Legislature(2017 - 2018)HOUSE FINANCE 519

02/06/2018 01:30 PM FINANCE

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Public Testimony --
Heard & Held
-- Public Testimony --
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 273                                                                                                            
     "An Act extending the termination date of the                                                                              
     Marijuana Control Board; and providing for an                                                                              
     effective date."                                                                                                           
1:34:19 PM                                                                                                                    
REPRESENTATIVE SAM  KITO, SPONSOR,  introduced the  bill. He                                                                    
relayed  that the  purpose of  the  bill was  to extend  the                                                                    
termination  date for  the Marijuana  Control Board  for six                                                                    
years. He communicated that the  extension was for six years                                                                    
instead of the full 8  years, which indicated that the board                                                                    
was functioning  in the  public's interest  but acknowledged                                                                    
that  the  board  was  still in  a  "formative"  stage.  The                                                                    
current  sunset period  lasted 3  years, which  provided the                                                                    
opportunity  for the  board to  become operational  and time                                                                    
for   the  legislature   to  access   how   the  board   was                                                                    
1:35:38 PM                                                                                                                    
CRYSTAL  KOENEMAN,  STAFF,  REPRESENTATIVE SAM  KITO,  noted                                                                    
that Erika McConnell, Director of  the Alcohol and Marijuana                                                                    
Control Office (AMCO) was online for questions.                                                                                 
Representative  Wilson asked  why  the board  was not  self-                                                                    
supporting. She  ascertained that the two  boards funds were                                                                    
"mingling." She wanted  the marijuana board to  take care of                                                                    
its  own   needs.  Representative   Kito  deferred   to  the                                                                    
Department of  Commerce, Community and  Economic Development                                                                    
(DCCED) and  the legislative auditor. He  mentioned that the                                                                    
two boards  shared the same  staff and costs.  The situation                                                                    
was  unique,  and  he  was  uncertain  how  the  costs  were                                                                    
distributed.  He  explained  that general  funds  (GF)  were                                                                    
appropriated to  establish the board  and $500  thousand was                                                                    
appropriated  in  the  current fiscal  year.  The  marijuana                                                                    
board  was expected  to be  self-sustaining the  next fiscal                                                                    
year based on its fee structure.                                                                                                
Representative Wilson  thought that  the GF was  supposed to                                                                    
be reimbursed. Representative Kito  was unable to answer the                                                                    
Representative Pruitt heard that  currently the board was 70                                                                    
percent  sufficient.  He recently  read  that  "there was  a                                                                    
request to  reduce the tax"  on marijuana. He  asked whether                                                                    
the board would  be self-sustaining by FY 2020  and how that                                                                    
would happen  if the  board wanted  to reduce  its revenues.                                                                    
Representative  Kito responded  that there  were 2  distinct                                                                    
issues  to  his question.  He  elaborated  that the  board's                                                                    
responsibility was  to control  the application  process and                                                                    
ensure that  the process was fully  sustainable. The license                                                                    
fees  became designated  general  funds  (GDF) allowing  the                                                                    
board access to the funds  for its budget. The marijuana tax                                                                    
set at $50  per ounce was deposited into the  GF and was not                                                                    
governed or accessible by the board.                                                                                            
1:39:15 PM                                                                                                                    
Representative Pruitt asked if  the board was confident they                                                                    
would   be  able   to  be   self-supporting   by  FY   2020.                                                                    
Representative Kito deferred to Ms. McConnell.                                                                                  
ERIKA  MCCONNELL, DIRECTOR,  ALCOHOL  AND MARIJUANA  CONTROL                                                                    
OFFICE  (via teleconference),  indicated that  the marijuana                                                                    
board  was   expected  to  be   financially  self-supporting                                                                    
through license and application fees by FY 2020.                                                                                
Representative  Pruitt wondered  whether the  licensing fees                                                                    
would be lowered  in the future or if the  fees would remain                                                                    
the same for  a period to potentially build up  an excess of                                                                    
funds.  He asked  what the  board  would do  with an  excess                                                                    
funds.  Ms. McConnell  responded  that it  was difficult  to                                                                    
guess whether  the fees would  need to be raised  or lowered                                                                    
in the  future. The board  would evaluate the  fee structure                                                                    
on    a   yearly    basis   to    ensure   self-sufficiency.                                                                    
Representative  Pruitt  thought  that  intent  language  was                                                                    
added to the budget at the  time the initial $1.5 million GF                                                                    
was  appropriated  for  start-up expenses,  which  specified                                                                    
that the GF was expected  to be reimbursed. He asked whether                                                                    
the expectation  remained and  if he  was correct  about the                                                                    
expectation  of  repayment.  Ms.  McConnell  was  unable  to                                                                    
answer the question. She would provide follow-up.                                                                               
1:43:20 PM                                                                                                                    
Representative Guttenberg acknowledged  the unique situation                                                                    
of having  one administrative entity for  two industries. He                                                                    
addressed the  audit recommendations and surmised  that some                                                                    
recommendations  were  related to  "conflicting  priorities"                                                                    
between the  boards. He asked whether  Ms. McConnell engaged                                                                    
