Legislature(2023 - 2024)ADAMS 519
05/02/2024 10:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB196 | |
| HB223 | |
| HB119 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 187 | TELECONFERENCED | |
| + | SB 74 | TELECONFERENCED | |
| + | SB 75 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 196 | TELECONFERENCED | |
| += | HB 223 | TELECONFERENCED | |
| += | HB 119 | TELECONFERENCED | |
HOUSE BILL NO. 119
"An Act relating to marijuana taxes; and providing for
an effective date."
10:00:12 PM
REPRESENTATIVE JESSE SUMNER, SPONSOR, explained that the
bill was essentially a change in the marijuana tax
structure.
Co-Chair Foster noted that there were 13 fiscal notes.
BRANDON SPANOS, ACTING TAX DIRECTOR, DEPARTMENT OF REVENUE,
TAX DIVISION, ANCHORAGE (via teleconference), reviewed the
fiscal note from the Department of Revenue (DOR) with
control code wrLQD. The department estimated that the
change in the rate from $50 per ounce to $12.50 per ounce
would reduce current revenue by $18.3 million in the first
full fiscal year after implementation. The department
projected that moving from the $12.50 per ounce wholesale
transfer rate to a sales tax of 3 percent in FY 29 would
result in a further decrease of $27.6 million in FY 29. The
estimates assumed no inflation for fiscal note purposes.
Mr. Spanos explained that the bill also changed the
allocation of tax revenue. Currently, the revenue was split
between three funds: the Recidivism Reduction Fund (RRF),
which held 50 percent of the revenue, and the Marijuana
Education and Treatment Fund (METF) and the Unrestricted
General Fund (UGF), which each received 25 percent. The
bill changed the allocation to 100 percent of the revenue
being deposited into METF, and the revenue could be
appropriated from that fund for the following three
different purposes, with no more than 33 percent allocated
to each: the Department of Health (DOH) for a comprehensive
marijuana use education and treatment program, the
Department of Commerce, Community, and Economic Development
(DCCED) to support administrative tasks related to the
cultivation, manufacturing, and sales of marijuana and
marijuana products, and to the general fund.
Mr. Spanos explained that on page one of the fiscal note, a
table had been included to show all three funds and the
department's projections. The bill initially required only
minor changes to be implemented, as the change from $50 per
ounce to $12.50 per ounce was straightforward with no
implementation cost. However, the change to a 3 percent
sales tax in FY 29 would involve more significant costs.
The change would introduce a new sales tax system, which
was not currently in place in the state, and would require
the development of a new module in the tax revenue
management system, as the old taxes would be eliminated.
However, the department did not need to hire additional
staff, as current staff could absorb the work, though
enforcement functions would require travel, which would be
accounted for. He had noted in a previous letter to the
committee that the current effective date was tight. The
department routinely stated that whenever there was a large
change to the tax revenue management system, it would need
12 to 18 months to implement the change. The estimated
implementation cost had originally been $1 million, but it
had been updated to $2 million because of the short
timeframe. If the effective date was pushed back by at
least 12 months, the cost would return to $1 million.
10:04:46 PM
Mr. Spanos was available for questions.
Co-Chair Foster asked if Mr. Spanos was reading from the
fiscal note with OMB component number 2476.
Mr. Spanos responded that he realized he was not reading
from the correct fiscal note.
Representative Hannan noted that the date on her fiscal
note was dated January 22, 2024. She asked if she had an
old version of the fiscal note or if it was the most
current version.
Co-Chair Foster stated the date on the correct and most
current fiscal note was April 11, 2024 with OMB component
number 2476 and control code wrLQD. He asked if
Representative Hannan had the same version.
Representative Hannan responded that she did not.
Co-Chair Foster asked which version Mr. Spanos had been
referencing.
Mr. Spanos responded that he was looking at a version in
Excel which did not have a component number.
10:06:16 PM
AT EASE
10:07:08 PM
RECONVENED
Co-Chair Foster noted the OMB component number 2476 was the
correct version of the note.
Mr. Spanos relayed that he had the correct version of the
note.
Co-Chair Foster asked for confirmation that Mr. Spanos had
the fiscal note with OMB component number 2476 if it was
correct.
Mr. Spanos replied affirmatively.
10:07:56 PM
JOSEPHINE STERN, ASSISTANT COMMISSIONER, DEPARTMENT OF
HEALTH (via teleconference), reviewed the fiscal note by
DOH with OMB component 3099 and control code uljnX.
Co-Chair Foster asked for a repeat of the component number.
Ms. Stern replied 3099.
Co-Chair Foster asked for the control code. He noted that
the version of the fiscal he had was dated January 24,
2024. He asked what the date was on Ms. Stern's version.
Ms. Stern replied April 15, 2024.
10:09:30 PM
AT EASE
10:12:01 PM
RECONVENED
Co-Chair Foster noted that the committee was considering
OMB component 3099.
