HB 91-MARIJUANA: TAX/RETAIL STORES/REGISTRATION    [Includes discussion of HB 113] 3:26:09 PM CHAIR CARRICK announced that the next order of business would be 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." CHAIR CARRICK, as prime sponsor of HB 91, noted that her staff had uploaded various documents pertaining to the bill onto the legislature's Bill Action Status Inquiry System (BASIS) [copies in the committee file]. These include a list from the Department of Health (DOH) that includes the grant recipients that receive money from the recidivism reduction fund (RRF) and the marijuana education and treatment fund (METF). Additionally, fiscal modeling was provided to illustrate projected revenue from a 6 percent sales tax, and this was created by the House Majority counsel staff following bill concept discussions during the Thirty-Third Alaska State Legislature. 3:27:41 PM REPRESENTATIVE VANCE asked about the current number of growers and retailers and whether it was the right capacity to sustain a tax since they were carrying a heavy burden currently. She also asked how HB 91 came to be. STUART RELAY, Staff, Representative Ashley Carrick, on behalf of Representative Carrick, prime sponsor of HB 91, offered his understanding that the modeling was based off the industry and the number of members in the industry. It also details the amount of products sold when the industry was originally created which was around one year prior. He opined that the information was still good regarding current tax structure discussions. CHAIR CARRICK added the Brandon Spanos could speak to potential revenue from the tax, even if not related to the document. 3:30:30 PM BRANDON SPANOS, Deputy Director, Tax Division, Department of Revenue (DOR), to Representative Vance's previous question focusing on the proposed tax change and the state's capacity and potential capacity, spoke to the modeling completed by the Department of Revenue and the modeling provided to the committee from the last legislative session, from Cody Rice. He said he did not agree with the fiscal modeling and said there were differences. He said that DOR presented those differences to the House Finance Committee last year and would be happy to do so again. He suggested inviting Dan Stickell to explain those differences since he had done the department's modeling and had spoken in depth with Cody Rice to understand the other modeling. He recollected that there had been around 150 cultivators and there currently were approximately 130. He said while he couldn't perfectly recall the numbers, they are published on the Alcohol & Marijuana Control Office (AMCO) website for public viewing. REPRESENTATIVE VANCE said that any information Mr. Spanos could provide for the committee would be good. She said she was looking for some broad information regarding switching an excise tax type to a sales tax type. She remarked that the sales tax would "hit" the purchasers more. She asked Mr. Spanos whether he could foresee this type of change when looking at this modeling. MR. SPANOS replied that DOR's modeling is based off numbers that were received from AMCO as far as retail sales year after year and currently the modeling was being updated, and the spring forecast was going to come out soon, as well as the fiscal notes pertaining to marijuana, once released. He said that newer data from AMCO on the retail and cultivation side was available as well. He reiterated that information was in the process of being updated and the department's Economic Research Group (ERG) was currently occupied with other projects. He noted that the information comes from AMCO and there was no direct interaction with industry members. REPRESENTATIVE VANCE noted that she pulled up a fiscal note that estimates a reduction of $9.9 million for 2026. She asked what this number was based on and whether it was AMCO and whether it was consistent with what AMCO is seeing. MR. SPANOS responded that he did not believe AMCO had done any modeling regarding tax changes and DOR's ERG typically do these models. He said that AMCO provides retail sales data to allow ERG to complete economic modeling. He said the fiscal year 2026 (FY 26) impact is a combination of moving to the $12.50 an ounce excise tax and a later change to sales tax. He said 2027 would be the first year of just the retail sales impact for these changes. REPRESENTATIVE VANCE noted that based on the fiscal modeling, the revenue would continue to go down in later years. 3:36:19 PM REPRESENTATIVE HOLLAND asked what the speculated change may be for consumer pricing following the excise tax to sales tax change. He asked whether it would change and if any consumer- based data was available that suggests a return in demand. He said it seems as if the change was "who pays the tax when." He said that when the consumer gets the wallet out and the price doesn't change, it may not disincentivize black market purchases and still maintain a loss in state revenue. He asked who was testing the demand side of this fiscal modeling and studying consumer behavior to understand whether demand would change. CHAIR CARRICK responded that this question could potentially be for Bailey Stuart with AMCO. She noted that the marijuana industry has been divided regarding tax structures, even with bill discussions in the previous legislature. She said that she has heard similar concerns from industry members but opined that the excise tax is unequivocally burdensome to cultivators. 3:39:04 PM BAILEY STUART, Chair, Alcohol & Marijuana Control Office, responded to Representative Holland that there have not been any studies done specific to the consumer but there was some anecdotal evidence that can be determined from the Alaska State Troopers Annual Drug Report that shows black market growth and the increase in consumer demand. She said that in 2023 there were about 180 pounds of marijuana seized whereas last year in 2024 there were about 316 pounds seized. She noted that cannabis prices per ounce in legitimate businesses can range from $250 to $450 whereas black market prices are often $100 an ounce which renders the black market difficult to compete with. She said there needs to be a reduction in taxation to help the industry be sustainable. She said that there are very few unregulated industries in Alaska that pull consumers in the same fashion. She opined that these industry members want to be taxpayers, create jobs, and have sustainable businesses