Legislature(2025 - 2026)BELTZ 105 (TSBldg)
02/10/2025 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB73 | |
| SB11 | |
| SB17 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 73 | TELECONFERENCED | |
| *+ | SB 11 | TELECONFERENCED | |
| *+ | SB 17 | TELECONFERENCED | |
SB 73-MARIJUANA: TAX/REGISTRATION; INCOME TAX
1:33:26 PM
CHAIR BJORKMAN announced the consideration of SENATE BILL NO. 73
"An Act relating to the registration of marijuana
establishments; relating to a tax exemption for qualified small
businesses; relating to marijuana taxes; and providing for an
effective date."
1:33:53 PM
SENATOR MATT CLAMAN, District H, Alaska State Legislature,
Juneau, Alaska, as sponsor, he explained SB 73 proposes a single
wholesale tax on the marijuana industry to address concerns that
the current tax structure is driving business towards the black
market. He stated that the goal is to keep Alaska's legal
marijuana industry strong and healthy.
1:35:31 PM
CHAIR BJORKMAN opened public testimony on SB 73.
1:35:47 PM
PAUL DSISDIER, Owner, The Fireweed Factory LLC, Juneau, Alaska,
testified in support of SB 73 and shared concerns about the
sustainability of the marijuana industry. He stated that at a
recent Marijuana Control Board meeting, cultivators expressed
difficulty operating under current conditions. Although his
company is doing well, he feared that if smaller growers go out
of business, those remaining will only produce enough to supply
local stores. He emphasized this could lead to a collapse of the
legal marijuana market and a shift back to the black market. He
urged immediate support to prevent industry failure.
1:39:19 PM
SAM HACHEY, Co-Owner, Tanana Herb Company, Fairbanks, Alaska,
testified in support of SB 73. He stated as the industry has
matured and as more people have come online there was originally
400 licensed cultivations and now there are about 200-210 active
cultivations. He highlighted a 50 percent failure rate among
cultivators due to high costs, including energy, labor, and
transportation. He advocated for adjusting the cannabis tax to
reflect market conditions, the other industries like oil, gas,
and fishing have seen adjustments. He emphasized that reforming
the tax would help the industry remain sustainable, support
employment, and generate more revenue for Alaska.
1:42:01 PM
LACY WILCOX, Owner, Top Hat Cannabis, Juneau, Alaska, gave the
following testimony in support of SB 73:
[Original punctuation provided.]
At our healthiest, our company employed 12 Alaskans at
a fair wage, offering retirement and health benefits.
These were good jobs, jobs that meant something in our
small city.
But today, in part because of the oppressive $50-per-
ounce excise tax, we've been forced to cut our
workforce down to just five employees. Two of those
are owners who hardly take a paycheck, and the
benefits and perks we once offered are gone. In a
community like ours, losing seven good-paying jobs is
devastating. These jobs are like gold, and they're
disappearing because of a tax structure that is simply
unsustainable and an industry that is being squeezed
from all sides.
The challenges we face go far beyond taxes. The cost
of growing indoors is incredibly high, and unlike
other industries, we are denied access to traditional
banking and financing due to cannabis being federally
illegal. The 280E tax code prevents us from deducting
standard business expenses, creating a double tax
burden. On top of that, the extreme regulatory hurdles
we navigate are exhausting and expensive. Costs have
not gone down, but the price customers are willing to
pay sure has.
To make matters worse, we are competing with two
unregulated markets that undermine everything we do.
First, the fully illicit market, which I believe makes
up around 60 percent of cannabis sales in Alaska.
Second, the 2018 Farm Bill accidentally authorized the
sale of intoxicating hemp products, creating a gray
market that directly competes with my business. These
products are sold online, delivered to your door, and
available to anyoneregardless of age. They are cheap,
potent, and often packaged in ways that appeal to
children. Even if we could create competing products
within our business model, our rules and regulations
prevent us from matching their potency, price, or
packaging appeal. And both of these competing markets
operate with little to no oversight or regard for
public safety, and certainly without any taxation.
Tariffs on supplies already hurt us, and they're
likely to increase. All of these factors work against
us, and without immediate relief, businesses like mine
will not survive. Next year will be too latewe will
shut down.
