equipment, tools or motor vehicles designed for construction,
road building, snow removal, or similar type of project, which
would imply other work. He offered his belief that this
language would very definitely include it, with the exception of
any equipment subject to title and registration for on-road use.
3:56:07 PM
REPRESENTATIVE JOSEPHSON assumed that the period of warranty
service are typically mention, and not any surcharges being
foisted on vendors.
REPRESENTATIVE HAWKER said that was a reasonable
characterization; however, he suggested that the manufacturers
or vendors could better answer the specifics.
REPRESENTATIVE JOSEPHSON asked what would stop Kubota [Tractor
Corporation] from tacking on a surcharge for backhoe uses.
3:57:33 PM
REPRESENTATIVE HAWKER answered that was where competition in the
marketplace takes places, for example, if Kubota raises the
price of its skid loader by 15 percent, but John Deere [Products
and Services] or other manufacturer do not, market forces come
into play.
3:58:19 PM
REPRESENTATIVE LEDOUX asked why motor vehicles should not be
covered by the bill since all of the same problems will be
applicable.
MS. LUCKY answered that this bill was crafted not to include
auto dealers because it was not a problem constituents
requested. She requested that legislators often bring up bills
at the request of constituents. The auto dealers did not raise
issues in terms of reimbursement on warranty work. She related
her understanding that similar efforts occurred in 2009 with
boats, ATVs, and snowmachines. Since the auto dealers have
statutes that address their products, this bill will be limited
to off road motor vehicles. Further, it would be a policy call
for the legislature and the committee to discuss, but from the
sponsor's perspective, HB 67 was limited to address the specific
problem raised. Finally, the auto dealers indicated their
preference to address their products separately.
4:00:31 PM
REPRESENTATIVE HAWKER emphasized that HB 67 addresses a
different and unique market segment, rather than the highway
motor vehicle industry that already has a functioning set of
statutes. Further, HB 67 was limited to a gap in the statutory
protections for the commercial community.
4:00:58 PM
CHAIR OLSON suggested that the 2009 bill set up a firewall
between the auto industry and the off road vehicles, equipment,
and boats. He surmised one reason that the auto industry has
not testified since industry issues have been addressed.
4:01:24 PM
MS. LUCKY pointed out there was a zero fiscal note.
CHAIR OLSON removed his objection to adopting Version E. There
being no further objection, Version E was before the committee.
4:01:56 PM
CHAIR OLSON opened public testimony on HB 67.
4:02:14 PM
CHAD GERONADALE, Construction Machinery Industrial (CMI), stated
he works for CMI, and has worked in the construction equipment
industry for 28 years, including as a dealer as well as for the
manufacturers. He offered to provide some examples that can
help identify some of the situations equipment dealers face.
There are times in which the equipment industry has had to
comply with emission regulations that required making changes
with engines. In addition, the Tier IV upgrades; The Tier 4
standards provide manufacturers with a flexibility provision and
include an interim step - Tier 4-I [interim] upgrades. He
related that a manufacturer might have a piece of equipment in
Barrow experiencing problems with its emission control system.
The dealer would provide a synopsis of the symptoms of the
problem, and in turn, the manufacturer would respond with ideas
and which parts to replace or sometimes the dealer would not
hear back, but would send the dispatcher/technician. Upon
arrival, the technician may discover a certain component that
was not functioning, and if possible would change it, if not,
would bring the part to the branch, and once the replacement
part was available, would fly back to Barrow with the part, and
replace it. However, the manufacturer might only offer three
hours to replace the part, but would not pay travel time. This
could mean the equipment dealer or the customer must pay for
both flights to Barrow, plus and room and board, if necessary,
since the mechanic may not be able to accomplish the work and
take a return flight. In addition, a repair that might take
three hours in California, could take six hours in the 20 below
zero weather conditions in Barrow without a shop. He emphasized
that the additional labor hours are not reimbursed, and the
dealers seek relief.
4:06:16 PM
MR. GERONADALE said that typically the manufacturer warranties
take a "cookie cutter" approach, which may include four hours of
labor, and no reimbursement or limited reimbursement of an hour
for travel time. These programs may work in many other states,
but in Alaska due to the remoteness and geographical nature of
the state, don't work well. In addition, the change from the
emissions control issues, the engines are now controlled
electronically, which may require software updates, which again
means flying or driving to the machines and performing the
upgrades. When the machines lie off the road system or a
lengthy drive, for example, at Coldfoot, means a four-hour drive
to perform an upgrade that might take 20-30 minutes; however,
the mechanic would be gone for the whole day, yet the
manufacturer may only allow reimbursement of one-half hour to
one hour.
