HB 119-MARIJUANA TAX  3:17:20 PM CHAIR SUMNER announced that the first order of business would be HOUSE BILL NO. 119, "An Act relating to marijuana taxes; and providing for an effective date." [Due to technical difficulties the above section was not on the recording but was reconstructed from the committee secretary's log notes.] 3:17:33 PM REPRESENTATIVE RUFFRIDGE moved to adopt the proposed committee substitute (CS) to HB 119, Version 33-LS0636\U, Radford, 12/7/23, as a working document. There being no objection, Version U is before the committee. 3:18:05 PM CODY RICE, Staff, House Majority, Alaska State Legislature, addressed prices and how much demand can change based on price. He described how a reduction in taxes could result in a reduction in price and would likely drive a change in demand. In addition, he said he spoke to industry to ascertain what would be passed on to the consumer if industry taxes are changed. He explained that a 10 percent reduction in retail price is a conservative estimate, and that the estimated change in demand would be a 17 percent increase; an increase in demand due to a lower price. He pointed to the right side of the "Cover" tab in the the Marijuana Tax Change Analysis document [included in committee packet] and said three of the different tax change scenarios would generate more revenue than the status quo tax program. 3:20:59 PM REPRESENTATIVE SADDLER requested clarification on the estimated tax revenue chart and what the sales growth is from. MR. RICE explained that the graph shows estimated tax revenue and that the gray line denotes the new tax forecast, and the blue line is the forecast under the proposed tax system. 3:22:01 PM REPRESENTATIVE PRAX commented that his concern is reducing the illicit marijuana market, and he asked whether the illicit market was factored in the estimations. MR. RICE replied that it is not; if the price of legal cannabis goes down, theory suggests that it would take market share from the black market as it is seen as a premium product. He said if it were cheaper, it would be more competitive and buyers would more often choose to purchase legal cannabis. REPRESENTATIVE PRAX inquired as to whether there is data that quantifies the illicit market. MR. RICE responded that it is difficult to get good quantitative black-market data; the model shown is somewhat conservative. 3:24:07 PM REPRESENTATIVE SADDLER requested clarification regarding the status quo growth figure of $1.4 million dollars that is shown on the top right of the cover tab. MR. RICE explained that the $1.4 million figure was the net difference from status quo tax over the period of fiscal year 2023 (FY 23) to FY 30. He said it would be reasonable to expect that the number would grow over time. In response to a follow- up question, he explained that the figure represents a cumulative total over the years. REPRESENTATIVE SADDLER questioned whether the change in retail price was within the purview of the legislature. MR. RICE answered no, and that the retail price is set by the free market. He explained that there are elements that contribute to the subjectivity of the analysis, but the numbers are a conservative estimate in a free and robust market. REPRESENTATIVE SADDLER asked whether the change in retail price is in output, whereas the new sales tax is an input in the model. MR. RICE responded that the change in retail price as an input, as it is a driver for the model and can change depending on the scenario. 3:27:24 PM JOAN WILSON, Director, Alcohol and Marijuana Control Office (AMCO), shared that she met and spoke with licensed marijuana cultivators and limited growers. Many of the conversations occurred during the process of issuing tax violations, which is when the license holders explained how onerous the tax burden was; it was to the point that the only sound economic choice was to surrender their license. She noted that there are 478 licensed businesses in Alaska, of which 248 are held by standard and limited cultivators. As of December 8, 2023, 12 current licensees are delinquent on taxes in ranges from $750 to $110,000, coming to a total of $332,549 in delinquent taxes. She detailed that, since 2020, 29 cultivators have gone out of business, and whose cumulative taxes owed were $3 million; 8 of the licenses expired in 2023, 11 in 2022, and 10 in 2020. She relayed that 61 percent of the surrendered licenses were from standard cultivators. She highlighted that the businesses that have stayed open have contributed to the economy, with over 6,000 Alaskans having marijuana handlers permits, providing the state with $29.5 million in excise taxes in 2023. She said the marijuana control board will take action against licensees who are delinquent on taxes, and that of the 12 licenses on the December report, AMCO will file 11 accusations to revoke the licenses. She said that HB 119 provides the legislature the ability to adjust tax rates, and advised that a lower tax burden would help many of the licensees continue to operate. 