in  discussions about  or  saw a  future  where both  boards                                                                    
would "stand alone." Ms. McConnell  replied that currently 2                                                                    
separate  boards  existed. She  wondered  if  he was  asking                                                                    
whether  both  boards   would  be  combined.  Representative                                                                    
Guttenberg  clarified  that he  was  referring  to AMCO.  He                                                                    
wondered  whether there  were  any  conflicts of  priorities                                                                    
because of the shared staff.  Ms. McConnell replied that the                                                                    
answer was  a policy call  for the legislature.  She related                                                                    
that the staff  worked very hard to meet  the priorities for                                                                    
both  boards  and  that  things  were  operating  well.  She                                                                    
reiterated that  if the legislature  wanted to split  up the                                                                    
support  staff,   the  action   would  be  a   policy  call.                                                                    
Representative   Guttenberg   referred  to   recommendations                                                                    
regarding  timing and  following up  on investigations  in a                                                                    
timely manner.  He wondered if  she needed  additional staff                                                                    
to  support the  marijuana  board.  Ms. McConnell  explained                                                                    
that the recommendation  regarding creating a prioritization                                                                    
plan for enforcement applied to  both boards. The office had                                                                    
8 enforcement  staff for a  "very large state."  The support                                                                    
staff recognized  the level of  resources available  and was                                                                    
working diligently to  address the recommendation concerning                                                                    
health and  safety. She  related that  AMCO agreed  with the                                                                    
auditor's recommendation for a written prioritization plan.                                                                     
Co-Chair  Seaton  acknowledged   that  Representative  Grenn                                                                    
joined the meeting.                                                                                                             
1:47:25 PM                                                                                                                    
Representative Wilson referred to  page 8 of the Legislative                                                                    
Audit  [A  Sunset  Review of  the  Department  of  Commerce,                                                                    
Community,  and  Economic   Development,  Marijuana  Control                                                                    
Board  October 6,  2017 Audit  Control Number:  08-20100-17]                                                                    
(copy on file). She read the following:                                                                                         
     Additionally,  as included  in AMCO's  FY 17  operating                                                                    
     budget,3  it  is the  intent  of  the legislature  that                                                                    
     application  and  licensing  fees  cover  the  cost  of                                                                    
     regulation  and   recover  unrestricted   general  fund                                                                    
     appropriations  made   while  the  program   was  being                                                                    
Ms.  McConnell  replied that  the  board  was not  currently                                                                    
reviewing  fees  and she  would  follow-up  with a  plan  to                                                                    
reimburse the initial operating costs.                                                                                          
Representative   Kito  interjected   that  the   legislature                                                                    
authorized  the  board's  expenditures.  He  suggested  that                                                                    
additional legislative authorization might  be required if a                                                                    
board  was  spending  money  to reimburse  the  GF.  He  was                                                                    
uncertain whether  a board  could statutorily  reimburse the                                                                    
Representative  Wilson commented  that the  repayment was  a                                                                    
cost and doubted additional authorization was required.                                                                         
Representative  Thompson understood  that  other boards  did                                                                    
not  have  their  own  investigative  staff.  Ms.  McConnell                                                                    
responded   that  AMCO   had  8   investigators  on   staff.                                                                    
Representative  Thompson deduced  that other  boards had  to                                                                    
reimburse  for  investigative time  but  AMCO  would not  be                                                                    
accessed   additional    investigative   fees    since   the                                                                    
investigators  were on  AMCO's  staff and  already paid  for                                                                    
their work.                                                                                                                     
1:50:22 PM                                                                                                                    
Vice-Chair  Gara  suggested  that when  the  initiative  was                                                                    
passed  it was  estimated that  marijuana tax  revenue would                                                                    
generate $4 million  or $7 million in tax  revenue. He asked                                                                    
for  the  amount  of  tax revenue  generated  to  date.  Ms.                                                                    
McConnell reported  that through  the end of  December taxes                                                                    
collected to  date were $6.314  million. She  clarified that                                                                    
the amount was collected  from October 2016 through December                                                                    
2017. Vice-Chair  Gara voiced that the  initiative should be                                                                    
honored as written. He asked  whether she was concerned that                                                                    
the board  had been  too strict  when issuing  licenses. Ms.                                                                    
McConnell did not think the  board had been too strict. They                                                                    
had approved  95 percent to  97 percent of  the applications                                                                    
1:52:56 PM                                                                                                                    
Representative Guttenberg knew that  the industry had a plan                                                                    
to change  the tax  structure that did  not lower  taxes. He                                                                    
inquired  whether  the  industry had  approached  the  board                                                                    
regarding   taxes.   Ms.    McConnell   responded   in   the                                                                    
affirmative. She  delineated that about two  weeks prior the                                                                    
board decided to draft a  resolution that suggested changing                                                                    
the tax from an excise  tax to a percentage-based sales tax.                                                                    
The resolution  would be reviewed  and voted on at  the next                                                                    
meeting in April 2018.  Representative Guttenberg asked what                                                                    
the expected impact  would be on revenue.  Ms. McConnell was                                                                    
