Marijuana board wrangles with unincorporated area licenses

As more cannabis entrepreneurs seek to open businesses all over Alaska, the Marijuana Control Board is dealing with the question of how to provide adequate process for unincorporated areas. So far, the majority of cannabis businesses are in the urban areas of Anchorage, Wasilla/Palmer, Fairbanks or Juneau. There is a smattering in smaller urban areas like Kenai/Soldotna, Homer, Bethel, Ketchikan, Kodiak and North Pole. But the board has granted a few licenses to businesses in communities that are small, unincorporated and aren’t even represented by a borough government. When applicants are looking at establishing a retail, cultivation or manufacturing facility for cannabis products, there is an extensive publishing process involving running public notices in newspapers or radio stations and providing notice to a local government, which could voice objection to a license and provide a platform for the public to testify about it. In the case of unincorporated and rural communities, there is no local government, and there may or may not be a publication of general circulation to publish a notice in. One aspiring business in Tok has explored these problems throughout the application process. 907 Promos, a holding company, bought land in Tok with the intention of opening a retail shop called “Tokin Up,” but has run into snags that have held it up since February. Because Tok does not have a local government, the owners had to obtain signatures from a majority of the residents within a five-mile radius of the proposed location for a petition to the Marijuana Control Board. Tok is a spread-out community, and the most recent complete census was done nearly 10 years ago, in 2010. Initially, the applicants used data from the Alaska Department of Commerce and Community Development, but that proved to be less than precise. Determining exactly how many people lived within the five-mile radius involved drawing a digital fence on Google Maps and dropping a pin on every single rooftop, according to a letter from Lance Christian Wells, the legal firm representing 907 Promos. “They printed off each grid section to provide a ‘current map’ of Tok,” wrote legal assistant Jessika Smith in a letter to the board. “Applicants drove up and down every street and driveway identified from the ground, satellite, or sky, knocking on doors to gain support and collect signatures.” Smith wrote that the Alcohol and Marijuana Control Office, or AMCO, had told them this process had worked in other small communities, but when they presented the map they developed as a household count, it was denied. They switched to using a mathematical model, basing a population estimate on the number of households, but it came up much higher than the census count. When they disregarded outbuildings and abandoned residences, it came up far smaller. So the applicants and AMCO approached the state demographer for help. The Alaska Department of Labor’s demographer, Eric Sandberg, estimated that there were approximately 869 people older than 21 in the area. The applicants also ran into snags with public notice, because Tok doesn’t have its own newspaper, Smith wrote. Radio stations either didn’t offer advertising or wouldn’t advertise for a cannabis facility because of their federal funding. “Seemingly out of options, licensees were able to gain approval from AMCO to provide public notice through unconventional means — by mailing public notice to each and every PO Box in Tok once a week for three weeks,” Smith wrote. “Residents do not use home addresses for mailing or have mailboxes within their community, so this should have covered everyone living in or around Tok.” Throughout the process, residents of Tok who opposed the opening of a retail facility submitted public comment to the board, with comments dating back to April. The applicants managed to gather 617 signatures as of September, with 579 needed, said AMCO Director Erika McConnell during the Marijuana Control Board’s Oct. 22 meeting. However, only 490 of those people were vetted as living within the radius and being older than 21, she said. Johnathan Guest, one of the applicants with 907 Promos, told the board they felt confident in the community support as long as the board decided on a number of signatures they needed. “We absolutely feel we can meet the standard if you allow us to add signatures after the vetted number,” he said. Board member Loren Jones said it seemed unlikely the board would run into this situation again — Tok is a fairly large community for an unincorporated one without a local government. Most unincorporated communities in the unorganized borough tend to be very small, like Naukati Bay in Southeast, where the board previously granted a limited cultivation license. Naukati Bay has a population of about 113. The board voted to postpone the decision on the petition until its November meeting, until AMCO could verify more of the signatories’ addresses. The topic of how to provide adequate voice to neighbors of cannabis establishments in unincorporated areas has come up before at the board. In 2017, Talkeetna’s first retail cannabis shop opened on its Main Street, with approval from the Matanuska-Susitna Borough. Some residents of Talkeetna, which is unincorporated, voiced opposition to it, but the borough’s code allowed it. Marijuana Control Board chairman Mark Springer said during the board’s discussion on legislative priorities that in addition to recognizing tribal governments as local governments for the purpose of protesting cannabis licenses, the state could consider nonprofit community associations — essentially, community organizations recognized by the state that represent the interests of unincorporated communities, receive state and federal grants, provide services or enter into contracts or agreements. “If we had that in Tok, we would not be having this issue right now,” he said. Other legislative priorities for the board include evaluating the current cannabis tax structure for possible reform, transporting between license types, indemnification for minors assisting in investigations, prohibiting personal solvent-based manufacturing, clarifying the personal plant cultivation limit, setting possession and transportation limits for concentrates and edibles and requiring a majority of the board to adopt regulations. Elizabeth Earl can be reached at [email protected]

House passes landmark cannabis banking legislation

A bill moving through Congress could open up a legal path for financial institutions to offer banking services to cannabis businesses. The Safe and Fair Enforcement Banking Act, HR 1595, passed the House of Representatives on Sept. 25 by an overwhelming and bipartisan vote of 321-103. The bill would prevent federal regulators from punishing financial institutions that choose to do business with cannabis establishments in states that have legalized its use. Specifically, a federal financial regulator wouldn’t be able to terminate or limit the depository or share insurance of a depository institution; prohibit, penalize or discourage financial institutions from providing services to cannabis businesses and would provide protections for ancillary businesses in transactions with cannabis-related businesses, among other protections. Federal financial regulators also wouldn’t be able to take any adverse or corrective action on a supervisory loan simply because it involves a cannabis business, an employee of one or the owner of a business working with one, according to the bill. Rep. Don Young, one of the bill’s sponsors in the House, said in a press release that his constituents highlighted the banking issue in meetings. Young, co-chair of the Congressional Cannabis Caucus, has consistently held that cannabis legalization should be up to the states, not the federal government. “When cannabis businesses are not permitted to utilize traditional financial institutions, they are forced to operate cash-only businesses, leaving significant amounts of cash out in the open and making these businesses high-profile targets for robbery and other crime,” Young said in a release. “The SAFE Banking Act is as much a public safety bill as it is a cannabis bill, and I am proud to have been an original co-sponsor of this important initiative.” Lack of access to banking is one of the biggest hurdles for the cannabis industry. Since Alaska’s industry came online in 2016, retailers have been forced to operate on a cash basis, and cultivators have had to pay their taxes in cash. In 2018, retailers conducted more than $130.4 million in total transactions, and cultivators paid more than $15.6 million in taxes, according to the Alcohol and Marijuana Control Office. Having to operate on a cash basis makes businesses more vulnerable to theft, and employees are limited in their ability to deposit paychecks earned from working with cannabis. Other financial services, like loans, are also off-limits, which hamstrings businesses from being able to operate like other retailers or farmers. Earlier this year, a handful of Alaska cannabis businesses got the chance to try a pilot program for banking through Credit Union 1, but it was short-lived. In August, the credit union announced its intentions to cancel the pilot program because a critical insurance program wouldn’t be renewed if the pilot program continued. “The Alaska Marijuana Industry Association and its members are thrilled to see the SAFE Banking Act pass the House with strong bipartisan support, and hope it will move swiftly through the Senate without hurdle,” said Lacy Wilcox, President of the Alaska Marijuana Industry Association, in a press release. A similar bill was introduced in the Senate in April with 33 co-sponsors, including Alaska Sens. Lisa Murkowski and Dan Sullivan. The Alaska delegation has generally agreed to support legislation delegating more cannabis regulation authority to states. The Senate version of the bill has not moved through hearings. Though HR 1595’s language talks about cannabis, it would also affect the hemp industry. Because of its association with cannabis — hemp is a non-THC-bearing part of the cannabis plant — hemp farmers are also not allowed to access banking services under current federal law. Industrial hemp farming itself was legalized nationally in 2018. Because of its murky legal status, hemp industry stakeholders have also reported difficulties accessing banking services. Senate Majority Leader Mitch McConnell, R-Kentucky, introduced the Hemp Farming Act of 2018, in part because of the interest in farming hemp in his home state. McConnell’s office did not return requests for comment on the SAFE Banking Act, but in previous public statements and newsletters has indicated support for banking availability for hemp-related businesses. Because cannabis is legal either recreationally or medicinally to some extent in 33 states, the District of Columbia and Puerto Rico, the American Bankers Association is encouraging the federal government to do something. The gap between federal and state law has caused confusion for financial institutions and creates risk for those who choose to provide services to cannabis businesses. “Current proposals in both the Senate and the House that seek to provide greater clarity and bridge the gap between state and federal law provide a solid starting point for discussion,” the ABA wrote in a statement. “We look forward to working with policymakers of both parties to find solutions that provide the legal and regulatory certainty banks need to best serve their communities.” The Senate is currently in recess and will return Oct. 8. ^ Elizabeth Earl can be reached at [email protected]