1:44:24 PM
MS. WILCOX continued with her testimony.
I also serve as the Vice President of the Southeast
Alaska Food Bank, and I am deeply aware of Alaska's
fragile food network. In the case of a food security
crisislike a barge not coming incannabis farms like
ours have the ability to pivot to food production.
This makes us a valuable community resource in times
of need. But to fulfill that potential, we must first
survive.
Senate Bill 73 is a lifeline. Reducing the excise tax
to $12 dollars per ounce will provide immediate
relief, allowing us to reinvest in our operations,
rehire employees, and hopefully restore the benefits
that once made us a proud employer in this community.
I also strongly support the language in SB 73 that
reinstates the C-Corp tax exemption for qualified
small businesses. This provision recognizes the unique
challenges all small Alaskan businesses face and helps
level the playing field.
The cannabis industry has generated significant
revenue for Alaska, growing from $1.7 million in 2017
to over $28 million in 2023. But the industry's growth
has plateaued, and without meaningful tax reform, we
risk losing these contributions entirely. SB 73 is a
crucial first step toward creating a sustainable and
competitive market.
I urge you to pass this bill without delay. It's not
just about supporting businesses like mineit's about
protecting jobs, strengthening our economy, and
ensuring the long-term viability of an industry that
has already provided immense value to our state.
1:45:44 PM
GARY EVANS, representing self, Fairbanks, Alaska, testified in
support of SB 73 and echoed previous testimonies. He emphasized
the struggles of the cannabis industry, particularly due to
competition from the growing black and gray markets. He stated
that marijuana is now widely available in the black market at
low prices, and this is hurting legal businesses. He warned that
if the state doesn't act, the industry could collapse, which
would have significant consequences for the economy.
1:47:45 PM
LLOYD STIASSNY, Owner, Egan Management Group, Anchorage, Alaska,
testified in support of SB 73 and highlighted the marijuana
industry's current struggles and its importance for local
employment and economic diversification. He stated that the
cannabis sector is described as a valuable industry for the
state, with potential for growth and employment. He stressed the
need for the small business exemption to be extended. He stated
that the exemption is crucial for the survival of small
businesses across Alaska. He urged for action to help these
businesses thrive in a challenging economic environment.
1:50:48 PM
CHAIR BJORKMAN closed public testimony for SB 73.
1:51:22 PM
DAN STICKEL, Chief Economist, Tax Division, Department of
Revenue, Juneau, Alaska, Discussed and answered questions on the
fiscal note for SB 73. He stated that the fiscal note outlines
two main revenue impacts: the reintroduction of a small business
exemption under the corporate income tax and changes to the
marijuana excise tax. He stated that the marijuana tax change is
estimated to have a net impact of over $11 million annually,
while the small business exemption is expected to impact revenue
by about $2.5 million per year. These two factors combined
represent the total revenue impacted.
1:53:07 PM
SENATOR DUNBAR discussed two parts of the bill; the cannabis
part, where many cultivators are struggling due to policy and a
broader corporate tax exemption part, that expired two years
ago. He stated that reinstating this exemption is expected to
cost around $2.65 million. He stated that the sponsor defined
small businesses as those with up to $50 million gross asset. He
asked where the $50 million amount comes from and what business
growth is expected if the exemption returns.
1:54:45 PM
BRANDON SPANOS, Deputy Director, Tax Division, Department of
Revenue, Anchorage, Alaska, Answered questions regarding the
fiscal note for SB 73. He stated that the small corporate
exemption in SB 73 resurrects language from the Internal Revenue
Code (IRC) code 1202(e) that expired in 2023. This code defines
a small corporation, with a $50 million gross income threshold,
as a qualifying entity for Alaska's small business exemption.
The impact of the exemption was based on past revenue reductions
observed in prior years. He said there hasn't been a detailed
analysis conducted on the economic impact of the exemption. The
original intent of the exemption was to bring new business
growth, but instead, the exemption primarily benefited existing
businesses, with no clear increase in new revenue for the state.
