HOUSE BILL NO. 91 "An Act relating to the lawful operation of retail marijuana stores; relating to marijuana cultivation; relating to the registration of marijuana establishments; relating to marijuana taxes; relating to the duties of the Department of Revenue; and providing for an effective date." 4:52:40 PM Co-Chair Foster asked members to hold questions until after the presentation. REPRESENTATIVE ASHLEY CARRICK, SPONSOR, introduced the bill. 4:53:55 PM AT EASE 4:54:16 PM RECONVENED Representative Carrick introduced the bill. She remarked that the bill may look familiar to some committee members. The legislation was a reiteration of similar legislation passed in the House by a 36 to 3 margin in the prior year. She stated that 10 members of the House Finance Committee had previously voted in favor of the bill. She explained that HB 91 stemmed from challenges in the budding marijuana industry. In 2014, Alaska Voters legalized recreational marijuana. After initial growth, the industry has seen stagnation, which had once again opened the door to black and gray market activity. In 2022, Governor Dunleavy convened the Advisory Taskforce on Recreational Marijuana, and its number one recommendation was tax reform in addition to various policy reforms. The legislation included both tax reform and policy changes that will support the industry, making it more sustainable and allowed it to flourish for years to come and close the door on the black market. She shared the following facts about the marijuana industry: In FY 24 the Marijuana industry brought in $27.2 Million in revenue. It was the sole source of revenue for the following funds: o $13.5 million to the Recidivism Reduction Fund o $6.7 million to the Marijuana Education and Treatment Fund • Nearly $48.3 million in wages (2022) 475 Active Licenses (Feb 2025) • 5828 Marijuana Handler Permits (Feb 2025) • Required for anyone involved in marijuana commerce. Representative Carrick believed that action must be taken to stabilize and grow the industry. She added that in the prior committee, The House State Affairs Committee changed the designation of 25 percent of the funds for revenue to be designated to the Public Education Fund versus the prior designation to UGF. 4:57:23 PM AT EASE 5:09:43 PM RECONVENED Co-Chair Foster noted that the committee was currently receiving a presentation on HB 91. Representative Carrick wrapped up her opening and prepared remarks. She emphasized that the state must act "expeditiously to stabilize the marijuana industry" and the state revenue from the industry. She asked her staff to provide a brief presentation. STUART RELAY, STAFF, REPRESENTATIVE ASHLEY CARRICK, provided a PowerPoint presentation titled "HB 91 Marijuana Tax Reform" (copy on file). He began on slide 2 titled Recent History of Marijuana Policy in Alaska • In 2014 Alaska voters legalized recreational marijuana. • In 2022 Governor Mike Dunleavy established the Advisory Taskforce on Recreational Marijuana and its final report was published in January 2023. • In 2024 the House passed HB 119 which included many of the taskforce's recommendations, but that bill did not pass the Senate before the end of the 33rd Legislature. • HB 91 has a nearly identical tax structure to HB 119 and picks up the conversation about marijuana tax reform where it left off last year. Mr. Relay elaborated that the prior bill had a 7 percent sales tax amended from 6 percent on the House floor and HB 91 had a 6 percent sales tax. He moved to taskforce recommendations on slide 3 titled Taskforce Recommendations included in HB 91 Recommendation 1 Reduce excise tax to 25% of current rate. Repeal the excise tax after a transition period and implement a sales tax. Recommendation 10 Allow for product transfers between all license types. Recommendation 11 Biannual licenses. Mr. Relay delineated that Sections 1 and 10 of the bill reflected recommendation 10 that allowed "upstream sales" selling unsold or unused product back to producers to be disposed of safely and reused in other products. He added that Sections 3 through 9 related to recommendation 11 regarding biannual licensing. He explained that it allowed marijuana retail facilities to obtain two-year licenses. He turned to slide 4 titled "Marijuana Revenue in Alaska, FY 24 $27.2 million total $13.5 million DGF (50 percent) Recidivism Reduction Fund $6.7 million DGF (25 percent) Marijuana Education and Treatment Fund $6.9 million UGF (25 percent) Public Education Fund 5:13:46 PM Mr. Relay advanced to slide 5 titled "Marijuana Tax Reform in HB 91 • Provides immediate tax relief by reducing the excise tax from $50 per ounce, to $12.50 per ounce on marijuana (Sec 11, effective Jul 1, 2025) • Repeals the excise tax (Sec 18, effective Jan 1, 2026) • Establishes a 6% Sales Tax on all Marijuana Sales (Sec 13, effective Jan 1, 2026) Mr. Relay pointed out that the bill aligned with the first recommendation on the task force of providing immediate tax relief. 5:14:28 PM Mr. Relay discussed slide 6 Marijuana Policy Changes in HB 91 • Allow "upstream sales" so that marijuana stores can sell products back to producers (Sec 1,10). Taskforce recommendation 10. • Require a tracking number for each crop of marijuana rather than each individual plant (Sec 2). All other agricultural products are tracked per crop. • Biannual licenses for marijuana establishments (Sec 3-9). Taskforce recommendation 11. • Quarterly statements, tax payments (Sec 14). • Requires DOR to establish at least one tax collection facility in each of the four judicial districts (Fairbanks, Juneau, Nome, and Anchorage) (Sec 16). Mr. Relay explained that the change from monthly to quarterly tax payments eased the burden on producers who had to physically deliver their payments in cash. He noted that a collection box already existed in Anchorage. 