Legislature(2021 - 2022)SENATE FINANCE 532

05/10/2021 09:00 AM Senate FINANCE

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09:18:34 AM Start
09:19:01 AM SB27
09:39:01 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSSB 27(RES) Out of Committee
-- Invited & Public Testimony --
-- <Time Limit May Be Set> --
Scheduled but Not Heard
<Pending Referral>
Scheduled but Not Heard
<Pending Referral>
Scheduled but Not Heard
<Pending Referral>
Scheduled but Not Heard
<Pending Referral>
+ Bills Previously Heard/Scheduled TELECONFERENCED
SENATE BILL NO. 27                                                                                                            
"An Act  relating to industrial  hemp; and providing  for an                                                                    
effective date."                                                                                                                
9:19:01 AM                                                                                                                    
Co-Chair Bishop noted  that the committee would  hear SB 27,                                                                    
and  all other  bills  listed  on the  agenda  would not  be                                                                    
heard.  He  intended to  hear  the  bill introduction,  take                                                                    
public testimony,  review the fiscal  note, and look  to the                                                                    
will of the committee.                                                                                                          
9:19:49 AM                                                                                                                    
SENATOR SHELLEY  HUGHES, SPONSOR, thanked the  committee for                                                                    
hearing  the  bill.  She  relayed that  the  bill  was  time                                                                    
sensitive. She  referenced changing regulations at  the U.S.                                                                    
Food and  Drug Administration  and farm bills  being passed.                                                                    
She thought it was important for  the issue to be updated in                                                                    
Alaska. She thought it was good  news for the state that the                                                                    
bill proposed to change the  industrial hemp industry from a                                                                    
pilot  program  to  a  permanent  program,  which  would  be                                                                    
positive  for investment  opportunities.  She mentioned  the                                                                    
benefit of interstate commerce of hemp products.                                                                                
9:21:14 AM                                                                                                                    
BUDDY  WHITT, STAFF,  SENATOR  SHELLEY  HUGHES, discussed  a                                                                    
Sectional Analysis (copy on file):                                                                                              
     Section 1  AS 03.05.010(a)  Page 1, Line 3 through                                                                         
     Page 3, Line 8                                                                                                             
     Two subsections  added to this section  authorizing the                                                                    
     commissioner of the Department  of Natural Resources to                                                                    
     include the manufacturing and  retail sales of products                                                                    
     made from industrial hemp, as  well as registration and                                                                    
     renewal   procedures,  in   the  regulations   for  the                                                                    
     industrial hemp program.                                                                                                   
     Section 2    AS 03.05.010(c)   Page 3,  Lines 9 through                                                                    
     Amends AS  03.05.010(c) to allow that  the Commissioner                                                                    
     of  the Department  of Natural  Resources  may issue  a                                                                    
     stop  sale order  to  a person  found  to be  producing                                                                    
     industrial hemp  over 0.3 delta-9-testahydrocannibinol.                                                                    
     Precious language  was overly  restrictive and  did not                                                                    
     allow  the department  to  work with  a  good actor  to                                                                    
     recondition  their crop.  The new  language allows  the                                                                    
     department to  determine whether someone was  acting in                                                                    
    good faith or not prior to issuing the stop order.                                                                          
Mr.  Whitt explained  that the  previous  language had  been                                                                    
overly restrictive and did not  allow the department to work                                                                    
with  good actors  to recondition  crops.  The new  language                                                                    
allowed  the department  to  determine  whether someone  was                                                                    
acting in good faith prior to issuing a stop order.                                                                             
     Section 3  AS 03.05.076(a)                                                                                                 
     Page 3, Lines 16 through 31                                                                                                
     Adds  language that  a  registrant  for the  industrial                                                                    
     hemp  program   is  not  eligible  if   they  had  been                                                                    
     convicted of a felony  involving a controlled substance                                                                    
     within the  last ten  years. This  section is  added to                                                                    
     comply with provisions of the 2018 Farm Bill.                                                                              
     Section 4  AS 03.05.076(i)                                                                                                 
     Page 4, Lines 1 through 4                                                                                                  
     Adds  that the  department  may  develop an  industrial                                                                    
     hemp  program that  complies with  federal requirements                                                                    
     and  submit  a  plan  for   the  program  to  USDA  for                                                                    
     Section 5  AS 03.05.079  Page 4, Line 5 through 11                                                                         
     A grower  may retain and  recondition their crop  if it                                                                    
     tests above .3% but below 1.0% THC.                                                                                        
     Section 6   AS 03.05.079(b)    Page 4, Lines 12 through                                                                    
     A new  subsection adds  that a  person who  retains but                                                                    
     fails to recondition is guilty of a violation.                                                                             
Mr. Whitt  explained that Section  4 was new  language added                                                                    
to  conform to  language in  Section 2  regarding stop  sale                                                                    
orders.  Section  5  was  a new  section  that  allowed  the                                                                    
department  to  comply  with  United  States  Department  of                                                                    
Agriculture (USDA)  guidelines. He explained that  Section 6                                                                    
made a  small change that brought  sections into congruence.                                                                    
He continued to address the Sectional Analysis:                                                                                 
