Alaska marijuana businesses, citing black market, plead for tax relief

In an unusual offseason hearing, a committee of the Alaska Legislature considered a proposal on Friday that could lower the state tax on marijuana sold in the state.

House Bill 119, considered Friday by the House Labor and Commerce Committee, would shift the state’s marijuana tax system from a tax per ounce to a sales tax.

The state’s marijuana industry says the change is desperately needed to help marijuana businesses compete with the state’s black market.

“This is a very desperate situation that we’re in,” said Lacy Wilcox, legislative liaison for the Alaska Marijuana Industry Association, a trade group.

Since the state legalized the recreational sale of marijuana in 2014, it’s been taxed at $50 per ounce, a figure established by the ballot measure that made Alaska the third state to legalize marijuana use recreationally.

Other states have since legalized recreational sales, but at lower tax rates. When local taxes are added to the mix, Alaska taxes marijuana more heavily than any other state, the Tax Policy Center of the Brookings Institution concluded in 2022.

That’s created a financial windfall for the state: In fiscal year 2021, the state collected more than $30 million in marijuana tax revenue.

But industry experts say not all is green with the state’s marijuana industry. In fiscal year 2022, tax revenue fell to less than $29 million, the first time since legalization that marijuana tax revenue fell on a year-over-year basis.

Preliminary figures suggest that tax revenue rebounded slightly in the just-completed fiscal year 2023, but in the fiscal year that began July 1, projections indicate that it will be sharply down, legislative aide Cody Rice told the committee on Friday.

Dozens of marijuana businesses are expected to close this year, the Alaska Marijuana Industry Association has said, and many are delinquent on their taxes.

“We are all in survival mode, and we are coming together to share our pain with you,” Wilcox told the committee.

Last year, Gov. Mike Dunleavy convened a recreational marijuana task force to analyze the new industry’s progress, and that group delivered a report earlier this year that contained a variety of recommendations. One was a new tax system.

Brandon Emmett, a member of the marijuana industry, sat on the task force.

“I can tell you with a high degree of certainty that (marijuana) is still much cheaper on the black market. Alaska’s taxes and the burden on businesses from the Marijuana Control Board is causing prices to stay high and businesses to be uncompetitive,” he told the committee.

Emmett said that based on anecdotal evidence, he believes “40-50%” of the marijuana sold in Alaska is sold on the black market because the unregulated market offers better prices.

HB 119 was written to address industry concerns. As originally drafted, it would have changed the $50 per-ounce tax, collected by cultivators, to a 3% sales tax collected by retailers.

The bill was subsequently amended to a 10% sales tax, and industry officials said on Friday that the change is effectively a sidestep and wouldn’t address their concerns.

Rice, analyzing the effects of the tax change for the Labor and Commerce Committee, said that lower taxes could eventually result in greater state tax revenue as the legal market grows.

But that comes with a drawback: Revenue would fall in the short term, and state anti-drug programs that rely on marijuana tax revenue would have to reduce or suspend their operations, state officials said.

If tax revenue rebounds, that suspension could be temporary.

The committee took no immediate action Friday, but the committee chair, Rep. Jesse Sumner, R-Wasilla, said that committee members may consider amendments to the bill at a meeting in October or November.

Originally published by the Alaska Beacon, an independent, nonpartisan news organization that covers Alaska state government.