Marijuana board considers Outside investment in testing labs

Reversing course on an earlier policy, the state is considering allowing Outside investment in marijuana businesses. The Marijuana Control Board is seeking public comment on a set of regulations that would allow limited investment from outside the state in marijuana testing facilities. The testing facilities are a bottleneck in the state’s industry; all cannabis products bound for the retail market have to pass through a lab first. There are currently three operating testing facilities in the state: one in Anchorage, one in Wasilla and one in Ketchikan. A fourth is approved for Juneau, pending inspection, according to the Alcohol and Marijuana Control Office. One of the problems with getting more testing facilities in the state has always been the high cost of entry. In addition to the license application fee of $2,000, an operating testing facility has to employ a scientific director, who must hold a college degree in chemical or biological sciences and have a number of post-graduate scientific lab experience and conductive a comprehensive array of tests on cannabis products. The fee to renew a testing facility license is currently $2,000, but a separate proposed regulation would raise the fee to $5,000 for renewals. When the Marijuana Control Board began regulation cannabis businesses, one of the lynchpin items was that only Alaska residents could invest in or own them. Part of the reasoning was to keep an already-developed cannabis industry in the Lower 48 from swooping in and taking control of the new industry away from Alaskans. However, with limited capital available because of the state’s small population and lack of access to traditional lending methods due to marijuana’s status as a federally illegal drug, cannabis businesses have struggled to find the money to get off the ground. In 2015, the board passed a regulation allowing anyone who qualified as an Alaska voter to invest in cannabis businesses. However, the board tightened that policy later, requiring investors to qualify for a Permanent Fund dividend, a much stricter requirement. But a new regulation project would open up the opportunity for entrepreneurs applying for cannabis testing facility licenses to seek Outside investment within a number of boundaries. The Marijuana Control Board voted to send the regulations out for public comment at its meeting in Nome Sept. 11-13. The Alaska Department of Law suggested revising some of the language to make it more quantifiable than the original language, boiling it down to five conditions: whether the investor “directly contributes to improvements in the testing facility’s procedures; enables or supports hiring and retention of highly qualified employees; provides expertise not otherwise reasonably available in this state; enables the facility to obtain and maintain state-of-the-art equipment, and any other factor the board deems relevant,” according to the memo attached to the regulations. The last factor drew some attention from the board members. Member Loren Jones said he thought it was too ambiguous, allowing board members to use too much discretion. Board chairman Mark Springer said the ambiguity would provide the breadth board members would need to regulate participation in a new opportunity for investment in the industry. “We do really need the leeway to look at that investor from all sides and say, ‘Eh, maybe not,’” he said. The board also considered whether to change its policy regarding cultivator tax delinquency. During every board meeting, the members receive a packet of notices of violation — NOVs for short — that outline the business owners who have violated conditions of their licenses. Oftentimes, those NOVs have to do with cultivators who are behind on the taxes they owe to the state. Of the packet of notices the board received for the September meeting, about half were because of delinquent taxes. The main debate was whether continuing to issue notices of violation over and over again for tax delinquency is appropriate, or whether the board should look at revoking licenses. Some members suggested switching away from using NOVs for tax delinquency at all, but AMCO Director Erika McConnell said the NOVs are developed from a template and any other form of notification would be just as much or more work for staff. Board member Bruce Schulte suggested a suspension of some privileges, like transferring product, until taxes are paid rather than revoking a license. Springer pointed out that that would interrupt cash flow, which would exacerbate the problem of not being able to meet tax liability. Revoking a license would cut off the cultivator’s ability to grow or sell product to meet that tax liability as well, he said. “Especially for a small cultivator, it’s a very, very competitive marketplace, and some people as you suggested didn’t realize what they were getting into,” Springer said. “Even some standard (cultivation facilities) put a lot of investment—they either realized they couldn’t sell what they thought they could or they had crop issues.” Underlying the debate is the issue of tax structure on the cannabis industry. Cultivation excise taxes are assessed on weight alone in Alaska — as price fluctuates in the market, assessed tax obligations stay the same, cutting into cultivators’ profits. As more people have entered the industry and the prices have become more competitive, industry members have begun advocating for a change in the tax structure. The Marijuana Control Board does not have the authority to change the tax structure; that authority lies with the Legislature. Ultimately, the board agreed to continue to issue NOVs for tax delinquency, but to consider the cases of businesses that amass NOVs over time and consider taking action based on the recommendation of the AMCO director and working with the business to get on a repayment plan if possible. Elizabeth Earl can be reached at [email protected]

Schulte’s return to marijuana board restores industry influence

When the Marijuana Control Board meets this week in Nome, there will be a familiar face behind the dais again: Bruce Schulte, the board’s first chairman. Gov. Michael J. Dunleavy appointed Schulte to the Marijuana Control Board in August. The Legislature will consider his appointment for confirmation during its next session, but until then, he’ll serve in one of the board’s seats designated for a member of the public or active in the industry. That’s a change from the last time he served on the board, when he served in the seat designated for a member of the industry after helping lead the campaign to legalize recreational use. Schulte doesn’t actually have a financial stake in a cannabis business. When it was first legalized, he intended to pursue a license, but reconsidered based on the economics, he said. “I applaud the folks that have put so much time and energy and capital into this,” he said. “I want the industry to succeed, but the free market being what it is, some will succeed and some won’t. My sense is that the market is a little saturated. Already we see some people pulling out, merging forces… which is kind of what we expected to happen.” He was dismissed from the board in 2016 under former Gov. Bill Walker’s administration amid accusations of poor behavior to staff. At the time, the Alcohol and Marijuana Control Office was run by former director Cynthia Franklin, who had a somewhat combative relationship with the board and the nascent industry. Schulte said he expects to be asked about the accusations during the confirmation process but described Franklin’s behavior to the board as bullying in those days. “That led to some frustration on my part,” he said. “And rightfully so.”  In a statement provided to the Journal after publication, Franklin wrote that she was “saddened” that Schulte was engaged in “sniping about perceived slights that happened years ago.” “Although Mr. Schulte had personal power and control issues that interfered with his ability to serve in a professional manner on the board back in 2015-2016, I hold out hope that he has grown in the interim,” Franklin wrote. “Given this second chance, surely Mr. Schulte will focus on having mature interactions with the AMCO staff, industry members and his fellow board members. “In my role as director of AMCO when Alaska legalized marijuana, I did my best to balance the need to protect the nascent industry from federal overreach while giving newly licensed businesses room to grow. There were some folks determined to drive a wedge between AMCO and those new businesses, but for the most part, we managed to come together and create regulations that work for Alaska.” Franklin added that she voted for legalization and was “proud” of her work establishing the legal cannabis industry in Alaska. The Marijuana Control Board was established in 2015 after Alaskans voted in favor of Proposition 2, which legalized the recreational use of cannabis, in 2014. At first, two seats were dedicated for industry representation along with one law enforcement, one public health and one public seat. However, statutes establishing the board allowed for one of the industry seats to be a member of the public with no stake in the industry. Dunleavy initially nominated Fairbanks resident Vivian Stiver to fill a vacant seat after he decided not to reappoint industry member Brandom Emmett of Fairbanks. Industry stakeholders heavily objected to Stiver because of her earlier involvement in a citizen initiative to ban commercial cannabis operations from the City of Fairbanks. Stiver said in testimony during confirmation hearings that she intended to regulate the industry fairly at the state level, but the Legislature ultimately voted against confirming her to the seat. Dunleavy later appointed her to the board of the Alaska Housing Finance Corp. and Schulte to the seat on the MCB. The governor’s decision to appoint Schulte came after conversations with people both inside and outside the industry, said Matt Shuckerow, Dunleavy’s press secretary. Schulte’s name was included on a list of five people suggested by the Alaska Marijuana Industry Association shortly after the Legislature voted not to confirm Stiver, and while the governor ultimately chose one of the individuals on that list, he was not obligated to, Shuckerow said. “I think that the governor, in his review of all boards and commissions, has expressed a desire to have people who think innovatively, who take into consideration the different views of their communities and the whole,” Shuckerow said. “He wants someone who can think outside the box, who can bring a different perspective … My understanding on this appointment was that under Mr. Schulte’s credentials, he does qualify as a public member.” In his initial fiscal year 2020 budget, Dunleavy proposed dissolving the Marijuana Control Board and Alcoholic Beverage Control Board and consolidating the powers into the office of the Alcohol and Marijuana Control Office director. The Legislature did not accept that change, and it was ultimately removed from the budget. Shuckerow said he did not have any news about the governor’s intentions related to the boards, but that there is clearly public interest in the actions of the board, as shown by the recent public interest in proposed regulations before the Alcoholic Beverage Control Board about breweries. “More broadly, there is an examination and will continue to be an examination of boards, looking at alignment and intent and whether or not they can be changed or reformed in some manner,” Shuckerow said. “That is something that is important.” Schulte said though he’s not serving in an industry seat, he does have a clearer history of advocating for the industry than the average person. The industry has matured since the first legal sale in 2016, reaching about $130.5 million in retail sales and $15.7 million in total taxes in 2018. In some ways, that’s what early advocates envisioned, Schulte said: that cannabis would be just another industry in Alaska’s economy. There are outstanding issues facing regulators and the industry, though. At the forefront of those issues is the tax structure implemented on cultivators, which is assessed entirely on weight at a rate of $50 per pound. While advocates originally proposed that tax structure for simplicity’s sake in the initiative approved by voters, stakeholders have since raised the alarm that it will strangle cultivators as supply increases and the retail price for cannabis drops. As the price drops, the assessed tax will remain the same, as it is based on weight, cutting more and more into cultivators’ profits. Schulte said he originally supported the tax structure but now agrees that it’s a problem. However, it’s not up to the Marijuana Control Board to change it; that’s the purview of the Legislature. “As prices come down, the taxes have not changed,” he said. “In some cases, people have found that it’s impossible to be profitable. I think that that’s something that needs to be looked at. But again, the best the Marijuana Control Board can do is inform the Legislature what some of the options are and then it is up to the legislators.” On-site consumption endorsements are still an issue for the Marijuana Control Board as well, with the backdrop of a statewide indoor smoking ban complicating the landscape. The board approved endorsements in general for edible on-site consumption indoors for businesses that hold endorsements, but smoking is relegated to outdoor areas with adequate ventilation, but even that is complicated by the smoke-free workplace law. Going forward, he said he wants to see the board partner with the industry stakeholders to help them be successful in addition to being regulators. “The question I would raise in any situation is: are these folks conducting themselves appropriately in regards to regulation and statute, and what are we doing to help them be successful?” he said. “Some of these regulatory boards get too wrapped up in telling folks what they can’t do, not what we can do to make it better. I think if I were to bring any preconceived notion to the board, it would be that: what can we do to help you succeed?” Elizabeth Earl can be reached at [email protected] Editor's note: This story was updated to include a statement from former Alcohol and Marijuana Control Office Executive Director Cynthia Franklin.