     Section 7   AS 03.05.100(5)    Page 4, Lines 15 through                                                                    
     Changes the statutory definition  of industrial hemp to                                                                    
     match the  federal definition which was  changed in the                                                                    
     2018 Farm Bill.                                                                                                            
     Section 8  Page 4, Line 22                                                                                                 
     Repeals AS 03.05.077 the Industrial Hemp Pilot Program                                                                     
     Section 9  Page 4, Lines 23 through 31                                                                                     
     Conditional effect for  Section 8 of the  bill, in that                                                                    
     the  Pilot   Program  statute  is  repealed   when  the                                                                    
     Industrial Hemp Program developed  by the department is                                                                    
     approved by the USDA.                                                                                                      
     Section 10  Page 5, Lines 1 through 3                                                                                      
     Effective date  language stating  that if section  8 is                                                                    
     repealed  under  the  conditions   of  section  9,  the                                                                    
     effective date of section 8  is the day after notice is                                                                    
     received   by   the   reviser  of   statutes   by   the                                                                    
     Commissioner of Natural Resources.                                                                                         
9:25:20 AM                                                                                                                    
Senator Hughes wanted to comment  on the time sensitivity of                                                                    
the  bill.  She  relayed  that the  switch  from  the  pilot                                                                    
program  to  the  permanent program  had  originally  had  a                                                                    
deadline of  October 2020, and  after the  COVID-10 pandemic                                                                    
the deadline was extended to October 2021.                                                                                      
Co-Chair Bishop  noted that Senator Hughes  had been working                                                                    
on the subject for quite some  time. He asked if she sponsor                                                                    
could provide  anecdotal evidence about how  the program had                                                                    
been received in the agricultural community.                                                                                    
Senator Hughes  head heard from the  Division of Agriculture                                                                    
that there  had never been  as many inquiries on  any single                                                                    
crop as  there had for  hemp. She  knew that when  a program                                                                    
went from  a pilot to  a permanent program, there  was often                                                                    
greater interest.                                                                                                               
Co-Chair Bishop asked how the  crop was reconditioned to get                                                                    
it into compliance.                                                                                                             
Mr.  Whitt thought  there was  invited testimony  that could                                                                    
speak to Co-Chair Bishop's question.                                                                                            
9:27:07 AM                                                                                                                    
DAVID  SCHADE,  DIRECTOR,  DIVISION  OF  AGRICULTURE,  EAGLE                                                                    
RIVER  (via teleconference),  explained that  reconditioning                                                                    
involved mixing  a product  that was  slightly over  the .03                                                                    
percent tetrahydrocannabinol  (THC) level with  product that                                                                    
was slightly  less than the  limit for a product  that would                                                                    
come under the legal limit.                                                                                                     
Co-Chair  Bishop asked  if the  process  "watered down"  the                                                                    
Mr.  Schade explained  that the  process  involved making  a                                                                    
bigger batch that was homogenized  so that the percentage of                                                                    
THC would be below the legal limit.                                                                                             
Senator Wielechowski asked how  many individuals were taking                                                                    
part in the current pilot program.                                                                                              
Mr. Schade noted that the  program was based on the calendar                                                                    
year. He  recalled that the  previous year there had  been 9                                                                    
growers with 70 acres and  9000 square feet of indoor space.                                                                    
There were two  processors, and he estimated  that there had                                                                    
been roughly  50 retail registrants. He  thought the numbers                                                                    
had  roughly doubled.  He thought  there  was a  forthcoming                                                                    
additional 20 producers, 2  manufacturers, and a significant                                                                    
increase in  registrants in the  retail side. He  noted that                                                                    
with  the  program  becoming permanent  there  could  be  an                                                                    
additional 2,000 to 2,500 retail  applicants. He thought the                                                                    
program  had created  a  lot of  excitement  because of  the                                                                    
COVID-19 pandemic.                                                                                                              
Senator Wielechowski  noted that  the fiscal  note projected                                                                    
2,000 to  3,000 applicants per  year. He thought  the amount                                                                    
seemed rather high.                                                                                                             
Mr.  Schade reminded  that  the  projection included  retail                                                                    
sales. He explained that  any product, including cannabidiol                                                                    
(CBD),  required  registration,  and there  were  CBD  sales                                                                    
through  almost every  town  and village  in  the state.  He                                                                    
relayed that  the division had  been handing  out literature                                                                    
around  the   state  and  encouraged  people   to  become  a                                                                    
permanent  part  of  the  program.   He  affirmed  that  the                                                                    
division would be ramping up  its enforcement. He cited that                                                                    
industrial hemp  was a multi-billion industry  in the United                                                                    
States, and even larger throughout the world.                                                                                   
