Should the excise tax structure change for cannabis in Alaska?

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On Sept. 14, the House Commerce Committee will take invited testimony on House Bill 119, which proposes to change the tax structure on marijuana.

Currently, Alaska has an $800 per pound excise tax levied by the state — the highest in the country — but proponents of HB 119 say it should be changed to a sales tax collected by retailers.

The excise tax on weight was set after 2014, when the legalization of commercial cannabis production and sales was approved by voters. Commercial pot sales and cultivation started after 2016. But since then, the price of marijuana has dropped significantly in Alaska due to increased competition, making the $800 excise tax a heavy burden in an industry that is having a hard time due to intense competition.

Some in the cannabis business were formerly in the black market, and some who have left the legal cannabis business due to competition driving down prices have probably returned to the black market, where they may find it more profitable without all the regulation and taxes of running a legal business.

In Anchorage alone, the competition among retailers is so intense, some are severely behind on their state tax payments. Because Alaska has no cap on the number of licenses it grants to grow or retail cannabis operations, the excise tax eats into already slim margins.

There are currently about 240 marijuana retail outlets across Alaska. The Marijuana Control Board just approved another six at its Aug. 23 meeting, four of them in Anchorage, where the saturation of retail pot shops is concerning to some residents; there’s more than one store for every 1,700 Alaskans (based on 410,000 Alaskans over the age of 21.)

Alaska’s weight-based excise tax is collected on the first sale of cannabis from a cultivator to a manufacturing facility or retail outlet. After that, there’s no further cannabis tax, but the tax burden is passed along to the consumer, and some cities collect additional sales tax. There are different rates for different parts of the plant, including a $50 per ounce tax on the flower.

Cannabis taxes contributed just $29 million in state revenue in 2022, amounting to 1.2% of all state revenue. At the same time, the industry paid $48.3 million in wages.

One pioneer cannabis grower wrote to the Commerce Committee that the high taxes drove him out of the business, and that he would support a retail-based sales tax, so long as it was not exorbitant.

“My limited Cultivation facility opened in 2016, paid hundreds of thousands to the state of Alaska for excise tax, and went out of business last year at a loss. We operated a clean, well run facility for years, paid all taxes to the state on time, and supported 2 full time employees. What happened?” wrote one grower.

“The current flat tax structure is much too high — $800 tax per pound of bud, $400 per pound of immature bud, $240 per pound of trim,” he wrote.

Wholesale prices have been consistently falling, he said, which increases the percentage of excise tax percentage in the overall price. Current tax paid by cultivators ranges between 25%-60% of the wholesale price.

“The little bit left over does not leave enough to pay the cost to produce the product and make a profit,” he said. “Many Retailers are constantly driving down the price they are willing to pay for wholesale product, without passing these lower prices on to the consumer. The cultivator is left with the $800/lb tax regardless if a pound sold wholesale for $3000 or $1000.”

In addition, growers have a very short outdoor growing season, not sustainable in Alaska with cooler weather and daylight hour changes. This forces most growers to operate indoors and pay high cost for power.

“Some Alaskans like myself pay 27 cents/kwh, let’s compare this to Oregon where the cost is 9 cents/kwh and there is a lengthy outdoor growing season to take advantage of,” he said.

The highest excise tax in the country, the high energy rates, and all other factors driving up the costs, he said, mean “Alaskan cultivators are being strangled out of business.”

But if the retail tax is too high, it could drive the business back to the black market, where people can make a higher profit, he warned.

However, another grower said the current excise structure is proper, and that those who have gone out of business have only themselves to blame.

“There are a lot of cannabis cultivators that are way behind on their tax bills both State and Federal, and those reason often are due to mismanagement of those companies. If a cultivator grows a sub-par product and cannot charge top price that burden is on the cultivator, not the retailer.

“The fact is, quality cultivators are charging top shelf prices per-pound up to $3500, and they can not produce enough. Cultivators who are growing a sub-par product are charging up to $2500 per-pound. The solution for any cultivator is not to pass on your tax burden to the consumer, but to cultivate a quality product that can be sold at a premium price. As with any industry, the Invisible Hand is the best at regulating a free market and this is proven by cultivators that are operating/marketing a quality product, they will outlast the competition,” wrote a Seward business owner opposing the change. His letter was also sent by a few others in the field, verbatim.

Although the letter opposing the change agrees that cannabis growers are paying too much in the per-pound excise tax, a 3% tax would be complicated because some cities already have a basic sales tax, such as the City of Seward, which charges 7% on sales inside city limits, whereas Soldotna and Kenai have a 3% sales tax and Anchorage has a 5% cannabis sales tax.

“The implementation of an additional 3% tax instantly puts some business financially ahead of others,” the letter said.

Read the letters in favor and opposed to the HB 119.

35 COMMENTS

  1. Where’s the data on many of them returning to the black market from?
    If that’s true, then it seems like more taxes would drive even more to the black market.
    It’s not like a huge black market existed before. All kinds of people just grew their own and shared with their friends and or relatives. Either way, people that want cannabis products are not going to stop using it. It’s not going to stop people from just growing their own personal use either.. too many people live way in the backwoods where it’s easily done.

    • It is my understanding that California faces some of the same issues. Many black market growers have been doing that for decades. They have loyal clientele and saw no reason to pay taxes and jump through regulatory hoops.
      The best reason to legalize is to limit availability to minors by putting the black market out of business. That can only be done by undercutting the black market by reducing taxes and legally closing illegal commercial production. I haven’t heard of the latter at all in years.
      The one guys argument about quality and price cuts both ways, poor product begets a lower price, capitalism but some folks think 18 to 20 plus bucks a gram is a bit ridiculous. The tax is too high.