Juneau Assembly gives greenlight to on-site consumption

Editor’s note: This article has been updated to clarify the American Lung Association’s position on marijuana smoke. Cannabis retailers in Alaska’s capital city will soon be able to offer spaces for customers to consume cannabis in their stores. The City and Borough of Juneau Assembly approved an ordinance last week allowing licensed marijuana retail shops to legally open on-site consumption areas. Within Juneau, smoking will be allowed in outside areas only, while edibles can be consumed indoors or outdoors. The Assembly had been discussing it for a few months, following the Marijuana Control Board’s approval of a regulations package. Lt. Gov. Kevin Meyer signed the initial regulations into law in March, allowing retailers to work on their applications for on-site consumption endorsements to be added to their licenses. The regulations became effective April 11. However, no one has made it through the rigor of the application process yet. The Alcohol and Marijuana Control Office has received two applications so far, one of which from Fairbanks has gone to the board and was denied at its July meeting, wrote AMCO Executive Director Erika McConnell in an email. The board still has an open regulations project about on-site consumption, which is set to go before the members at the September meeting, she added. “Since the adoption of the initial regulations, some issues have arisen that need clarity, so the board has opened a new regulations project to do some ‘clean up’ to those regulations,” she wrote. “That project remains open and a revised draft will be provided to the board at the next meeting.” Under proposed regulations, any retailer can open a consumption space for edibles, but in order to have an outdoor smoking space, the building has to be freestanding. The applicant that was denied, the Fairbanks Cut, made a case to the board that its building is in fact freestanding, as it’s not supported by any other structure and the only other occupants are the landlords. Correspondence from AMCO staff noted that the application would be recommended as not meeting the freestanding requirement. “We have an agreement with them that our on-site consumption area will only be open when their office hours are closed,” wrote owner Lily Bosshart in a letter to the board. “As such, on-site would be open Monday-Friday from 5:30 p.m.–Midnight, Noon–Midnight Saturday and Sunday. We share the building in a collaborative way and are both on-board with a small on-site area to be built in the parking lot.” There are a number of other particulars with the on-site consumption endorsements as well, mostly for those who wish to open smoking areas. The regulations require that an outdoor smoking area also include a ventilation system, directing the air outside the building and eliminating the odor by the time it reaches the property line. But the practical application of a ventilation system for an outdoor facility that allows smoking is still a little unclear. The Legislature passed a statewide ban on smoking in workplaces in 2018 as well. That complicated the debate about whether an indoor smoking area for cannabis was legal, whether the business wanted to allow it or not. During the Juneau Assembly’s original debate, City Attorney Robert Palmer noted that if the assembly wanted to allow on-site cannabis smoking but not tobacco, the members would have to make a meaningful distinction between cannabis and tobacco. Before passing the ordinance on July 22, the Assembly members did have a fairly extensive debate to help clarify the differences. Palmer said he thinks the city is fairly clear, given that the memo outlines the various ways this ordinance differentiates marijuana from tobacco. The outlined points include items like consuming marijuana outdoors still protects workers, complies with indoor secondhand smoke laws in protecting the public, and serves the public interest by providing cruise ship passengers with a legal place to consume. Juneau’s sizeable cruise ship population currently has nowhere to go. “The big picture is that the assembly in Juneau decided that the smoking of marijuana at licensed retail stores is something lawful they want to allow,” he said. The main opposition to the legalization of on-site consumption came from the public health community and neighbors concerned about odor and smoke. The American Lung Association in Alaska says exposure to neither tobacco nor marijuana smoke is safe, said spokesperson Ashley Peltier in a written statement. “To fully protect our public health, we support and advocate for smokefree indoor and outdoor environments, and believe that everyone has the right to breathe smokefree air, which includes air free from marijuana smoke,” she wrote. Elizabeth Earl can be reached at [email protected]

Cultivators still seeking changes to cannabis excise tax

Questions continue to bubble up about potential changes to state cannabis taxes to keep the current structure from hampering business in the future. Alaska voters legalized recreational marijuana use in 2014, but it took about 18 months for the first cultivators to be licensed and open their doors. When they did, they began paying into the cultivation tax that Alaska assesses on commercially grown marijuana. Generally, any part of bud or flower is taxed at $50 per ounce and the remainder of the plant is taxed at $15 per ounce. That tax is assessed entirely on weight, rather than scaling with price. According to growers, that’s going to be a problem. From the beginning of the program through April 30, the state has assessed more than $28.5 million in taxes. That’s just the cultivation taxes, as sales taxes are assessed by local governments. As cultivators have ramped up production to meet sales demands — retail sales reached $130.4 million in 2018, up from about $57.5 million in 2017 — that tax amount has gone up as well. Cultivators have had to account for it in their businesses and so far have been able to do so, in part because with limited supply, the price has stayed relatively high. That’s not always going to be the case, though, said Jana Weltzin, an attorney representing cannabis businesses through the firm JDW Counsel. “That price will go down because supply will go up, and the demand will stay the same,” she said. In a presentation to the Marijuana Control Board, she presented a case for the Legislature to consider changing the way taxes are assessed in the future to prevent the strangulation of businesses. Based on Notice of Violations, some businesses aren’t even keeping up with their taxes now, she said. The Marijuana Control Board does not have any control over tax policy; the Legislature has to set it by statute. Weltzin said she recognized that but wanted the board to be informed of the problem so they could help educate legislators and advocate for a policy change. Since the inception of the program, cannabis-related businesses have hired many of their own employees but have also led to work generated in ancillary businesses. Between the taxes and indirect economic impacts, the businesses have stimulated enough activity to create a return of about $3 per dollar spent, much at the local level, she estimated. But looking forward, the inflexible tax structure may put excessive pressure on cultivators. Because Alaska assesses the tax based on weight, the amount that will be taxed will not change. The sale price will, and Alaska should respond by revising its tax structure to not jeopardize businesses, Weltzin said. She pointed to states like Nevada, which balances its tax revenue from cannabis between a 15 percent excise tax and a 10 percent sales tax. Colorado splits its revenue evenly, at 15 percent on both an excise and a sales tax, according to the Washington, D.C.-based think tank the Tax Foundation. Alaska, on the other hand, set a dollar amount per ounce rather than on a percentage. “We are the only solely based weight excise tax,” Weltzin said. “We maybe need to bob and weave and adjust our approach.” In a hypothetical example, she noted that a rough average of costs per month for a 5,000-square-foot cultivation facility at about $97,300 per month, not including rent and advertising. Based on the average sales price of $2,800 per pound, that leaves about $31,500 in profit to cover items like rent, advertising and local taxes. That doesn’t go a long way, and once the price begins to go down, that would cut into the profit. She suggested an approach like a 10 percent tax on sales from cultivators to manufacturers and a 10 percent tax on sales from manufacturers to retailers, but emphasized that this is not an industry-generated idea — it was just to get the conversation started, she said. “If we get tagged as the industry that doesn’t fulfill its tax obligations, most of the people aren’t going to understand that economically, with an inflexible price floor like we’ve set here with $800 per pound, it’s not possible,” she said. “While we strive to make the state money, the state needs to be our partner. The state needs to move and ebb and flow with the market like we do.” Board member Loren Jones said that while he understands the situation, consumers ought to be paying the taxes in the retail price because it should be built into cultivators’ business plans. The Legislature is unlikely to want to see the tax revenue go down, he said. In the case of local governments, businesses have to plan around local retail taxes when planning prices and expenses, he said. “If (businesses) say they can’t make money if they pay (local governments) the 5 percent, they’re doing it wrong,” he said. The Alaska Marijuana Industry Association hosted a call-in on the same topic on July 15 night and sent out a call for industry stakeholders to send in comments to the industry organization on the topic before July 22 to work on a proposal to send to the state. ^ Elizabeth Earl can be reached at [email protected]

Local governments weigh onsite cannabis consumption options

As the Marijuana Control Board is working on hemming up the regulations for on-site consumption, local governments are wrestling with how to handle their own rules. Cannabis entrepreneurs have long awaited state regulations allowing their customers to partake at retail locations. The board approved an initial set of regulations in December, with requirements such as only allowing smoking in a freestanding building with ventilation and limitations on individual consumption. Business owners said this would provide a more reasonable place, especially for tourists, to partake responsibly without violating laws against consuming in public. Lt. Gov. Kevin Meyer signed the regulations in early March, but the MCB has a few more changes to make, including defining what a “freestanding” building is and allowing more voice for residents of areas outside the jurisdiction of a local government. However, city and borough governments are deciding whether to let the state regulations stand or enact their own. There has already been a wide variety of opinions, ranging from applying no additional regulations to completely banning it within city borders. Fairbanks has already tackled it, while Anchorage and Kenai have ordinances pending and the City and Borough of Juneau is still considering information. The Anchorage Assembly was originally set to consider an ordinance to just allow the consumption of edible cannabis products on site, but a second ordinance would have allowed smoking in facilities as long as they met other requirements, including those for freestanding buildings and ventilation. Consideration of the ordinance was postponed at its May 21 meeting. One of the snags in approving onsite consumption is the state law banning smoking in enclosed public spaces and workplaces. Under the state law, the definition could include smoke from marijuana products and outdoor areas may be permitted under the law. However, the onsite consumption rules passed by the Marijuana Control Board would allow for the smoking of marijuana products as long as the facility has proper ventilation and is freestanding, with a smoke-free area for employees to monitor the activities in the consumption area. In late April, the Fairbanks City Council adopted an ordinance to permit onsite consumption as long as licensees met the other requirements for an endorsement through the Marijuana Control Board. Fairbanks City Attorney Paul Ewers said the city would probably defer to the state’s enforcement of the non-smoking law, as it’s not a city ordinance. “If it was a city ordinance, we definitely would (enforce it),” he said. “Our approach as a city would probably look to the state attorney general.” The City and Borough of Juneau is debating the same point about the smoking law. City Attorney Robert Palmer wrote in a memo to the council that if the members want to approve the consumption of cannabis by smoking in onsite consumption endorsements, they’ll have to have a “rational argument to distinguish marijuana from tobacco” or allow both. Currently, Juneau bans all onsite consumption by ordinance, and Palmer wrote that he wasn’t aware of a tobacco consequence if the edibles portion is repealed. “However, the definition of edibles would need to be narrow to avoid vaping and other inhalation forms of consumption that can affect nearby people,” he wrote. On the opposite end of the spectrum, the Kenai City Council rejected a regulations package for onsite marijuana consumption within its city limits and introduced an ordinance at its May 15 meeting to ban it entirely. The council referred the ordinance to the city’s Planning and Zoning Commission, as it required a zoning code change, and is scheduled to hear it again June 5. “We feel this ordinance is necessary to protect public safety and welfare,” wrote council members Glenese Pettey and Jim Glendening in their co-sponsors’ memo. The Alaska Department of Health and Social Services is not currently conducting any specific research into the effects of secondhand exposure to marijuana smoke, but DHSS Commissioner Adam Crum and Division of Public Health Director Jay Butler wrote a joint opinion article in December 2018 opposing the onsite consumption of cannabis, noting that some studies indicate little difference between the effects of inhalation of tobacco and marijuana smoke. The department leans on three main bodies of existing research about the effects of secondhand marijuana smoke, DHSS spokesman Clinton Bennett said in an email. Two of the studies — one from the World Health Organization in 2016 and two from the state of Colorado in 2014 and 2016 — indicate that secondhand cannabis smoke impairs lung function and contain many of the same cancer-causing chemicals in tobacco smoke, he wrote. The Alcohol and Marijuana Control Office is seeing public comment on its draft regulation revisions for onsite consumption — including further definitions for “freestanding” and setting up a process to give residents outside a local government’s jurisdiction a way to weigh in on an onsite consumption endorsement — until June 19. ^ Elizabeth Earl can be reached at [email protected]

