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." 9:27:40 AM Co-Chair Stedman relayed that it was the first hearing on SB 73. 9:28:17 AM SENATOR MATT CLAMAN, SPONSOR, Senate Bill 73 will bring Alaska's marijuana taxes in line with the rest of the country and provide relief to a struggling industry. The current marijuana excise tax places an undue burden on an industry that is overwhelmingly comprised of small, Alaskan-owned businesses. Alaska's marijuana industry is currently taxed at $50 per ounce at the wholesale level. This represents the highest effective tax on marijuana in the country. In 2022, the Governor convened the Advisory Task Force on Recreational Marijuana. The first recommendation from the task force was an adjustment to the marijuana tax structure. Currently, the $50 tax rate applies only to the highest-grade product. The statute applies lower rates to lower grades of the plant: immature or abnormal bud is taxed at $25, and all other parts are taxed at $15. There is currently no enforcement mechanism to determine which tax rate applies to different parts of the plant. As a result, marijuana tax revenue peaked at nearly $30 million in 2022, but has declined since then. Senate Bill 73 eliminates the multiple tiers of taxation and establishes a single tax rate at $12 per ounce. This bill closes a loophole and ensures that all product is taxed equally and fairly. It also amends marijuana registration from annual to biennial, aligning the marijuana industry with the standard for other business. Finally, Senate Bill 73 re-establishes the Alaska Small Business C-Corporation Income Tax Exemption that expired in 2023. This tax exemption applies to all small businesses with less than $50 million in gross assets. 9:31:05 AM Senator Kaufman asked whether the proposed tax reduction would help to move some of the market from the black market into the legitimate market. Senator Claman answered affirmatively. He thought that the black market for marijuana was still strong. He did not think there was meaningful research on the actual size, but the statistics showed declining legitimate sales possibly due to the black market. 9:32:11 AM Senator Kaufman observed that illegal drugs were sometimes contaminated with fentanyl. He thought there was a side- benefit to legally sold marijuana would be that it is regulated for safety. Senator Claman largely agreed with Senator Kaufman's thoughts. 9:33:09 AM Senator Kiehl recalled that there was an industry task force that recommended to move away from the excise tax, which tended to distort markets. He asked whether there was a reason the task force recommendation was not in the bill. Senator Claman noted that during the previous session of the legislature there had been efforts to include the task force recommendations in the legislation. Part of what he had done was to incorporate the recommendations of industry. He said that the industry no longer supported the sales tax and thought that it hindered industry growth. Senator Kiehl recalled that the task force had contemplated that at some point interstate sales would become legal. He asked whether the state would collect excise tax on product brought into the state. Senator Claman did not believe so. He believed that the change would require federal legislation. He felt such a significant change in the landscape would warrant legislative action. Senator Kiehl suggested considering taxation in advance would be prudent. He pondered the risk of the tax remaining as an excise tax only, and as interstate sales became a reality, Alaskan businesses could be disenfranchised. 9:37:01 AM CARLY DENNIS, STAFF TO SENATOR CLAMAN, read from the Sectional Analysis (copy on file): Sections 1-6 AS 17.38.200(d), AS 17.38.210(e), AS 17.38.210(f), AS 17.38.210(h), AS 17.38.210(j), AS 17.38.320; Biennial licensing. Amends registration requirements from annual to biennial renewals. Section 7 AS 43.20.012(a); Alaska small business tax exemption. Exempts qualified small businesses who meet the requirements of 26 U.S.C 1202(e) from the Alaska Net Income Tax Act. Section 8 AS 43.20.012; Alaska small business tax exemption. Defines "Alaska corporation," "parent-subsidiary controlled group," "qualified small business," and establishes that a corporation shall be determined as a small business on the first day of the calendar year. Section 9 AS 43.61.010(a); Marijuana excise tax. Lowers the marijuana excise tax rate from $50 per ounce to $12 per ounce. Section 10 AS 43.61.010(b); Marijuana excise tax. Removes the ability of the department to establish a lower tax rate for certain parts of the marijuana plant. Section 11 AS 43.61.010; Marijuana excise tax. Clarifies that the tax is owed by all sales and transfers of marijuana, regardless of the status of their registration. Section 12 AS 43.61.020(b); Marijuana excise tax. Conforming change to reflect a single tax rate. Section 13 AS 43.61.030(a); Marijuana excise tax. Clarifies that a person who is delinquent in the payment of the tax is subject to civil penalties under AS 43.05.220 Section 14 Applicability. Clarifies that sections 7 and 8 apply to the tax year of a corporation beginning on or after the effective date of this act. Section 15 Effective Date This Act takes effect July 1, 2025. 9:39:00 AM Co-Chair Stedman referenced page 4, line 15, and asked why $12 had been chosen over another figure. Ms. Dennis noted that the initial recommendation from the task force advisory committee had been $12.50. 