unaware  of  what  the percentage  would  be.  She  informed                                                                    
committee members that the concern  over a flat tax was that                                                                    
it kept  the wholesale price artificially  high. The current                                                                    
wholesale price was $800 per  pound. She noted that in other                                                                    
legalized states the marijuana  wholesale price was $100 per                                                                    
pound. The  issue for the  board was  to allow the  price of                                                                    
marijuana to naturally fluctuate with supply and demand.                                                                        
KRIS  CURTIS,   LEGISLATIVE  AUDITOR,  ALASKA   DIVISION  OF                                                                    
LEGISLATIVE AUDIT, reminded members  that the purpose of the                                                                    
audit was  to determine  whether the  board was  meeting its                                                                    
mission of  serving the public's  interest. She  referred to                                                                    
the Background Information section on  page 3 and noted that                                                                    
the section summarized the boards implementation process.                                                                       
Ms.   Curtis  read   from  the   Legislative  Audit   Report                                                                    
Conclusions on page 5:                                                                                                          
     Overall, the  audit concludes the board  is serving the                                                                    
     public's  interest by  effectively licensing  marijuana                                                                    
     establishments and developing  and adopting regulations                                                                    
     necessary  to implement  statutes  that  allow for  the                                                                    
     cultivation,  manufacture,  and  sale of  marijuana  in                                                                    
Ms. Curtis  reported that the  audit recommended  a six-year                                                                    
extension. She  characterized the  findings of the  audit as                                                                    
"positive."  She   continued  to   read  from   the  audit's                                                                    
     Board  operations   were  conducted  in   an  effective                                                                    
     manner.  The audit  found that  from July  2015 through                                                                    
     April 2017, the board held  21 meetings and met in each                                                                    
     judicial  district of  the state  during calendar  year                                                                    
     2016  as  required  by  statute.  Board  meetings  were                                                                    
     public  noticed  and  each  meeting  allowed  time  for                                                                    
     public  comment.  The  audit   also  found  that  board                                                                    
     membership and  composition complied with  statutes and                                                                    
     a  quorum  was  consistently  met. The  board  met  its                                                                    
     statutory  mandate to  adopt regulations  necessary for                                                                    
     implementing statutes.1 Significant  regulations (3 AAC                                                                    
     306)  specify requirements  for the  issuance, renewal,                                                                    
     suspension, and revocation  of registrations to operate                                                                    
     marijuana     establishments;    qualifications     for                                                                    
     registration;   and   a    schedule   of   application,                                                                    
     registration, and renewal fees.  The board also amended                                                                    
     regulations  to clarify  submissions to  the board  and                                                                    
     conduct  of board  meetings.  Regulatory additions  and                                                                    
     changes  during the  audit period  were public  noticed                                                                    
     according  to  the  Administrative Procedures  Act.  To                                                                    
     help   evaluate  board   effectiveness,  surveys   were                                                                    
     conducted as  part of the  audit. A survey was  sent to                                                                    
     101 licensees  and 71 (70 percent)  responded. A second                                                                    
     survey  was sent  to 16  local governments  that had  a                                                                    
     license  issued  in  their   jurisdiction  and  14  (88                                                                    
     percent)  responded.  Licensee   and  local  government                                                                    
     survey  questions   and  responses  are   presented  as                                                                    
     Appendices B and C of  this report. One hundred percent                                                                    
     of local  government survey respondents and  75 percent                                                                    
     of  licensee  survey   respondents  rated  the  board's                                                                    
     overall  effectiveness in  serving the  public interest                                                                    
     as effective or very effective.                                                                                            
      Additionally,  93 percent  of local  government survey                                                                    
     respondents   rated   the  board's   effectiveness   in                                                                    
     enforcing  marijuana  laws in  their  area  as good  or                                                                    
Ms. Curtis cited a table on  page 8, titled "Exhibit 2" that                                                                    
reported  the  board's  licensing activity  from  July  2016                                                                    
through April  2017. She  noted that  122 licenses  had been                                                                    
issued during  the time  and 80  percent of  licensee survey                                                                    
respondents  rated  their  overall licensing  experience  as                                                                    
good  or  excellent.  She   addressed  the  application  and                                                                    
licensing fees and read the following:                                                                                          
     Additionally, as included in AMCO's FY 17                                                                                  
     operating budget,3 it is the  intent of the legislature                                                                    
     that application                                                                                                           
     and  licensing fees  cover the  cost of  regulation and                                                                    
     unrestricted  general  fund appropriations  made  while                                                                    
     the program                                                                                                                
     was  being established.  AMCO staff  has implemented  a                                                                    
     process  for tracking  both revenues  and expenditures,                                                                    
     but reported it is                                                                                                         
     too early in the development  of the board to determine                                                                    
     the current fees are set  at sufficient levels to cover                                                                    
     the cost of                                                                                                                
     regulating  the  marijuana  industry.  AMCO  management                                                                    