4:08:46 PM
CHAIR OLSON, after first determining no one further wished to
testify, closed public testimony on HB 67.
4:09:13 PM
REPRESENTATIVE HUGHES moved to report the proposed committee
substitute for HB 67, Version E, out of committee with
individual recommendations and the accompanying fiscal notes.
There being no objection, the CSHB 67(L&C) was reported from the
House Labor and Commerce Standing Committee.
4:10:06 PM
The committee took an at-ease from 4:10 p.m. to 4:12 p.m.
HB 123-ESTABLISH MARIJUANA CONTROL BOARD
4:12:32 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 123, "An Act establishing the Marijuana Control
Board; relating to the powers and duties of the Marijuana
Control Board; relating to the appointment, removal, and duties
of the director of the Marijuana Control Board; relating to the
Alcoholic Beverage Control Board; and providing for an effective
date."
4:12:38 PM
CHAIR OLSON said questions on the fiscal note arose. He then
reported that the fiscal note has been revised.
4:13:16 PM
MICALEA FOWLER, Legislative Liaison, Department of Commerce,
Community & Economic Development (DCCED), stated that in a
previous hearing, the committee discussed moving the funds from
the Governor's FY 16 budget into the FY 16 appropriation
request. She explained that the DCCED's fiscal note was revised
to reflect the FY 16-FY 21 projected costs.
4:14:09 PM
CYNTHIA FRANKLIN, Executive Director, Alcoholic Beverage Control
Board (ABC Board), Department of Commerce, Community & Economic
Development (DCCED), explained that HB 123 would create a
Marijuana Control Board (MCB), with the executive director
serving both the Alcoholic Beverage Control Board (ABC Board)
and the Marijuana Control Board (MCB). She explained details in
the fiscal note, such that the personal services adds four
fulltime employees in FY 16. She directed attention to the
narrative section of the fiscal note that contemplated six added
positions to implement proposed regulations related to
marijuana. Two positions were added in FY 15 to respond to the
substantial work necessary to regulate marijuana. In FY 16,
three investigator positions and one business licensing
examiner. The travel section includes travel for enforcement
and compliance, noting that enforcement officers travel
throughout the state to ensure that licensees are in compliance
and to ensure that licensees are not providing alcohol to
minors. She anticipated a similar need for enforcement travel
to oversee marijuana licensees.
MS. FRANKLIN explained that the new board would be comprised of
five members, set up in a similar fashion to the current ABC
board. She reviewed costs, in the first year, including an
anticipated $50,000 FY 16 for board related travel. She
reviewed services, which included legal services, information
technology services, employee support costs, enforcement
vehicles, printing and public notices. The department
anticipates needing additional legal services due to the need
for massive regulations. Colleagues in Washington and Colorado
have indicated a great deal of interest arose on data around the
regulation of recreational marijuana, that the Alcoholic
Beverage Control Board (ABC Board) was currently a paper-based
agency, but the agency will need necessity a database to better
track and provide information.
4:17:25 PM
MS. FRANKLIN related that the database includes software that
has the ability to track marijuana from "seed to sale." She
explained that the services costs include the initial cost of
the database and development in out years. The commodities
expenditures would include the cost of moving staff since the
current office location cannot accommodate the additional staff
required to implement the initiative.
4:18:22 PM
MS. FOWLER added that the fiscal note includes the supplemental
costs, including expedited regulation timeframe and the cost of
the initial staff.
4:18:49 PM
REPRESENTATIVE LEDOUX said the cost of moving offices appears to
cost more than the actual staff salaries and costs. She asked
whether commodities includes the office relocation.
MS. FRANKLIN answered that commodities includes equipment,
office space, furniture, moving expenses, and equipment
purchases; however, the one-time costs are not included after
the first year. She directed attention to FY 16 at $134.5, and
in the out years commodities was budgeted at $106.1, with the
difference between the two representing the cost of the move.
4:20:11 PM
REPRESENTATIVE LEDOUX asked for the rationale for the board
composition and whether the rules were different for the
marijuana industry than for the alcohol industry. She wondered
why the two boards would be treated differently.