9:40:07 AM BRANDON SPANOS, ACTING TAX DIRECTOR, DEPARTMENT OF REVENUE (via teleconference), discussed the fiscal notes for the bill. He addressed FN6, Department of Revenue, OMB component 2476. Under current statutes, Alaska levies a tax on marijuana sold or transferred from a marijuana cultivation facility to a retail marijuana store or marijuana product manufacturing facility. The tax rate is $50 per ounce for bud/flower. The tax was created through voter initiative in 2014. The voter initiative granted the Department of Revenue (Department) authority to set a rate lower than $50 per ounce for "certain parts of the marijuana plant." The Department adopted a regulation that set the tax as $50 per ounce for bud/flower, $25 per ounce for immature, seedy, or failed bud/flower, $15 per ounce for trim, and $1 per plant for clones. As mentioned in (3) above, this bill would tax all parts of the plant at the new rate of $12 per ounce. Mr. Spanos explained that the tax division was looking at ways to crack down on tax evasion in the industry. Mr. Spanos reference page 3 of the bill, which broke down the three funds that the taxes were applied to: Recidivism Fund (50 percent), Marijuana Education and Treatment Fund(25 percent), and the Unrestricted General Fund(25 percent). The table on page 3 of the note offered a breakdown of changes in revenue for each fund. 9:44:06 AM Mr. Spanos noted that after the spring forecast, the department would be updating all the fiscal noted connected to the legislation. 9:44:39 AM Co-Chair Stedman asked whether the department had a position on the decrease in the tax. Mr. Spanos relayed that the tax division rarely had an opinion on what a tax should be and would administer whatever the legislature deemed appropriate. He relayed that from a tax administration perspective, it was simpler to have one tax rate on all parts of the plant, rather than individual parts. 9:45:24 AM Senator Kiehl was note familiar with the C-corporation provision. He asked about an expired provision. Mr. Spanos said that the small corporation exemption was created in 2012 as an endeavor to incentivize investment in the businesses. The only new industry to take advantage of the exception had been the marijuana industry. If one incorporated as an S-Corporation, they would not owe income tax. The tax on the C-Corporation tax at the federal level was 20 percent, which some businesses had taken advantage of. He spoke of exemptions for cultivators and noted that farming was not considered a small-time corporation. 9:48:56 AM Senator Kiehl said he would continue to research the matter. 9:49:15 AM JANA WELTZIN, CO-CHAIR, GOVERNOR'S ADVISORY TASK FORCE ON MARIJUANA (via teleconference), spoke in support of the legislation. She addressed Senator Kiehl's question regarding C-corporations. She stated that many marijuana businesses elected to be C-Corporations, not only because of the 21 percent tax, but because of the IRS Code 280E. She shared that 280E was an IRS section code that stated that those engaged in the distribution of a Schedule 1 illegal substance could not deduct for any business expense except for the drug itself. She relayed that many marijuana retailers had elected to be a C-Corporation to protect their shareholders assets from federal government audits. 9:52:54 AM Ms. Weltzin continued that marijuana retailers did not have access to traditional financing from banks and used their homes and retirement to start their businesses. She noted that retail product was tested for safety. She said that the market share was shrinking and could be aided by tax relief. 9:53:00 AM Ms. Weltzin spoke of the sales tax versus the $12 tax in the bill. 9:53:07 AM Ms. Weltzin said that the industry should mirror the liquor model and use distributors licensing. She stressed that the issue at hand was to stop the illicit and intoxicating hemp markets, which was unregulated, untaxed, and sold to people under 21 years of age. 9:54:38 AM JESSICA ROSTAD, CO-OWNER AND CHIEF EXECUTIVE OFFICER, BIG RAYS, ANCHORAGE (via teleconference), testified in support of the legislation. She said that her business had been operating as a C-Corporation. She shared that the expiration of the small business tax exemption had negatively affected her business. She said that the exemption had allowed her to put over $2 million into her business. 9:56:51 AM BAILEY STUART, CHAIR, MARIJUANA CONTROL BOARD, WASILLA (via teleconference), read from written testimony. Good morning, and thank you, Chair Stedman, and members of the Senate Finance Committee. For the record, my name is Bailey Stuart, I serve as the Chair of the Marijuana Control Board, appointed to the industry seat. I was among the first to open a licensed marijuana business in Alaska. Having witnessed the industry's inception, its development, and its current challenges, I can speak firsthand to the realities of this market. At our February meeting, the Marijuana Control Board voted in support of Senate Bill 73. This bill provides critical tax relief for both the industry and the regulatory division, particularly regarding business renewals. Additionally, it extends the much-needed C-corporation tax exemption, offering financial relief not only to marijuana businesses struggling to remain viable but also to many other small businesses across Alaska. During that same meeting, the Board heard extensive and compelling public testimony on the severe challenges facing this industrymost notably, the burden of excessive taxation. While the Board is actively working to address these concerns, immediate tax relief is essential to restoring stability. A well-regulated, sustainable industry ensures consistent revenue for the state. In 2021, the legal marijuana market contributed over $30 million in tax revenue. With time and targeted policy changes, we have the potential to surpass that figureprovided we take the necessary steps to eliminate the illicit and gray markets that undermine the regulated industry. Without tax reform, legal businesses are being forced into a race to the