Ms. Stern relayed that the fiscal note was based off of
DOR's projections for the Behavioral Health Treatment and
Recovery Grant (BHTRG) and the allocation that DOH received
every year. Based off of DOR's projections, BHTRG was
estimated to collect a total of $3,791,800 in revenue in FY
2025, which was split between the RRF, which was estimated
to be a reduction of around $2,021,500, and the METF, which
was reduced by around $1,770,300 dollars. In the out years,
the amounts were estimated to decrease due to inflation,
market growth, and population growth. The amounts in the
out year fiscal notes had been adjusted accordingly based
off of DOR's fiscal notes. The reductions would affect the
grants that the component issued out on an annual basis.
Co-Chair Foster asked if there were any questions on the
fiscal note. After seeing none, he noted the committee
could return to any fiscal notes at any time.
Ms. Stern reviewed the next fiscal impact note prepared by
DOH with OMB component 2665 and control code MQbaD. The
note was based on the DOR fiscal notes and the annual
allocation that was distributed to DOH under the Behavioral
Health Administration (BHA). Based on DNR's fiscal note and
the allocation that the component received on an annual
basis, the estimated production in FY 25 was projected to
be a decrement of $154,900, of which $87,800 was from RRF
and $67,100 was from METF. The amount was set to decrease
over the subsequent years due to inflation, market growth,
and the population growth. The funds in the fiscal note
were used related to contracts that promoted education and
treatment related to marijuana.
10:16:13 PM
Representative Galvin understood that the fiscal note was
addressing funds that were divided between DOH and
prevention programs. She asked if the prevention programs
would receive less funding than usual, and if so, how long
would the funds be reduced.
Ms. Stern responded in the affirmative. The funds were used
to issue grants for after school youth services and to
communicate messages to help prevent youth marijuana use
and educate the public about marijuana. The activities were
purely based off of the revenue that was collected through
marijuana taxes. If there was a decrease in the revenue
collected, the grant program would either become smaller or
the department would need to request additional funds or
supplement with existing resources.
Representative Galvin explained that her understanding was
that the revenue source was being changed to be sourced
from the sales tax at the consumer level. She thought that
municipalities such as Anchorage had similar prevention
programs that were funded through marijuana sales. She
asked if there might be supplanted funds going through the
programs.
CLARK BICKFORD, STAFF, REPRESENTATIVE JESSE SUMNER,
deferred the question a representative from the governor's
task force.
BRANDON EMMETT, CHAIRMAN, GOVERNOR'S TAX TASK FORCE ON
RECREATIONAL MARIJUANA AND HEMP, FAIRBANKS (via
teleconference), asked for Representative Galvin to repeat
the question.
Representative Galvin complied.
Mr. Emmett responded that municipalities currently
collected monies that went into the general fund and were
appropriated at the purview of the municipality. In
Fairbanks, the funds were used for emergency medical
services, the road system, and schools. The decrement in
the wholesale tax would be offset by the implementation of
a retail tax, which had been illustrated in some of the
projections that were done by House Majority staff member
Cody Rice. The projections showed that because of the
manner in which taxpayers had been paying the taxes, the
decrease with the status quo in the wholesale market would
be in excess of what the change would be if it became a
retail tax. In the short term, the taxes collected by a
decrease at wholesale would be a reduction, but in the long
term, it would be an increase in total revenue to the state
according to all projections.
10:22:29 PM
Ms. Stern reviewed the fiscal impact note prepared by DOH
for the Division of Public Health relating to OMB component
2818 and with the control code ilSLR.
Co-Chair Foster asked for a repeat of the component number.
Ms. Stern complied. The fiscal note was based off of the
DOR fiscal note which projected a decrease in revenue. The
projected decrease for DOH under Chronic Disease Prevention
and Health Promotion was estimated to be a total decrease
in FY 25 of $1,082,700 from METF. The number was estimated
to decrease in subsequent fiscal years, due to inflation,
market growth, and population growth. The funds were also
used for grants for outreach and education, as well as
training for education programs related to marijuana.
10:24:46 PM
Co-Chair Foster moved to the Department of Corrections'
(DOC) fiscal notes.
TERI WEST, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT OF
CORRECTIONS (via teleconference), relayed that DOC had
seven fiscal notes. She started with the fiscal impact note
with OMB component number 2244 and with the control code
vUQRd. She clarified that the fiscal note was dated April
23, 2024. She asked if members had the same fiscal note on
hand.
Co-Chair Foster confirmed that he had the correct fiscal
note.
BRODIE ANDERSON, STAFF, REPRESENTATIVE NEAL FOSTER,
requested that the appropriation name be stated.
Co-Chair Foster replied that it was the community
residential centers. He asked Ms. West to detail the fiscal
notes.
Ms. West explained that the fiscal note had been updated to
incorporate the changes from the CS and updated to align
with the Spring 2024 Revenue Forecast from DOR. The fiscal
note reflected a fund source change from RRF to UGF in FY
25 totaling $351,000. The reduction in the revenues were
seen in the out-year cost estimates. The funds were used to
support successful re-entry efforts within the community
residential center.
