04/26/2023 03:15 PM House LABOR & COMMERCE

                      HB 119-MARIJUANA TAX                                                                                  
                                                                                                                                
3:45:26 PM                                                                                                                    
                                                                                                                                
CHAIR SUMNER announced  that the next order of  business would be                                                               
HB 119,  "An Act relating  to marijuana taxes; and  providing for                                                               
an effective date."                                                                                                             
                                                                                                                                
3:45:57 PM                                                                                                                    
                                                                                                                                
JESSE LOGAN,  Staff, Representative  Jesse Sumner,  introduced HB
,  on behalf  of  the sponsor,  House Rules  by  Request.   He                                                               
stated  that  Governor Mike  Dunleavy  created  a marijuana  task                                                               
force the  previous year  to review the  industry.   He explained                                                               
that  Alaska has  the highest  marijuana  tax rate  in the  U.S.,                                                               
resulting in industry stagnation and  lost revenue.  He expressed                                                               
the opinion  that reducing the  current tax rate would  allow the                                                               
industry to  grow.   He pointed out  that the  proposed committee                                                               
substitute (CS)  would change  some of  the sections  by deleting                                                               
them or moving them to other sections.                                                                                          
                                                                                                                                
3:49:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RUFFRIDGE  moved to  adopt the  proposed committee                                                               
substitute  (CS)  for  HB  119,  Version,  33-LS0636\B,  Radford,                                                               
4/18/23,  as  a working  document.    There being  no  objection,                                                               
Version B was before the committee.                                                                                             
                                                                                                                                
3:50:26 PM                                                                                                                    
                                                                                                                                
CODY RICE, Staff,  Representative Cathy Tilton, on  behalf of the                                                               
sponsor,  the   House  Rules   Standing  Committee   by  Request,                                                               
presented a PowerPoint, titled "HB  119 Marijuana Tax" [hard copy                                                               
included in the  committee packet].  He began on  slide 2 through                                                               
slide 4  and stated that  19 states  have some form  of marijuana                                                               
tax, the  majority of which are  based on price.   He stated that                                                               
HB 119  would create a 10  percent sales tax, with  a tax ceiling                                                               
of  $12.50 per  ounce.   He  displayed two  graphs comparing  the                                                               
types of marijuana taxes by state and the total taxation amount.                                                                
                                                                                                                                
3:52:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FIELDS asked for the median tax rate.                                                                            
                                                                                                                                
MR.  RICE  answered  that  it  is  difficult  to  make  a  direct                                                               
comparison and said that he does not have the exact number now.                                                                 
                                                                                                                                
3:52:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER asked  what  the net  change in  taxation                                                               
would be.                                                                                                                       
                                                                                                                                
MR. RICE  answered that  the nominal  rate is  50 percent  at the                                                               
highest, while the realized rate has decreased every year.                                                                      
                                                                                                                                
MR. LOGAN  added that  it would  be a 75  percent reduction.   In                                                               
response to  a follow-up  question, he said  that the  excise tax                                                               
would be eliminated.                                                                                                            
                                                                                                                                
3:55:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FIELDS asked  whether  10 percent  or $12.50  per                                                               
ounce is a higher tax rate.                                                                                                     
                                                                                                                                
MR. RICE answered that it depends on the product mix.                                                                           
                                                                                                                                
3:55:32 PM                                                                                                                    
                                                                                                                                
MR. RICE moved  to slide 5 through slide 9  and displayed several                                                               
graphs pertaining to the forecast  for marijuana tax revenue.  He                                                               
stated that  in many  jurisdictions the  price for  marijuana has                                                               
decreased over  time.  He said  that as the product  mix changes,                                                               
the expected and realized tax rate  has decreased.  He noted that                                                               
the  Department  of  Administration   has  a  slightly  different                                                               
forecast, and  the proposed legislation  would result  in overall                                                               
higher tax revenue.                                                                                                             
                                                                                                                                
3:58:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER asked  how many  "servings" of  marijuana                                                               
are being sold.                                                                                                                 
                                                                                                                                
MR. RICE answered that it depends on the specific blend.                                                                        
                                                                                                                                
3:59:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CARRICK asked  whether  the  amount of  marijuana                                                               
consumed is expected to change.                                                                                                 
                                                                                                                                
MR.  RICE answered  that his  model  does not  assume that  price                                                               
changes  will change  consumption.   He explained  that marijuana                                                               
does not have unitary elasticity.                                                                                               
                                                                                                                                
4:00:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WRIGHT  asked  whether lowering  the  price  will                                                               
result in more consumption.                                                                                                     
                                                                                                                                
MR. RICE answered yes, although  it is not confirmed whether that                                                               
increase will  occur primarily because of  the black-market share                                                               
being reduced, or whether people are consuming more marijuana.                                                                  
                                                                                                                                
