HB 123-ESTABLISH MARIJUANA CONTROL BOARD  4:12:32 PM CHAIR OLSON announced that the final order of business would be HOUSE BILL NO. 123, "An Act establishing the Marijuana Control Board; relating to the powers and duties of the Marijuana Control Board; relating to the appointment, removal, and duties of the director of the Marijuana Control Board; relating to the Alcoholic Beverage Control Board; and providing for an effective date." 4:12:38 PM CHAIR OLSON said questions on the fiscal note arose. He then reported that the fiscal note has been revised. 4:13:16 PM MICALEA FOWLER, Legislative Liaison, Department of Commerce, Community & Economic Development (DCCED), stated that in a previous hearing, the committee discussed moving the funds from the Governor's FY 16 budget into the FY 16 appropriation request. She explained that the DCCED's fiscal note was revised to reflect the FY 16-FY 21 projected costs. 4:14:09 PM CYNTHIA FRANKLIN, Executive Director, Alcoholic Beverage Control Board (ABC Board), Department of Commerce, Community & Economic Development (DCCED), explained that HB 123 would create a Marijuana Control Board (MCB), with the executive director serving both the Alcoholic Beverage Control Board (ABC Board) and the Marijuana Control Board (MCB). She explained details in the fiscal note, such that the personal services adds four fulltime employees in FY 16. She directed attention to the narrative section of the fiscal note that contemplated six added positions to implement proposed regulations related to marijuana. Two positions were added in FY 15 to respond to the substantial work necessary to regulate marijuana. In FY 16, three investigator positions and one business licensing examiner. The travel section includes travel for enforcement and compliance, noting that enforcement officers travel throughout the state to ensure that licensees are in compliance and to ensure that licensees are not providing alcohol to minors. She anticipated a similar need for enforcement travel to oversee marijuana licensees. MS. FRANKLIN explained that the new board would be comprised of five members, set up in a similar fashion to the current ABC board. She reviewed costs, in the first year, including an anticipated $50,000 FY 16 for board related travel. She reviewed services, which included legal services, information technology services, employee support costs, enforcement vehicles, printing and public notices. The department anticipates needing additional legal services due to the need for massive regulations. Colleagues in Washington and Colorado have indicated a great deal of interest arose on data around the regulation of recreational marijuana, that the Alcoholic Beverage Control Board (ABC Board) was currently a paper-based agency, but the agency will need necessity a database to better track and provide information. 4:17:25 PM MS. FRANKLIN related that the database includes software that has the ability to track marijuana from "seed to sale." She explained that the services costs include the initial cost of the database and development in out years. The commodities expenditures would include the cost of moving staff since the current office location cannot accommodate the additional staff required to implement the initiative. 4:18:22 PM MS. FOWLER added that the fiscal note includes the supplemental costs, including expedited regulation timeframe and the cost of the initial staff. 4:18:49 PM REPRESENTATIVE LEDOUX said the cost of moving offices appears to cost more than the actual staff salaries and costs. She asked whether commodities includes the office relocation. MS. FRANKLIN answered that commodities includes equipment, office space, furniture, moving expenses, and equipment purchases; however, the one-time costs are not included after the first year. She directed attention to FY 16 at $134.5, and in the out years commodities was budgeted at $106.1, with the difference between the two representing the cost of the move. 4:20:11 PM REPRESENTATIVE LEDOUX asked for the rationale for the board composition and whether the rules were different for the marijuana industry than for the alcohol industry. She wondered why the two boards would be treated differently. MS. FRANKLIN answered that the Marijuana Control Board (MCB) was modeled after the revised Alcoholic Beverage Control Board (ABC Board), which means that it took into account the substantial work the stakeholders group underwent during the Title 4 revisions, including to ensure that the ABC Board was representative of the industry, public safety, and public health sectors affected by the substance. She said that a bill has not yet been introduced to reflect the proposed changes to Title 4, but the language in the Marijuana Control Board (MCB) was modeled after the revisions. 4:21:28 PM REPRESENTATIVE LEDOUX, assuming the revisions would be introduced and that the bill passed both bodies, asked whether the two board would be similar boards. MS. FRANKLIN answered yes. 4:21:42 PM REPRESENTATIVE JOSEPHSON related his understanding that the budget that moved out of House Finance Committee today does include any funds for marijuana regulation. MS. FRANKLIN answered that was also her understanding. 4:22:00 PM REPRESENTATIVE JOSEPHSON offered his belief that the $1.57 million would be an addition to state spending if HB 123 passed. MS. FOWLER answered that the House Finance subcommittee asked the department to include all costs for regulating marijuana associated with the initiative that passed be included in the fiscal note for HB 123 rather than requesting these costs in the DCCED's budget request. 4:22:39 PM REPRESENTATIVE JOSEPHSON asked whether the out years also reflect $1.4 million. MS. FOWLER answered that if the bill passed with the fiscal note, the department would not need to come back with an additional request for the out years. 