MS. FRANKLIN answered that the Marijuana Control Board (MCB) was
modeled after the revised Alcoholic Beverage Control Board (ABC
Board), which means that it took into account the substantial
work the stakeholders group underwent during the Title 4
revisions, including to ensure that the ABC Board was
representative of the industry, public safety, and public health
sectors affected by the substance. She said that a bill has not
yet been introduced to reflect the proposed changes to Title 4,
but the language in the Marijuana Control Board (MCB) was
modeled after the revisions.
4:21:28 PM
REPRESENTATIVE LEDOUX, assuming the revisions would be
introduced and that the bill passed both bodies, asked whether
the two board would be similar boards.
MS. FRANKLIN answered yes.
4:21:42 PM
REPRESENTATIVE JOSEPHSON related his understanding that the
budget that moved out of House Finance Committee today does
include any funds for marijuana regulation.
MS. FRANKLIN answered that was also her understanding.
4:22:00 PM
REPRESENTATIVE JOSEPHSON offered his belief that the $1.57
million would be an addition to state spending if HB 123 passed.
MS. FOWLER answered that the House Finance subcommittee asked
the department to include all costs for regulating marijuana
associated with the initiative that passed be included in the
fiscal note for HB 123 rather than requesting these costs in the
DCCED's budget request.
4:22:39 PM
REPRESENTATIVE JOSEPHSON asked whether the out years also
reflect $1.4 million.
MS. FOWLER answered that if the bill passed with the fiscal
note, the department would not need to come back with an
additional request for the out years.
4:23:01 PM
REPRESENTATIVE HUGHES asked how the annual amount for the out
years compared to the ABC Board's budget. She asked whether the
investigator positions were solely based on Alcoholic Beverage
Control Board (ABC Board) or if the department anticipated there
will be more marijuana businesses.
MS. FRANKLIN answered that currently the Alcoholic Beverage
Control Board (ABC Board) oversees 1,875 licensees. The
original cost estimate to implement ballot measure 2 was a
"mirror image" of the ABC Board's staff. She commented that the
ABC Board currently has five investigators statewide, three
licensing employees, and two administrative staff. She trimmed
the estimate for FY 16, since it is not likely that the
Marijuana Control Board (MCB) will have as many licensees
initially; however, no decisions have been made as to limit
licenses, similar to the way the state limits liquor licenses in
the state. She said the potential exists for the need for
additional staff in the out years; however, it is difficult to
estimate until the state knows how restrictive or open the
industry might be and what the level of interest might be.
4:25:21 PM
REPRESENTATIVE HUGHES asked for the number of inquiries she has
had plus any feedback on inquiries that Colorado has experienced
as compared to the number of businesses that have opened.
MS. FRANKLIN explained that the closest analogy population-wise
to Alaska would be the City of Denver, which issues its own
marijuana licenses. The City of Denver anticipated an
additional 16 employees, but they added 21 more for next year
bringing the total to 37.5 fulltime employees for a population
of 650,000, serving approximately 900 marijuana licenses. She
compared the types of employees, and said that depending on how
the licensing process is structured there could be a fairly
urgent need for additional staffing in future years. However,
all of the positions in the City of Denver were fully funded by
the tax revenues received from regulating the substance. She
reported that Denver collected over $6 million in 2014 with the
37.5 fulltime employees, with the cost to the city at about $4.5
million. She suggested that in moving forward to establish the
industry, given that it may be easier to ask for additional
staffing once the tax revenue becomes apparent.
4:27:46 PM
REPRESENTATIVE LEDOUX asked whether the City of Denver has a
similar board that oversees alcohol.
MS. FRANKLIN explained that the state has 10 employees
statewide, including 5 enforcement officers The City of Denver
regulates marijuana through its Division of Revenue, regulating
alcohol, marijuana, and gaming without a board. She said the
marijuana enforcement division employees 55 fulltime employees,
of which about half are investigators.
4:28:46 PM
REPRESENTATIVE LEDOUX how many staff the City of Denver employs
to oversee the alcohol industry, noting the city may regulate it
differently than in Alaska. She recalled that Alaska has 5 or 6
staff to assist the ABC Board. She asked to hone in on how many
staff regulate alcohol in Denver to help her determine whether
the city was doing things more or less efficiently.
MS. FRANKLIN answered that she did not have the comparison, but
she has reviewed the State of Washington's structure, which is
similar to Alaska's system, with a liquor control board that
regulates marijuana and alcohol. She reported that 297
employees cover regulations of alcohol, with approximately 120
assigned to marijuana licensing and control. For comparison,
she stated that Washington has 15,000 liquor licenses, with
significantly more people working on alcohol than on the
marijuana industry with fewer licensees. She used Washington's
figures to help her determine staffing for marijuana control in
Alaska, noting that Alaska has 10 staff assigned to the alcohol
regulation, and potentially will be adding six employees, which
she said seemed fairly even.