10:26:57 PM
Ms. West moved to DOC's next fiscal impact note with OMB
component number 2952 for Health and Rehabilitation
Services with the control code wGflU. The fiscal note was
incorporating changes from the CS to align with the DOR
Spring 2024 Revenue Forecast. There was a fund source
change from RRF to UGF in FY 25 in the amount of $1,232,800
with the amounts reducing through the out-year. The funds
were used to support medical services within the physical
health care component.
Co-Chair Foster invited Ms. West to move to the next fiscal
note.
Ms. West moved to DOC's next fiscal impact note with OMB
component 2971 for education programs with the control code
JepWS. The fiscal note again incorporated changes from the
CS and updates to align with the DOR Spring 2024 Revenue
Forecast. There was another fund source change from RRF to
the general fund in the amount of $290,300 in FY 25 with
reductions in the out-year cost estimate. The funds
supported the educational programming within the
department.
Ms. West advanced to DOC's next fiscal impact note with OMB
component 2972 for vocational education programs with the
control code WFsFW. The fiscal note again incorporated
changes from the CS to align with the DOR Spring 2024
Revenue Forecast. There was a fund source change from RRF
to general funds in the amount of $212,700. The funds were
utilized for the vocational programming efforts.
10:31:10 PM
Ms. West addressed the next DOC fiscal impact note with OMB
component 2973 with control code OkmVr. The note
incorporated the changes from the CS and was updated to
reflect the DOR forecast. There was another fund source
change from RRF to general funds in the amount of $61,400.
The funds were used to support domestic violence programs.
Ms. West spoke to DOC's next fiscal note with OMB component
number 2975 for sex offender management programs and
control code UgGFA. The note incorporated the changes in
the CS and the DOR forecast. There was another fund source
change from RRF to general funds in the amount of $702,000
with decreased amounts in the out years. The funds were
again used to support the sex offender treatment programs
within the department.
Ms. West reviewed the next DOC fiscal impact note with OMB
component 3080 for recidivism reduction grants with the
control code hYouo. The note incorporated changes from the
CS and was updated to align with the DOR forecast. There
was another fund source change from RRF to general funds in
the amount of $776,900 with decreasing amounts in the out
years. The funds were utilized for reentry efforts. She
relayed that she had no more fiscal notes.
Representative Galvin asked about the total for all of the
fiscal notes.
Representative Coulombe pointed out that the second page of
all of the fiscal notes showed the total for all of the
notes from DOC.
Co-Chair Foster recognized the legislative liaison for DOC
was available for questions.
10:36:11 PM
LESLIE ISAACS, LEGISLATIVE LIAISON, DEPARTMENT OF
ADMINISTRATION (via teleconference), reviewed the zero
fiscal note from the Department of Administration (DOA)
with OMB component number 59 and the control code LUNwZ.
The Division of Finance managed the funds within the
state's accounting system and did not anticipate that the
bill, as amended, would have a meaningful impact on the
workload.
PAM HALLORAN, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT
OF PUBLIC SAFETY (via teleconference), reviewed the fiscal
impact note from the Department of Public Safety (DPS) with
OMB component number 521 and control code yBSRc. The
allocation was for the Council on Domestic Violence and
Sexual Assault (CDVSA). The note incorporated the changes
from the CS and the DOR forecast. There was another fund
source change from RRF to general funds in the amount of
$702,000, with reduced amounts in the out years. The funds
were used to support the sex offender treatment programs
within the department, and the RRF would be reduced
slightly by $360,000, with a further decrease in the out
years. The department used RRF for grants and programs to
support domestic violence prevention efforts by CDVSA.
Mr. Bickford requested that Mr. Rice be brought up for the
amendment portion.
10:40:08 PM
AT EASE
10:41:13 PM
RECONVENED
Co-Chair Foster related that the committee would now hear
the four amendments on the bill.
10:42:05 PM
AT EASE
10:42:33 PM
RECONVENED
Representative Josephson MOVED to ADOPT Amendment 1, 33-
LS0636\U.4 (C.Radford, 4/30/24) (copy on file). [Due to the
length of the amendment, it was not included in the
document. Please see the copy on file for details.]
Representative Stapp OBJECTED for discussion.
Representative Josephson explained the amendment. The tax
had been based on the cultivator, with three types of
taxes: high grade, medium grade, and low grade. The bill
intended to shift to a pure retail tax, which was a process
used by some other states. If the bill passed, Alaska would
become the state with the lowest retail tax. The amendment
would reduce the $12.50 per ounce wholesale transfer rate
to $10. He believed that the cultivator should have some
"skin in the game." The amendment would eliminate the
complaint regarding the reluctance to be fully transparent
about the product mix because the product mix would no
longer be relevant. He thought it would benefit the
cultivator significantly, as the tax would drop
dramatically. The effective tax rate would decrease from
$800 per pound to $160 per pound.
Representative Josephson shared that according to a Green
Market Report, the average price of cannabis in Alaska was
$2,400 per pound, which was $300 per pound higher than in
the next closest state. The $800 per pound excise tax at
wholesale had been considered a primary factor contributing
to the high cost of cannabis in the state. The proposed
change would reduce the price of cannabis by $800, bringing
it down to about $1,600 per pound. The process would begin
with a cheaper product, making cannabis more affordable.
