HB 289-AK MARIJUANA INDUSTRY TASK FORCE  4:32:14 PM CO-CHAIR FIELDS announced that the first order of business would be HOUSE BILL NO. 289, "An Act establishing the Alaska marijuana industry task force; and providing for an effective date." 4:32:34 PM REPRESENTATIVE GRIER HOPKINS, Alaska State Legislature, as prime sponsor of HB 289, introduced the bill. He spoke as follows: This bill would establish the Alaska Marijuana Industry Task Force to take a holistic look at our state's growing marijuana industry, analyze its strengths and weaknesses, and propose a package of reforms. These nonbinding reforms would be submitted to the Marijuana Control Board, the governor, and the legislature for consideration and possible action. This legislation does not create a permanent task force, nor does it create a permanent state funded position. Rather, this task force would complete its work between the time this bill is passed, probably this legislature, and over the 2022 legislative interim, and deliver its final report at the beginning of next session, disbanding itself at the end of the year and giving us that report. This bill does not require the expenditure of any unrestricted general funds. Instead, the cost of this task force would be borne by the program receipts generated by Alaskan marijuana industry. While I am a firm believer in free markets and the inevitable sorting out of winners and losers, Alaska's marijuana industry is ours and ? we as elected officials can and should set the rules for the thousands of Alaskans who have seen fit to invest their hard-earned dollars into this market, as well as their time and energy. We can and should ensure that the rules that we put forward to govern our various industries are fair and reasonable and offer those Alaskans who pursue a career or business investment in Alaska can work hard and achieve that success while playing by the rules. We can and should ensure that the local governments continue to play a vital role in authorizing, monitoring, and gaining revenue from this industry as well. As our uniquely Alaskan owned, operated, and supported marijuana industry continues to evolve, the work of this task force can help place the industry on firmer economic footing and ensure that those Alaskans who have entered into this industry can compete on a level playing field. Additionally, this task force carves out a role for Alaska's local governments to assure that the local control of this industry endorsed by Alaska's voters as they passed the initiative in 2014 is strengthened and continued. We would have the opportunity after the initiative's passage in 2014, almost a decade later, to be able to reform this growing and vital industry. 4:35:27 PM JOE HARDENBROOK, Staff, Representative Grier Hopkins, Alaska State Legislature, on behalf of Representative Hopkins, prime sponsor of HB 289, addressed why the bill is necessary. He spoke as follows: Why is this legislation necessary? In 2014, Alaska voters legalized recreational marijuana. Since that time, thousands of Alaskans have sought to participate in this new industry as business owners, workers, investors, consumers and more. This industry is a uniquely Alaskan one. State law requires that license holders be Alaska residents, resulting in an Alaska marijuana market owned and operated by Alaskans selling their products grown, tested, processed, and purchased here in the Last Frontier. The industry which has emerged from the passage of the voter initiative in 2014 is supported by Alaskans across the state, but it is facing some challenges. Many business owners are struggling to comply with the letter and the spirit of the law, and several factors including taxation, licensing, and enforcement continue to challenge the industry. Recent reporting by the Anchorage Daily News which is included in your bill packet - shows ongoing frustration amongst the Alaskan entrepreneurs who've invested time, resources, and energy in this new market. Our flat wholesale tax model makes each cultivator's crop an expensive roll of the dice and can result in entire harvests being discarded for fear of not generating sufficient revenue to pay state taxes or insufficient overhead to cover the cost of facilities, salaries, and utilities. Unlimited licenses have resulted in a high number of retail outlets and tying licenses to specific properties and locations have resulted in business owners being forced to close shop when rents increase, or when their buildings are sold. Make no mistake, there are solutions to these problems, but finding and defining these solutions will involve give and take amongst the members of the industry, state regulators, and local governments. In order to pursue a strategy that strengthens our Alaska businesses, protects local control and places our industry on a firmer economic footing, HB 289 proposes that this task force reviews the issue, develops ideas for industry reform, utilizes state resources to model how those changes would affect businesses, local governments, and state tax revenue. A simplistic one- size-fits-all solution to this complex issue will most likely result in additional challenges to the industry and may cause unforeseen circumstances which compound problems instead of rectifying them. As we've repeatedly heard from representatives of all the different businesses and resource development activities in Alaska, fiscal certainty and good data are essential components of any successful business enterprise. So, how will this task force operate? The selection process for the twelve members of the task force has been crafted to ensure representation, expertise, and geographic diversity. The task force will be chaired by the chair of the Marijuana Control Board. The two state agencies most closely involved in Alaska's marijuana industry the departments of Commerce and Revenue - will be represented by their commissioners or those commissioners' designees. Because so many of these questions are economic in nature, we've reserved a seat for an economist from the University of Alaska. Because the voter initiative carved out specific roles and rights for local governments, we've included three municipal government representatives, with a requirement that those officials come from different judicial districts and represent the breadth of Alaska's local governments cities and boroughs. Because those most affected by a decision should have a role in making that decision, we've reserved three seats 25 percent of the