1:56:34 PM
SENATOR DUNBAR said the tax policy should drive economic
benefits, not just reduce revenue. He questioned if the $50
million threshold required by federal law fits Alaska's needs
and suggested $2025 million might better stimulate business. He
asked whether the $50 million figure is required or just
convenient and if the tax division would consider a lower
threshold to balance growth with budget impact.
1:58:06 PM
MR. SPANOS clarified his role is a tax administrator not a
policy maker. He corrected his earlier testimony stating over a
five year period the marijuana industry constituted about 75
percent of credit claims, which was all new business. He
explained that with the IRC 1202(e) excluding farming,
cultivators may not qualify for the exemption, but the language
can be changed. He stated that the $50 million threshold isn't
required by federal law; the threshold was simply a convenient
reference and can be adjusted.
SENATOR DUNBAR asked for clarification on the comment that 75
percent of the tax exemption claims taken are by cannabis
businesses. He asked if the exemption applied to all C-Corps,
whether the organizational structure of some businesses makes
them ineligible for the exemption, and why the cannabis industry
receives such a large portion of the tax break.
MR. SPANOS answered that the tax credit applies only to C-Corp
entities, as these are the only businesses that pay corporate
income tax in Alaska. Other business types, such as S Corps,
partnerships, and LLCs, are not eligible unless they
specifically choose to be taxed as a C-Corp. He stated that
certain industries, like farming and healthcare, are excluded
from this credit under federal definition, although businesses
with a small portion of healthcare operations might still
qualify. The marijuana industry makes up most of the claims for
this credit because, as a new industry, many cannabis businesses
are structured as C-Corps and meet the qualifications.
2:02:06 PM
CHAIR BJORKMAN asked to what extent the division considered the
impact on tax revenue if marijuana cultivators go out of
business due to lack of changes to the current tax structure.
2:03:04 PM
MR. STICKEL answered that the revenue impact is based on the
analysis of the Fall 2024 revenue forecast, assuming steady
consumption with population growth and possible cannabis
industry consolidation. He said a 1 percent drop in retail price
would lead to a demand increase of 1 percent. While elasticity
varies, lowering taxes would likely boost legal market activity.
2:04:59 PM
CHAIR BJORKMAN asked whether the fiscal note assumptions account
for cultivators going out of business if no action is taken and
assumed reducing the wholesale tax would increase activity.
2:05:38 PM
MR. STICKEL answered that the analysis does not explicitly
forecast the closure of any specific businesses. The baseline
assumption is that the marijuana industry will maintain a stable
level of activity.
CHAIR BJORKMAN asked if out-of-state growers and producers who
sell hemp products in Alaska and compete with our local market
pay a tax if they come into Alaska from out of state.
2:06:31 PM
MR. SPANOS answered that there are 25 tax types, so the out of
state businesses might be subject to other taxes but they
wouldn't pay the marijuana tax.
CHAIR BJORKMAN said the State of Alaska is adding high taxes on
those businesses complying with state law but the state isn't
collecting taxes from the people importing legal or non-legal
products. He asked if Alaska is missing revenue from the
imported products.
2:07:13 PM
MR. SPANOS responded that is correct. He said black market
marijuana sales aren't taxed along with legal hemp sales. He
stated that he isn't fully familiar with all hemp regulations
and uses the word legal loosely.
2:07:33 PM
SENATOR DUNBAR stated that last year's bill included a retail
sales tax to offset the tax cut. He asked whether the state
could tax toxic hemp products at gas stations like cigarettes
and does the state know how much toxic hemp is on the market.
2:08:16 PM
MR. SPANOS answered that almost any product that is sold at
retail can be taxed either excise tax or sales tax. He stated
that with imported products, a retail tax would be easier to
track and administer. The Department of Revenue would need more
data to come up with an estimated potential revenue.
2:09:27 PM
CHAIR BJORKMAN solicited the will of the committee.
2:09:30 PM
SENATOR MERRICK moved to report SB 73, work order 34-LS0324\G,
from committee with individual recommendations and attached
fiscal note(s).
2:09:48 PM
CHAIR BJORKMAN found no objection and SB 73 was reported from
the Senate Labor and Commerce Standing Committee.