While Alaska would still have one of the highest costs per
pound, it would no longer have the highest. He clarified
that the amendment was related to the retail rate because
he was also proposing a retail tax.
10:46:26 PM
Co-Chair Foster asked for a comment from the sponsor.
REPRESENTATIVE JESSE SUMNER, SPONSOR, did not support the
amendment. He believed that it would result in a
substantial tax increase for the entire industry. He
considered the amendment inadvisable for many reasons, and
stated that if the amendment passed, he would withdraw the
bill the following day. He suggested that Mr. Rice could
explain.
CODY RICE, STAFF, HOUSE MAJORITY, explained that the
amendment would cause a roughly 42 percent tax increase. He
suggested that there was a possibility that it would result
in a reduction in tax revenue and drive as much as 200,000
to 300,000 ounces per year to the black market based on the
price elasticity demand effects of the tax increase.
Representative Sumner shared that within the last day, the
federal government had announced that it would be
rescheduling marijuana from a Schedule 1 substance, which
was likely a first step along the road to legalization. A
cultivator tax would destroy all Alaskan industry because
it would not be able to compete with an untaxed out-of-
state market. The state would need to switch to a retail
tax if there was federal legislation, and he thought the
state should get ahead of the eventuality of legislation.
10:48:43 PM
Representative Josephson thought Representative Sumner's
comment that he would pull the bill was a little
manipulative, especially considering the late hour. The
industry had indicated that it needed change, and the bill
was described as a tax increase. He was not sure what part
of the bill proposed a tax increase because it appeared to
him to be a massive tax cut. He understood that DOR had
reported that the state currently received about $28
million per year in tax. He wondered what the state would
receive in FY 25 if an 8 percent retail tax were
implemented.
10:50:41 PM
AT EASE
10:51:39 PM
RECONVENED
Representative Josephson clarified that he had asked DOR to
do an analysis on his amendments. The department reported
that the state would receive $25.6 million under his
collective amendments and as little as $23 million under
the 8 percent sales tax. He understood that DOR reported
that combining a 10 percent cultivator's tax with an 8
percent retail tax would result in a $5 million tax cut. He
was mainly concerned because the committee had recently
been presented with a "nightmare" of fiscal notes that
would gut all manner of programs totaling $20.5 million. He
did not know how to replace all of the income for all of
the programs, but he was trying to alleviate the issue by
implementing the reduction to the cultivator's tax. The
committee could reject all of the amendments or choose, for
example, an 8 percent tax or 10 percent tax. He understood
that the House Labor and Commerce Committee examined the
idea of implementing a 10 percent tax, which might seem
high, but as a comparison, California and Colorado had a 15
percent excise tax and Maine and Michigan had a 10 percent
tax. He reiterated that if a 6 percent tax was implemented
in Alaska, it would be the lowest tax of its kind in the
country. He wanted to share what he had learned on the
topic even though the bill had been introduced late in the
session.
10:54:42 PM
Co-Chair Edgmon remarked that it was hard to compare Alaska
to other states because of the growing season and expensive
nature of Alaska. He thought the tax provision in the bill
seemed fair and he even saw an argument for reducing the 6
percent rate further. He thought the change to the
cultivator tax would restructure the entire bill.
Representative Josephson commented that there were other
states that had implemented a mixed system. For example,
Maine had a tax of $335 per pound on flower, $94 per pound
on trim, $1.50 per immature plant or seedling, and $0.03
per seed. There were different ways to structure the
system. His office's research indicated that the comments
about the black market were overstated and speculative.
Co-Chair Edgmon thought the amendment structurally changed
the bill.
Mr. Rice agreed with Co-Chair Edgmon. The tax in Alaska was
more expensive than the actual wholesale cost of a pound of
cannabis in several other states. For example, Maine had a
small and immature market. He took some issue with the
description of the tax reduction. He clarified that the
weighted average tax was not the $50 headline tax that was
often discussed. The weighted average tax was substantially
lower because of the changing product mix, and it had been
declining every year. He thought $19 was more appropriate
as the base if one were to examine the tax on a weighted
average basis.
Representative Josephson relayed that the cultivator would
receive a tax cut of nearly 50 percent if the amendment
were to pass. He noted that DOR agreed that it was a tax
cut. If HB 119 resulted in a 20 percent increase in sales
and there was a 5 percent growth rate, the state might
reach $28 million again in around ten years. He thought it
was a policy call. He did not think there was anything
particularly "magic" about the 6 percent figure and it
would be one of the lowest tax rates in the country. The
proposal to reduce the cultivator's tax was a structural
change.
10:59:09 PM
Co-Chair Edgmon understood that the industry was at a
tipping point according to the testimony he had heard. He
thought that reinstituting the cultivator's tax could make
or break many businesses and many could find it too
expensive. The bill seemed to be reasonable from the angle
of economic development and growth and changing the bill
drastically would cast doubt.
Representative Galvin wanted clarification on what the
amendment would do. She asked if the amendment would tax
the cultivator.