     to be  fully funded  by application and  licensing fees                                                                    
     by FY 20.                                                                                                                  
Ms. Curtis  pointed to "Exhibit  3" on page 9  and mentioned                                                                    
that  the  table presented  a  schedule  of application  and                                                                    
license fees  established by the board.  She elaborated that                                                                    
the audit contained 4 recommendations  beginning on page 11.                                                                    
She  moved  to Recommendation  1,  "The  board members,  the                                                                    
Alcohol  and  Marijuana  Control  Office  (AMCO  or  control                                                                    
office)  director, and  enforcement  supervisor should  work                                                                    
together  to  formally  establish  an  enforcement  plan  to                                                                    
direct   limited  enforcement   resources."  She   read  the                                                                    
     The  audit   identified  the  enforcement   section  is                                                                    
     operating  without a  formally established  enforcement                                                                    
     plan. Neither  the Marijuana Control Board  (board) nor                                                                    
     AMCO   director  had   considered  the   need  for   or                                                                    
     importance of  establishing enforcement goals  or plans                                                                    
     to  ensure  the  effective  allocation  of  enforcement                                                                    
     Per AS 17.38.121,  the board is vested  with the powers                                                                    
     necessary to enforce laws related  to marijuana and may                                                                    
     employ  enforcement  agents   and  staff  it  considers                                                                    
     necessary  to  carry  out its  duties.  The  board  has                                                                    
     tasked the enforcement  section with the responsibility                                                                    
     of detecting  violations and enforcing  marijuana laws.                                                                    
     By not  formally establishing an enforcement  plan, the                                                                    
     enforcement  section has  no guidance  for prioritizing                                                                    
     its  limited  resources  and  runs   the  risk  of  not                                                                    
     adequately protecting the public.                                                                                          
Ms. Curtis  moved to Recommendation  2, "The board  and AMCO                                                                    
management  have not  maintained  a process  to monitor  and                                                                    
track all  actions taken  on complaints  to ensure  they are                                                                    
resolved in a  timely manner." She noted that  the first two                                                                    
recommendations also  applied to  the Alcohol  Control Board                                                                    
audit. She read the following from the audit"                                                                                   
     The  board does  have a  process to  receive complaints                                                                    
     from  licensees,  law  enforcement  agencies,  and  the                                                                    
     general  public through  their  website, telephone,  or                                                                    
     emails; however,  complaints are  only tracked  if they                                                                    
     result in an  inspection or investigation. Furthermore,                                                                    
     the  basis for  a decision  not to  investigate is  not                                                                    
     documented and maintained.                                                                                                 
     According  to   AMCO  staff,  a  process   to  log  all                                                                    
     complaints   received   previously  existed   for   the                                                                    
     Alcoholic  Beverage Control  Board;  however, when  the                                                                    
     Marijuana    Control   Board    was   created,    staff                                                                    
     responsibilities  were realigned,  and the  maintenance                                                                    
     of the complaint log took  a lower priority compared to                                                                    
     new   responsibilities    associated   with   marijuana                                                                    
     By not tracking complaints,  there is an increased risk                                                                    
     that board staff may  not investigate complaints and/or                                                                    
     not  investigate complaints  in a  timely manner.  Such                                                                    
     instances   could  reduce   the   board's  ability   to                                                                    
     effectively   enforce  marijuana   laws.  Additionally,                                                                    
     complaints  received   directly  by  board   staff  via                                                                    
     telephone or email  may never be resolved  in the event                                                                    
     of staff turnover.                                                                                                         
Ms.  Curtis reviewed  Recommendation 3,  "The AMCO  director                                                                    
should  develop  written  procedures  for  establishing  the                                                                    
expiration  dates of  marijuana handler  permits and  ensure                                                                    
staff receive  the appropriate training." She  conveyed that                                                                    
47 of  53 marijuana  handler permits  tested were  issued by                                                                    
AMCO   with  incorrect   expiration   dates.  The   auditors                                                                    
discovered  that  the  errors  resulted  from  the  lack  of                                                                    
written procedures and  insufficient training contributed to                                                                    
AMCO staff's varying  interpretations for calculating permit                                                                    
expiration  dates  and  felt  that the  issue  was  easy  to                                                                    
remedy. She  turned to Recommendation 4,  "The AMCO director                                                                    
should  develop and  implement procedures  to segregate  the                                                                    
duties  for   calculating  and   remitting  fees   to  local                                                                    
governments." She read the following:                                                                                           
     AMCO  management does  not adequately  segregate duties                                                                    
     over   remittances  of   application   fees  to   local                                                                    
     governments.  The  audit  found one  AMCO  employee  is                                                                    
     responsible for  calculating and approving  the amounts                                                                    
     to be  remitted to  local governments, and  no separate                                                                    
     review is performed.                                                                                                       
     Upon  receipt  of  a new  or  renewal  application,  AS                                                                    
     17.38.200(c) requires the  board to immediately forward                                                                    
     a   copy  of   each   application  and   half  of   the                                                                    