4:23:01 PM REPRESENTATIVE HUGHES asked how the annual amount for the out years compared to the ABC Board's budget. She asked whether the investigator positions were solely based on Alcoholic Beverage Control Board (ABC Board) or if the department anticipated there will be more marijuana businesses. MS. FRANKLIN answered that currently the Alcoholic Beverage Control Board (ABC Board) oversees 1,875 licensees. The original cost estimate to implement ballot measure 2 was a "mirror image" of the ABC Board's staff. She commented that the ABC Board currently has five investigators statewide, three licensing employees, and two administrative staff. She trimmed the estimate for FY 16, since it is not likely that the Marijuana Control Board (MCB) will have as many licensees initially; however, no decisions have been made as to limit licenses, similar to the way the state limits liquor licenses in the state. She said the potential exists for the need for additional staff in the out years; however, it is difficult to estimate until the state knows how restrictive or open the industry might be and what the level of interest might be. 4:25:21 PM REPRESENTATIVE HUGHES asked for the number of inquiries she has had plus any feedback on inquiries that Colorado has experienced as compared to the number of businesses that have opened. MS. FRANKLIN explained that the closest analogy population-wise to Alaska would be the City of Denver, which issues its own marijuana licenses. The City of Denver anticipated an additional 16 employees, but they added 21 more for next year bringing the total to 37.5 fulltime employees for a population of 650,000, serving approximately 900 marijuana licenses. She compared the types of employees, and said that depending on how the licensing process is structured there could be a fairly urgent need for additional staffing in future years. However, all of the positions in the City of Denver were fully funded by the tax revenues received from regulating the substance. She reported that Denver collected over $6 million in 2014 with the 37.5 fulltime employees, with the cost to the city at about $4.5 million. She suggested that in moving forward to establish the industry, given that it may be easier to ask for additional staffing once the tax revenue becomes apparent. 4:27:46 PM REPRESENTATIVE LEDOUX asked whether the City of Denver has a similar board that oversees alcohol. MS. FRANKLIN explained that the state has 10 employees statewide, including 5 enforcement officers The City of Denver regulates marijuana through its Division of Revenue, regulating alcohol, marijuana, and gaming without a board. She said the marijuana enforcement division employees 55 fulltime employees, of which about half are investigators. 4:28:46 PM REPRESENTATIVE LEDOUX how many staff the City of Denver employs to oversee the alcohol industry, noting the city may regulate it differently than in Alaska. She recalled that Alaska has 5 or 6 staff to assist the ABC Board. She asked to hone in on how many staff regulate alcohol in Denver to help her determine whether the city was doing things more or less efficiently. MS. FRANKLIN answered that she did not have the comparison, but she has reviewed the State of Washington's structure, which is similar to Alaska's system, with a liquor control board that regulates marijuana and alcohol. She reported that 297 employees cover regulations of alcohol, with approximately 120 assigned to marijuana licensing and control. For comparison, she stated that Washington has 15,000 liquor licenses, with significantly more people working on alcohol than on the marijuana industry with fewer licensees. She used Washington's figures to help her determine staffing for marijuana control in Alaska, noting that Alaska has 10 staff assigned to the alcohol regulation, and potentially will be adding six employees, which she said seemed fairly even. CHAIR OLSON requested the information be sent to the committee so it can be posted and distributed to committee members. 4:31:00 PM REPRESENTATIVE COLVER asked about timing of the regulation process. MS. FRANKLIN answered that the marijuana initiative gave the Department of Commerce, Community & Economic Development (DCCED) nine months from February 24, 2015 to get regulations approved by the board, whether it happens within the ABC Board or the Marijuana Control Board (MCB). She anticipated the process would begin as soon as session ends, once the statutory framework is known. Further, she reported that Colorado and Washington, who have marijuana programs, have been helping and will continue to help Alaska. In addition, she has information from the Title 4 revisions to review, all of which represents a good starting place. The ABC Board released a preliminary document so it has a good start, she said. 4:32:38 PM REPRESENTATIVE COLVER asked about concepts for a definition of public place. MS. FRANKLIN answered that the ABC Board met in an emergency meeting on February 24, 2015 and defined public place using the definition from Title 11, AS 11.81.900 (53). The board defined the term "in public" as given in AS 17.38.040 and has used the definition in Title 11 for "public place" for the prohibition of consumption of marijuana "in public." She stated that the ABC Board will meet again on April 9, 2015 in the Anchorage Legislative Information Office (LIO) to take public testimony on whether to make that regulation permanent. She said she received some initial feedback that the definition could potentially shut down the possibility of businesses ever having Cannabis cafés, in which businesses could invite members in to smoke marijuana together. The overlay of smoking prohibitions in many communities in Alaska makes it a second year consideration since the MCB board would like to put some baseline rules in first, prior to making decisions on the types of businesses that will be allowed. She said that both Washington and Colorado have struggled with this issue, but started with the position of not including those types of businesses in their initial regulations. 