CHAIR OLSON requested the information be sent to the committee
so it can be posted and distributed to committee members.
4:31:00 PM
REPRESENTATIVE COLVER asked about timing of the regulation
process.
MS. FRANKLIN answered that the marijuana initiative gave the
Department of Commerce, Community & Economic Development (DCCED)
nine months from February 24, 2015 to get regulations approved
by the board, whether it happens within the ABC Board or the
Marijuana Control Board (MCB). She anticipated the process
would begin as soon as session ends, once the statutory
framework is known. Further, she reported that Colorado and
Washington, who have marijuana programs, have been helping and
will continue to help Alaska. In addition, she has information
from the Title 4 revisions to review, all of which represents a
good starting place. The ABC Board released a preliminary
document so it has a good start, she said.
4:32:38 PM
REPRESENTATIVE COLVER asked about concepts for a definition of
public place.
MS. FRANKLIN answered that the ABC Board met in an emergency
meeting on February 24, 2015 and defined public place using the
definition from Title 11, AS 11.81.900 (53). The board defined
the term "in public" as given in AS 17.38.040 and has used the
definition in Title 11 for "public place" for the prohibition of
consumption of marijuana "in public." She stated that the ABC
Board will meet again on April 9, 2015 in the Anchorage
Legislative Information Office (LIO) to take public testimony on
whether to make that regulation permanent. She said she
received some initial feedback that the definition could
potentially shut down the possibility of businesses ever having
Cannabis cafés, in which businesses could invite members in to
smoke marijuana together. The overlay of smoking prohibitions
in many communities in Alaska makes it a second year
consideration since the MCB board would like to put some
baseline rules in first, prior to making decisions on the types
of businesses that will be allowed. She said that both
Washington and Colorado have struggled with this issue, but
started with the position of not including those types of
businesses in their initial regulations.
4:34:59 PM
REPRESENTATIVE KITO related his understanding that the initial
concept was to regulate marijuana like alcohol, but he suggested
some significant differences exist in the way these businesses
operate. For example, marijuana would have production,
manufacturing, testing, and sales functions, he said, stating
that Alaska has sales types of businesses in alcohol, but the
department does not anticipate allowing "consume in place"
businesses. Currently, the state doesn't have statutes that
govern the four types of [marijuana] businesses. He stated that
the board structure was meant to regulate the licensing of
marijuana; however, at this point, the state doesn't know much
about the proposed marijuana businesses.
REPRESENTATIVE KITO anticipated that the board would initially
spend most of its time developing regulations. He expressed
concern over a lack of expertise identified on the board for the
start-up period. During this initial period, the board will be
generating significant new regulations that will govern
operations of businesses, yet the state doesn't know exactly
what it will need to regulate. He asked whether the state can
identify who should be on board and if the state would need a
transition phase to provide expertise to board members in
developing regulations that will allow for the effective
operation of the marijuana businesses.
MS. FRANKLIN answered that under the ballot measure, AS
17.38.110 would give the ABC Board regulatory authority unless a
separate board was created and it does outline the four types of
licenses, including manufacturing or cultivating, processing,
retail, and testing facilities. She acknowledged AS 17.38
provided a sketchy outline of the four types of licenses. In
terms of composition of the proposed Marijuana Control Board
(MCB) and representation of the types of businesses, she
reported that in Title 4 manufacturing was kept out of
representation on the ABC board, primarily with the way alcohol
regulation developed over the years as a tiered system. She was
unsure on whether a similar tiered system would be developed for
marijuana; however, the differences between the two substances
makes it unlikely. In fact, prohibition has not been written in
as an industry tier. Theoretically, the proposed board member
industry representatives in HB 123 could be representative of
any of the four types of licensees. Initially, it might present
some challenges to identify industry representation for the
board; however, the agency has not had a shortage of people
coming forward who want to be part of the board. Thus the
governor could evaluate applicants, she said. Of course, the
difficulty will arise in finding an experienced grower since the
industry is currently illegal. However, she has some confidence
that the voters' will in passing the ballot measure will be
honored and that people will be able to openly speak about their
experiences in the industry. For example, some people have
already attested to having acquired experience of 40 years as
growers and these people have appeared at local government
meetings in the Mat-Su valley, she said.