     registration  application fee  to the  local regulatory                                                                    
     authority  for  the  local   government  in  which  the                                                                    
     applicant   desires    to   operate.    Management   is                                                                    
     responsible  for  establishing   internal  controls  to                                                                    
     ensure  fees   remitted  are  accurate   and  complete.                                                                    
     Segregation  of duties  is a  key internal  control for                                                                    
     appropriately receiving and distributing funds.                                                                            
Ms.  Curtis  delineated  that $113  thousand  in  fees  were                                                                    
remitted to local governments. She  believed the issue would                                                                    
be  easily  solved.  She  indicated  that  the  department's                                                                    
response was  located on  page 33  and the  board's response                                                                    
was on page 35 and both  DCCED and the board agreed with all                                                                    
the recommendations.                                                                                                            
2:00:37 PM                                                                                                                    
Co-Chair Seaton  announced that  Co-Chair Foster  joined the                                                                    
meeting and handed the gavel over to Co-Chair Foster.                                                                           
Representative  Kawasaki referred  to the  Recommendations 1                                                                    
and 2.  He asked  whether the  alcohol board  was supporting                                                                    
the  marijuana board's  enforcement duties  under AMCO.  Ms.                                                                    
Curtis replied  that the board  was partially covered  by GF                                                                    
but  was   able  to  track   the  activity  for   the  board                                                                    
separately.   Representative   Kawasaki   wondered   whether                                                                    
statute dictated  that both boards "must  have receipts that                                                                    
support the services they provide."  Ms. Curtis deferred the                                                                    
question to the auditor who lead the audit.                                                                                     
Representative  Kawasaki  repeated  his question  and  asked                                                                    
whether both the  alcohol and marijuana boards  "had to seek                                                                    
the same receipts? to make the board work."                                                                                     
CHRISTINE  LUMBA, AUDITOR,  LEGISLATIVE AUDIT  DIVISION (via                                                                    
teleconference),  answered   that  no   "explicit  statutory                                                                    
requirement"  existed   but  noted  the  existence   of  the                                                                    
legislative intent  language. Representative  Kawasaki asked                                                                    
if the same  requirement applied to a  business license. Ms.                                                                    
Lumba   replied  that   the   marijuana  statutes   included                                                                    
authority for  the board to  employ enforcement  agents that                                                                    
were considered necessary to carry out their purposes.                                                                          
2:04:24 PM                                                                                                                    
Representative   Kawasaki  questioned   whether  a   statute                                                                    
prohibited colleting  revenues more than what  was necessary                                                                    
to address  the board's  recommendations. Ms. Lumba  was not                                                                    
unaware  of any  statutory requirements  relating to  excess                                                                    
fees.  Representative  Kawasaki  thought  that  occupational                                                                    
licensing  seemed  different   from  the  marijuana  license                                                                    
because fees  were expected to cover  enforcement. Ms. Lumba                                                                    
agreed that the marijuana board  was a bit different and was                                                                    
not  under  the  Division  of  Corporations,  Business,  and                                                                    
Professional Licenses.  She explained  that both  boards had                                                                    
its own supporting office, AMCO  that employed its own staff                                                                    
to support the board's activities.                                                                                              
Vice-Chair  Gara  asked  if   the  auditors  reviewed  board                                                                    
actions  for  their legality.  Ms.  Curtis  answered in  the                                                                    
negative  and specified  that was  the case  for all  sunset                                                                    
audits.  Vice-Chair  Gara   remembered  that  the  marijuana                                                                    
initiative  authorized  the  use of  concentrates,  but  the                                                                    
board  prohibited   its  use.   He  supported  the   use  of                                                                    
concentrates for medical marijuana.  He inquired whether the                                                                    
issue  was  something an  audit  would  address. Ms.  Curtis                                                                    
responded  that during  the survey  phase of  the audit,  if                                                                    
auditors discovered that it was  an issue, Legislative Audit                                                                    
would evaluate the concern. She  noted that auditors did not                                                                    
find any issue relating to concentrates.                                                                                        
2:08:00 PM                                                                                                                    
Representative   Guttenberg    referred   to    the   audits                                                                    
recommendations  regarding  procedures  and  timeliness.  He                                                                    
asked  whether addressing  the recommendations  would create                                                                    
the efficiencies  that allowed  the board  to carry  out the                                                                    
duties specified in the audit.  He wondered whether AMCO had                                                                    
requested  authority for  additional  staff  from Office  of                                                                    
Management  and Budget  (OMB). Ms.  Curtis reported  that it                                                                    
was not something  auditors had looked at in  the audit. She                                                                    
was aware  the board had  limited resources, but  the audits                                                                    
results  were positive  consequently, the  audit focused  on                                                                    
how  the  board  was  using its  limited  resources  and  if                                                                    
improvements could  be made within the  resources available.                                                                    
Representative  Guttenberg  asked   if  the  recommendations                                                                    
could be  mitigated with the board's  current resources. Ms.                                                                    
Curtis reported  that the survey results  were positive, and                                                                    
the audit found that the board was operating effectively.                                                                       