4:34:59 PM REPRESENTATIVE KITO related his understanding that the initial concept was to regulate marijuana like alcohol, but he suggested some significant differences exist in the way these businesses operate. For example, marijuana would have production, manufacturing, testing, and sales functions, he said, stating that Alaska has sales types of businesses in alcohol, but the department does not anticipate allowing "consume in place" businesses. Currently, the state doesn't have statutes that govern the four types of [marijuana] businesses. He stated that the board structure was meant to regulate the licensing of marijuana; however, at this point, the state doesn't know much about the proposed marijuana businesses. REPRESENTATIVE KITO anticipated that the board would initially spend most of its time developing regulations. He expressed concern over a lack of expertise identified on the board for the start-up period. During this initial period, the board will be generating significant new regulations that will govern operations of businesses, yet the state doesn't know exactly what it will need to regulate. He asked whether the state can identify who should be on board and if the state would need a transition phase to provide expertise to board members in developing regulations that will allow for the effective operation of the marijuana businesses. MS. FRANKLIN answered that under the ballot measure, AS 17.38.110 would give the ABC Board regulatory authority unless a separate board was created and it does outline the four types of licenses, including manufacturing or cultivating, processing, retail, and testing facilities. She acknowledged AS 17.38 provided a sketchy outline of the four types of licenses. In terms of composition of the proposed Marijuana Control Board (MCB) and representation of the types of businesses, she reported that in Title 4 manufacturing was kept out of representation on the ABC board, primarily with the way alcohol regulation developed over the years as a tiered system. She was unsure on whether a similar tiered system would be developed for marijuana; however, the differences between the two substances makes it unlikely. In fact, prohibition has not been written in as an industry tier. Theoretically, the proposed board member industry representatives in HB 123 could be representative of any of the four types of licensees. Initially, it might present some challenges to identify industry representation for the board; however, the agency has not had a shortage of people coming forward who want to be part of the board. Thus the governor could evaluate applicants, she said. Of course, the difficulty will arise in finding an experienced grower since the industry is currently illegal. However, she has some confidence that the voters' will in passing the ballot measure will be honored and that people will be able to openly speak about their experiences in the industry. For example, some people have already attested to having acquired experience of 40 years as growers and these people have appeared at local government meetings in the Mat-Su valley, she said. 4:39:53 PM MS. FRANKLIN suggested that the board will be able to identify people in the short run who claim to be part of the industry. However, the state will need to get an industry going before it can ascertain this, although the transition sections and staggered terms may enable the governor to appoint someone into shorter term board positions. If it turned out that a person represented him/herself as part of the industry, but did not end up having the necessary expertise, the governor could turn the seat over to another person. It may be that people who supported the ballot measure or who participated in the Coalition for Responsible Cannabis Legislation (CRCL) might not necessarily qualify as industry representatives, but the governor's selection process can identify the necessary business background. She said she has been contacted by numerous businesses who have expressed an interest in the industry and some existing businesses may provide appropriate experience to fill one of the shorter-term appointments. 4:41:31 PM REPRESENTATIVE KITO said her response helped, but people simply having the desire to serve doesn't give him confidence that the potential board members will end up having good business experience. He acknowledged the need for a public health member, a public safety member, a general public member, and a rural member. However, by statute the two industry representatives do not need business experience since the state doesn't have a marijuana industry in Alaska. He maintained his concern that the board might end up without the board having the expertise to develop regulations that will regulate all the types of businesses dispensing marijuana. 4:42:29 PM CHAIR OLSON assured members it was important to spend sufficient time on the bill to address concerns and ensure the regulatory board and system was appropriate. 4:42:57 PM CHAIR OLSON opened public testimony on HB 123. 