4:39:53 PM
MS. FRANKLIN suggested that the board will be able to identify
people in the short run who claim to be part of the industry.
However, the state will need to get an industry going before it
can ascertain this, although the transition sections and
staggered terms may enable the governor to appoint someone into
shorter term board positions. If it turned out that a person
represented him/herself as part of the industry, but did not end
up having the necessary expertise, the governor could turn the
seat over to another person. It may be that people who
supported the ballot measure or who participated in the
Coalition for Responsible Cannabis Legislation (CRCL) might not
necessarily qualify as industry representatives, but the
governor's selection process can identify the necessary business
background. She said she has been contacted by numerous
businesses who have expressed an interest in the industry and
some existing businesses may provide appropriate experience to
fill one of the shorter-term appointments.
4:41:31 PM
REPRESENTATIVE KITO said her response helped, but people simply
having the desire to serve doesn't give him confidence that the
potential board members will end up having good business
experience. He acknowledged the need for a public health
member, a public safety member, a general public member, and a
rural member. However, by statute the two industry
representatives do not need business experience since the state
doesn't have a marijuana industry in Alaska. He maintained his
concern that the board might end up without the board having the
expertise to develop regulations that will regulate all the
types of businesses dispensing marijuana.
4:42:29 PM
CHAIR OLSON assured members it was important to spend sufficient
time on the bill to address concerns and ensure the regulatory
board and system was appropriate.
4:42:57 PM
CHAIR OLSON opened public testimony on HB 123.
4:43:14 PM
JAMES BARRETT began his testimony by stating he was interested
in entry into the marijuana industry. He offered his belief
that Alaska has an awesome opportunity to establish this
industry, recalling that historically the state has assisted new
industries, for example, the state helped establish the fishing
industry. A black market once existed with the fishing
industry, just as it currently exists with the marijuana
industry. He suggested that the Marijuana Control Board (MCB)
members will help bring expertise, but he emphasized the
necessity of doing it right the first time. He suggested that
it was important to have marijuana controlled separately from
alcohol since the substances are not the same, although they can
be similarly regulated. He offered his support for this bill
and concluded by commending Ms. Franklin's knowledge and
ability.
CHAIR OLSON agreed Ms. Franklin has been doing an incredible
job.
4:45:17 PM
ELLEN GANLEY, Member, Alcoholic Beverage Control Board (ABC
Board), Department of Commerce, Community & Economic Development
(DCCED), stated that substantial discussion has occurred on
whether it would be best to have one board or two boards. She
initially thought that marijuana should fall under one
regulatory board, but since then she has reevaluated this
viewpoint, in particular, given the amount of work that board
must accomplish. In addition, she has been involved in the
current work of the ABC Board, which oversees 1,800 licenses, as
well as during the two years it has taken to draft a rewrite of
Title 4, which will require significant time to implement. She
concluded that she believes it makes sense to have two boards.
4:46:20 PM
KIM KOLE, Coalition for Responsible Cannabis Legislation (CRCL),
who initially started the Anchorage chapter of CRCL, offered
support for HB 123, which would set up a separate Marijuana
Control Board (MCB) under the direction of Ms. Franklin. She
suggested that this structure seemed to make sense for a number
of reasons, including reducing financial costs by having one
administrator serve the Marijuana Control Board (MCB) and the
Alcoholic Beverage Control Board (ABC Board), and to help
identify regulations for this industry. She said that the
language allows up to two board members who represent the
cannabis industry to serve. She encouraged members support two
board members from the industry, including representatives of
cultivators, processors of non-consumables such as concentrates
and lotions, processors of consumable and edible products. She
hoped that ultimately retail stores, beer gardens or cafes will
sell or serve marijuana products. Since the industry is son
bard, no one person can know all aspects of the cannabis
industry, she said, which emphasized the need to have two
industry representatives on the board. She appreciated the
importance of the business perspective and background on the
board; however, she argued that it wasn't imperative to have
someone with only a business background since it was possible to
have an array of backgrounds represented by people who are
really passionate about this new industry.
4:47:56 PM
FRANK BERARDI, Chair, Coalition for Responsible Cannabis
Legislation (CRCL), offered the CRCL's support for HB 123. He
said the board supported having a separate autonomous Marijuana
Control Board (MCB) housed under the same framework as the
Alcoholic Beverage Control Board (ABC Board), directed by Ms.