Alcohol, marijuana officers still blocked from public safety networks

Editor's note: This story has been corrected to state that the chairs of the alcohol and marijuana control boards sent a letter to the commissioner of the Alaska Department of Commerce, Community and Economic Development, who sent a letter to the state Attorney General. Enforcement officers with the Alcohol and Marijuana Control Office are still struggling to work around the loss of access to the state’s public safety information networks. The office employs a number of enforcement personnel to inspect licensed premises and to investigate potential violations. The majority of the office’s work is in alcohol licenses, though marijuana licensees take up an increasing portion of staff time. Until December 2018, the enforcement staff members were considered peace officers and had access to the Alaska Public Safety Information Network and the Alaska Records Management System. However, last fall, the Alaska State Troopers informed AMCO that its enforcement officers would no longer have access to those networks because they were not considered peace officers. DPS could provide the information, but the AMCO staff would be locked out. About five months later, the AMCO staff members are still struggling to get the information they need to conduct investigations, said Executive Director Erika McConnell. “Some information has been provided in a timely manner,” she told the Marijuana Control Board during its meeting May 1. “Some requests have been ignored or go unfilled after repeated requests. This continues to be a frustration for the office.” The state provides access to the networks to criminal justice agencies and to peace officers. It is a debatable point whether AMCO is a “criminal justice agency,” McConnell said, but enforcement staff have always been considered peace officers. She said the reason the interpretation has been changed is still unclear. Though the chairs of both the Alcohol and Marijuana Control boards wrote a letter to the commissioner of the Alaska Department of Commerce, Community and Economic Development requesting that he send a letter to Alaska Attorney General Kevin Clarkson requesting a clarification, there has been no response as of the May 1 meeting, said Marijuana Control Board chairman Mark Springer. Division of Enforcement Director James Hoelscher noted that the lack of access hampers the enforcement officers at AMCO despite the fact that the departments have the same goal. The investigators within AMCO have police backgrounds for inspection purposes. “It’s been burning — it’s been something in the back of my head for quite some time now and caused significant issues and questions,” he said “In my opinion, it is very clear that we are peace officers. What it boils down to is you have enforcement who is required to enforce Title 4 and Title 17 and we have been hamstrung on almost every level of the way to do that thing.” The Department of Public Safety did not reply to a request for comment as of press time. Impacts of legalization examined Meanwhile, AMCO is working on a data-sharing project of its own with the Alaska Department of Health and Social Services’ Division of Public Health. As part of the plan to legalize recreational cannabis in Alaska, the Legislature set up an excise tax with 25 percent going to marijuana education and treatment programs. The DHSS is working on issuing grants to promote youth education and substance abuse prevention, but as part of its education programming wants to conduct monitoring on the effects of marijuana legalization in the state, according to an outline submitted to the Marijuana Control Board. “Surveillance of youth and adult populations monitor trends in knowledge, awareness, attitudes, behaviors and use in the population,” the outline states. “We have incorporated marijuana-specific questions in our existing surveys to get a sense of how these attitudes and behaviors may change over time. Data from these surveys informs public health activities, providing the evidence behind evidence-based approaches to changing behaviors.” Part of the system for tracking commercial cannabis involved serial numbers for each plant, known as the Marijuana Enforcement Tracking Reporting Compliance, or METRC. DHSS wants to use the data there to track retail sales to see what types of products Alaskan adults are buying, while protecting licensee information. According to a draft data use agreement, the division wants information such as the price per usable gram, the value of sales, the number of transactions, the sales by product type, the average percentage of THC per gram and the number of sales by product type, among other data points. Eliza Muse, the acting director of the Office of Substance Misuse and Addiction Prevention, told the Marijuana Control Board that the division is keeping an eye on how use is affecting health of the Alaska population at large. “We’re also monitoring population health status to identify trends and potential health outcomes related to marijuana use,” she said. “We’re tracking data points such as marijuana-impaired driving or motor vehicle crashes, calls to our poison control hotline related to accidental ingestion, tracking emergency room treatment for children and the number of people entering treatment with marijuana identified as the primary substance of concern. “I do want to say that we have a lot of data points pre-legalization and post-legalization and we are not seeing an increase in any of those areas right now.” The Marijuana Control Board plans to review the data use agreement with DHSS at its July meeting. Elizabeth Earl can be reached at [email protected]

Reps apologize after last-minute charges sink Johnstone nomination

Editor's note: This story has been updated with a list of names provided to the governor by the Alaska Marijuana Industry Association for the Marijuana Control Board. Last Wednesday night was a strange one for the Legislature. In a joint session of the House and Senate on April 17, the members confirmed most of Gov. Michael J. Dunleavy’s nominees for state boards and commissions and all of his cabinet appointments. Seven appointees were not confirmed, though, with one not being voted on and six being rejected. Although some were rejected based on their resumes, last-minute accusations of sexual harassment against one blew up the confirmation process. Karl Johnstone, one of Dunleavy’s four nominees to the Board of Fisheries, was voted down 24-33 late that night. Earlier in the day, Rep. Ivy Spohnholz, D-Anchorage, surprised the members of the Legislature when she said during her comments that she had received texts from two women alleging sexually harassing behavior from Johnstone during his previous service on the board. The allegations were not mentioned during multiple previous confirmation hearings, when hundreds of people testified for and against Johnstone based on his past service with the board. After Spohnholz’s comments, the Legislature voted narrowly to table Johnstone’s nomination but brought it up again later that night, at which point he was voted down. The allegations were a surprise to many in the room, and Spohnholz did not identify the two people who put them forward, nor were they identified later. No formal investigation was conducted into the allegations, and Johnstone did not have the opportunity to make comments on the record about any allegations. Andy Hall, the president of setnetting group the Kenai Peninsula Fishermen’s Association and a setnet fisherman, wrote public testimony to the Legislature opposing Johnstone’s nomination but said he was surprised by the process of the vote. “It would’ve been cleaner if it was a vote based on the testimony provided to the Legislature about him,” he said. “That last incident may or may not have changed things. I don’t know.” Hall and many others who testified to the Legislature against Johnstone offered anecdotes about intimidating behavior, both toward members of the public and toward Alaska Department of Fish and Game staff. Commercial fishermen opposed Johnstone primarily because of a record of voting for sportfishing interests and his public commentary about the need to prioritize sportfishing and personal use fisheries over commercial fisheries, particularly in Cook Inlet. The United Fishermen of Alaska, which does not usually oppose or endorse Board of Fisheries candidates, made a point to oppose Johnstone’s nomination because of his record. The UFA did not have any connection to the allegations of sexual harassment that arose, wrote Executive Director Frances Leach in an email. “We feel it was unfortunate timing that these allegations came out on the floor right before the vote as Mr. Johnstone was not provided time to respond,” she wrote. However, according to UFA’s tracking, it didn’t change the ultimate outcome. Political organizations regularly keep track of how legislators have said they would vote in a record called a chit sheet, and UFA’s chit sheets made before the joint session showed that Johnstone would have been defeated anyway, Leach added. In a statement to KTVA, Johnstone wrote that, “I believe that legitimate claims should be taken seriously and investigated. But let me be clear, I never made inappropriate sexual comments as stated by Rep. (Spohnholz) … I have thick skin and can take the hits, but it stings to know my four daughters have been hurt by this. My appointment to the Board of Fisheries is no longer at stake. My hope is that the truth comes out because the only thing at stake now is my reputation. All Alaskans should be concerned that the truth comes out. What happened to me can happen to anyone.” The vote left a bad taste in some mouths, even among those who did not vote for Johnstone. Reps. Sarah Vance, R-Homer, and Ben Carpenter, R-Nikiski, issued a joint apology to Johnstone and another appointee, Bob Griffin, for what they said was inappropriate behavior from the Legislature impugning nominees’ characters without giving them a chance to respond. Both Vance and Carpenter hail from the Kenai Peninsula, which is rife with fisheries conflict but home to most of Cook Inlet’s commercial fishermen, who heavily opposed Johnstone’s nomination. Both are members of the House minority. House Speaker Bryce Edgmon, I-Dillingham, and Spohnholz did not return calls for comment. “Neither Rep. Carpenter nor I voted to confirm Mr. Johnstone to the Board of Fish, but our decisions had nothing to do with the unfair accusations levied against him on the floor,” Vance said in a statement. “To wildly throw out such offensive accusations with a clear intent to derail someone’s nomination is a sick political stunt, and I hope Mr. Johnstone and Mr. Griffin will accept our apologies on behalf of the body.” Stiver shot down for Marijuana Board In a cleaner, but narrower, vote, the Legislature also turned down the nomination of Vivian Stiver of Fairbanks to fill a seat on the Marijuana Control Board. Members of the cannabis industry heavily campaigned against her based on her past participation in a campaign to ban commercial marijuana activity in Fairbanks and her lack of background in the industry. She was to replace Brandon Emmett, also of Fairbanks, who had represented industry on the board since its inception in 2015. The Legislature did confirm Dunleavy’s second appointment to the board, Alaska Wildlife Trooper Lt. Christopher Jaime of Soldotna. Stiver was turned down in a 29-30 vote, one shy of what she needed for a majority. Carey Carrigan, the executive director of the Alaska Marijuana Industry Association, said the members of the industry were relieved at the vote and that “common sense prevailed.” “We’re not trying to oppose people to oppose them,” he said. “(For) that second seat that everyone’s considering a public seat, I’d like to see two seats for industry on the board. To have two seats on the board representing industry on the board is not unreasonable.” The industry group has assembled a group of suggested individuals for appointment to submit to Dunleavy’s administration, Carrigan said, aiming for a person with industry background and knowledge, he said. That list, submitted Wednesday, includes Bruce Schulte of Anchorage, Joseph Martin of Anchorage, Rebecca Rein of Houston, Michael White of Anchorage and Gary Evans of Fairbanks. Schulte served on the board from 2015–2016, including as chairman, until former governor Bill Walker dismissed him. “I don’t know if there’s going to be any desire to accept our assistance,” he said. “I hope there is.” Elizabeth Earl can be reached at [email protected]

