HB 119-MARIJUANA TAX  3:45:26 PM CHAIR SUMNER announced that the next order of business would be HB 119, "An Act relating to marijuana taxes; and providing for an effective date." 3:45:57 PM JESSE LOGAN, Staff, Representative Jesse Sumner, introduced HB 119, on behalf of the sponsor, the House Rules Standing Committee by Request. He stated that Governor Mike Dunleavy created a marijuana task force the previous year to review the industry. He explained that Alaska has the highest marijuana tax rate in the U.S., resulting in industry stagnation and lost revenue. He expressed the opinion that reducing the current tax rate would allow the industry to grow. He pointed out that the proposed committee substitute (CS) would change some of the sections by deleting them or moving them to other sections. 3:49:58 PM REPRESENTATIVE RUFFRIDGE moved to adopt the proposed committee substitute (CS) for HB 119, Version, 33-LS0636\B, Radford, 4/18/23, as a working document. There being no objection, Version B was before the committee. 3:50:26 PM CODY RICE, Staff, Representative Cathy Tilton, on behalf of the sponsor, the House Rules Standing Committee by Request, presented a PowerPoint, titled "HB 119 Marijuana Tax" [hard copy included in the committee packet]. He began on slide 2 through slide 4 and stated that 19 states have some form of marijuana tax, the majority of which are based on price. He stated that HB 119 would create a 10 percent sales tax, with a tax ceiling of $12.50 per ounce. He displayed two graphs comparing the types of marijuana taxes by state and the total taxation amount. 3:52:14 PM REPRESENTATIVE FIELDS asked for the median tax rate. MR. RICE answered that it is difficult to make a direct comparison and said that he does not have the exact number now. 3:52:56 PM REPRESENTATIVE SADDLER asked what the net change in taxation would be. MR. RICE answered that the nominal rate is 50 percent at the highest, while the realized rate has decreased every year. MR. LOGAN added that it would be a 75 percent reduction. In response to a follow-up question, he said that the excise tax would be eliminated. 3:55:01 PM REPRESENTATIVE FIELDS asked whether 10 percent or $12.50 per ounce is a higher tax rate. MR. RICE answered that it depends on the product mix. 3:55:32 PM MR. RICE moved to slide 5 through slide 9 and displayed several graphs pertaining to the forecast for marijuana tax revenue. He stated that in many jurisdictions the price for marijuana has decreased over time. He said that as the product mix changes, the expected and realized tax rate has decreased. He noted that the Department of Administration has a slightly different forecast, and the proposed legislation would result in overall higher tax revenue. 3:58:22 PM REPRESENTATIVE SADDLER asked how many "servings" of marijuana are being sold. MR. RICE answered that it depends on the specific blend. 3:59:30 PM REPRESENTATIVE CARRICK asked whether the amount of marijuana consumed is expected to change. MR. RICE answered that his model does not assume that price changes will change consumption. He explained that marijuana does not have unitary elasticity. 4:00:18 PM REPRESENTATIVE WRIGHT asked whether lowering the price will result in more consumption. MR. RICE answered yes, although it is not confirmed whether that increase will occur primarily because of the black-market share being reduced, or whether people are consuming more marijuana. 4:00:59 PM REPRESENTATIVE SADDLER asked how the $50 per ounce price was established. MR. LOGAN answered that it was part of the initial legalization of marijuana. 4:01:33 PM REPRESENTATIVE PRAX asked whether the model uses a tax rate that strikes a balance between maximizing revenue and reducing the black-market share. MR. RICE answered that the model does not account for dynamic price changes. He said that the models show the same level of basic economic responses occurring with other products. In response to a follow-up question, he stated that other models which account for these factors would be addressed later in the presentation. 4:05:11 PM REPRESENTATIVE SADDLER asked for the current legal price per ounce. MR. RICE answered that based on tax data, it is approximately $260 per ounce. In response to a follow-up question, he said that this price is an average of all marijuana mixes. 4:06:35 PM RYAN TUNSETH, President, Alaska Marijuana Industry Association, shared that he is the owner of a marijuana business, and he supports marijuana tax reform. He said that the industry is not on stable ground because of the current tax structure and improving it will lead to a reduction in the illicit market for marijuana. He noted that tax relief is needed in the state because Alaska has the highest price point for legal marijuana in the U.S. Currently, banks are not supportive of the industry because of its federal status as a controlled substance, meaning that owners have to pay taxes in person with cash; therefore, the industry strongly supports moving to a quarterly tax payment system. He said that there is also support for a tax cap to keep prices from becoming too high in certain areas and support for changing licensing to biannual renewal. 4:12:34 PM JANA WELTZIN, Co-Chair, Governor's Advisory Task Force on Marijuana, stated that the Governor's Advisory Task Force was formed in September 2022 and was asked to look at the current tax structure, the recreational marijuana program, and opportunities for collaboration between local government and state governments. She stated that the task force created a 13- page list of recommendations, which mainly focuses on the current tax structure for marijuana. She said that currently it is possible to buy illicit marijuana for the same price as legal marijuana in taxes alone, and the result is that several marijuana cultivators have had to close. She noted that the base product is all that is being taxed, and not the parts of the plant which have the most value. She advised that the legalization of marijuana has created many jobs both directly and indirectly; therefore, it is in the interest of the state to create a favorable tax structure. 4:18:55 PM REPRESENTATIVE CARRICK asked what impact changing the tax rate would have on consumer behavior. MS. WELTZIN responded that if the tax is lower, and prices become competitive, less people will go to the unregulated illicit market. In response to a follow-up question, she expressed the opinion that a 10 percent tax is still too high. 4:22:46 PM MS. WELTZIN, in response to a question from Representative Prax, expressed the opinion that the legislature does need to address this before the end of session. She continued that federal policies make a difficult situation worse, and the industry is struggling with the current tax rate. 4:24:26 PM CHAIR SUMNER asked whether federal legalization of marijuana would be harmful to the industry in the state. MS. WELTZIN expressed the opinion that it could potentially destroy the production aspect of the industry, but the retail market would be fine or potentially grow. 4:26:30 PM CHAIR SUMNER announced that HB 119 was held over.