Franklin. In terms of the vetting process for industry
representatives, the coalition believes that the CRCL membership
has extensive business experience, noting that several people
have an educational background in business and some have already
completed business plans for this venture. The coalition would
like to see the process be an open process that will allow
people be vetted for the positions. He said he personally
supported initial one-year terms for board members just to see
how "this thing shakes out." In closing, he offered support for
HB 123.
4:49:28 PM
GIONO BARRETT asked to testify in support of HB 123. He said it
was a good idea to put the regulations in the hands of the
Alcoholic Beverage Control Board (ABC Board), especially since
Ms. Franklin and her staff have done a great job thus far. He
stated that he was registered for medical marijuana and has been
a long-time marijuana user. He offered his belief that the key
to the regulation of the industry was education since it can
take years to learn the industry. He suggested that Ms.
Franklin has covered a lot of information really well, that he
has an interest in the industry and has found her to be "spot
on." In closing, he said he would trust Ms. Franklin to
regulate marijuana properly.
4:50:34 PM
GIRARD GAUL, Senior Spokesman, Coalition for Responsible
Cannabis Legislation (CRCL), asked to support HB 123. He
further supported having the Marijuana Control Board (MCB) as a
separate committee working alongside the Alcoholic Beverage
Control Board (ABC Board) under Ms. Franklin. He thanked
members for the work on this bill and offered his belief that HB
123 looked great.
4:51:15 PM
BRUCE SCHULTE, Public Relations Manager, Coalition for
Responsible Cannabis Legislation (CRCL), testified in support of
HB 123. He said that historically this group has been
advocating for a separate Marijuana Control Board (MCB);
however, given the combined constraints of schedule and budget,
he believed the hybrid board would be a terrific solution. He
said he has tremendous faith in Ms. Franklin's ability to guide
both boards. He echoed Ms. Kole's comments on board
representation, noting this bill would allow at least two
members with experience to serve on the board. He pointed out
that the schedule has actually begun on the regulatory process
and the board has until November 24 to complete it. He
suggested that this [bill] has become the critical process.
4:52:53 PM
BRANDON EMMETT, Executive Director, Coalition for Responsible
Cannabis Legislation (CRCL) asked to testify in support of HB
123. He suggested that HB 123 was a step in the right
direction. As Mr. Schulte stated, the CRCL's initial position
was to support a completely autonomous Marijuana Control Board
(MCB), but the CRCL now prefers a hybrid board nested under the
Alcoholic Beverage Control Board (ABC Board) to help the MCB
adopt regulations and rules in a timely fashion. He emphasized
the importance of having several board members with expertise in
the marijuana industry. He offered his belief that marijuana
industry board members will be unfettered by any conflict of
interest that could affect a board member directly involved in
the alcohol industry.
4:54:24 PM
CHAIR OLSON said he would hold public testimony open on HB 123.
[HB 123 was held over.]
4:54:43 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:54 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB67 ver W.PDF |
HL&C 3/11/2015 3:15:00 PM |
HB 67 |
| HB67 Sponsor Statement.pdf |
HL&C 3/11/2015 3:15:00 PM |
HB 67 |
| HB67 Fiscal Note-LAW-CIV-03-06-15.pdf |
HL&C 3/11/2015 3:15:00 PM |
HB 67 |
| HB67 Supporting Documents-Letter CMI Construction.pdf |
HL&C 3/11/2015 3:15:00 PM |
HB 67 |
| HB67 Opposing Documents-Email John Deere 2-16-15.pdf |
HL&C 3/11/2015 3:15:00 PM |
HB 67 |
| HB67 Opposing Documents-Letter CNH Industrial 2-25-15.pdf |
HL&C 3/11/2015 3:15:00 PM |
HB 67 |
| HB67 Opposing Documents-Letter AEM 3-05-15.pdf |
HL&C 3/11/2015 3:15:00 PM |
HB 67 |
| HB67 Draft Proposed Blank CS ver E.pdf |
HL&C 3/11/2015 3:15:00 PM |
HB 67 |
| HB67 Sectional Analysis for Draft Proposed Blank CS ver E.pdf |
HL&C 3/11/2015 3:15:00 PM |
HB 67 |
| HB123 Letter from DOA-OAH regarding fiscal note revision.pdf |
HL&C 3/11/2015 3:15:00 PM |
HB 123 |
| HB123 Fiscal Note-DCCED-ABC-03-09-15.pdf |
HL&C 3/11/2015 3:15:00 PM |
HB 123 |
| HB67 Opposing Documents-Email CNH Industrial with Letter 3-10-15.pdf |
HL&C 3/11/2015 3:15:00 PM |
HB 67 |