3:32:40 PM REPRESENTATIVE RUFFRIDGE questioned why the adjustment from cultivation tax alone to retail tax might help the tax payment be on time and not delinquent. MS. WILSON responded that, when taxing at the cultivator level, that is the first transaction. She explained that cultivators typically choose whether to pay their taxes, pay their electricity, or pay their employees; eventually, they make the choice to not pay their taxes. She said that retail shops are not borrowing against their tax liability to the level cultivators are. 3:34:17 PM CHAIR SUMNER opened public testimony on HB 119. 3:34:48 PM LACY WILCOX, Owner/Operator, Top Hat Cannabis, explained that she employs 10 Alaskans at a competitive wage with retirement and health benefits; however, after seven years her cultivation is still operating at a loss due to an unsustainable tax structure. She spoke of the need for reform so that the cannabis industry can continue to exist in Alaska and urged support of HB 119. 3:36:39 PM RYAN TUNSETH, President, Alaska Marijuana Industry Association, expressed support of HB 119, explaining that it's about protecting Alaska's nascent cannabis industry and the revenue generated, thus protecting Alaska jobs and reducing or eliminating black market sales. He said there is some concern that 6 percent is too high, with 3 percent being the suggested amount, but he still supports HB 119, as well as the policy changes made on the bill. 3:38:55 PM BAILEY STUART, Chief Operations Officer, Green Jar Cannabis Retailers and Stuart Consulting, said she has seen firsthand the burden the current tax structure has placed on the cannabis industry, and how it has affected consumers, jobs, and the state of Alaska. She stated that, as excise taxes stand, and with the possibility of the federalization of marijuana, most cannabis will be imported, and the taxes will not go to the state. She pointed out that many cultivators are operating at a loss due to the tax burden. As a retailer, she feels taxes should be on the product's value. She stated support for HB 119. 3:40:39 PM TRAVOR HAYNES, Owner, Good Cannabis, testified in support of HB 119. He and his wife own Good Cannabis in Fairbanks where they employ 30 people. He explained that the cannabis tax structure is one of the highest tax rates of any state, which creates an artificial price floor; keeps the consumer costs high; puts undue burden on cultivators; and ensures a thriving black market. He pointed out that, in Oregon, flower marijuana is being sold wholesale at $50 an ounce, whereas in Alaska, the cultivator is paying $50 in taxes per ounce of flower. He stressed that marijuana accounts for over 70 percent of all value created by Alaska's agriculture industry and reiterated that the tax regime is causing cultivators to go out of business. He urged members to approve HB 119. 3:42:43 PM THOMAS AZZARELLA, Director, Alaska Children's Trust, Alaska After School Network, relayed the trust's concern about HB 119. He asked the committee to look at how taxes are structured and the amount of money that goes toward addiction prevention. He explained what percentage of the cannabis taxes go to programs that include marijuana education, addiction treatment, after school programs, suicide prevention, and recidivism. The marijuana education treatment fund supports 39 Alaska communities. Changes in the cannabis tax structure would affect the programs. 3:45:31 PM GEORGE PIERCE, representing self, spoke in favor of HB 119. He explained that a person can go to the black market and buy marijuana for less than half what it costs at a store. He pointed out that the state gets no tax dollars from black market marijuana sales. He suggested that raising the taxes on mining and on the oil and gas companies is a better source of revenue than mom and pop cannabis businesses. He urged members to approve HB 119. 3:47:45 PM BRANDON EMMETT, Co-Chair, Governor's Advisory Task Force on Recreational Marijuana, stated the task force supports HB 119. 3:48:19 PM CHAIR SUMNER, after ascertaining there was no one further wishing to testify, closed public testimony on HB 119. 3:48:29 PM REPRESENTATIVE RUFFRIDGE moved to report HB 119, Version 33- LS0636\U, Radford, 12/7/23, out of committee with individual recommendations and the accompanying fiscal notes. 3:48:48 PM REPRESENTATIVE CARRICK objected for the purpose of discussion. She thanked the task force and the folks in this industry who spoke in favor of this tax restructure. She pointed out the importance of supporting Alaska's industries and small businesses and how restructuring the tax will help fight black market cannabis. She removed her objection. 3:50:23 PM CHAIR SUMNER announced there being no further objection, CSHB 119(L&C) was reported out of the House Labor and Commerce Standing Committee.