Marijuana board reverses itself on residency

In an emergency meeting, the Marijuana Control Board voted unanimously on Dec. 1 to reinstate a stricter residency requirement for marijuana business licensees, following Permanent Fund Dividend rules instead of voter registration rules.

The board also tried to loosen rules to allow more access to Outside money, but public process rules will hold that discussion until the board’s next meeting in February 2016.

The regulatory package will now move to Lt. Gov. Byron Mallot for approval pending a review by the Department of Law to make sure the regulations follow statute.

“This amendment essentially changes the residency requirements back to what were in the draft regulations,” board chairman Bruce Schulte said.

This requirement plus the definitions of financial investment satisfies the demands of some in the local cannabis industry and the board’s legal advisers, who respectively fear “Big Marijuana” investors and federal money laundering charges, but frightens others about their prospects in a small market with limited capital.

“I’m very disappointed in the inability to seek Outside investments,” said Tina Smith, chief operations officer for Midnight Greenery. “This is going to severely limit the number of licensees (applications) in February. It’s required that you already have a very significant amount of capital to even submit a license that has a chance of opening.”

The adopted regulations require a marijuana licensee to be an Alaska resident by Permanent Fund Dividend definitions. Under these rules, non-Alaskans must maintain a physical presence and Alaska address for a calendar year and not maintain residency in any other state.

Because of financial regulations, this effectively bars all transparent Outside financial contributions in the Alaska marijuana industry. According to regulations, no one can hold “direct or indirect” financial stake in an Alaska marijuana business without being listed as a licensee.

The board’s action follows a last minute amendment at its Nov. 20 meeting that opened the Alaska cannabis market to more Outside presence than stakeholders were comfortable with, and overburdened the board’s small staff. Alaskans declared it the death knell for small Alaska marijuana businesses, and board members regretted the hasty amendment as too slack.

That amendment loosened residency requirements to voter registration standards, which only require an Alaska address and a 30-day wait. Outside investors could theoretically become residents without leaving their current state, and board staff would have to verify that licensees have filled all the requirements.

“In an effort to meet some of the suggested changes,” Schulte said, “the board may have inadvertently put staff in a position where they wouldn’t be able to execute the regulations.”

After the board returned to PFD rules on Dec. 1, board member Brandon Emmett proposed an amendment that would “expand the pool of investment resources” and allow 12.5 percent Outside financial stake or ownership in Alaska marijuana businesses.

However, the board had not requested public comment for this change or announced its presence on the meeting agenda. Assistant Attorney General Harriet Milks said the board could not consider the motion without the proper public input, and Emmett withdrew the motion.

“I think the most important action today is to sign this and get it off to the lieutenant governor,” said board member Marc Springer. “We can talk about this in February.”

The combination of residency requirements and total investment prohibitions are a step in the wrong direction, according to Outside industry figures, who share the same concerns as Smith.

“That’s going to be a real problem,” said Kris Krane, former executive director for the National Organization for the Reform of Marijuana Law. “I’m sympathetic to the idea they don’t want outsiders dominating the state’s industry. But these are really expensive businesses to set up. You’d be hard-pressed to find a medium-scale cultivation operation for less than a million bucks. Some of the bigger ones are three, four million. There’s just not that much money in Alaska. How are you going to fund all that?”

In other states, marijuana policy makers have bounced back and forth between different residency requirements, trying to fine tune the balance between locals who want to roadblock out of state competitors while still allowing a path for investment dollars.

In Oregon, a bipartisan group of state representatives has publicly opposed the two-year residency requirement and 51 percent Oregon ownership regulation proposed in that state.

“Our own thinking on these issues has evolved over time,” wrote a group of legislators to the Oregon Liquor Control Commission, which oversees marijuana regulation. “We now believe that broad residency requirements and significant limits on outside investment could do more harm than good.”

Vincent Sliwoski, an attorney with Harris Moure, a Seattle firm specializing in corporate law including regulated substances, said strict residency requirements fail to keep outsiders outside. Well-financed investors find legal loopholes.

“All residency requirements do is make people find ways around them, then you get people like me,” said Sliwoski. “They’re basically creating a bunch of hoops to jump though. This sort of trade protectionist policy isn’t helpful.”

DJ Summers can be reached at daniel.summers@alaskajournal.com.

Updated: 
12/02/2015 - 2:34pm

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