State hopes to launch industrial hemp program by fall

Though the state legalized a pilot project for industrial hemp agriculture more than a year ago, some hurdles still stand between farmers and authorized grows. Hemp and marijuana both come from the same plant, but the variety that produces hemp is significantly lower in the psychoactive component, THC. Hemp can be used in a variety of products, from textiles to cosmetics to animal feed. One of its most widely known uses is in the dietary and medicinal supplement cannabidiol, or CBD. Former Gov. Bill Walker signed Senate Bill 6 into law in April 2018, authorizing the state to move forward with developing a pilot project for industrial hemp growers. The program is authorized under the 2014 federal farm bill, which essentially allowed states to take the helm on developing these projects if they chose to without fear of federal raids. For the past year, the Alaska Division of Agriculture and the Alaska Department of Law have been working together to hatch both a plan and regulations for that plan to allow farmers to start their own hemp grows. Officials say they hope to get the program rolled out this fall. David Schade, the acting director of the Division of Agriculture, told the House Community and Regional Affairs Committee in a hearing April 18 that the division aims to have a regulation package out for public review by May 15. “Everybody is working really hard to get this along because we’re very well aware of the high level of interest in this project,” he said. “That is a really optimistic timeline but it’s one we’re going to do our best to push forward to meet.” Like marijuana, industrial hemp is complicated to regulate because it has been illegal at the federal level for decades. Unlike marijuana, though, the federal government delisted hemp as a Schedule 1 substance in the 2018 farm bill, defining hemp as “the plant Cannabis sativa L. and any part of such plant, whether growing or not, with a delta-9 tetrahydrocannabinol concentration (THC) of not more than 0.3 percent on a dry weight basis.” The farm bill provided no effective date for the delisting, but based on research, the Drug Enforcement Agency is no longer enforcing Schedule 1 regulations against hemp products, said Joan Wilson, the assistant attorney general with the Department of Law who is working with the Division of Agriculture on the hemp program. A spokesperson for the U.S. Department of Justice confirmed that any parts of the marijuana plant that have that concentration level will be defined as hemp and will not fall under the DEA’s purview. For now, people can’t grow hemp in their backyards the way they can under the state’s recreational cannabis rules. It will still have to be authorized through the pilot program, said Rob Carter, the manager of the state’s Plant Materials Center. As the Division of Agriculture works on the regulations for permits. the Plant Materials Center is working on growing its own cycle of hemp for research and testing purposes at the facility in Palmer. “Without the regulations in place and absent the opportunity to register, producing or marketing industrial hemp … is still illegal,” he said during the House Community and Regional Affairs hearing. “It is to be noted that industrial hemp seeds are much harder to come by than one would expect and at a great cost.” There’s a lot of interest among potential growers, Carter said; he estimated that more than 1,000 people had told him they were interested in growing industrial hemp. Optimistically, they would be able to apply and start growing in indoor facilities in the fall, he said. However, that depends on the state’s ability to get the regulation package approved, which will take about six months if everything goes smoothly, Schade said. There are a number of roadblocks to that. For one, Gov. Michael J. Dunleavy’s proposed fiscal year 2020 budget cuts most of the Division of Agriculture’s existing budget, though neither the Senate nor House proposed budgets include his initial cuts. But one missing item so far is the receipt authority the division estimates it will need to adequately regulate an industrial hemp program. Schade explained that the intent of SB 6 was for the hemp industry to pay its own way, but the division needs the receipt authority from the Legislature for the fees from the industry. Right now, the division estimates the needed authority at $500,000. Rep. Harriet Drummond, who co-chairs the House Community and Regional Affairs Committee, said she would be willing to introduce a bill to grant the division that receipt authority. “Otherwise it sounds like you’d have to come to a screeching halt waiting for receipt authority,” she said. The regulations package also needs to clarify exact laws on hemp, Wilson said. That’s part of what the Department of Law is working on. “Technically we could be requiring registration from any individual who goes to Natural Pantry and buys CBD oil,” she said. “I don’t believe that was (the Legislature’s) intent.” CBD oil has boomed in popularity nationally, including in Alaska. Because industrial hemp is not being grown in Alaska, the oil is being moved across state lines, which is technically a violation of the federal interstate commerce laws. In February 2017, the state Alcohol and Marijuana Control Office raided a number of retailers and seized CBD oil under a 2017 law defining CBD as a marijuana product. The 2018 Farm Bill changed that definition as long as CBD retains a low enough THC concentration, but the U.S. Food and Drug Administration retains authority to regulate it under the Food, Drug and Cosmetic Act. Under that law, introducing into interstate commerce food products to which CBD or THC have been added is illegal. Schade noted that despite its questionably legal status, it’s easy to find CBD products marketed around Alaska. “That creates a lot of angst for those of us who have to regulate this potential industry,” he said. “The issue is under the FDA guidelines this is still illegal for interstate commerce, and yet we see these products out there for both animal and human consumption. We are taking this very seriously.” Several aspiring industrial hemp growers also testified to the committee during the April 18 hearing. Shawn McDonough, who said he purchased several properties on the lower Kenai Peninsula with the express intent to grow hemp. Beyond just the CBD use, he said he’d seen uses for hemp in bioplastics and clothing, though he said he intends to use his grow for CBD extraction. “It seemed like things were moving forward and then we kind of had the rug pulled out from under us and things kind of came to a standstill in recent months in the industry,” he told the committee. “We’d love to see things get back on track.” Elizabeth Earl can be reached at [email protected]

On-site cannabis consumption rules delivered to Meyer

The Marijuana Control Board has approved regulations and paperwork for on-site consumption endorsements and businesses are now waiting on Lt. Governor Kevin Meyer’s signature for final approval. At its Feb. 20 meeting, the board approved the permit forms that cannabis businesses will have to complete in order to obtain an on-site consumption endorsement. The paperwork may still have amendments in the future based on industry and local government feedback, but for now, the checklist of items license holders need to apply has the Marijuana Control Board’s approval. However, businesses still can’t submit applications for the paperwork, be approved and open up their spaces quite yet. After the Marijuana Control Board approved the regulations, they were sent to the Alaska Department of Law for review. After that, they require the lieutenant governor’s signature before becoming official. Meyer has not signed them yet; his office just received the packet from the Department of Law on Feb. 28, according to Meyer’s Chief of Staff Josh Applebee. If Meyer signs off, they will take effect 30 days later and applications may be submitted. In December, Alaska became the first state to pass regulations to allow people to consume marijuana on licensed premises in a 3-2 vote of the board. It was a long-championed item by the cannabis industry, particularly those who own licenses in areas with large tourist visitation. However, concerns about public health and safety dominated the discussion for some time as the industry and the board members tried to work out how to implement regulations. Not long after the Dec. 20 vote, Gov. Michael J. Dunleavy dismissed Sitka Police Chief Jeff Ankerfelt from his public safety seat on the board and declined to nominate industry representative Brandon Emmett for another term on the board. Dunleavy instead nominated Vivian Stiver of Fairbanks, who led an unsuccessful effort to ban local commercial cannabis operations in 2017, to replace Emmett. Both Ankerfelt and Emmett voted in favor of allowing onsite consumption. With the summer tourist season coming, some businesses are hoping to have their on-site consumption areas open and available this year. The Ketchikan Gateway Borough, home to about 13,000 people, welcomes just about every Alaska-bound cruise ship every summer. As the first port a ship encounters upon entering Alaska, the city of Ketchikan can see days with 8,000 to 10,000 tourists in town. Mark Woodward, co-owner of cannabis retail shop Stoney Moose, says his store can attract about 10 percent of that influx — maybe 800 to 1,000 people per day on a busy day. Because the cruise ships don’t allow people to use cannabis on board and consuming cannabis in public is illegal, many of his customers have to resort to either smoking somewhere discreet around town or using edibles instead. “People will buy an edible and walk outside and open it up and pop it in their mouth,” he said. Opening up an on-site consumption area has always been part of the plan for his business, he said. Most Ketchikan locals will likely purchase their products and go home to consume them, so the site would be targeted mostly at the cruise ship industry. Set up in downtown Ketchikan where visitors can walk to and from the store, the shop has an advantage over others situated a little farther out of town. But it’s also a disadvantage for on-site consumption because of a clause the Marijuana Control Board included requiring businesses to be located in a freestanding building in order to allow smoking. While that may not be a problem for businesses in Southcentral Alaska, where the communities are more spread out and more buildings stand independently, it’s a huge hurdle for Southeast, where the communities are more densely developed. Woodward said he and his co-owners invested in a ventilated indoor room with the hope that on-site consumption would be allowed, but the inclusion of the “freestanding” clause negatively impacts that plan. They’d have to switch to a covered, ventilated deck instead. “We have a deck that it would be perfect,” he said. “It overlooks a salmon stream. We’re going to ventilate the deck. We have all these plans, but it’s just this unknown of can you have a freestanding building? Down here in Ketchikan, you just don’t.” The board discussed that consideration during its February meeting, noting the concern from some business owners who want to allow on-site consumption of edibles only. The freestanding requirement is a stipulation of the statewide Smoke-free Workplace Act and wouldn’t apply to an area that only allowed consumption of edibles. Board chairman Mark Springer asked if the Alcohol and Marijuana Control Office could look into developing separate forms for someone wanting to only allow edible consumption that would allow them to bypass the freestanding regulation. “We’re approving this, but it’s still going to be a work in progress, so would it be fair to say that if people in industry, people in government, have got thoughts on what all should be included in this, what would clarify it for local government, what industry might think … that they can either throw it in the marijuana mailbox or flag comments on this and it will be administratively considered,” he said. “Partly that’s because this continues to be a high-interest issue.” Elizabeth Earl can be reached at [email protected]

