Legislature(2015 - 2016)HOUSE FINANCE 519

04/13/2015 01:30 PM House FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
Moved HB 154 Out of Committee
Moved CSHB 123(JUD) Out of Committee
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 123                                                                                                            
     "An  Act  establishing  the  Marijuana  Control  Board;                                                                    
     relating  to the  powers and  duties  of the  Marijuana                                                                    
     Control  Board; relating  to the  appointment, removal,                                                                    
     and  duties of  the director  of the  Marijuana Control                                                                    
     Board;  relating  to  the  Alcoholic  Beverage  Control                                                                    
     Board; and providing for an effective date."                                                                               
CYNTHIA  FRANKLIN,  DIRECTOR,   ALCOHOLIC  BEVERAGE  CONTROL                                                                    
BOARD,  DEPARTMENT  OF   COMMERCE,  COMMUNITY  AND  ECONOMIC                                                                    
DEVELOPMENT,  discussed the  legislation. She  reported that                                                                    
HB 123 created  a five member volunteer board  that would be                                                                    
housed  under  the same  agency  as  the Alcoholic  Beverage                                                                    
Control Board  (ABC). Both boards  would share  one director                                                                    
and a staff  of 16 employees statewide who  were tasked with                                                                    
licensing, enforcement, and administrative duties.                                                                              
Co-Chair Thompson OPENED public testimony.                                                                                      
Co-Chair Thompson CLOSED public testimony.                                                                                      
Representative Wilson questioned the  fiscal note. She cited                                                                    
the $756.4 thousand appropriation  for services and wondered                                                                    
what services were included.                                                                                                    
Ms.  Franklin replied  that the  budget included  an initial                                                                    
outlay of  $500,000 for technology  to track  both licensees                                                                    
and  marijuana.  She  detailed that  the  services  category                                                                    
included  a database  for licensees  and  software to  track                                                                    
marijuana. Software called "Seed  to Sale" was available and                                                                    
was designed  to track marijuana  sold in retail  outlets to                                                                    
ensure it was legally grown.  Once the software and required                                                                    
technology was implemented the costs  in the out-years would                                                                    
be reduced.                                                                                                                     
Representative  Wilson  inquired  about the  remaining  $256                                                                    
Ms. Franklin  answered that the remainder  included expenses                                                                    
for  enforcement vehicles,  office  lease  costs, and  costs                                                                    
associated with additional employees.                                                                                           
Representative  Wilson asked  whether  eventually the  board                                                                    
costs  would  be divided  by  the  number of  licensees  and                                                                    
included in the licensing fees in 2017.                                                                                         
Ms. Franklin  replied in the affirmative.  She expected that                                                                    
the board costs would be "receipt supported."                                                                                   
Representative Wilson wondered what  the estimated cost of a                                                                    
license  would  be  based on  other  states  with  legalized                                                                    
Ms. Franklin  answered that the  closest comparison  was the                                                                    
city of Denver, Colorado with  a population of 650 thousand.                                                                    
The city  issued approximately  900 marijuana  licenses. The                                                                    
city  had 37  full-time employees  at a  total cost  of $5.9                                                                    
million  to  regulate  marijuana.  The  city  had  made  $14                                                                    
million in tax revenue in 2014.                                                                                                 
2:03:11 PM                                                                                                                    
Co-Chair Thompson OPENED public testimony.                                                                                      
LEIF  ABLE, SELF,  KASILOF  (via teleconference),  supported                                                                    
the bill. He  believed that the regulatory  structure set up                                                                    
in HB  123 was  a "good idea"  for regulating  marijuana and                                                                    
associated  costs to  the state.  He felt  Ms. Franklin  had                                                                    
done a good job educating  herself about the topic and would                                                                    
perform her duties as Chair well.                                                                                               
Co-Chair Thompson CLOSED public testimony.                                                                                      
Representative  Kawasaki related  that  the bill  delineated                                                                    