but the current tax structure is making it impossible. REPRESENTATIVE HOLLAND asked Ms. Stuart what she thought the price per ounce may be with the current tax structure and following tax changes. MS. STUART responded that the current average is about $300 per ounce in a retail setting and given the proposed tax changes the price could be reduced between $30 to $40 an ounce. She said despite this, unregulated and untaxed markets would still be in competition. CHAIR CARRICK added that HB 91 would not layer an excise tax and a sales tax on top of one another and the proposed bill would phase out current excise taxes to zero dollars per ounce with a later addition of a sales tax. REPRESENTATIVE HOLLAND noted that he may not have the most recent paperwork in front of him. He said what he is reading proposed that it moves an excise tax to $12.50 an ounce. MR. RELAY added that the proposed bill would move the excise tax down from $50 an ounce to $12.50 an ounce effective July 1, 2025. January 1, 2026, the excise tax would be repealed. He noted that after excise tax changes would be later repealed with the implementation of a sales tax. 3:44:00 PM REPRESENTATIVE MCCABE said that what he has heard from industry affiliates is that the necessary goal is to limit the amount of money that the black market will make to drive the industry back into the legal framework. He noted that Ms. Stuart said exactly what he had heard, which is that frustrated growers are having to shoulder the burden while the black market harms them. He said that it is one big pie and the black market has a large slice that needs to go back into retail. 3:45:18 PM REPRESENTATIVE HOLLAND said that he was looking for any data that would suggest that supply and demand would change given the tax adjustments. He said that it appears that the taxes would get moved from the producers to the consumers. He said that the consumer price probably would not change much, and this would suggest that the black market would still be strong. He raised concerns about the supply and demand curve. CHAIR CARRICK responded to Representative Holland that this sentiment echoes part of what Ms. Stuart was getting at, that the legislation is trying to address several issues happening in the marijuana industry. This includes black market demand and the current volatility of the industry given the current excise tax structure for cultivators. REPRESENTATIVE HOLLAND said that he has concerns about adding more sales taxes into retail markets that already have local sales taxes. He said that he has a bias for allowing local jurisdictions to have sales taxes managed to their own accord. CHAIR CARRICK said that she did not love sales taxes either but the proposed legislation was about attempting to stabilize the industry. 3:49:13 PM REPRESENTATIVE MCCABE said that it seems to him that every single department in the state has managed to generate a fiscal note for the bill and everyone was getting on board. He asked whether there was a better way to solve the payment issue rather than creating a new office in four districts. He said that at some point lots of people were flying with cash. He asked if there was a better way than four new offices priced at $1 million each. 3:50:04 PM The committee took a brief at-ease at 3:50 p.m. 3:50:54 PM MR. RELAY proffered that the initial start-up costs per fiscal note would be about $1 million, after which the cost would be about $500,000 "for operations." He noted that in Anchorage there would be no cost since collections already occur there. 3:51:28 PM REPRESENTATIVE VANCE said that it appears as if the legislation would create larger profit margins for growers and handing costs to the retailers. She asked whether AMCO has had a conversation regarding motivation for the growers to reduce their cost to the retailers so overall they can support one another. She said the growers are trying to maintain a profit margin. She said the needed result is the lower cost so people will choose the safer retail markets as opposed to the black market. She asked whether conversations had occurred regarding this; she said that it could be perceived as unfair. MR. RELAY responded that this kind of structure of the reduction of the excise tax and then the implementation of the sale tax was the recommendation of the Governor's Advisory Taskforce on Recreational Marijuana, and this is where the original version of the bill came from. The current bill builds off those conversations from the previous bill concept. CHAIR CARRICK added that the current excise tax structure creates a tight ceiling on how much manufacturers and retailers can purchase. She said that alleviating this challenge is significant for all parts of the industry. She said this may be the reason there was minimal pushback from the retail side of the industry during the previous legislature's hearing of the bill concept, during the Thirty-Third Alaska State Legislature. She stated that the ceiling on cultivated products is partially due to the excise tax structure and relief would have bigger downstream impacts. She noted that the recommendation from the aforementioned taskforce was 3 percent. 3:55:18 PM REPRESENTATIVE HIMSCHOOT commented that she reached out to a marijuana industry affiliate in Sitka who has worked at the statewide level. The affiliate was in strong support of the proposed bill's shift from an excise to a sales tax. Traveling to Juneau for deposits would be considerably easier than going all the way to Anchorage. She said that she supports HB 91. 3:56:26 PM REPRESENTATIVE HOLLAND noted that HB 113, which is not directly related to this proposed bill but the primary beneficiary of the tax reduction bill was marijuana businesses. He said that half of the qualified small business taxes were from marijuana retailers. He asked whether, in the analysis of this market segment, consideration of HB 113 had been given during discussions on HB 91. CHAIR CARRICK noted that the current legislation, HB 91, was modeled after legislation that passed through the committee in the Thirty-Third Alaska State Legislature, and it was the current starting point for bill discussions. She said that it is something that the industry has advocated for and what most members in the current body had previously supported. 3:58:28 PM CHAIR CARRICK set an amendment deadline for HB 91 and, after ascertaining that there were no additional questions, announced that HB 91 was held over.