task force's membership for representatives of the Alaska marijuana industry. Like the local government seats, these task force members must hail from different judicial districts and represent the breadth of the industry cultivators, processors, and retailers. Finally, there are two legislative seats, in the hopes that the input and advice of legislators can help craft a final product with a greater chance of enactment. As [Representative] Hopkins mentioned, this task force is not a permanent creation. Rather, it must meet four times over this legislative interim, conduct their work, craft their proposals, model their data, and submit their findings to the executive and legislative branches for consideration and potential action. This legislation does not create a new, permanent position but rather relies on a temporary position to assist the task force in crafting its final product. The findings of this task force are first and foremost nonbinding and are not limited [to] suggestions for legislative fixes suggestions may include statutory, regulatory, and administrative changes. Additionally, I think it is fitting and worth noting that the cost of these efforts will be borne by program receipts from Alaska's marijuana industry. That's correct the cost of this task force will be paid for by the hundreds of thousands of Alaskans who've invested in and patronized Alaska's marijuana industry. 4:40:37 PM MR. HARDENBROOK provided the sectional analysis for HB 289. He spoke from a written analysis provided in the committee packet, which read as follows [original punctuation provided]: Section 1: Subsection (a): Creates the Alaska Marijuana Industry Task Force and describes its purpose. Subsection (b): Details membership of the task force and those responsible for nominating members to serve. Subsections (c) & (d): Details how vacancies on the task force will be filled and that members are unpaid but are eligible for travel expense reimbursement and per diem. Subsection (e): Details duties of the task force, deadlines, and instructions for submitting recommendations. Subsection (f): Terminates the task force upon the convening of the Thirty-Third Legislature. Section 2: Contains an immediate effective date. 4:41:48 PM CO-CHAIR FIELDS opened invited testimony on HB 289. 4:42:17 PM )LACY WILCOX, President* Alaska Marijuana Industry Association (AMIA)* Anchorage, Alaska* Provided invited testimony in support of HB 289.{ provided invited testimony in support of HB 289. She noted AMIA is currently the only statewide industry association. She spoke from a letter of support, dated 2/1/22, which she said was approved by her board of directors, and which read as follows [original punctuation provided]: The Alaska Marijuana Industry Association (AMIA) would like to offer our support for HB 289. The excise tax on Alaskan marijuana cultivation has set a static price floor for marijuana and marijuana products. This static price floor is creating instability in our industry and resulting in an inequitable taxation burden imposed on the cannabis industry. For example, the excise tax of $800/lb of cannabis flower in Alaska is similar to the total wholesale price in states like Oregon. The problem is evident, the impacts are negative, and a solution is needed. The solution will only be found if we have a comprehensive task force with the right tools and the right folks to dig in and find a solution to better [protect] the industry and protect consumers. The AMIA has been analyzing the current scheme against potential new tax structures, however, without access to state experts and data we are just shooting darts at the wall with blindfolds on. We are hopeful that with the passage of this legislation we will be able to see robust, smart, and data driven conversation occur between industry, regulators, and tax experts, as well as municipal stakeholders and the legislature. We are grateful to be named in the bill regarding the selection of qualified industry representatives. We understand that while we do not represent the entire industry, the AMIA is the only statewide industry trade group that exists, so we therefore feel it is appropriate language. We promise to send forward our best and brightest and take this responsibility very seriously. The bright goal for the AMIA is to help identify a sustainable, enforceable, and above all else, fair tax structure. This tax structure should allow for growth, not hardship and should provide a path to compliance without subjective review or punitive action wherever possible. We are grateful to be considered a valuable industry, job provider, taxpayer, and general business community asset to Alaska. We see a bright future and are hopeful that this task force will come to fruition, and we can move forward together. MS. WILCOX added that it is no secret that [the industry] is struggling. She urged the committee's support for the bill. 4:44:55 PM REPRESENTATIVE NELSON asked how many of the businesses in Alaska are covered by AMIA. MS. WILCOX replied that AMIA is currently in a membership drive, so she doesn't have a percentage. She said there are about 500 licensees and AMIA probably represents close to 100 of them on its normal post-membership drive season. She added that the pandemic has slowed down the outreach to get members. REPRESENTATIVE NELSON noted the bill provides that AMIA will appoint three members to the [task force], two of which would be AMIA members and the third which would not be an AMIA member. He asked whether AMIA has anything it will be holding itself to that will alleviate his concern that the other 400 licensees would not be involved. MS. WILCOX responded that with the passage of HB 289 she would like to build a process to open applications to any licensee. She said being able to advertise this as something AMIA can do for people will encourage membership among those who have not considered joining. Many Alaskans and Alaska businesses are not joiners, but she still talks to those people as they are an important and valuable part of the industry. She will work to honor the spirit of the task force. It isn't AMIA's members who have the most to say, some of the smartest people are the quietest people and she would like to find them. 4:46:55 PM REPRESENTATIVE SCHRAGE inquired about the makeup within AMIA's membership between cultivation, manufacturing, and retail. He further inquired about the unification of views regarding where taxes should go with respect to the industry and whether