bottom, struggling to compete against unregulated, untaxed actors who are steadily eroding the integrity of this market. The Board issues four types of licenses: retail, manufacturing, testing, and cultivation. Among these, cultivators bear the greatest burden, as they are responsible for collecting and remitting the excise tax when product is sold. This tax is due monthly, and because most cultivators do not have access to banking services, they must often pay this tax in cash. However, there is only one cash collection box in the entire state of Alaska, located in Anchorage. This means that cultivators in Juneau, Kodiak, Nome, and other remote locations must incur additional costs simply to comply with tax regulations. This is just one example of the financial and logistical challenges that these legal businesses face under the current tax structure. The Alaska marijuana industry is contracting at an alarming rate, with businesses closing year after year. In 2023, the industry lost 25 licenses, followed by 26 in 2024. So far in 2025, the Alcohol and Marijuana Control Office (AMCO) reports having lost 8 licenses, reflecting an accelerating decline. At the start of the current fiscal year, there were 480 active licenses statewide, but that number has already dropped to 471and continues to shrink. This decline is occurring even as the Marijuana Control Board continues to issue new licenses throughout the year, highlighting the unsustainable conditions businesses are facing in the current market. A particularly concerning indicator of the industry's decline is that, for the first time in its history, the most recent Board meeting had zero new applications for cultivation licenses. Cultivation is the foundation of the regulated supply chainwithout cultivators, the industry cannot function. The absence of new applicants signals a sector in crisis, where existing businesses are in survival mode, struggling to stay afloat. This not only threatens the stability of the industry but also eliminates a key source of new revenue-generating businesses for the state of Alaska. While legal marijuana businesses continue to close, the illicit market is thriving. In 2024, the Department of Public Safety seized 316 pounds of illegal marijuana, a significant increase from the 186 pounds seized in 2023. These figures are particularly alarming because the department does not actively investigate or prosecute marijuana-related offensesthese seizures occurred incidentally, not through targeted enforcement. We have not seen illicit market activity at this level since before legalization, underscoring the urgent need for regulatory and tax reforms to support the legal industry and curb the illegal market. Compounding this issue is the gray market, which is being driven by unregulated intoxicating hemp products that exploit a loophole in the 2018 Farm Bill. Despite recent regulatory changes by the Division of Agriculture, which prohibit any amount of THC in hemp products, these items continue to enter the Alaska marketplace through retail stores and online sales with little to no enforcement. The legal industry wants to contribute. They want to pay taxes, create jobs, and support the state economy. But it cannot do so under the weight of a tax system that is unsustainable. Without reform, more businesses will close. Fewer tax dollars will be collected. And the illicit market will continue to expand. Senate Bill 73 is a necessary step to stabilizing this industryan industry that the state depends on for revenue, that employs Alaskans, and that was built on the promise of a fair and regulated marketplace. With that, I thank you for your time and consideration. I am happy to answer any questions. 10:00:00 AM Ms. Stuart continued her testimony. She contended that cultivation was the foundation of a regulated supply chain, and the absence of new applicants reflected a crisis in the industry. She said that regulatory and tax reforms were necessary for the survival of the legal market. 10:01:22 AM Ms. Stuart proposed that without reform businesses would close. She reiterated her support of the bill. 10:02:33 AM Co-Chair Stedman OPENED public testimony. 10:02:41 AM LACY WILCOX, VICE PRESIDENT, ALASKA MARIJUANA INDUSTRY ASSOCIATION, JUNEAU (via teleconference), testified in support of the bill. She relayed that the current tax structure was unsustainable. She thought the bill provided a needed reduction in the excise tax. She urged the committee to support the bill. She believed that without the tax reduction the industry would suffer and reminded the committee of the revenue that the industry generated for the state. 10:04:33 AM LLOYD STIASSNY, OWNER, EGAN MANAGEMENT GROUP, ANCHORAGE (via teleconference), spoke in support of the bill. He thought the industry was heavily burdened with tax at all levels, which prohibited growth. He stressed that the bill was vital to the long-term health of the industry. He noted that the industry was statewide. He pondered his history working in various areas of the state. He noted the many sectors that the industry intersected with. He reiterated his strong support for the legislation. 10:08:34 AM Co-Chair Stedman CLOSED public testimony. Co-Chair Stedman asked the bill sponsor to offer final comments. Senator Claman relayed that he was available after the meeting for questions. Senator Cronk asked about the tax rates in other states. Senator Claman relayed that Alaska had the highest tax rates in the country. He offered to provide more information to the committee. SB 73 was HEARD and HELD in committee for further consideration. 10:09:49 AM AT EASE 10:11:00 AM RECONVENED Co-Chair Stedman relayed that there was one item left on the agenda, that the committee would move to the agenda on the following meeting.