Alcohol, cannabis investigators locked out of public safety info network

The enforcement officers charged with inspecting and investigating cannabis and alcohol business licenses have lost access to the statewide public safety information network, and that is hampering their ability to do their jobs according to a top official. On Dec. 1, the Alcohol and Marijuana Control Office, or AMCO, lost access to the Alaska Public Safety Information Network and the Alaska Records Management System, two public records systems that the investigators had relied on for years to check criminal history and records in relation to license investigations. The loss of the access prevents the investigators from doing their jobs fully under statute and compromises their safety, according to a report from AMCO Executive Director Erika McConnell to the Marijuana Control Board. “AMCO investigators make scheduled and unscheduled inspections of licensed facilities to respond to complaints or tips about unlicensed activity, bootlegging, over service, under-age drinking, and other activities that threaten public health and safety,” McConnell wrote. “With no access to these databases, the investigators may go to interview someone who is subject to a warrant or possibly armed and dangerous, without having any warning or information. In the worst-case scenario, AMCO investigators could interview a wanted individual without ever knowing there was a warrant for that person, and the person could go on to commit new crimes.” AMCO employs a number of investigators to respond to complaints from the public and to conduct licensing inspections and investigations. Prior to 2014, the office only regulated alcohol licenses, ranging from breweries in downtown Anchorage to bars in remote communities; after voters chose to legalize cannabis for recreational use, regulating cannabis was added to the office’s responsibilities. The office was given 30 days’ notice by the Department of Public Safety. In a letter to McConnell, Alaska State Troopers Acting Director Major Andrew Greenstreet explained that in the past, DPS had determined AMCO to be a criminal justice agency under federal and state statutes. “However, after further consultation and analysis with the Department’s General Counsel and Records Bureau Chief … DPS has determined that AMCO does not meet the statutory definition of a ‘criminal justice agency,’” Greenstreet wrote. State statute defines a criminal justice agency as an agency that “devotes a substantial portion of its budget to a criminal justice activity under a law, regulation or ordinance,” which AMCO does not, Greenstreet wrote. Most of AMCO’s work is regulatory in nature rather than criminal justice-related. He added that if AMCO employees need specific information, they can communicate with specific DPS employees to retrieve it. Greenstreet did not mention marijuana issues specifically in his letter, but McConnell drew the connection in her report. DPS fears the Federal Bureau of Investigation may revoke the state’s access to criminal justice information due to marijuana regulatory activity because marijuana remains illegal at the federal level, she wrote. While DPS is still working with AMCO to provide the information, it seems unnecessary based on activity in other states and doesn’t match the authority given to the Alcoholic Beverage Control Board and the Marijuana Control Board in statute. During the meeting, she told the board that the change has implications broader than marijuana and alcohol business regulation. “There’s lots of ways in which the removal of these tools from our use is bad for public safety, bad for investigator safety and bad for the safety of other law enforcement officers,” she said. “I’m not so much talking about investigations of our licensees — we’re talking about particularly criminal investigations.” Enforcement officers sometimes have to investigate remote locations. They don’t have access to law enforcement radio networks to signal warnings or call for help, and they may not have access to public safety information for several days while communicating through DPS, McConnell wrote. AMCO also used the system to manage its enforcement cases. Without access, the office will have to purchase a new software system or find workarounds. Marijuana Control Board chairman Mark Springer and Alcoholic Beverage Control Board chairman Bob Klein have sent a letter on the topic to Alaska Department of Commerce, Community and Economic Development Commissioner Julie Anderson, who deferred action until after Dunleavy’s budget was announced on Feb. 13. AMCO may lose its investigative unit entirely from within the department as all statewide investigators move to the Alaska Department of Law. The change comes after Gov. Mike Dunleavy issued an administrative order Feb. 13 to establish a Statewide Investigator Unit within the Department of Law and form a task force to consolidate all state investigators into it. If they are moved to a statewide department, they may have access to APSIN and ARMS there, McConnell wrote. ^ Elizabeth Earl can be reached at [email protected]

Dunleavy nominee to marijuana board hears major opposition

Cannabis industry members have their hackles raised at one of Gov. Michael J. Dunleavy’s appointees to the board that regulates their businesses with wide concerns about the administration’s long-term intentions. New governors regularly flip the membership of boards and commissions, particularly high-impact regulatory bodies. The Marijuana Control Board is no different. Dunleavy did not reappoint industry member Brandon Emmett of Fairbanks, instead nominating Vivian Stiver of Fairbanks. He also appointed Lt. Christopher Jaime, who works as a wildlife trooper at the Alaska Department of Public Safety’s Soldotna post, to the designated public safety seat. Jaime would take the seat from Sitka Police Chief Jeff Ankerfelt, whom the Dunleavy administration dismissed from the board in January. Both Ankerfelt and Emmett voted to authorize on-site consumption of cannabis in a 3-2 vote on Dec. 20, 2018. Stiver has owned several small businesses and worked in the legislative offices of Rep. Tammie Wilson, R-Fairbanks, and Sen. Cathy Giessel, R-Anchorage, previously served on the Fairbanks City Council and led an effort to ban commercial marijuana activity within Fairbanks city limits in 2017. Stakeholders immediately raised the alarm, in part because Emmett held a seat designated for the industry or general public, and had been one of two industry representatives since the board was formed in 2015. During a Senate Labor and Commerce Committee hearing on Feb. 12, members of the public testified on Stiver’s appointment for nearly two-and-a-half hours. A few people testified in support, but the vast majority opposed her confirmation. During her introduction, Stiver said she could put aside her personal views and be impartial. Her effort to ban commercial cannabis in Fairbanks had not been because of prohibitionist views, she said, but rather over concern with the city and borough’s readiness for businesses. “Our concern was are we ready? Are we ready for this industry?” she said. “There were many people in the group at that time that had different viewpoints from mine. I do believe there’s no problem with me working within the parameters of (the board) seat and working well for everyone involved.” She said she has been meeting with members of the industry and working to educate herself about the issues in the meantime as well. So far, the vast majority of operators have been responsible and no issues have come up, and those that have were dealt with, she said. A handful of people called in to testify in support of Stiver’s appointment, while other submitted letters saying they wanted someone on the board with an opposing viewpoint to balance the board. Some of the industry testifiers said they hoped Stiver’s statements were true and she would work fairly with the industry. Cole Hollister, the chairman of the Alaska Marijuana Political Action Committee and a co-owner of cannabis business Pakalolo Supply Co., agreed with another testifier that Stiver may be a “Trojan horse” for Dunleavy’s intentions in the future. “I believe that in removing one of our biggest voices, Brandon Emmett, and appointing Vivian Stiver, he’s spoken loud and clear of his intention toward the industry,” he said. “I don’t believe Vivian is telling the entire truth but I want to give her the benefit of the doubt.” Others offered no support based on Stiver’s previous work. Cary Carrigan, the executive director of the Alaska Marijuana Industry Association — a group where Emmett serves as the board president — testified against Stiver’s confirmation, saying the business people she had consulted did not include a broad swath of the industry and the AMIA had not been included. The AMIA sent out multiple emails to stakeholders before the meeting requesting that they testify against Stiver’s confirmation. “It’s impossible for a leopard to change its spots,” he said. “I think that it’s really interesting that we have somebody who’s as well versed in cannabis as Brandon Emmett being displaced by someone who has little to no knowledge whatsoever.” Public safety nominee Though the Labor and Commerce Committee hearing was supposed to include both nominees, the entire hearing focused on Stiver. Jaime’s hearing was rescheduled two days later, where the committee members heard less than half an hour of discussion before forwarding his name to a joint session for consideration. Jaime said he has worked in both rural and urban settings as a trooper and would listen to the industry within the lines of law enforcement. Since being nominated, he said he met with several Kenai Peninsula cannabis business owners and visited their operations to get a better understanding of the industry. “I am not looking forward to expressing my personal opinions about marijuana or going against the will of the people,” he said. The people who offered testimony on his appointment were cautiously optimistic or supportive. Ryan Tunseth, who owns the retail shop East Rip in Kenai, said Jaime has earned a reputation as a fair officer with the Department of Public Safety. His effort to visit with industry stakeholders offered an olive branch to industry members, he said. “(The stakeholders he visited) felt like it was very meaningful, that he would work to understand the inner workings,” Tunseth said. Both nominees were forwarded out of committee to a joint session for consideration. But even as the nominees move forward, the board they plan to serve on may not be long for this world. Dunleavy’s fiscal year 2020 budget, released on Feb. 13, includes a proposal for legislation to abolish both the Marijuana Control Board and the Alcoholic Beverage Control Board and delegate their responsibilities to the commissioner of the Alaska Department of Commerce, Community and Economic Development. Elizabeth Earl can be reached at [email protected]

Credit union to offer financial services to cannabis industry in March

Starting next month, cannabis business owners in Alaska will have access to financial services for the first time. Credit Union 1, an Anchorage-based credit union, expects to launch its pilot program serving licensed cannabis businesses in March. CU1 has been working on the details of the program closely with business owners for more than a year and announced the pilot program in November, said Joseph Martin, who manages the marijuana-related business program for Credit Union 1. “The whole plan all along has been to launch it sometime in March,” he said. “We announced it so early because we wanted to give the industry hope, because they’ve been struggling for awhile now.” Because cannabis is still listed as a Schedule I narcotic under the federal Controlled Substances Act, financial institutions have been skittish about serving the businesses. Banks are federally insured and inspected, and taking on the risk of serving a business technically still considered illegal by the federal government could present risk. Thus, cannabis business owners and customers to date have largely had to work in cash, with huge deposits of cash going in and out of businesses by hand. That’s something that’s both inconvenient to businesses and dangerous to the public. Martin said that was one of its concerns as a community credit union — business owners are taking on a risk by having to transport large sums of cash down the street to pay bills and holding their payroll in cash. Credit Union 1 is a relatively small player in the larger world of financial institutions, with about $1 billion in holdings — for comparison, JPMorgan Chase has about $3 trillion — but its nonprofit status and community orientation allows it to take on more risk, Martin said. “Credit unions typically take on bigger risks than banks to serve the underserved,” he said. “I think marijuana kind of fits into that. It’s a big community safety issue to have all this cash running around on the streets.” Essentially, the pilot program will hinge on improved software to serve the cannabis industry. Because of the nature of the business, the credit union has to keep close tabs on what is coming in and out of the accounts and file reports on every deposit over $10,000 — which is basically all of them, Martin said — to report them to the federal government. That helps CU1 prove to the federal government that everything is above board and the accounts are not laundering money, he said. The financial industry occupies a strange tidepool in the world of back-and-forth cannabis legalization legislation. After Obama-administration U.S. Deputy Attorney General James M. Cole issued a memorandum in August 2013 essentially telling all federal prosecutors to defer to states’ legalization laws on cannabis, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network developed its own guidelines for banks wishing to serve the cannabis industry. Even after President Donald Trump’s former Attorney General Jeff Sessions retracted the Cole memorandum, the Financial Crimes Enforcement Network let its banking regulations stand, as long as banks complied. For those looking to open accounts, there will likely be a significant charge, at least at first. The cannabis banking programs are expensive. For one, the additional burdens of tracking the industry to comply with the FinCEN’s guidelines require significant manpower. Credit Union 1, which usually files about 2,000 reports of transactions more than $10,000 per year, expects its annual reports to increase to about 15,000, Martin said. “When you’re thinking of (the service) from inside the financial institution, it’s not information that we have readily available,” he said. “It’s very invasive … we have to know their product lines, their normal customer base, we have to know all their owners, anyone tied to the business.” But the software improvement should help Credit Union 1 bypass some of the staffing increases other banks have had to take on. For example, other banks have developed cannabis departments in which individual employees handle specific cannabis accounts and know the ins and outs of each business. The software Credit Union 1 has been working on will help avoid some of that, Martin said. Over time, he said he thinks the program will get cheaper as CU1 onboards more businesses and the employees get better at serving the cannabis industry. The federal burdens of reporting may decrease, too, as bills move through Congress to change the regulations on serving the cannabis industry. The U.S. House Committee on Financial Services held a hearing on just such a draft bill on Feb. 13. The bill, which would encode safe harbor banking practices, is championed by the National Cannabis Industry Association and supported by the Marijuana Policy Project. Though it’s only a draft, a final version could be introduced shortly thereafter, said Morgan Fox, the communications manager for the National Cannabis Industry Association. “There’s a number of comprehensive bills being introduced that all approach the issue from different directions,” he said. “Almost all of them would basically solve the banking issue.” Since the midterm election, many of the “obstructionist” legislators have left Congress and the NCIA feels the banking bills have a better chance of passing, Fox said. The particular bill being discussed on Feb. 13 would carve out a safe harbor for banks, but he said he had never heard of a bank being prosecuted for serving the cannabis industry. There aren’t very many of them, though. Though FinCEN’s official tracking documents roughly 486 banks maintaining service for cannabis businesses, Fox said the true number is significantly smaller than that — something like 40 financial institutions nationally have cannabis departments, he said. Having access to banking services is important for cannabis businesses from an economic angle and for states from transparency and regulatory perspectives, he said. “Without access to banking, they have to institute much more expensive measures … even paying taxes, security,” he said. “I think it’s really important from a regulatory standpoint.” Martin said Credit Union 1 has plans in place to unwind the program if the federal government is uncomfortable with it, but they’re fairly confident in the plan they’ve written out. One of the core things the bank hopes for is to normalize the legal cannabis industry as members of the business community in the state. “We don’t have a political or moral sense about this. You’re not going to see us sponsoring (bills) … but because it is legal in the state of Alaska, we’re going to service it like a business like any other,” he said. Elizabeth Earl can be reached at [email protected]