4:00:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER asked  how the  $50 per  ounce price  was                                                               
established.                                                                                                                    
                                                                                                                                
MR. LOGAN answered  that it was part of  the initial legalization                                                               
of marijuana.                                                                                                                   
                                                                                                                                
4:01:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PRAX asked whether the  model uses a tax rate that                                                               
strikes  a balance  between maximizing  revenue and  reducing the                                                               
black-market share.                                                                                                             
                                                                                                                                
MR. RICE  answered that  the model does  not account  for dynamic                                                               
price changes.   He said that  the models show the  same level of                                                               
basic  economic  responses occurring  with  other  products.   In                                                               
response to  a follow-up  question, he  stated that  other models                                                               
which account for  these factors would be addressed  later in the                                                               
presentation.                                                                                                                   
                                                                                                                                
4:05:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER asked  for  the current  legal price  per                                                               
ounce.                                                                                                                          
                                                                                                                                
MR. RICE  answered that  based on tax  data, it  is approximately                                                               
$260 per  ounce.  In  response to  a follow-up question,  he said                                                               
that this price is an average of all marijuana mixes.                                                                           
                                                                                                                                
4:06:35 PM                                                                                                                    
                                                                                                                                
RYAN TUNSETH,  President, Alaska Marijuana  Industry Association,                                                               
shared  that he  is the  owner of  a marijuana  business, and  he                                                               
supports marijuana tax reform.  He  said that the industry is not                                                               
on  stable  ground  because  of the  current  tax  structure  and                                                               
improving it will  lead to a reduction in the  illicit market for                                                               
marijuana.   He  noted that  tax relief  is needed  in the  state                                                               
because Alaska  has the highest  price point for  legal marijuana                                                               
in the U.S.  Currently, banks  are not supportive of the industry                                                               
because of its federal status  as a controlled substance, meaning                                                               
that owners  have to  pay taxes in  person with  cash; therefore,                                                               
the industry strongly supports moving  to a quarterly tax payment                                                               
system.   He said  that there is  also support for  a tax  cap to                                                               
keep prices from  becoming too high in certain  areas and support                                                               
for changing licensing to biannual renewal.                                                                                     
                                                                                                                                
4:12:34 PM                                                                                                                    
                                                                                                                                
JANA  WELTZIN,  Co-Chair,  Governor's   Advisory  Task  Force  on                                                               
Marijuana,  stated that  the Governor's  Advisory Task  Force was                                                               
formed in  September 2022 and  was asked  to look at  the current                                                               
tax   structure,   the   recreational  marijuana   program,   and                                                               
opportunities  for  collaboration  between local  government  and                                                               
state governments.  She stated that  the task force created a 13-                                                               
page  list  of  recommendations,  which  mainly  focuses  on  the                                                               
current tax structure for marijuana.   She said that currently it                                                               
is possible to buy illicit marijuana  for the same price as legal                                                               
marijuana  in  taxes  alone,  and  the  result  is  that  several                                                               
marijuana  cultivators have  had to  close.   She noted  that the                                                               
base product  is all that  is being taxed,  and not the  parts of                                                               
the  plant which  have  the most  value.   She  advised that  the                                                               
legalization  of marijuana  has created  many jobs  both directly                                                               
and indirectly; therefore, it is in  the interest of the state to                                                               
create a favorable tax structure.                                                                                               
                                                                                                                                
4:18:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE CARRICK  asked what  impact changing the  tax rate                                                               
would have on consumer behavior.                                                                                                
                                                                                                                                
MS.  WELTZIN responded  that  if  the tax  is  lower, and  prices                                                               
become  competitive,  less  people  will go  to  the  unregulated                                                               
illicit  market.    In  response to  a  follow-up  question,  she                                                               
expressed the opinion that a 10 percent tax is still too high.                                                                  
                                                                                                                                
4:22:46 PM                                                                                                                    
                                                                                                                                
MS. WELTZIN, in response to  a question from Representative Prax,                                                               
expressed the opinion  that the legislature does  need to address                                                               
this  before the  end of  session.   She  continued that  federal                                                               
policies make  a difficult situation  worse, and the  industry is                                                               
struggling with the current tax rate.                                                                                           
                                                                                                                                
4:24:26 PM                                                                                                                    
                                                                                                                                
CHAIR  SUMNER asked  whether  federal  legalization of  marijuana                                                               
would be harmful to the industry in the state.                                                                                  
                                                                                                                                
MS.  WELTZIN  expressed the  opinion  that  it could  potentially                                                               
destroy the  production aspect  of the  industry, but  the retail                                                               
market would be fine or potentially grow.                                                                                       
                                                                                                                                
4:26:30 PM                                                                                                                    
                                                                                                                                
CHAIR SUMNER announced that HB 119, Version B, was held over.