5:15:52 PM Mr. Relay advanced to slide 7 titled "Differences between HB 91 (Ver. A) and SB 73 (Ver. G): • SB 73 by Senator Claman is another marijuana tax reform bill. • Only includes biannual licenses, does not include the other policy reforms to support the industry outlined in HB 91. • SB 73 lowers the excise tax to $12 per ounce. • SB 73 does not recoup lost revenue from excise tax cut, leading to approximately $14 million in lost revenue. Co-Chair Foster held questions and OPENED invited testimony. BAILEY STUART, CHAIR, MARIJUANA CONTROL BOARD (via teleconference), relayed that the board reviewed the bill and appreciated the sponsor's efforts to address the issues and understood the need for thoughtful consideration of taxation for the industry. However, due to concerns over implementing a statewide sales tax at 6 percent and the broader implications that may arise, the board did not fully support the bill. She expressed concern over the issue of "double taxation." She indicated that the products on the market were already subject to an excise tax and would also be taxed under the proposed statewide sales tax. She felt that it could result in an unintended financial burden. She furthered that the board recognized the need for a value based tax structure especially to prepare for interstate commerce. However, the board wanted to see further safeguards and attention to a thoughtful approach. The board was committed to continuing the conversation once the industry had relief, lessening immediate pressure of implementing a statewide sales tax and allowing for a "more thorough and considered discussion." She emphasized that the board was in strong support of immediate tax relief and a long-term solution. She commented that marijuana legalization sparked economic growth in the agriculture sector and would continue if the market instability was addressed. The current excise tax model posed a challenge with the future possibility of interstate commerce. She noted that products from out-of-state may entirely avoid taxation. Currently, the marijuana industry was fighting three fronts with the most urgent issue being the "punitive" flat tax structure of $50 per pound totaling $800 per pound, resulting in an effective tax rate approaching 50 percent. She delineated that the legal market was forced to compete with two illicit markets: one operated illegally, and the other existed in a "gray area" involving hemp products. The issue made it difficult for the legal market to remain viable when held to strict regulations and high taxation while unregulated operators continued without oversight or prosecution. 5:20:25 PM Ms. Stuart continued providing remarks. She spoke to a concern that was discussed in a prior hearing regarding how the legal market could compete with the illicit market. She declared that currently, legal market prices were unable to match the illicit market prices. She delineated that the illegal market stayed stagnant for decades with 3.5 grams costing $40.00 until the legal industry entered the market inducing competition. The board's top priority was to make the legal market the preferred choice through ensured safety, transparency, and compliance. She described the cost of the legal market, which she considered investments in public health, safety, and trust. She felt these value factors should be considered in the legal market besides the price. She related that while the legal market businesses were closing the illegal market was thriving. In 2024, the Department of Public Safety (DPS) seized 360 pounds of illegal marijuana which increased significantly from 2023, underscoring the importance of tax reforms to support the legal industry. The seizures occurred incidentally and not through targeted enforcement. She acknowledged the state's deficit and the effect of lowering the excise tax and acknowledged the reduction in state revenue was approximately $9.6 million. The board shared the concern but believed the tax designations could be revisited. 5:22:59 PM Ms. Stuart continued providing prepared remarks. She informed the committee that Ballot Measure 2 did not require 50 percent of the excise tax be designated to the Recidivism Reduction Fund. The provision was included in SB 91 [Omnibus Crim Law & Procedure; Corrections, Chapter 36 SLA 16, 07/11/2016] which was subsequently repealed. She relayed that the 2024 Alaska Criminal Justice Data Analyst Commission report, showed that recidivism had continued to rise since the implantation of the excise tax. She added that in the prior year, the industry overpaid the renewal fee to fund the AMCO office by $1.8 million. The excess funding was returned to UGF. She suggested that the excess could provide an opportunity to adjust current designated funding to offset the impact of a tax reduction while still supporting critical state functions. She felt that the issue extended beyond personal beliefs over marijuana use. She stressed that the issue was "fundamentally