Co-Chair Foster  asked Ms. McConnell  to address  the fiscal                                                                    
2:10:24 PM                                                                                                                    
Ms. McConnell  reviewed the fiscal note.  She explained that                                                                    
the previously  published fiscal  impact note for  DCCED FN1                                                                    
(CED) appropriated to  AMCO requested a total  of $1.815 for                                                                    
$920  thousand in  Personal Services,  and  $73 thousand  in                                                                    
travel  expenses. She  reminded committee  members that  the                                                                    
board  was mandated  to meet  in each  judicial district  at                                                                    
least once per  year and the board had a  minimum of 5 board                                                                    
meetings  per  year.  She  added   that  $750  thousand  was                                                                    
allocated to services  that included Information Technology,                                                                    
support  from  DCCED  and  the   Department  of  Law  (DOL),                                                                    
administrative  hearing  services  from  the  Department  of                                                                    
Administration, leases,  and meeting space  rental. Finally,                                                                    
$71  thousand was  the total  for Commodities  like printing                                                                    
regulation books, cleaning and  office supplies, etc. The FY                                                                    
2019  request  included   $523.8  thousand  in  Unrestricted                                                                    
General Funds  (UGF). She relayed  that UGF was  expected to                                                                    
be zero in outlying years  and anticipated the program would                                                                    
be fully supported by program receipts by FY 2020.                                                                              
Representative   Pruitt  asked   whether  she   foresaw  any                                                                    
increase in  costs for personal  or other services  over the                                                                    
timeframe on the  fiscal note. Ms. McConnell did  not have a                                                                    
sense of what would be  needed in the future. Representative                                                                    
Pruitt  wanted to  ensure they  were  currently setting  the                                                                    
right fees  to recover costs.  He expected that  costs would                                                                    
increase, and  wanted the  scenario considered  when setting                                                                    
licenses and application fees.                                                                                                  
Co-Chair Foster OPENED Public Testimony.                                                                                        
2:12:43 PM                                                                                                                    
BRUCE  SCHULTE, CAMPAIGN  TO  LEGALIZE MARIJUANA,  ANCHORAGE                                                                    
(via teleconference), supported HB  273 in its current form.                                                                    
He  commented  on the  auditor's  recommendation  to have  a                                                                    
concise   policy  on   enforcement.   He   hoped  that   the                                                                    
recommendation became a "priority"  for the board. There had                                                                    
been occasions  where a "somewhat  objective interpretation"                                                                    
of regulation  or statute had been  enforced, which "created                                                                    
some  angst" amongst  the industry.  He  indicated that  the                                                                    
board  granted  "fairly   broad  authority"  to  enforcement                                                                    
staff,  which   created  some  problems.  He   thought  that                                                                    
addressing   enforcement   would  reestablish   "trust   and                                                                    
credibility" with  industry. He commented about  testing. He                                                                    
informed  the committee  that presently,  there were  only 2                                                                    
labs  in  the  state.  He  reported  that  a  committee  was                                                                    
established  to  address  the   issue.  He  hoped  that  the                                                                    
committee   would  develop   positive  recommendations.   He                                                                    
suggested  that  one  remedy  would  employ  existing  state                                                                    
laboratory  resources as  third-party validations  for these                                                                    
labs.  He wished  that the  legislature  would consider  the                                                                    
option  and provide  funding. However,  he agreed  that "the                                                                    
effort needed to be  self-sustaining." Finally, he commented                                                                    
on taxes. He mentioned  that the ballot initiative specified                                                                    
a $50  per ounce excise tax  that equated to $800  per pound                                                                    
cost.  He  indicated that  a  change  in  the tax  was  only                                                                    
possible  via   legislative  action.  The   initiative  also                                                                    
authorized the  Department of Revenue  (DOR) to  establish a                                                                    
different tax on other parts  of the plant. He detailed that                                                                    
the  board recommended  a $10  per  ounce tax  on the  lower                                                                    
quality parts of  the plant in 2015 and  DOR implemented the                                                                    
tax at $15. He was not  suggesting that the state should not                                                                    
receive revenue  from the industry but  recommended that the                                                                    
state  adopt  a  more  creative  approach  to  taxation.  He                                                                    
thought it  would translate to  more consistent  revenue for                                                                    
the  state.  He  voiced  that  by  the  following  year  the                                                                    
industry  would  have two  solid  years  of market  data  to                                                                    
examine  and  make  more informed  decisions  regarding  any                                                                    
changes to the tax structure.                                                                                                   
2:18:42 PM                                                                                                                    
Representative  Wilson asked  whether  he  thought that  the                                                                    
fees  were  adequate  to support  board  activities  without                                                                    
extra support  from the  alcohol fees.  Mr. Schulte  was not                                                                    
aware of the  exact finances of the board.  He surmised that                                                                    
her question related  to whether to separate  or combine the                                                                    
boards. He  supported the structure of  separate boards with                                                                    
a  shared staff.  Representative Wilson  commented that  she                                                                    
was  not concerned  with the  structure.  She was  concerned                                                                    
that  the  fees  were  not adequate  to  cover  the  board's                                                                    
functions. She asked  whether he had determined  if the fees                                                                    
