Legislature(2023 - 2024)BARNES 124
01/19/2024 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB119 | |
| HB186 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 119 | TELECONFERENCED | |
| += | HB 186 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 119-MARIJUANA TAX
3:17:20 PM
CHAIR SUMNER announced that the first order of business would be
HOUSE BILL NO. 119, "An Act relating to marijuana taxes; and
providing for an effective date."
[Due to technical difficulties the above section was not on the
recording but was reconstructed from the committee secretary's
log notes.]
3:17:33 PM
REPRESENTATIVE RUFFRIDGE moved to adopt the proposed committee
substitute (CS) to HB 119, Version 33-LS0636\U, Radford,
12/7/23, as a working document. There being no objection,
Version U is before the committee.
3:18:05 PM
CODY RICE, Staff, House Majority, Alaska State Legislature,
addressed prices and how much demand can change based on price.
He described how a reduction in taxes could result in a
reduction in price and would likely drive a change in demand.
In addition, he said he spoke to industry to ascertain what
would be passed on to the consumer if industry taxes are
changed. He explained that a 10 percent reduction in retail
price is a conservative estimate, and that the estimated change
in demand would be a 17 percent increase; an increase in demand
due to a lower price. He pointed to the right side of the
"Cover" tab in the the Marijuana Tax Change Analysis document
[included in committee packet] and said three of the different
tax change scenarios would generate more revenue than the status
quo tax program.
3:20:59 PM
REPRESENTATIVE SADDLER requested clarification on the estimated
tax revenue chart and what the sales growth is from.
MR. RICE explained that the graph shows estimated tax revenue
and that the gray line denotes the new tax forecast, and the
blue line is the forecast under the proposed tax system.
3:22:01 PM
REPRESENTATIVE PRAX commented that his concern is reducing the
illicit marijuana market, and he asked whether the illicit
market was factored in the estimations.
MR. RICE replied that it is not; if the price of legal cannabis
goes down, theory suggests that it would take market share from
the black market as it is seen as a premium product. He said if
it were cheaper, it would be more competitive and buyers would
more often choose to purchase legal cannabis.
REPRESENTATIVE PRAX inquired as to whether there is data that
quantifies the illicit market.
MR. RICE responded that it is difficult to get good quantitative
black-market data; the model shown is somewhat conservative.
3:24:07 PM
REPRESENTATIVE SADDLER requested clarification regarding the
status quo growth figure of $1.4 million dollars that is shown
on the top right of the cover tab.
MR. RICE explained that the $1.4 million figure was the net
difference from status quo tax over the period of fiscal year
2023 (FY 23) to FY 30. He said it would be reasonable to expect
that the number would grow over time. In response to a follow-
up question, he explained that the figure represents a
cumulative total over the years.
REPRESENTATIVE SADDLER questioned whether the change in retail
price was within the purview of the legislature.
MR. RICE answered no, and that the retail price is set by the
free market. He explained that there are elements that
contribute to the subjectivity of the analysis, but the numbers
are a conservative estimate in a free and robust market.
REPRESENTATIVE SADDLER asked whether the change in retail price
is in output, whereas the new sales tax is an input in the
model.
MR. RICE responded that the change in retail price as an input,
as it is a driver for the model and can change depending on the
scenario.
3:27:24 PM
JOAN WILSON, Director, Alcohol and Marijuana Control Office
(AMCO), shared that she met and spoke with licensed marijuana
cultivators and limited growers. Many of the conversations
occurred during the process of issuing tax violations, which is
when the license holders explained how onerous the tax burden
was; it was to the point that the only sound economic choice was
to surrender their license. She noted that there are 478
licensed businesses in Alaska, of which 248 are held by standard
and limited cultivators. As of December 8, 2023, 12 current
licensees are delinquent on taxes in ranges from $750 to
$110,000, coming to a total of $332,549 in delinquent taxes.
She detailed that, since 2020, 29 cultivators have gone out of
business, and whose cumulative taxes owed were $3 million; 8 of
the licenses expired in 2023, 11 in 2022, and 10 in 2020. She
relayed that 61 percent of the surrendered licenses were from
standard cultivators. She highlighted that the businesses that
have stayed open have contributed to the economy, with over
6,000 Alaskans having marijuana handlers permits, providing the
state with $29.5 million in excise taxes in 2023. She said the
marijuana control board will take action against licensees who
are delinquent on taxes, and that of the 12 licenses on the
December report, AMCO will file 11 accusations to revoke the
licenses. She said that HB 119 provides the legislature the
ability to adjust tax rates, and advised that a lower tax burden
would help many of the licensees continue to operate.