Disagreements remain after on-site cannabis consumption approved

Though Alaska’s cannabis business owners have received the green light for on-site consumption endorsements, there’s still division on the Marijuana Control Board and in the public on the issue. The board members passed regulations for on-site consumption at the Dec. 20 meeting on a 3-2 vote. Industry representatives Brandon Emmett and Nick Miller and public safety representative Jeff Ankerfelt, the Sitka Chief of Police, voted in favor, while public health representative Loren Jones and rural public member Mark Springer voted against. It was a flip across the table for Jones, who helped draft the language of the regulations the board was considering. Last April, when the board first considered regulatory language, Jones told the Journal that he felt the regulation language covered public safety and health concerns well and included various voices in the process. During the meeting, he reversed and said he did not think the regulations went far enough and that to approve on-site consumption now would be a “terrible, terrible mistake for us to make moving forward on this.” “I worked on this with Mr. Emmett, and I was clear to him and clear to everybody else that if this were to pass, I wanted to have something that was enforceable and workable,” he said. “I think we went a long way … but I don’t think we’ve gone far enough.” Atop concerns about the definition of “public space,” Jones said he didn’t think the regulations as written would sufficiently protect people from the effects of secondhand smoke. Earlier in the meeting, he also raised concerns about the ability of citizens in unincorporated areas to protest on-site endorsements from being granted, as they do not have a local government to formally protest or opt out. Like commercial cannabis operations, local governments of cities or boroughs are allowed to opt out of allowing on-site consumption within their boundaries. Though much of the support came from the tourist industry, with business owners seeking a place for tourists to legally smoke cannabis, Jones said there were mixed feelings in Juneau about encouraging cannabis tourism. “We’re expecting 1.3 million tourists come off the cruise ships (in Juneau) next year,” he said. “About 90 percent of the tourists who come to Alaska come through Juneau. I don’t know that Juneau or the state of Alaska wants to be known as a cannabis tourist destination. Most of the people come up to us wanting the clean air, clean water. They want to do the wilderness … In my community, we have a very strong indoor air ordinance that we’re going to maintain.” Springer agreed with Jones, saying he gave weight to the comments of public health officials, joining Jones in voting against. While many hailed the vote as a victory for Alaska’s cannabis industry, which would be the first state to develop retail on-site consumption, there was broad opposition from public health professionals and from the public. Within the board, Miller and Emmett supported clarifying rules for retailers, who under the approved rules would not be able to sell more than a certain amount of marijuana to an individual per day. In a large retail setting, with multiple employees working, that will be difficult to track, he said. “We’re not allowed to keep customer data,” he said. “How do I know if someone came in this morning and came in at 3? I understand that that is not the intent … but is it still a violation? There’s just no way for the retailer to understand it at this time.” The board voted down Miller’s proposed amendment to remove the daily limit clause 3-2, with Emmett and Miller supporting it. Other members cited concerns that removing the language would allow people to buy too much in a single day. Under the current requirements, several of the areas that requested it — notably, downtown Juneau — most likely won’t see on-site consumption areas soon. The regulations the board passed require a retail store to be freestanding to apply for an endorsement, meaning there are no other establishments in the building, and have proper ventilation systems for the smoke. That likely won’t apply to anywhere in downtown Juneau, which is densely developed, Jones said. Springer agreed, saying there will likely be a small number of retailers who meet the requirements. “I think it will be a boon to a relatively small number of people who developed their original facilities with this in mind,” Springer said. “There are a lot of retailers that this is going to do nothing for. It’s not an across-the-board benefit.” The American Lung Association’s Alaska chapter, the Alaska Department of Health and Social Services’ Division of Public Health and the American Cancer Society Cancer Action Network wrote letters opposing the approval of on-site consumption, all citing concerns about the impact of secondhand smoke particularly and the recently passed smoke-free workplace law, which requires all smoking activity to occur outside of places of employment. “Secondhand smoke from combusted marijuana contains fine particulate matter that can be breathed deeply into the lungs, which can cause lung irritation, asthma attacks, and makes users more vulnerable to respiratory infections,” the American Lung Association’s letter states. “Exposure to fine particulate matter can exacerbate health problems, especially for people with respiratory conditions like asthma, bronchitis, or COPD. Secondhand smoke from marijuana has many of the same chemicals as smoke from tobacco, including those linked to lung cancer.” Advocates wrote that the public health studies cited are not reputable about the carcinogenic effects of marijuana smoke and that blocking on-site. Consumption areas just push smokers into their own homes, where they expose their families and roommates. Elizabeth Earl can be reached at [email protected]

Fee hikes proposed to cover workload at marijuana office

KENAI — Cannabis business owners may have to pony up more cash in the near future for their licenses. The Marijuana Control Board is considering raising license fees to support the operations of the office. At its Oct. 17 meeting in Kenai, Alcohol and Marijuana Control Office Director Erika McConnell presented the initial idea to the board members of raising the license fees in a variety of ways, leaving the decision up to them on how the members would like to pursue it. “The board may want to only consider the increased license fee at the time of renewal,” she said. “Should the board want to entertain raising license fees, that would be through a regulation project.” The Alaska Department of Commerce, Community and Economic Development — which houses AMCO and business licensing divisions — wants to see professional licensing programs and industries support the cost of regulating them through license fees. The Legislature kicked in about $4.5 million in unrestricted General Fund money to get the program going, but wants to see that paid back eventually, McConnell said. On top of that, cannabis business licensees have been raising concerns recently about the amount of time it takes for the office to review applications for a new license. The current waiting time is more than five months for a completed application to be reviewed. Some applicants have waited longer. However, AMCO doesn’t have enough staff members to speed that time up with all the other requirements placed on the office, and securing more staff is tricky with continuous state government cuts over the past four fiscal years in the Legislature. McConnell said the office managed to secure a regulations specialist this year between Legislative sessions, but will have to include the line item for the position in next year’s request to the Legislature and face the possibility that it will be cut out during the budget review process. To provide the services requested by the industry, the office needs enough money to support more staff, she said. Estimating revenue based on the rate of license renewal and current license costs, the office will bring in about $1.7 million in revenue, between the regular business licenses and the marijuana handling card fees. That may not be entirely accurate, though, she wrote in her report to the board. “That estimate may be high, as some licensees submit renewal applications and fees after the June 30 deadline, so their fees go into the FY20 revenue,” she wrote. In the report, she presented two ideas — raising the $500 license fee to $1,000 and the $5,000 license to $6,000, or raising the $500 license to $1,500 and the $5,000 license to $7,000. She also presented the idea of raising just the renewal fee for licenses, as the threshold of entry for people just getting into the industry is already high. The board took no action at the meeting, as that would require public notice and comment first. Cost to industry participants continues to be a major conversation driver, between trim taxes that business owners consider unfair to licensing and facility requirements. The board also shot down an AMCO staff proposal to lengthen the amount of time required for businesses to retain their security footage. Currently, businesses have to retain their high-definition security footage for 40 days, which requires a large amount of storage space and expense to maintain. For enforcement reasons, the staff had proposed requiring businesses to retain their security footage for 90 days. License holders objected, saying that would incur massive expense for the hard drive storage, and downloading that amount of footage when requested by the enforcement office would set them up to fail the deadline for turning it in because downloading footage of that length of time takes too long. The board unanimously declined the proposed regulation, agreeing that the requirement was too burdensome for businesses. Board member Nick Miller, an industry representative, said there was a section in code that allowed the AMCO enforcement division to require individual businesses to keep footage longer than the 40-day requirement if necessary. “We’ve heard a lot of discussions about how long it takes to download 40 days. I can’t imagine how long it’s going to take to download 90 days,” he said. “…I think they should (use that section of code) and not penalize the entire industry for one or two bad actors out there.” Brandon Emmett, the other industry representative, agreed, citing the other cost strains on business owners. Growers, especially limited cultivators, are struggling to make a profit on what they’re doing and adding more expense for everyone may push some of them under, he said. “I think that we have to weigh cost and benefit,” he said. “The cost to our growers who are struggling, there’s people going out of business, that adding this extra expense that they get no benefit from to potentially catch a bad actor or two is not prudent.” McConnell said the office had originally proposed 120 days, but reduced it to 90 after the board members rejected the 120 days. Oregon recently raised its video retention requirement to 90 days, while other states like Nevada only require 30 days’ retention, she said. This was the board’s first time meeting in Kenai. The board will return to Anchorage for its next meeting on Dec. 20-21. Elizabeth Earl can be reached at [email protected]

Growing pains: License delays, enforcement issues irritating marijuana businesses