about public health and safety and ensuring tax revenue was collected and reinvested in the economy from the "only homegrown" state industry. She reiterated a few differences between the illicit and legal marijuana industry. She addressed Section 2 of the bill that proposed placing batch tagging requirements in statute. She noted that over the prior year the board had carefully revised plant tagging regulations to balance public health, safety, and enforcement needs. The board already had statutory authority to implement batch tagging regulations. She shared that in the prior year the board transitioned from clone tagging to batch tagging and raised the tagging threshold from 8 inches to 18 inches. However, the board learned that moving to full batch tagging would significantly increase costs; charging cultivators per plant versus per tag, more than doubling the state's annual subscription hosting fees. She understood that a revised fiscal note showed the increased fees incorporated into the bill. She concluded that the board was motivated to return year after year to address excise tax reform for the reason that if interstate commerce was allowed, the excise tax would only apply to Alaska businesses causing a significant disadvantage. She urged the committee to address the excise tax and eliminate batch tagging from the bill and leave it to the regulatory process. 5:26:29 PM Co-Chair Foster moved to review the fiscal notes. He asked if Ms. Stuart could submit her written comments. Ms. Stuart replied affirmatively. She would provide them to the committee. KEVIN RICHARD, DIRECTOR, ALCOHOL AND MARIJUANA CONTROL OFFICE, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT (via teleconference), reviewed the new fiscal impact note for the Department of Commerce, Community and Economic Development (DCCED) allocated to AMCO, dated April 29, 2025. He explained that the fiscal note reflected the marijuana licensing registration fees shift from annually to biennially and also included $10 thousand for regulatory changes. In addition, the legislation changed from single plant tagging to batch plant tagging at a cost of $250 thousand. 5:29:15 PM KEVIN WORLEY, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT OF CORRECTIONS (via teleconference), discussed the new fiscal impact note (change in revenues) for the Department of Corrections (DOC) allocated to Community Residential Centers (CRC). He indicated that the bill impacted community residential centers and halfway houses due to reduced revenues resulting in lower dollar amounts appropriated to DOC from the Recidivism Fund. Without replacement funding, these efforts would be severely impacted, if not eliminated. He pointed out that Undesignated General Funds (UGF) replacement funding would be necessary to offset a $2,573 million loss of recidivism reduction funds in FY 2026. The same amount was necessary as backfill in FY 2027 and lost revenue ranged from $2.222 million in FY 2028 to $1.758 million in 2013. 5:33:03 PM TRACY DOMPELING, DIRECTOR, DIVISION OF BEHAVIORAL HEALTH, DEPARTMENT OF HEALTH (via teleconference), reviewed the new fiscal impact note for the Department of Health (DOH) allocated to the Behavioral Health Administration dated April 7, 2025. She delineated that the reductions from lost marijuana tax revenue went to support several grants within DOH from the Recidivism Fund and the Marijuana Education Tax Fund grants. She listed the specific grants that would be impacted. Additional general fund appropriations would be necessary to maintain the grants. The second new fiscal impact note allocated to Behavioral Health Treatment and Recovery Grants identified the reductions of Designated General Funds (DGF) from the Recidivism Fund and the Marijuana Education Tax Fund and the accompanying general fund dollars needed to replace the lost funds for grant programs. 5:35:01 PM HEATHER ROGERS, ADMINISTRATIVE SERVICES DIRECTOR, DIVISION OF PUBLIC HEALTH, DEPARTMENT OF HEALTH (via teleconference), highlighted the new fiscal impact note dated April 7, 2025, for the Division of Public Health, DOH allocated to Chronic Disease Prevention and Health Promotion. She indicated that the Marijuana Education Fund that supported the Youth Services Grant Program would be reduced, and the department was requesting replacement of the revenue loss with general funds. 5:36:11 PM DIANNA THORNTON, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT OF PUBLIC SAFETY (via teleconference), addressed the new fiscal impact note for the Department of Public Safety (DPS) allocated to the Council on Domestic Violence and Sexual Assault (CDVSA) dated April 7, 2025. She related that the department received the spring forecast showing the reduction in the Recidivism Reduction Fund which supported programs within the CDVSA. In FY 26, the lost revenue amounted to $597,200 thousand and showed reductions in the outyears until 2031, with a loss of $408 thousand. The fiscal note requested the funds be replaced with general funds. 