were adequate  to cover the  needs of industry.  Mr. Schulte                                                                    
originally thought the state was  setting the fees high, but                                                                    
he  discovered that  the  fees were  necessary  to fund  the                                                                    
board's  efforts.  He  did not  think  any  licensees  would                                                                    
"balk" at the fee structure if they were treated fairly.                                                                        
Representative  Pruitt  acknowledged  that Mr.  Schulte  had                                                                    
mentioned that he  had encouraged the board  to request more                                                                    
state  support  related  to laboratory  use  and  additional                                                                    
funding to help  maintain the industry. He  asked whether he                                                                    
understood him correctly.                                                                                                       
2:24:20 PM                                                                                                                    
Mr. Schulte  replied that he  could not speak for  the board                                                                    
and  was  alluding  to  discussions  he  had  with  industry                                                                    
representatives.  He   elaborated  that  the   industry  was                                                                    
challenged  by the  limited lab  testing facilities;  only 2                                                                    
testing  sites  operated  in the  state  and  their  results                                                                    
varied, raising  the question about which  test results were                                                                    
valid. Testing could  be done in labs outside  of the state.                                                                    
In terms  of validating  actual results,  "it might  be more                                                                    
economical"  to  validate  the   results  by  turning  to  a                                                                    
laboratory  that was  not affiliated  with the  industry. He                                                                    
supported  the marijuana  industry  paying  for the  testing                                                                    
validation. However,  if using  a state  laboratory facility                                                                    
was a viable option "to  achieve surety in the public's mind                                                                    
he hoped the  legislature would be open for  a discussion on                                                                    
the matter.                                                                                                                     
MARK  SPRINGER,  CHAIRMAN,   MARIJUANA  BOARD,  BETHEL  (via                                                                    
teleconference), relayed that he  was the chairman and rural                                                                    
member  of  the  board  since  its  inception  in  2015.  He                                                                    
responded to Vice-Chair  Gara's concerns about concentrates.                                                                    
He  reported   that  the   board  did   license  concentrate                                                                    
manufacturers and  had never ruled against  concentrates. He                                                                    
reported  that the  Marijuana Control  Board had  5 members,                                                                    
met every  2 months,  and had  a "significant  workload". He                                                                    
noted  his  appreciation  of  the AMCO  staff  and  the  DOL                                                                    
counsel  of William  Milks, Attorney  V, Civil  Division. He                                                                    
believed  that the  board was  successful in  protecting the                                                                    
public's  health   and  safety  and  keeping   the  industry                                                                    
"Alaskan"  via  regulation.  He   stated  that  "as  citizen                                                                    
regulators they took  their responsibilities very seriously"                                                                    
through their  enforcement and regulatory actions.  He noted                                                                    
that  the  board  did not  regulate  medical  marijuana.  He                                                                    
reported the board  refused to license some  products out of                                                                    
concern and  caution that they were  attractive to children.                                                                    
The  board  followed the  guidelines  set  out in  the  U.S.                                                                    
Department of Justice's "Cole Memorandum".  He spoke to fees                                                                    
and pointed out that the fees  were a function of the number                                                                    
of applications received.  He did not want to  put the board                                                                    
in a position of maintaining  a quota of licenses to approve                                                                    
if the fees were calculated by the number of applications.                                                                      
2:28:06 PM                                                                                                                    
Representative Guttenberg  thanked Mr. Springer  for serving                                                                    
on the board. He referred to  the bill on hemp farming [SB 6                                                                    
(Industrial Hemp  Product.; Cannabidiol Oil -  CHAPTER 5 SLA                                                                    
18 - 04/12/2018). He noted  that a significant issue was the                                                                    
distance between  a hemp farm  and a marijuana  facility. He                                                                    
asked whether the  board had examined the issue  in terms of                                                                    
the "safety"  of marijuana  licenses. Mr.  Springer answered                                                                    
that  he had  not  looked at  that bill.    He had  received                                                                    
comments via email related to  hemp farming.  He shared that                                                                    
marijuana  licensees  had  a restricted  area  around  their                                                                    
establishments.  He   imagined  there  were   some  licensed                                                                    
individuals who would also like  to cultivate hemp. He noted                                                                    
that hemp did not appear in  the board's statute, but as the                                                                    
hemp  farming bill  progressed the  board would  learn about                                                                    
the provisions in  the bill and make  recommendations on the                                                                    
distance  issue. Representative  Guttenberg related  that in                                                                    
Colorado a marijuana facility could  not be located within 5                                                                    
miles  of a  hemp farm  and in  Canada the  distance was  10                                                                    
miles due to pollen traveling  in the air. He indicated that                                                                    
the  hemp bill  included a  provision that  both departments                                                                    
would  come up  with  a reasonable  restriction relating  to                                                                    
2:33:38 PM                                                                                                                    
JASON  BRANDEIS,   SELF,  ANCHORAGE   (via  teleconference),                                                                    
shared information  about his  professional background  as a                                                                    
Professor  of   Justice  and  Legal  Studies   and  attorney                                                                    
representing  clients  on  a variety  of  marijuana  related                                                                    
issues. He was  testifying on behalf of his  clients and the                                                                    