3:32:40 PM
REPRESENTATIVE RUFFRIDGE questioned why the adjustment from
cultivation tax alone to retail tax might help the tax payment
be on time and not delinquent.
MS. WILSON responded that, when taxing at the cultivator level,
that is the first transaction. She explained that cultivators
typically choose whether to pay their taxes, pay their
electricity, or pay their employees; eventually, they make the
choice to not pay their taxes. She said that retail shops are
not borrowing against their tax liability to the level
cultivators are.
3:34:17 PM
CHAIR SUMNER opened public testimony on HB 119.
3:34:48 PM
LACY WILCOX, Owner/Operator, Top Hat Cannabis, explained that
she employs 10 Alaskans at a competitive wage with retirement
and health benefits; however, after seven years her cultivation
is still operating at a loss due to an unsustainable tax
structure. She spoke of the need for reform so that the
cannabis industry can continue to exist in Alaska and urged
support of HB 119.
3:36:39 PM
RYAN TUNSETH, President, Alaska Marijuana Industry Association,
expressed support of HB 119, explaining that it's about
protecting Alaska's nascent cannabis industry and the revenue
generated, thus protecting Alaska jobs and reducing or
eliminating black market sales. He said there is some concern
that 6 percent is too high, with 3 percent being the suggested
amount, but he still supports HB 119, as well as the policy
changes made on the bill.
3:38:55 PM
BAILEY STUART, Chief Operations Officer, Green Jar Cannabis
Retailers and Stuart Consulting, said she has seen firsthand the
burden the current tax structure has placed on the cannabis
industry, and how it has affected consumers, jobs, and the state
of Alaska. She stated that, as excise taxes stand, and with the
possibility of the federalization of marijuana, most cannabis
will be imported, and the taxes will not go to the state. She
pointed out that many cultivators are operating at a loss due to
the tax burden. As a retailer, she feels taxes should be on the
product's value. She stated support for HB 119.
3:40:39 PM
TRAVOR HAYNES, Owner, Good Cannabis, testified in support of HB
119. He and his wife own Good Cannabis in Fairbanks where they
employ 30 people. He explained that the cannabis tax structure
is one of the highest tax rates of any state, which creates an
artificial price floor; keeps the consumer costs high; puts
undue burden on cultivators; and ensures a thriving black
market. He pointed out that, in Oregon, flower marijuana is
being sold wholesale at $50 an ounce, whereas in Alaska, the
cultivator is paying $50 in taxes per ounce of flower. He
stressed that marijuana accounts for over 70 percent of all
value created by Alaska's agriculture industry and reiterated
that the tax regime is causing cultivators to go out of
business. He urged members to approve HB 119.
3:42:43 PM
THOMAS AZZARELLA, Director, Alaska Children's Trust, Alaska
After School Network, relayed the trust's concern about HB 119.
He asked the committee to look at how taxes are structured and
the amount of money that goes toward addiction prevention. He
explained what percentage of the cannabis taxes go to programs
that include marijuana education, addiction treatment, after
school programs, suicide prevention, and recidivism. The
marijuana education treatment fund supports 39 Alaska
communities. Changes in the cannabis tax structure would affect
the programs.
3:45:31 PM
GEORGE PIERCE, representing self, spoke in favor of HB 119. He
explained that a person can go to the black market and buy
marijuana for less than half what it costs at a store. He
pointed out that the state gets no tax dollars from black market
marijuana sales. He suggested that raising the taxes on mining
and on the oil and gas companies is a better source of revenue
than mom and pop cannabis businesses. He urged members to
approve HB 119.
3:47:45 PM
BRANDON EMMETT, Co-Chair, Governor's Advisory Task Force on
Recreational Marijuana, stated the task force supports HB 119.
3:48:19 PM
CHAIR SUMNER, after ascertaining there was no one further
wishing to testify, closed public testimony on HB 119.
3:48:29 PM
REPRESENTATIVE RUFFRIDGE moved to report HB 119, Version 33-
LS0636\U, Radford, 12/7/23, out of committee with individual
recommendations and the accompanying fiscal notes.
3:48:48 PM
REPRESENTATIVE CARRICK objected for the purpose of discussion.
She thanked the task force and the folks in this industry who
spoke in favor of this tax restructure. She pointed out the
importance of supporting Alaska's industries and small
businesses and how restructuring the tax will help fight black
market cannabis. She removed her objection.
3:50:23 PM
CHAIR SUMNER announced there being no further objection, CSHB
119(L&C) was reported out of the House Labor and Commerce
Standing Committee.