  2. Taking Drugs is bad for you whether its legal or not. There are better healthier ways to alleviate pain and sometimes it’s the struggle we need to pull us closer toward Jesus who brings and sustains peace through the suffering.
    Just Say No! Red Ribbon Rally is this October.

    • Smoking taxes or are the taxes smoking?? I didn’t know taxes could get high! Not.
      Sounds like the growers have been sampling their product…

  3. Most cannabis outfits are run by Democrats. That’s who they cater to. Studies show that long-term cannabis use will lead to mental illness. No need to further expound.

    • Cannabis consumption is a Democrat activity? People are either Democrat or Republican? Prescription poison drugs, opiate pain killers, and Mrna toxic vaccines are legitimate and cannabis is bad? Studies show alcohol and pain killers lead to mental illness, addiction, violence and pre mature death.

    • Do you have stats on that?

      I’m sure they are in Juneau, but that’s mostly be because nearly everyone is liberal.

      • Most cannabis operations are busiest in the evenings after dark, when customers aren’t seen and license plates are fairly hidden. A Democrat predisposition? Certainly. Sneaky little bastards running around in the dark, lighting up, and stuffing ballot boxes.

        • Could it be that many of those who shop at the stores in the evening are gainfully employed and that is when they get the chance to go to the cannabis shops?

          It could also be said that liquor stores are busiest in the evenings after dark, when customers aren’t seen and license plates are fairly hidden?

          And by your comment, you have never been to a cannabis shop after dark, as their parking lots and building are very well lit and secured by cameras that are accessible by the State of Alaska AMCO offices 24-7-365. Kinda important with an all cash business

  4. The last thing we need is to make it more profitable so we can have two pots on each city block. Sorry, but as far as I am concerned, the taxes raised do nothing to help anyone. The whole town smells like a skunk. Wonder why no one is working? Pretty easy to guess!

    • The Anchorage unemployment rate (July 2023) was 3.2%. Seems like most of the town is working at the moment. Including some in pot shops.

    • Yeah, Judy, what IS up with today’s pot being so virulently SKUNKY?!
      I NEVER encountered marijuana that smelled even remotely like that back in the 1980s.
      It is indeed a disgusting turn-off, and just to re-emphasize the point: Hey, potheads, you REEK!

  5. The politicians can’t get it right yet they sit in office dreaming up ways to take more money from the flock.

  6. Your math is incorrect. 410,000 divided by 240 shops equals one shop per 1708 eligible residents.
    My next calculation will demonstrate how the Dividend will eat up the Permanent Fund due to low stock returns for the foreseeable future.

    • I was driving up to Hatcher Pass in June when I smelled what I thought was a roadkill skunk. Turns out a second drug house opened up right across the street from the one that’s been there for awhile, just past Wasilla Fishhook Rd. It smelled absolutely disgusting. That crap literally smells like a skunk.

  7. Do we really need to make death and destruction cheaper, so those who profit off of other’s misery can make more?

    • Are you referring to the large pharma companies subsidized monopoly on the toxic Mrna shots mandated and implemented by federal and state governments on us? Or the rampant distribution of opiate based pain killers by physicians who are given financial incentives by the pharma drug companies to push their products in “health” clinics and hospitals?

  8. It matters not what the tax structure is, for government will find a way to mismanage the money paid. Every time.

  9. Com’On Now!!! … We’re honestly thinking of lowering taxes on a ‘questionable’ industry that provides extremely ‘questionable’ benefits to Alaska and Alaskans? In reality, we should be focused on lowering taxes – royalties on the Oil & Gas Industry who provide meaningful jobs and contribute to the overall economic general commerce. Incentivizing “all” resource development industries to invest further within the state, reducing regulations, and fast-tracking permitting.

  10. A point of sale tax is the most efficient and revenue growth path forward for any product in a Capitalist supply/demand economy

  11. I love this! Best laugh I’ve had in a quite a while! All of those arguments I had with ‘pro pot’ types about leaving marijuana decriminalized and hearing how much better it would be with marijuana legalized. Now look what happened! Everything we said would happen, has taken place. People set up shops long before permitting was in place. Pot shops are unable to use federally insured banks/credit unions to deposit business money as the feds still have marijuana as a controlled substance. Then, ALL the believers decided that they needed their very own pot shop, so they now have an overcrowded business environment. And finally, they are NOW complaining about paying taxes! Ha! Well, welcome to the legal side of business.

    • Ahhh – I love it when supposed “conservatives” support high taxes as long as it is on someone else… classic.

      No business in this state, except for the oil companies, are taxed as heavily as the cannabis industry. Without counting the hidden and indirect taxes (gas tax, property tax, etc), approximately 75% of money spent at the retail level is collected in some sort of directly paid tax (excise, $800/lb; local POS tax, 5%; IRS with 280E, about 60% of gross).

      On top of that, those not paying the tax (the black market) thrives, due to the extreme economic advantage that they have relative to the legal businesses – and I didn’t even talk about the exorbitant licensing and testing fees ($7000 annually per license, $500 testing for each batch/strain).

      If you’re gonna play fiscal conservative, you need to be consistent, regardless if it comes out of your pocket or not.

      More taxes leads to more government, which is why we “can’t have nice things”.

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