9:30:11 AM                                                                                                                    
Senator  Wielechowski wondered  about the  funds to  run the                                                                    
program if the applicants only added up to 1,000 per year.                                                                      
Mr. Schade explained  that the division would  not be hiring                                                                    
people until  funds were available. He  believed there would                                                                    
be significant income coming in  and there was a good profit                                                                    
margin on the  product. He was aware of the  need for budget                                                                    
Co-Chair Bishop recalled that industrial  hemp could be used                                                                    
in concrete. He  asked if a concrete supplier  would need to                                                                    
register in order to use the material in its product.                                                                           
Mr.  Schade  explained that  if  the  concrete supplier  was                                                                    
buying  hemp   from  a   registered  retailer,   no  further                                                                    
registration would be needed.                                                                                                   
9:32:03 AM                                                                                                                    
Senator  Wielechowski   did  not  see  a   fiscal  note  for                                                                    
increased general  fund revenue  from taxes on  the product.                                                                    
He asked  if Mr.  Schade anticipated any  additional revenue                                                                    
from sales of industrial hemp.                                                                                                  
Mr. Schade  noted that  hemp was  an agricultural  crop that                                                                    
did not involve additional  taxes beyond the normal business                                                                    
license, taxes, and fees.                                                                                                       
Senator  Wielechowski referenced  the tax  on marijuana.  He                                                                    
asked if tax revenue generation was being contemplated.                                                                         
Mr. Schade deferred to the sponsor.                                                                                             
Senator  Hughes  stated  that   since  industrial  hemp  was                                                                    
separated  from marijuana,  an additional  tax had  not been                                                                    
Senator Wielechowski asked for  the department's thoughts on                                                                    
taxation  of  industrial  hemp  since  marijuana  was  taxed                                                                    
somewhat heavily.                                                                                                               
Mr. Schade  stated that  the department  did not  believe it                                                                    
would be appropriate to additionally  tax the product, which                                                                    
was an agricultural crop. He  thought the increased economic                                                                    
vitality of  the state was  driving the bill. He  noted that                                                                    
SB  6, the  original  bill, was  a self-sustaining  program,                                                                    
which the department thought was appropriate.                                                                                   
Senator  Wielechowski  was  curious   if  other  states  had                                                                    
received revenue from hemp production.                                                                                          
Mr.  Schade was  not  aware of  any state  that  had put  an                                                                    
additional excise  tax on marijuana  greater than  any other                                                                    
agricultural product.                                                                                                           
Co-Chair Bishop asked about the crop rotation with hemp.                                                                        
Mr.  Schade  believed that  hemp  would  be used  with  crop                                                                    
rotation. He  thought the division's state  agronomist could                                                                    
speak to specifics.                                                                                                             
Co-Chair Bishop stated  he would call and get  the answer at                                                                    
another time.                                                                                                                   
Mr.  Schade  thought industrial  hemp  needed  to have  crop                                                                    
rotation  and noted  that  the crop  drew  heavy metals  and                                                                    
other nutrients  from the soil.  He emphasized the  care was                                                                    
needed as with any other crop.                                                                                                  
9:36:09 AM                                                                                                                    
Co-Chair Bishop OPENED public testimony.                                                                                        
9:36:19 AM                                                                                                                    
Co-Chair Bishop CLOSED public testimony.                                                                                        
Co-Chair Bishop discussed a new  fiscal impact note from the                                                                    
Department of  Natural Resources,  OMB Component  455. There                                                                    
was  $736.4  thousand per  year  in  total yearly  operating                                                                    
costs. Additional  staff would  be brought  on as  needed as                                                                    
the project  grew. The department  projected 2,000  to 3,000                                                                    
applications  from  the  farmer to  the  retailer.  Personal                                                                    
services  costs included  a Natural  Resource  Manager I  at                                                                    
range  18, an  Agricultural Inspector  at range  16, and  an                                                                    
Administrative Assistant I at range 12.                                                                                         
Co-Chair  Stedman  MOVED  to  report  CSSB  27(RES)  out  of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal  note. There being NO  OBJECTION, it was                                                                    
so ordered.                                                                                                                     
CSSB  27(RES)  was REPORTED  out  of  committee with  a  "no                                                                    
recommendation"  recommendation  and  with  one  new  fiscal                                                                    
impact note from the Department of Natural Resources.                                                                           
9:38:10 AM                                                                                                                    
AT EASE                                                                                                                         
9:38:47 AM                                                                                                                    
Co-Chair Bishop  noted that there  was no  meeting scheduled                                                                    
for the afternoon. The following  days agenda included bills                                                                    
previously heard.                                                                                                               

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