Representative Josephson clarified that the amendment would
not apply an additional cultivator tax, it would reduce the
tax on cultivators. The product would be weighed on a scale
and would be priced at $10 per ounce. There was an
expectation that the cultivator's tax would be eradicated,
but it was not his personal expectation.
Representative Galvin asked whose scale would be used to
weigh the product.
Representative Josephson answered it would be the farmer's
scale.
Co-Chair Edgmon called the question.
[Although not explicitly stated, the objection was
maintained.]
A roll call vote was taken on the motion.
IN FAVOR: Josephson, Ortiz
OPPOSED: Stapp, Galvin, Coulombe, Tomaszewski, Hannan,
Cronk, Edgmon, Foster
Co-Chair Johnson was absent from the vote.
The MOTION to adopt Amendment 1 FAILED (2/8).
11:02:36 PM
Representative Josephson MOVED to ADOPT Amendment 2, 33-
LS0636\U.2 (C.Radford, 4/30/24) (copy on file):
Page 5, line 11:
Delete "six"
Insert "10"
Representative Stapp OBJECTED.
Representative Josephson explained that the amendment would
increase the sales tax rate from 6 percent to 10 percent.
On a $5 pre-roll, or a "joint," a 10 percent tax would add
$0.50. He understood that consumers would purchase the
joint for $5, but not for $5.50. On a $14 pre-roll, a 10
percent tax would add $1.40. The tax rate of 10 percent was
still relatively low compared to other states and would
still be considered a tax reduction.
Representative Sumner stated it was a policy call for the
committee. He had originally proposed a 3 percent tax but
had later increased it to 10 percent. He believed that 6
percent was appropriate. He deferred to Mr. Rice for
further details.
Mr. Rice stated that he viewed it as a tax increase. He
disagreed with some of the assumptions and modeling used by
the Department of Revenue (DOR), but he noted that DOR's
status quo model predicted that the average effective tax
rate would be below 9 percent during the forecast period.
He explained that the volume of consumption was also a
critical factor to consider. While the tax on an individual
pre-roll or joint might not be significant, the price
elasticity of demand varied depending on consumption
levels. He clarified that individuals who consumed the most
cannabis were the most sensitive to price changes. His
personal model suggested that the amendment would result in
a $17 million reduction in tax revenue, driven by a 21
percent to 36 percent reduction in demand for legal
cannabis. He assumed that most of the reduced demand would
shift to the black market.
11:06:18 PM
Representative Stapp opposed the amendment. He believed
that the committee had thoroughly discussed the modeling.
He appreciated the data provided by Representative
Josephson regarding larger and smaller joints. He noted
that he had always wondered about the difference between a
joint and a blunt, and he asked Representative Josephson to
clarify the difference and whether the tax structure would
vary accordingly.
Representative Cronk opposed the amendment. He suggested
that the way to increase taxes on marijuana was to
encourage more people to buy it. The price needed to be
lowered because there was marijuana on the black market and
it was likely cheaper than what was sold in stores. If the
goal was to increase revenue, the price needed to be
reduced.
Representative Coulombe understood that the tax had been
proposed at 3 percent, 10 percent, and 6 percent. She asked
what was the "magic number" to keep it neutral.
Mr. Rice responded that after discussions with DOR, the tax
neutrality number that his model produced was 6.5 percent.
Representative Galvin noted that the committee had an
earlier discussion on pancaking taxes. She remarked that
the tax percentage in the bill had changed many times but
the number that was currently proposed was 6 percent. She
understood that Bethel had a 15 percent tax already. She
asked if the taxes were going to be compounded on top of
each other.
11:09:23 PM
Co-Chair Foster noted that the director of the Alcohol and
Marijuana Control Office (AMCO) was available online for
questions.
Mr. Rice did not recall off the top of his head what
Bethel's tax rate was, but he knew it was high. He
clarified that the 6 percent tax would be in addition to
existing taxes.
Representative Galvin highlighted that if the tax rate was
moved to 10 percent, Bethel's tax would change to 25
percent. She thought that it would change the modeling
considerably for the consumer who was spending, for
example, around $150 per week. She was trying to highlight
that some areas of the state had higher tax rates than
others. She appreciated that the amendment was trying to
recoup some revenue because the presentation of the fiscal
notes and lost revenue was frightening. She was trying to
evaluate the decisions because the programs that would be
cut were important to small communities throughout the
state that already had a sales tax higher than 10 percent.
JOAN WILSON, DIRECTOR, ALCOHOL AND MARIJUANA CONTROL
OFFICE, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT (via teleconference), responded that she talked
to cultivators every month who were trying to decide
whether to stay in business. While there may be concerns
about the reduction in the taxes, there was a high
likelihood that a number of cultivators would continue to
go out of business. She hoped that the committee could
balance the survivability of the industry until the state
could implement a retail tax that would tax not just the
plant, but products coming from the plant. There were 231
cultivators in Alaska and 178 stores. The cultivators had a
reason to be responsive to price and there had been a huge
impact in just the seven years that the industry had been
in place in the state. She explained that the governor's
task force had debated all of the issues and the bill
represented the consensus model of the 15 members.