the  required  background  of  potential  Marijuana  Control                                                                    
Board  members and  noted that  the  requirements for  board                                                                    
membership were more extensive than  the ABC board and asked                                                                    
why the difference existed.                                                                                                     
Ms. Franklin answered that the  composition of the ABC board                                                                    
was designated  under Title 4  rules and was limited  to two                                                                    
members from industry  and three public member;  one of whom                                                                    
must be from a rural area.  A Title 4 stakeholders group met                                                                    
and discussed  composition of the ABC  board and recommended                                                                    
revisions that  ABC board members reflected  the composition                                                                    
and requirement  of the Marijuana  Control Board.  The group                                                                    
responded  to concerns  from the  public  safety and  public                                                                    
health partners of the ABC  board to expand the requirements                                                                    
of board members.  She noted that SB  99 (ALCOHOLIC BEVERAGE                                                                    
CONTROL;  ALCOHOL  REG)  contained  the  revised  ABC  board                                                                    
designee requirements.                                                                                                          
Vice-Chair Saddler  asked how the board  would determine the                                                                    
license fees.                                                                                                                   
Ms. Franklin  answered that the  bill contained a  $5000 cap                                                                    
on  licensing  fees. She  added  that  other fee  provisions                                                                    
required  that  half  of  the  licensing  fees  must  be  be                                                                    
refunded  to  municipalities  if   a  licensed  premise  was                                                                    
located within  a municipality. She  detailed that  fees for                                                                    
alcohol  licensing  varied   from  approximately  $1,250  to                                                                    
$3500. on  a biennial (renewed  every other year)  basis and                                                                    
increases were recommended  by the Title 4  group to reflect                                                                    
the   work  and   time  associated   with  regulation.   She                                                                    
anticipated that the marijuana fees  would cost close to the                                                                    
$5000 cap  based on sister states  (Colorado and Washington)                                                                    
that  had legalized  marijuana, the  state's alcohol  liquor                                                                    
license, and  the work involved in  licensing and regulation                                                                    
in  order for  the board  to be  properly funded  by program                                                                    
Representative  Guttenberg  wondered  about the  ability  to                                                                    
track marijuana as a new  legal industry. He wondered how it                                                                    
was  possible to  track an  industry  that was  not able  to                                                                    
bank.  He  referred  to  a   National  Conference  of  State                                                                    
Legislatures (NCSL) conference  that invited representatives                                                                    
from the  banking industry  and the  state of  Colorado that                                                                    
concluded that  the marijuana  industry was  prohibited from                                                                    
banking.  He wondered  how the  legalized states  dealt with                                                                    
receiving   money  from   an  industry   that  the   federal                                                                    
government considered an illegal source.                                                                                        
Ms.  Franklin agreed  that the  banking  industry issue  was                                                                    
challenging.  She  shared   that  initially,  the  marijuana                                                                    
industry in  the state would  be "unbanked." She  noted that                                                                    
Colorado had come  up with banking solutions  for 40 percent                                                                    
of the industry and  was considered "underbanked." The state                                                                    
would   analyze   the   Colorado  solutions   for   possible                                                                    
resolutions  in  Alaska.   The  "Cole  Memorandum"  [federal                                                                    
guidance  on   marijuana  enforcement  issues]   required  a                                                                    
"strict  enforcement   scheme  that  lessens   or  minimizes                                                                    
criminal  activity" for  states with  legal recreational  or                                                                    
medical  marijuana. The  states of  Washington and  Colorado                                                                    
had  dealt with  the banking  issue by  collecting taxes  in                                                                    
cash. The state was working  with the tax division to ensure                                                                    
that if  taxes were missed  on growing operations  the state                                                                    
had  the  statutory  authority to  collect  taxes  from  any                                                                    
licensed establishment that obtained  marijuana that had not                                                                    