5:37:36 PM BRANDON SPANOS, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE (via teleconference), reviewed the new fiscal impact note for the Department of Revenue (DOR) allocated to the Tax Division dated March 4, 2025. He began by describing the revenue impact from the bill. The change in FY 26 had a $9.7 million reduction in revenue due to the change to the tax rate from $50 per ounce to $12.50 per ounce. The projected revenue reductions were allocated between three funds, per the current statute, at the following percentages: Recidivism Fund 50 percent; Marijuana Education and Treatment Fund 25 percent; and Unrestricted General Fund 25 percent. He pointed to page 3 of the fiscal note that contained a chart listing the change in revenues for each fund. He noted that the implementation costs were primarily due to the change to a retail sales tax and would require significant changes to the Tax Revenue Management System (TRMS) that included identifying the taxpayers and building a sales tax module. The department estimated a cost to expedite the rollout of the module so it would be ready in time at $2 million. The bill required the department to establish "at least one facility in each judicial district" or cash depository for cash tax collection. He briefly described the way the department would implement the provision and pointed to further details contained in the fiscal note analysis on page 3. 5:41:53 PM Co-Chair Foster moved to committee members' questions. Co-Chair Foster asked if there was a total amount required to backfill all the lost UGF. Representative Carrick replied that she did not know but would follow up. Representative Tomaszewski referred to [batch tagging discussion] the per crop amount taxed versus the prior individual tax per plant. He wondered how many plants were in a crop and what the tax rate currently was and the proposed rate per crop. Mr. Relay replied that he did not have the number on hand, but he would follow up. Representative Carrick interjected that the issue had been substantively addressed through regulation. She strongly encouraged the committee to amend the bill by eliminating Section 2 that was no longer relevant. 5:44:16 PM Co-Chair Josephson looked forward to receiving Ms. Stuart's written testimony. He asked about the number of dispensaries in Anchorage. Ms. Stuart did not have the information on hand. She directed the question to the department. Co-Chair Josephson recalled that the number was around 75. He asked if the board had considered through regulation or legislation an equivalent to a DBL licensure. He wondered why it was important to protect 75 different licenses in Anchorage. Ms. Stuart answered that the more retail stores available would help the legal market compete with the illicit market. There was controversy within the industry about the number of licenses that there were and whether the number was sustainable for the state. She pointed out that the goal was to incentivize the public health and safety aspect of consuming marijuana. Therefore, there were no limitations on the number of licenses. 5:46:41 PM Co-Chair Josephson deduced that if there were half as many dispensaries they would begin to thrive. He asked for comment. Ms. Stuart believed a reduction in licenses could improve the economic situation in the industry. 5:47:22 PM Representative Hannan asked Ms. Stuart what timeframe was necessary to avoid a duplicative tax. She thought that currently it was six months, which was before the excise tax was lowered and the sales tax was implemented. Ms. Stuart answered that the sales tax would be implemented on January 1, 2026, and the excise tax would end simultaneously. She believed there was data in the state's tracking system that would narrow what the timeline would look like. She was unsure of the proper timeline and suggested researching the data was necessary. A duplicative tax would impact the products on the market and public health and safety. Representative Hannan asked if Ms. Stuart's concern was with the sales tax and excise tax overlapping. She questioned whether 6 months would be an adequate time period. Ms. Stuart replied that would be a good timeline and that Representative Hannan was on the right path" regarding the timeline. Representative Hannan directed a question to Mr. Spanos. She cited the DOR fiscal note and reported that she did not see the generation of revenue from a sales tax. She asked where it was accounted for on the fiscal note. Mr. Spanos replied that the fiscal note was based off DOR's spring revenue forecast , which included revenue under the current tax structure at $50 per ounce. The fiscal note anticipated a decrease due to the sales tax. In FY 2031, the tax would amount to $6.6 million less than under the current structure. 5:50:57 PM Representative Hannan understood the note was based on the revenue forecast, but it did not reflect what the bill would do. She asked if DOR could produce a fiscal note that predicted the amount of sale tax revenue. She understood there would be loss under the excise tax, but there should be a gain on sales tax. Mr. Spanos responded that the department would provide the details. The current fiscal note showed the net effect of the two taxes. Representative Hannan understood it was a net effect. She appreciated the ability to learn the details to make informed decisions. Representative Carrick interjected that a previous iteration of the legislation had an implementation date delayed for 18 months. She informed the committee that she would be supportive of pushing out the implementation date to offer more time. Co-Chair Foster discussed the agenda of future meetings. HB 91 was HEARD and HELD in committee for further consideration. Co-Chair Foster reviewed the schedule for the following day.