11:13:37 PM
Representative Josephson asked Mr. Rice how he accounted
for the massive loss in revenue in the programs.
Mr. Rice replied that he was not certain what
Representative Josephson meant. Tax neutrality referred to
the status quo and there was no loss at the status quo tax
rate other than the short-term immediate loss from the
reduction that was quickly made up with larger revenues at
6.5 percent.
Representative Josephson did not think Mr. Rice's
explanation was supported by the fiscal notes or testimony
he had heard from Dan Stickel, the chief economist at DOR.
Representative Sumner clarified that DOR had presented a
number of different scenarios to the committee and what was
reflected in the fiscal notes was the absolute worst case
scenario. He understood that DOR projected that there was
not much certainty but the modeling he had done most
recently was more accurate.
Co-Chair Edgmon relayed that the initiative that created
the status quo 6 percent program passed in 2014 and it had
been 10 years. He thought the initiative was fairly generic
and broad. He remembered that 10 years ago, there were
comments warning against letting time pass without checking
in and making sure that there was a balance point between
supply and demand. The task force had spent a lot of time
discussing the bill and it was a "make or break" bill. The
6 percent rate attempted to achieve a balance point. He
thought that a 3 percent tax might be more akin to building
more businesses throughout the state. He thought marijuana
was unlike the alcohol industry and he did not think it was
a mature industry. He thought the legislature should follow
the task force's recommendations. He would be opposed to
any amendments.
Representative Hannan shared that her thoughts were similar
to those expressed by Co-Chair Edgmon. When she initially
heard about the bill, her concern was that a revenue stream
had been created from the designated revenue. The committee
had just discussed HB 223, which would eliminate higher
amounts of revenue to encourage keeping Alaskans warm in
their homes. However, lost revenue was not discussed
because there was no dedicated stream. The legislature had
tied marijuana taxation to specific programming to
illustrate its moral and ethical concerns about the
industry. For example, the concern about a potential uptick
in juvenile delinquency and addiction was addressed by
allocating money to drug prevention programs. However, if
the discussion was about the industry in Alaska, she
believed that maintaining its functionality was more
important than the lost revenue. She urged the committee to
recognize that it would need to address the funding of the
programs through other UGF over the next few years if the
committee wished to ensure the continuation of the
programs. She understood that the primary concern had been
the potential loss of those programs. She asserted that the
responsibility did not lie with the tax; it was, instead,
the broader responsibility of the legislature.
Representative Hannan opposed the amendment because, as
Representative Edgmon had stated, the marijuana businesses
were Alaskan businesses and the workers were Alaskans,
unlike the oil industry where 40 percent of the workforce
was non-Alaskan. Due to the unique banking challenges faced
by the businesses, it was not possible to purchase goods
from out of state and transport them to Alaska. The
businesses were instead procuring goods, services, and
support within Alaska. The ripple effect of the industry
had a greater impact in local communities.
11:21:01 PM
Representative Tomaszewski asked if Mr. Rice had been
referring to the old calculations of $50 an ounce, $25 an
ounce, and $15 an ounce for the good, medium, and poor
grades in relation to the new tax structure proposed in the
bill.
Mr. Rice responded that Representative Tomaszewski's
assumption was correct. He explained that the 6.5 percent
parity referred to his forecast for the status quo.
Representative Tomaszewski asked if Mr. Rice had taken into
account the steady decline in the amount of the $50-an-
ounce product, and whether the decline had been calculated
or projected in his analysis.
Mr. Rice reiterated that Representative Tomaszewski's
observation was completely correct. He added that the
steady and predictable decline in the highest-taxed
cannabis products was a key area of differentiation between
his assumptions and modeling, and the modeling from DOR.
Representative Tomaszewski argued that, given that
manufacturers applied their own tax to products sold to
retail stores, the new tax structure of 6.5 percent would
likely result in a significant increase in tax revenue. The
product being sold at retail locations would likely be of
higher quality, as he did not believe a large amount of
low-quality trim would be sold to retail stores. When he
considered the steady decline in high-grade products, he
assumed that some products, although not the highest
quality, were likely still of a higher grade. He argued
that with the new tax structure, 6.5 percent would generate
higher tax revenue than before, based on the fact that the
grading system would differ under the new structure
compared to how it had been previously done. He concluded
that he would oppose the amendment.
11:24:05 PM
Representative Josephson remarked that it was interesting
that Mr. Rice had taken issue with DOR's modeling. He
explained that Mr. Stickel was the person the legislature
relied upon for modeling. He explained that Mr. Stickel had
provided a generous and favorable modeling line for the
bill, including a 20 percent increase in sales after the
tax change and a 5 percent growth rate. He noted that Mr.
Stickel was one of the most talented people in DOR and when
the department needed precision, it turned to Mr. Stickel,
particularly when establishing tax rates and modeling for
oil and gas.
Representative Cronk MAINTAINED the OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Josephson, Ortiz
OPPOSED: Tomaszewski, Cronk, Galvin, Hannan, Coulombe,
Stapp, Foster, Edgmon
Co-Chair Johnson was absent from the vote.