been taxed. She conveyed that  the statute prevented a black                                                                    
market   or  criminality   in  the   "downstream"  marijuana                                                                    
industry  (retail shops).  She  indicated that  the Seed  to                                                                    
Sale  software  tracking system  was  an  essential tool  in                                                                    
Washington and  Colorado to ensure  that the  marijuana sold                                                                    
was  legally grown.  She believed  the task  was formidable,                                                                    
but could be achieved.                                                                                                          
Representative  Guttenberg asked  whether specific  tracking                                                                    
software existed to meet Alaska's needs.                                                                                        
Ms. Franklin  answered that there  were several  options for                                                                    
the software. She referred to  software in use by Washington                                                                    
and Colorado called "Biotrack."  Twenty-two other states had                                                                    
medical  marijuana  and  used tracking  systems.  The  board                                                                    
intended  to  research  software best  suited  for  Alaska's                                                                    
Representative  Gattis  wondered  why dealing  in  cash  was                                                                    
legal   since  cash   money  was   issued  by   the  federal                                                                    
Ms. Franklin answered  that the issue of using  cash had not                                                                    
been legally challenged for use in the marijuana industry.                                                                      
Vice-Chair  Saddler wondered  how other  states tracked  the                                                                    
sale of marijuana.                                                                                                              
Ms.  Franklin  replied  that other  states  utilized  an  ID                                                                    
tagging  system.   She  explained  that  in   legal  states,                                                                    
marijuana was  grown from cuttings from  mother plants. When                                                                    
the plant  reached 8 inches  tall the plant was  tagged. The                                                                    
tag  remained with  the product  from bud,  leaf, trim,  and                                                                    
even THC  extraction and followed it  throughout its product                                                                    
life in any form via sales.                                                                                                     
2:15:35 PM                                                                                                                    
Representative   Pruitt  referred   to   the  license   fees                                                                    
contained  in the  bill. He  acknowledged that  license fees                                                                    
were determined by the board  but felt that the state should                                                                    
benefit from the value of the licenses.                                                                                         
Ms. Franklin responded that the  ABC board had the statutory                                                                    
authority under AS  1738 to determine how  to issue licenses                                                                    
or  whether  to  issue   population  limits.  The  Marijuana                                                                    
Control  Board  would  have   the  same  authority.  Alcohol                                                                    
regulation  contained  a   population  limited  system  with                                                                    
transferability.  Discussion  among  the ABC  board  on  the                                                                    
"concept of a  secondary market value" had  taken place. The                                                                    
board  had considered  the  concept of  going  with a  high-                                                                    
quality merit  based matrix system where  an applicant would                                                                    
receive  points for  meeting qualifications.  Licenses would                                                                    
be issued to the highest  quality applicants as opposed to a                                                                    
minimum qualification  system chosen by lottery  as employed                                                                    
in  Washington  State.   The  minimum  qualification  system                                                                    
potentially lead  to businesses  least likely to  succeed or                                                                    
comply with  regulations. The merit based  matrix system did                                                                    
not  limit licenses  on  the front  end.  However, AS  17.38                                                                    
clearly   established  municipalities'   authority  to   set                                                                    
numerical  limits   on  licenses.  The  combination   of  no                                                                    
population  limits   and  a   merit  based   system  without                                                                    
transferability so that the licenses  would transfer back to                                                                    
the  state in  the event  of  a business  failure was  being                                                                    
discussed among  the preliminary regulations team  and would                                                                    
be openly  and publically  debated in the  actual regulation                                                                    
Representative  Pruitt   wondered  if  the  board   had  the                                                                    
authority to  increase licensing  fees based on  the board's                                                                    