marijuana industry. He had monitored  the board's and AMCO's                                                                    
work  in developing  a strong  regulatory framework  for the                                                                    
marijuana  industry in  Alaska.  He believed  the board  had                                                                    
functioned  in  a  fair and  professional  manner  and  that                                                                    
maintaining the  board was necessary  to the  future success                                                                    
of  the  industry  and  ensuring  the  public's  safety.  He                                                                    
strongly supported the bill.                                                                                                    
KIM  KOLE,  SELF,   ANCHORAGE  (via  teleconference),  owned                                                                    
Raspberry  Roots, a  cultivation  and  retail business.  She                                                                    
spoke in support  of the board. She thought  it was critical                                                                    
for the  board to remain in  place as the industry  grew and                                                                    
2:36:37 PM                                                                                                                    
LEAH LEVINTON,  SELF, ANCHORAGE (via  teleconference), spoke                                                                    
in  support of  HB  273. She  owned  the business  Enlighten                                                                    
Alaska. She firmly  believed that the board  was critical to                                                                    
the development of the industry.  She though the board would                                                                    
help  keep the  industry consistent.  Her relationship  with                                                                    
the  board  had  been  very  positive.  She  reiterated  her                                                                    
support for the bill.                                                                                                           
EDWARD  MARTIN, SELF,  COOPER LANDING  (via teleconference),                                                                    
commented about  the initial chairman of  the board recently                                                                    
Co-Chair Foster  asked the testifier to  refrain from making                                                                    
negative comments about individuals.                                                                                            
2:40:40 PM                                                                                                                    
Mr. Martin continued to discuss  his disgruntlement over the                                                                    
board and the  conflicts the state had with  federal law. He                                                                    
mentioned  Mr.  Schulte's testimony  regarding  out-of-state                                                                    
testing facilities.  He stated that the  legislature did not                                                                    
approve  the  board  members replacements  and  thought  the                                                                    
approval process should happen  before considering the bill.                                                                    
He favored  the immediate authorization  of the use  of hemp                                                                    
in  the  state. He  made  comments  about  his loss  of  the                                                                    
Permanent Fund Dividend and licensing.  He continued to make                                                                    
comments  unrelated to  the topic  of HB  273. He  requested                                                                    
that the legislature "get its act together."                                                                                    
2:42:42 PM                                                                                                                    
Co-Chair Foster CLOSED Public Testimony on HB 273.                                                                              
Representative Wilson asked for  a breakdown of revenues and                                                                    
expenditures for  the Alaska  Marijuana Control  Board prior                                                                    
to bringing up the bill in committee again.                                                                                     
Representative  Kito responded  that  the statute  indicated                                                                    
that the  board had  authority to set  and collect  fees and                                                                    
specific expenditures  were not  restricted. He  had learned                                                                    
that the board  had the statutory authority to  repay the GF                                                                    
start-up money. The board was  still operating with the $1.5                                                                    
million  initial funding  and was  uncertain when  the board                                                                    
could adequately "quantity their costs."                                                                                        
Ms. Koeneman  interjected that in AS.08.01.065,  the central                                                                    
licensing  statutes  that   governed  professional  licenses                                                                    
stated that the  regulatory costs must be  maintained by the                                                                    
board and  there was no  such restriction for  the Marijuana                                                                    
Control Board. She suggested that  the statute that governed                                                                    
the marijuana board AS.17.38.121  did not explicitly mandate                                                                    
that the fees  cover the regulatory costs.  She deduced that                                                                    
that  was the  reason a  breakdown  of board  costs was  not                                                                    
2:45:51 PM                                                                                                                    
Representative  Wilson  replied  that  the state  was  in  a                                                                    
financial crisis.  She was mistaken  that the board  was not                                                                    
required to  be self-sufficient but thought  that the voters                                                                    
wanted   the  industry   to   become  self-sustaining.   She                                                                    
understood that  UGF monies were  being used for  the board.                                                                    
She  wanted  assurances  that  the board  would  not  be  in                                                                    
arrears in  six years and  need GF. Ms. Koeneman  would work                                                                    
with the board to get the information.                                                                                          
Representative  Kito noted  that  the  fiscal note  included                                                                    
information regarding  an estimate of revenues  and expenses                                                                    
through  2024.  He  related  that a  more  accurate  set  of                                                                    
expenses was  not yet achievable  since a full year  had not                                                                    
been completed.                                                                                                                 
Co-Chair Foster  relayed that amendments for  the bill would                                                                    
be due on Friday, February 9 at 5:00pm.                                                                                         
HB  273  was  HEARD  and   HELD  in  committee  for  further                                                                    

Document Name Date/Time Subjects
HB273 Support letters 1.19.18.pdf HFIN 2/6/2018 1:30:00 PM
HB 273
HB273 Sponsor Statement 01.19.18.pdf HFIN 2/6/2018 1:30:00 PM
HB 273
HB273 Legislative Audit 01.19.18.pdf HFIN 2/6/2018 1:30:00 PM
HB 273
HB274 Sponsor Statement 1.29.18.pdf HFIN 2/6/2018 1:30:00 PM
HB 274
HB274 Supporting Document - 2017 Legislative Audit 1.29.18.pdf HFIN 2/6/2018 1:30:00 PM
HB 274
HB275 Sponsor Statement 01.19.18.pdf HFIN 2/6/2018 1:30:00 PM
HB 275
HB275 Legislative Audit 10.11.17.pdf HFIN 2/6/2018 1:30:00 PM
HB 275
HB275 letter of support.pdf HFIN 2/6/2018 1:30:00 PM
HB 275
HB 275 letter of support HFIN.pdf HFIN 2/6/2018 1:30:00 PM
HB 275
HB 275 Board of Massage Audit Followup Memo.pdf HFIN 2/6/2018 1:30:00 PM
HB 275