The MOTION to adopt Amendment 2 FAILED (2/8).
11:25:52 PM
Representative Josephson MOVED to ADOPT Amendment 3, 33-
LS0636\U.3 (C.Radford, 4/30/24) (copy on file):
Page 5, line 11:
Delete "a six"
Insert "an eight"
Representative Cronk OBJECTED.
Representative Josephson MOVED to ADOPT conceptual
Amendment 1 to Amendment 3. He explained that the
conceptual amendment would insert "seven percent" on line
3.
There being NO OBJECTION, it was so ordered. Conceptual
Amendment 1 to Amendment 3 was ADOPTED.
11:26:24 PM
Representative Josephson explained Amendment 3 as amended.
He understood that Representative Stapp had a fiscally
conservative stance and pointed out that there was a $20
million revenue deficit from the bill, which would shrink
slightly over time but remain into the 2030s. He added that
a 7 percent excise tax would be the lowest in the country.
Representative Stapp understood that Representative
Josephson had been describing the different tax structures
for various marijuana products. He inquired if there were
additional variations to consider. He explained that while
he did not oppose having the lowest excise tax in the
country, he felt the underlying bill would generate less
tax revenue than the amendment would. As a fiscal
conservative, he was uncomfortable with raising taxes.
Representative Cronk thought that to increase tax revenue,
more customers would need to be brought into the stores.
Keeping prices high would not achieve that goal. As an
analogy, if a hotel charged $300 per night, the hotel might
only get a few customers, but at $150, the hotel could
attract many more, ultimately making more money. He
concluded by stating that he opposed the amendment.
Representative Ortiz asked if there was data to show that
the market share of the black market had been steadily
increasing since the legalization of marijuana in 2014, and
whether the legal retail market was continuing to lose
ground to illegal sales. He asked if there was any data on
the trend.
Mr. Rice responded that he had attempted multiple methods
to quantify the black market and had come up with a variety
of numbers, all of which were quite large and consistent
with research from other states. He noted that the key
driver of the market shift, as he had previously described,
was the change in the product mix. He explained that the
highest-quality cannabis, defined as bud at $50 an ounce,
had steadily decreased in availability, while lower-quality
products had increased. The shift had led to a reduction in
the weighted average tax rate and would ultimately lead to
a decrease in the total tax revenue collected by the state.
He expected the trend to continue.
Representative Ortiz acknowledged Mr. Rice's response,
stating that it was sufficient for the time being.
Mr. Bickford suggested that the committee could benefit
from hearing additional input from either Ms. Wilson or Mr.
Emmett.
Ms. Wilson explained that while she had not been able to
quantify the black market, she could provide an example.
She recounted a case from the current year in which a
manufacturer unlawfully brought $3 million worth of THC oil
into Alaska from California, avoiding taxation. The product
was untested, and little was known about its source. She
stressed that there were many ways people tried to bypass
taxes, creating risks to the public's safety.
11:30:53 PM
Mr. Emmett replied that one could easily go online and find
marijuana that was about 50 percent of the price of
marijuana in stores in Alaska. He explained that anyone in
the marijuana industry, including himself as a licensee of
a vertically integrated marijuana business, would know that
marijuana could be found at bars around the city priced at
half the rate charged in stores. He maintained that the
black market in Alaska could make up as much as 40 percent
of the total market. He acknowledged that while he did not
have hard data to confirm this, he thought that anyone who
purchased marijuana would agree that the black market was
strong in Alaska. He added that anyone who owned a
marijuana business would attest that they were in direct
competition with it. He emphasized that it was well-known
that prohibition had failed, despite enforcement efforts,
and the black market remained entrenched. Both he and the
task force agreed that the only way to eliminate the black
market was through economic principles. He stated that a
three percent sales tax would ultimately generate more
revenue by encouraging more legal, tax-regulated marijuana
sales than the status quo or an increase in the tax rate
would.
Co-Chair Foster asked for confirmation that Mr. Emmett was
the chairman of the governor's task force.
Mr. Emmet responded in the affirmative.
Representative Ortiz explained that his original question
was not about the presence of a strong black market but
about whether it was gaining a larger share of the market.
He acknowledged that it would be difficult to quantify. He
also noted that the bill was brought forward with the
intention of making the legal marijuana industry more
competitive, but he wanted to ensure that the focus
remained on making the industry competitive with the black
market. He recalled the promises made by entities that
advocated for the legalization of marijuana, including the
expectation that revenue would support programs such as
rehabilitation, re-entry services, and after-school
programs. However, based on the fiscal notes, it seemed
that the promises were no longer part of the equation. He
was concerned about the cost of competing with the black
market and questioned the broader societal impact and the
potential effects on the community.
Co-Chair Edgmon acknowledged that DOR had provided
estimates, but he pointed out that the marijuana industry
had raised concerns that cultivators were paying taxes on
an honor system. The situation led to an unclear
distinction between the legal and black markets because
industry members not paying taxes could be considered part
of the black market. He mentioned that DOR had a few people
who could canvass the state, but the department was not
able to closely monitor who was paying taxes and who was
not. He emphasized that the marijuana industry was still in
its early stages, and he believed it was crucial to give it
a chance to develop. For that reason, he stated that he
would oppose the amendment.
