A bill to cut the tax on marijuana growers, and instead enact a sales tax for consumers, left the House Labor & Commerce Committee on Friday for House Finance Committee, after proponents made a compelling case that growers are being harmed by the current tax regime.
Marijuana cultivation and marketing was legalized by Alaska voters in 2014 and the industry started growing, regulated by the Alaska Marijuana Control Board.
HB 119 reduces the tax on cultivated marijuana from $50 an ounce to $12.50 an ounce. At the same time, a 6% sales tax would be levied on consumers who purchase cannabis at retail stores in Alaska. Proponents believe that a lower tax and restructuring will take some of the wind out of the sales that are currently being done on the black market.
Lacy Wilcox, owner of a cannabis business in Juneau, said that the tax is eating into profits.
“It’s a $50 An ounce tax, that translates to $800 a pound. If the going rate of wholesale cannabis sold to a store from my farm is $2,000, you do the math. It’s not very much leftover to pay for the lights, the water and the people who grow it. The margins [are] pretty slim,” she said.
Bailey Stuart, chief operations officer of The Green Jar and adjunct professor and developer of the CannaBasics Course at the University of Alaska Anchorage, explained some of the market dynamics at play in a letter to the committee:
“HB 119 will provide the State of Alaska with future revenue. As the excise tax stands, upon legalization, most cannabis will be imported into the state of Alaska and with our current tax structure will not incur taxation on the state level. The Department of Revenue is already reporting a decline in marijuana excise tax. When federal legalization occurs this drop will be substantial and as a resident of Alaska, I would hate to see programs under funded or completely terminated due to a lack of funding that could have been prevented with HB 119. Additionally, HB 119 will facilitate a more fluid working Alcohol & Marijuana Control Office. Per the request of the Director and Board this will change statue lanuage to establish biannual licensing. This is in par with the Alcohol industry and will facilitate in the operations of AMCO,” she wrote.
The Reason Foundation, a libertarian and free-market think take, also sent a letter in support of the change, saying “the tax reduction proposed in House Bill 119 could induce more marijuana transactions to shift to the legal market. A rate reduction from $50 per ounce to $12.50 per ounce should reduce revenues on existing transactions substantially but at least partially be offset by the additionally captured transactions.”
One of the more persuasive arguments was that if and when the federal government legalizes marijuana, it will be far cheaper to import it from out of state, if Alaska growers are being taxed at the current rate. Federal officials have already moved to work on reclassifying marijuana, a big step toward legalization.
There was no voice vote on the bill, which moved out of the committee without objection. Watch the hearing and hear the testimony at this link.