the balance is right. MS. WILCOX answered that roughly 240 small and large licensed growers and 145 retail licenses are operating, and there are about 50 manufacturing licenses. Much is going to be heard about market saturation, potential license caps, and other solutions for helping to find market equilibrium, she continued. She herself is a proponent of fixing the things that are broken before going to the extreme measure of instituting a license cap. If asked about taxes, cultivators are going to say the tax should be shifted away from them, retailers are going to suggest the tax stay where it is or perhaps reduced, and manufacturers, who are kind of in the middle or vertically integrated, are going to be kind of indifferent because they are protected by their own business model. So, she advised, there is not consensus and consensus can only be found if modeling is done. 4:48:32 PM REPRESENTATIVE MCCARTY referred to page 2 of the bill, lines 29- 30, regarding task force members serving without compensation. He asked if it is anticipated that the meetings will be virtual, rather than live, to reduce per diem and travel expenses. MS. WILCOX responded that AMIA would be happy to meet virtually. She deferred to the sponsor to answer the question. MR. HARDENBROOK replied that in discussions with Glen Klinkhart, director of the Alcohol and Marijuana Control Office, Mr. Klinkhart said that throughout the [COVID-19] pandemic the board has been meeting mostly virtually, which the board would continue doing with this task force. The fiscal note currently includes money to cover the cost of travel and lodging but if the legislature chose to make the task force meet virtually or put that intent in, it would be a substantial cost savings on the total fiscal note of the task force. REPRESENTATIVE MCCARTY stated that virtual meetings would be his recommendation. 4:50:03 PM REPRESENTATIVE KAUFMAN asked why a bill is needed given other industries meet and discuss how to improve their industries. MR. HARDENBROOK answered that a key reason for government involvement in this task force is specifically the data that is collected by the state as the enforcer of the laws through the commerce department as well as the collection of revenues through the revenue department. By having those two aspects of state government involved and mandated to participate, modeling can be done by the industry and local and state governments on how changes to taxation would impact revenue flows to the state, to the industry, and to the local governments. As a participant in that, the state can access the data and do that modeling and can make sound fiscal decisions that protect the bottom lines of the state and municipalities, and that put the industry on firmer economic footing. REPRESENTATIVE KAUFMAN said it seems that those are simply deliverables that could just be pulled down and he isn't sure a government partnership is needed when just the deliverables, the data, are needed and that data should be available. MR. HARDENBROOK replied that any industry would prefer fiscal certainty and good data when it comes to making business decisions. When talking about adjusting the levers of taxation and an industry that is entirely located within Alaska and producing revenue for local governments, changing those levers without good data to inform how those decisions will impact the industry, state government, and local government, perhaps could make the situation worse as opposed to solving the problems. Modeling changes to the taxation scheme has been difficult to develop and data has been difficult to procure. Perhaps setting up a task force to ensure that people who have the data, folks who have the expertise on the industry, and those who have the expertise on how the industry works at the local level can get together and formulate a solution is the most responsible way forward. 4:53:18 PM REPRESENTATIVE SCHRAGE offered his understanding that revenue from marijuana taxes could go to several places. He asked which designated general fund (DGF) would be used in this fiscal note. MR. HARDENBROOK deferred to Mr. Klinkhart to provide an answer to the question because he developed the fiscal note. 4:53:46 PM GLEN KLINKHART, Director, Alcohol and Marijuana Control Office (AMCO), Department of Commerce, Community, and Economic Development (DCCED), responded that the sources are going to be the DGF from the program funds specifically, so it would be coming out of the receipts that are received. 4:54:43 PM JANA WELGZIN, Owner, JDW Counsel, provided invited testimony in support of HB 289. She stated that her firm represents hundreds of marijuana licenses in the state of Alaska. She said the questions being asked show that members are thinking about this industry and how to move it forward and make it sustainable for Alaska. These issues need to be discussed in a meaningful way, not just a few industry folks getting together, she continued, because federal legalization is on the horizon. Without preparation, Alaska's marijuana industry will be demolished when federal legislation arrives. To be prepared the industry needs to be strong enough to stand on its own or relevant enough to be bought out. The industry cannot do that with a product price war that for some cultivators results in a 50 percent taxation while another cultivator growing the same pounds and same strain, but selling it for more, is taxed at around 27 percent. This regressive tax structure isn't fair or sustainable. [The proposed task force] would allow Alaska's marijuana industry to work with local governments and experts in the Department of Revenue to develop a system that is going to make the state more money in the long run because the industry will survive if this is done right. This bill will be of benefit to Alaska for many years; detrimental consequences will be faced if nothing is done. 4:56:42 PM NICHOLAS MILLER, Chair, Marijuana Control Board, Alcohol and Marijuana Control Office (AMCO), Department of Commerce, Community, and Economic Development (DCCED), provided invited testimony in support of HB 289. He said he is a licensee and that there has been lots of discussion about the taxes and ways to improve commerce in Alaska through statutory and regulatory changes. Partnership is needed from an economist and holders of the data so that good decisions can be made. Making decisions based on the information that is had now is not in the interest of anybody in the state. [HB 289 was held over.]