Representative Cronk expressed concerns about businesses
going out of business due to excessive taxation. He argued
that taxing a business out of existence was
counterproductive, as it would result in no revenue being
generated. He suggested that it was better to help
businesses stay afloat and close the gap than to let the
businesses fail, noting that if a business failed, there
would be no tax revenue to collect. He concluded by saying,
you cannot tax zero."
11:35:39 PM
Representative Josephson relayed that, according to the
International Cannabis Policy Study Group, higher prices
were responsible for 27 percent of consumers turning to the
black market. He pointed out that there was evidence
suggesting that in Anchorage, an increase in alcohol taxes
led to a surprising outcome: the tax on hard liquor was
doubled, but sales grew by 41 percent, and the tax on wine
tripled, resulting in a 56 percent increase in sales. He
acknowledged that his staff had reminded him that if the
goal was to compete with the black market, which accounted
for 50 percent of sales, the bill would not be successful
at achieving its goal. He also did not think the anecdotal
scenarios would be solved by the bill. He highlighted the
fiscal impacts mentioned in the fiscal notes, including
effects on programs like CDVSA, other domestic violence
programs, vocational education programs, and recidivism
reduction efforts. He emphasized that the state budget was
interconnected with the issues. While he wanted to support
the lowest possible tax, which would be 7 percent, he still
requested the committee's support for the bill.
Representative Cronk MAINTAINED the OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Ortiz, Josephson
OPPOSED: Cronk, Galvin, Tomaszewski, Stapp, Foster, Edgmon,
Hannan, Coulombe
Co-Chair Johnson was absent from the vote.
The MOTION to adopt Amendment 3 as amended FAILED (2/8).
11:38:06 PM
Representative Josephson WITHDREW Amendment 4 (copy on
file).
11:38:35 PM
AT EASE
11:41:31 PM
RECONVENED
Representative Hannan thought that it was too late to
discuss her concerns fully but explained that she was
considering offering a similar amendment as Amendment 4.
She recalled that since her election six years ago, there
had been several issues with the marijuana industry, with
one issue standing out clearly: the challenge of cash
management. She noted that DOR had been claiming for six
years that it had workarounds in place and would
accommodate the industry by creating secure depositories;
however, despite being allocated funds last year to do so,
the department had not completed a second depository. She
explained that currently, everyone paying the tax had to
fly to Anchorage with cash in order to pay it in person.
There was only one secure depository for cash tax payments,
which she deemed an unreasonable and risky practice that
likely led to inaccurate tax collection.
Representative Hannan continued, expressing that it had
never occurred to her to put a requirement in statute for
the department to establish a secure depository in each
judicial district. She mentioned that the department might
argue that such a measure would have a huge fiscal note,
but despite receiving funds last year for the project, the
department had still not opened a second depository in
Juneau. She would consider presenting the issue as an
amendment on the floor. She acknowledged that one common
complaint on the floor was the practice of doing committee
work during floor sessions, and she was uncertain about
proceeding. She turned to Representative Josephson for his
thoughts.
Representative Josephson responded that his staff had
indicated that there were alternative ways to transfer
funds from marijuana revenue locations to a single source
without the need for flying or violating the law. He
explained that he had been instructed that no further
action was needed on the issue, and he saw no value in
offering the amendment, especially considering the fiscal
note and the fact that the state was moving in the wrong
financial direction. He added that an amendment should not
be discussed before it was officially introduced.
Co-Chair Foster asked if Representative Josephson wanted to
offer the amendment.
Representative Josephson responded in the negative.
Representative Stapp asked if the committee was finished
with amendments. He suggested that it could move forward
with the business of the committee since it was now
approaching midnight.
Co-Chair Foster agreed with Representative Stapp.
Representative Josephson stated that he was happy to offer
Amendment 4 if committee members wanted him to. [There was
not interest in hearing the amendment at the time.]
11:45:25 PM
Co-Chair Foster noted the amendment had been withdrawn and
no amendments had been adopted, which meant that there was
no need for a clean CS.
Representative Stapp MOVED to REPORT CSHB 119(L&C) out of
committee with individual recommendations and the
accompanying fiscal notes.
There being NO OBJECTION, it was so ordered.
CSHB 119(L&C) was REPORTED out of committee with seven "do
pass" recommendations, two "amend" recommendations, and one
"no recommendation" recommendation and with seven new
fiscal impact notes from the Department of Corrections,
three new fiscal impact notes from the Department of
Health, one new fiscal impact note from the Department of
Public Safety, one new fiscal impact note from the
Department of Revenue, and one previously published zero
note: FN1 (ADM).
Co-Chair Foster expected to take remaining bills up from
the schedule the following day.
11:47:24 PM
AT EASE
11:48:09 PM
RECONVENED
Co-Chair Foster noted HB 149 would be heard at the 9:00
a.m. meeting.