expenses if a merit based system was adopted.                                                                                   
Ms. Franklin replied that the  license selection process and                                                                    
fee rate  were intended to  be set by regulation.  She added                                                                    
that the  $5 thousand  limit on license  fees was  placed in                                                                    
the referendum  to limit the  ability of the  legislature or                                                                    
regulatory entity to institute extremely  high fees as a way                                                                    
to discourage licensure.                                                                                                        
Representative Pruitt asked for a definition of high fees.                                                                      
Ms. Franklin  indicated that  in one  state the  initial fee                                                                    
was  $25  thousand  and naturally  limited  the  ability  of                                                                    
applicants from entering the industry.  She believed if fees                                                                    
were  set "logically"  reflecting the  board's workload  and                                                                    
services, the  fee would be deemed  reasonable. She believed                                                                    
the  fee   approach  was   supportable  versus   setting  an                                                                    
arbitrarily high fee structure.                                                                                                 
Representative Pruitt  did not want a  barrier to recovering                                                                    
licensing and regulatory costs because of the cap.                                                                              
Ms.  Franklin answered  that the  initiative  stated that  a                                                                    
regulatory  body shall  implement "reasonable"  fees not  to                                                                    
exceed  $5 thousand.  She communicated  that once  the board                                                                    
and licensure  was established and  it became  apparent that                                                                    
$5 thousand would  not cover the services  required to issue                                                                    
the licenses  the board would  take appropriate  action. She                                                                    
expressed confidence that a legal  solution could be reached                                                                    
if  the cap  was inadequate  to  cover costs  and the  board                                                                    
maintained  proof of  insufficient funds.  The division  did                                                                    
not know the cost  of regulation because marijuana licensure                                                                    
was entirely  new. The  fiscal note  costs to  establish the                                                                    
board  were  initially  much higher  and  had  been  trimmed                                                                    
because  of  the  state's  fiscal  situation.  The  division                                                                    
attempted to  implement the voter  initiative in  the safest                                                                    
way  possible for  the least  amount of  money and  keep the                                                                    
second and third year  costs conservative while implementing                                                                    
the will of the voter in a fiscally conservative way.                                                                           
Representative  Pruitt  asked  the   division  to  keep  the                                                                    
legislature apprised if the fee  was not sufficient to cover                                                                    
Representative Wilson  MOVED to REPORT CSHB  123(JUD) out of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes. There  being NO OBJECTION, it was                                                                    
so ordered.                                                                                                                     
CSHB  123(JUD) was  REPORTED  out of  committee  with a  "do                                                                    
pass"  recommendation  and  with  two  previously  published                                                                    
fiscal impact notes: FN2 (ADM) and FN3 (CED).                                                                                   
2:27:03 PM                                                                                                                    
AT EASE                                                                                                                         
2:29:23 PM                                                                                                                    

Document Name Date/Time Subjects
HB 154 Additional Documentation--ALSC Restrictions Clarification.pdf HFIN 4/13/2015 1:30:00 PM
HB 154
HB 154 Support for Senate Companion Legislation--Alaska Childrens Trust.pdf HFIN 4/13/2015 1:30:00 PM
HB 154
HB 154 Additional Documentation--Civil Legal Services Fact Sheet.pdf HFIN 4/13/2015 1:30:00 PM
HB 154
HB 154 Support for Senate Companion Legislation--Alaska Coalition on Housing.pdf HFIN 4/13/2015 1:30:00 PM
HB 154
HB 154 Support for Senate Companion Legislation--Alaska Mental Health Board.pdf HFIN 4/13/2015 1:30:00 PM
HB 154
HB 154 Support for Senate Companion Legislation--ANDVSA.pdf HFIN 4/13/2015 1:30:00 PM
HB 154
HB 154 Support for Senate Companion Legislation--Facing Foster Care in Alaska.pdf HFIN 4/13/2015 1:30:00 PM
HB 154
HB 154 Support for Senate Companion Legislation--Governor's Council on Disabilities.pdf HFIN 4/13/2015 1:30:00 PM
HB 154
HB 154 Support for Senate Companion Legislation--VCI.jpg HFIN 4/13/2015 1:30:00 PM
HB 154
HB 154 Support Letter ACoA.pdf HFIN 4/13/2015 1:30:00 PM
HB 154
CS for proposed CS HB 105 H-Fin ver N Sectional Analysis AIDEA 4-13-15.pdf HFIN 4/13/2015 1:30:00 PM
HB 105
Explaination of changes HB 105 version E to version N.pdf HFIN 4/13/2015 1:30:00 PM
HB 105
Explaination of changes HB 105 version H to version E.pdf HFIN 4/13/2015 1:30:00 PM
HB 105
HB 105 CS WORKDRAFT FIN.pdf HFIN 4/13/2015 1:30:00 PM
HB 105
HB 105 HFIN AIDEA IEP.pdf HFIN 4/13/2015 1:30:00 PM
HB 105
Waterfall Creek-King Cove HB143.pdf HFIN 4/13/2015 1:30:00 PM
HB 143
HB 105 Juneau Hydropower.pdf HFIN 4/13/2015 1:30:00 PM
HB 105
HB 190 Sponsor Statement.pdf HFIN 4/13/2015 1:30:00 PM
HB 190
HB 190 Sectional.pdf HFIN 4/13/2015 1:30:00 PM
HB 190