4:43:14 PM JAMES BARRETT began his testimony by stating he was interested in entry into the marijuana industry. He offered his belief that Alaska has an awesome opportunity to establish this industry, recalling that historically the state has assisted new industries, for example, the state helped establish the fishing industry. A black market once existed with the fishing industry, just as it currently exists with the marijuana industry. He suggested that the Marijuana Control Board (MCB) members will help bring expertise, but he emphasized the necessity of doing it right the first time. He suggested that it was important to have marijuana controlled separately from alcohol since the substances are not the same, although they can be similarly regulated. He offered his support for this bill and concluded by commending Ms. Franklin's knowledge and ability. CHAIR OLSON agreed Ms. Franklin has been doing an incredible job. 4:45:17 PM ELLEN GANLEY, Member, Alcoholic Beverage Control Board (ABC Board), Department of Commerce, Community & Economic Development (DCCED), stated that substantial discussion has occurred on whether it would be best to have one board or two boards. She initially thought that marijuana should fall under one regulatory board, but since then she has reevaluated this viewpoint, in particular, given the amount of work that board must accomplish. In addition, she has been involved in the current work of the ABC Board, which oversees 1,800 licenses, as well as during the two years it has taken to draft a rewrite of Title 4, which will require significant time to implement. She concluded that she believes it makes sense to have two boards. 4:46:20 PM KIM KOLE, Coalition for Responsible Cannabis Legislation (CRCL), who initially started the Anchorage chapter of CRCL, offered support for HB 123, which would set up a separate Marijuana Control Board (MCB) under the direction of Ms. Franklin. She suggested that this structure seemed to make sense for a number of reasons, including reducing financial costs by having one administrator serve the Marijuana Control Board (MCB) and the Alcoholic Beverage Control Board (ABC Board), and to help identify regulations for this industry. She said that the language allows up to two board members who represent the cannabis industry to serve. She encouraged members support two board members from the industry, including representatives of cultivators, processors of non-consumables such as concentrates and lotions, processors of consumable and edible products. She hoped that ultimately retail stores, beer gardens or cafes will sell or serve marijuana products. Since the industry is son bard, no one person can know all aspects of the cannabis industry, she said, which emphasized the need to have two industry representatives on the board. She appreciated the importance of the business perspective and background on the board; however, she argued that it wasn't imperative to have someone with only a business background since it was possible to have an array of backgrounds represented by people who are really passionate about this new industry. 4:47:56 PM FRANK BERARDI, Chair, Coalition for Responsible Cannabis Legislation (CRCL), offered the CRCL's support for HB 123. He said the board supported having a separate autonomous Marijuana Control Board (MCB) housed under the same framework as the Alcoholic Beverage Control Board (ABC Board), directed by Ms. Franklin. In terms of the vetting process for industry representatives, the coalition believes that the CRCL membership has extensive business experience, noting that several people have an educational background in business and some have already completed business plans for this venture. The coalition would like to see the process be an open process that will allow people be vetted for the positions. He said he personally supported initial one-year terms for board members just to see how "this thing shakes out." In closing, he offered support for HB 123. 4:49:28 PM GIONO BARRETT asked to testify in support of HB 123. He said it was a good idea to put the regulations in the hands of the Alcoholic Beverage Control Board (ABC Board), especially since Ms. Franklin and her staff have done a great job thus far. He stated that he was registered for medical marijuana and has been a long-time marijuana user. He offered his belief that the key to the regulation of the industry was education since it can take years to learn the industry. He suggested that Ms. Franklin has covered a lot of information really well, that he has an interest in the industry and has found her to be "spot on." In closing, he said he would trust Ms. Franklin to regulate marijuana properly. 4:50:34 PM GIRARD GAUL, Senior Spokesman, Coalition for Responsible Cannabis Legislation (CRCL), asked to support HB 123. He further supported having the Marijuana Control Board (MCB) as a separate committee working alongside the Alcoholic Beverage Control Board (ABC Board) under Ms. Franklin. He thanked members for the work on this bill and offered his belief that HB 123 looked great. 4:51:15 PM BRUCE SCHULTE, Public Relations Manager, Coalition for Responsible Cannabis Legislation (CRCL), testified in support of HB 123. He said that historically this group has been advocating for a separate Marijuana Control Board (MCB); however, given the combined constraints of schedule and budget, he believed the hybrid board would be a terrific solution. He said he has tremendous faith in Ms. Franklin's ability to guide both boards. He echoed Ms. Kole's comments on board representation, noting this bill would allow at least two members with experience to serve on the board. He pointed out that the schedule has actually begun on the regulatory process and the board has until November 24 to complete it. He suggested that this [bill] has become the critical process. 4:52:53 PM BRANDON EMMETT, Executive Director, Coalition for Responsible Cannabis Legislation (CRCL) asked to testify in support of HB 123. He suggested that HB 123 was a step in the right direction. As Mr. Schulte stated, the CRCL's initial position was to support a completely autonomous Marijuana Control Board (MCB), but the CRCL now prefers a hybrid board nested under the Alcoholic Beverage Control Board (ABC Board) to help the MCB adopt regulations and rules in a timely fashion. He emphasized the importance of having several board members with expertise in the marijuana industry. He offered his belief that marijuana industry board members will be unfettered by any conflict of interest that could affect a board member directly involved in the alcohol industry. 4:54:24 PM CHAIR OLSON said he would hold public testimony open on HB 123. [HB 123 was held over.]