KENAI — Two years after the state’s first cannabis entrepreneurs received their licenses, business owners are still wrestling with hangups in the regulatory system. Long waits for licenses, complex enforcement questions and expensive requirements are common in Alaska’s cannabis business, frustrating some entrepreneurs. For some, it boils down to what they consider unreasonable obstacles to commerce, and wasn’t what they pictured when Proposition 2 passed in 2014 to legalize recreational cannabis. As of Aug. 15, about 80 would-be licensees were waiting on review through the state Alcohol and Marijuana Control Office. Though state statutes says they should be granted in about 90 days, most of them will likely be waiting for three to five months to even be reviewed, according to a director’s report from AMCO Director Erika McConnell to the Marijuana Control Board for its upcoming Oct. 16 meeting. For Dollynda Phelps of Nikiski, who co-owns limited cultivation business Peace Frog Botanicals, that time is money. She’s been waiting on a standard cultivation license for six months now, and every one of those months, she has been paying rent on a facility for the standard cultivation business, which she’s required to prove she has as part of a complete application. “I put in my application in March and I’m still waiting, and the whole time I’m paying rent and insurance on a building I’m not using,” she said. “There are hundreds of us now, waiting.” The license wait is unacceptable, she said. After the first round of licenses were approved in June 2016, the wait time has steadily increased, occasionally topping a year. Some of that comes down to manpower. Both McConnell and her predecessor, former AMCO director Cynthia Franklin, have cited heavy workloads on a limited staff contributing to wait times. AMCO agrees that the wait is too long. In her director’s report, McConnell wrote that license examiners are spending “an inordinate amount of time” going back and forth with licensees to hammer out pieces of applications that are missing or incomplete. “This can mean that an examiner and an applicant go back and forth on their application documents multiple times,” she wrote. “Sometimes an applicant is resistant to the advice from the examiner, although the examiner is only trying to help the applicant be successful, as the examiners pay attention to what the board comments on in applications.” Staffing has been an issue since the very beginning for the marijuana licensing office, which was born out of the office and staff that previously only managed alcohol licenses and enforcement. A separate board was created, but the director and the staff remained the same with promises of future staff additions. Those staff members haven’t yet materialized, leaving the existing staff with double the work they had before, said Cary Carrigan, the executive director of the industry group the Alaska Marijuana Industry Association. Securing more staff for the office has been one of the association’s goals for a while, he said. Though the industry is raking in money and the program is supposed to cover the office and board’s expenses, the approximately $12.8 million in tax revenue collected from cultivators by the state goes to the general fund and has to be appropriated by the Legislature to the individual departments, so it doesn’t go specifically to AMCO for administering the marijuana program. So frustration mounts on both sides, with unreasonable workloads for the staff and compounding expenses for businesses still waiting on licenses, he said. “It’s my opinion and the opinion of the AMIA board that the (licensing wait time) is an undue burden,” he said. “But what’s the fix?” Licensing isn’t the only thing keeping AMCO busy, though. With the proliferation of businesses and activity, the enforcement side — which covers both alcohol and marijuana licensees — has been busy, too. At an industry meeting among Kenai Peninsula cannabis business owners and employees, many commented that current regulations are unclear, and enforcement agents award notices of violation for items the owners or employees may not have known were against the rules. Obtaining too many violations can result in penalty actions from the board or issues with renewing licenses in the future. The majority of inspections don’t result in a notice of violation, according to a report from AMCO Enforcement Supervisor James Hoelscher to the Marijuana Control Board for the Oct. 16 meeting. The number of them is declining as more business owners learn the rules and the board process, but the amount is still concerning, Carrigan said — if the federal government looks at those numbers and considers them a sign of an unruly cannabis industry, it could jeopardize the state’s control, he said. Cannabis has only been legal for recreational use in the state for a little less than four years, so public opinions are still changing, industry participants are still learning to trust regulators and enforcement officers after being illegal operators for decades, and regulators are still feeling out the best practices for monitoring the industry, Carrigan said. “(The industry members) just need to be sure we’re being heard with one voice,” he said. “A dozen people yelling form the rafters is just a cacophony … We’re trying to move incrementally forward.” The Kenai Peninsula operators have a small laundry list of other issues as well, including increased retention time for security footage, enforcement opposing the exchange of seeds — which cultivators want to use to expand their grow operations and diversify their strains — and plan to request a review of the board’s recently passed requirement for testing on all cannabis trim. The change increases costs for operators by requiring an additional testing fee. Most trim is reprocessed into another product that will also be tested for quality and safety, so the operators feel it’s unnecessary. Phelps said the burden will affect limited cultivation operations significantly, as they don’t have the economy of scale to absorb the cost. And when they can’t swallow the cost, they go under or pass the cost to consumers, which pushes prices up and may encourage them to go back toward the black market for cannabis, where it is not tested or tracked. The Marijuana Control Board will meet Oct. 16-17 in Kenai at 145 Main Street Loop. ^ Elizabeth Earl can be reached at [email protected]

Transport rules examined; pot event organizers fined

The director of marijuana law enforcement would like to see new requirements to tighten security for transportation via the road system including advice on locking products in a vehicle and where to store marijuana overnight. James Hoelscher gave a report to the Marijuana Control Board June 14 on possible revisions to current practices. A transporter now can have a backpack or duffle bag of marijuana or products in the back seat or trunk of their car as they travel on the road system. To differentiate them from black market operators, they travel with a manifest that is filed ahead of time with Metrc, the state’s tracking contractor. The printed manifest provides an address from point A to B and all the planned stops in between, even a bathroom break or gas fill-up. Notices of violation were issued to a Fairbanks grower this spring after the manifest didn’t contain all of the transporter’s expected stops. In transportation regulations, the board “has clearly stated marijuana needs to be sealed and locked inside the vehicle” and can’t be open during transport, Hoelscher said. The person driving the product from the cultivator to the retail store can’t make stops in between except as specified on the manifest. But what happens now isn’t safe, he said. The transport can be “one of the most vulnerable points in the chain.” If transportation is an extension of a business’ license to operate, then security measures along a highway need to be tighter by spelling them out in new regulations, he said. “It hasn’t happened yet, but suppose a vehicle gets stolen or a licensee is robbed?” Hoelscher asked the board. “Now that’s my concern.” If a car is broken into, not only the marijuana gets stolen. The cash does as well. Colorado and Washington both require strong boxes that are welded into the vehicle. “That box is secured and locked in Colorado and Washington,” Hoelscher said. “(A thief) can get to it if they have time. The purpose is to make it a deterrent and so difficult it’s not worth the effort. If there’s a report on the manifest that the product hasn’t arrived on time, we may have good idea of where it will be.” The vehicle then could be quickly located by law enforcement. Compared to a locked box, a gym bag takes away aspects of security and offers no deterrent, he added. Also, what happens when a transporter has to break for the night, sleeping at a hotel or a friend’s house? In that case, Hoelscher recommends the transporter take the marijuana to be stored overnight at a licensed marijuana facility. “Alaska is Alaska and there will be weather or mechanical issues,” he said. “But there are licensees and I hope they go by the golden rule to treat others as they want to be treated. If I got stuck in let’s say Sitka, I would hope a Sitka licensee would let me manifest the marijuana into their facility.” Retail stores and cultivators, any marijuana business operating legally, will have cameras and safe boxes for keeping overnight. Bringing it to a hotel room or into a friend’s house overnight raises too many security questions, Hoelscher said. Currently, the manifest that contains all the information pre-filed on Metrc helps with security because Metrc will notify AMCO if a package doesn’t show up after 12 hours. So far, Hoelscher said, transporters have been diligent in changing the manifest when they decide they don’t need to stop, or do need to schedule one. As for issuing violations for not following the manifest, Hoelscher said enforcement takes a look at the whole picture first. “We would look at all things. What efforts were made to update the manifest or contact with AMCO, and what were their efforts to secure the product?” he said. AMCO wouldn’t necessarily write a violation notice. Chairman Mark Springer saw all these as legitimate concerns. “I wouldn’t be adverse to seeing a new regulation project to flesh out these out,” he said. Festival organizers fined A couple who sell “judgeships” for a marijuana competition they put on annually called the Alaska Cannabis Classic was fined $10,000 by state regulators after people lit up at their event and then posted the activities on Facebook. They were also fined $10,000 for illegally selling marijuana without a license. But the combined $20,000 fine was reduced to $5,000 after $15,000 was suspended on the condition that the Cory and Kendra Ray do not commit similar offenses in the future. Alcohol and Marijuana Control Office Executive Director Erika McConnell told the board June 14 that she had a lot of dialogue prior to the May 19 Cannabis Classic with the event planners, who are Oregon residents who hold similar events at various west coast locations. The couple advertised the classic as an event meant to increase the quality of marijuana products through education and competition. About a week prior to the event, McConnell learned that the Wrays were advertising a bake-off competition. It asked for bakers to submit a minimum of 100 servings in one of the six categories and advertised that judges would evaluate the appearance, tastes, aroma and “effect.” McConnell contacted the Wrays to let them know this event was not legal and the state would seek a restraining order of they moved ahead. The Wrays changed the bake-off rules to exclude cannabis infusion. McConnell said she also warned the Wrays in writing that public consumption of marijuana is illegal, and it is illegal to sell marijuana without a license issued by AMCO. Yet, at the event, from 6 to 9 p.m. at 420 W. Third Ave., participants were clearly seen smoking pot and posting photos of the event on Facebook. One of the two civil fines McConnell wanted imposed was for allegedly selling marijuana without a license. The contention by AMCO is that the Wray’s competition, which involves selling judgeships for $350 to people who pass a test of written questions on marijuana, allows participating judges to pick up samples they “must consume and rate the products before the Cannabis Classic.” “Essentially, the Wrays are selling marijuana to individuals through their website,” McConnell wrote in her memo to the board. Then, despite being clearly informed that there could be no onsite consumption at the Cannabis Classic, the “Wrays made no apparent effort to prevent public consumption of marijuana at the event, and allowed a vendor, Bushwackers, to light joints and hand them to consumers,” McConnell wrote to the board. State law allows less than an ounce of marijuana to be given away. The location where the event was held is owned by Robinson Garcia, who was also recommended for a $10,000 fine by McConnell. The violation reads that Garcia should be fined for allegedly “knowingly allowing, on his property, violations of the (statute) which prohibits public consumption of marijuana.” The Third Avenue building formerly housed a marijuana social club called Pot Luck that closed on April 21, 2017, after McConnell and state Attorney General Jahna Lindemuth declared to be operating illegally. Garcia told the board he had specified “no consumption” in the rental contract signed by the Wrays. “I did what I was asked to do,” Garcia told the board. “I don’t see the justification for this.” In the end, the board agreed not to fine Garcia after board member Nick Miller, a marijuana business owner, noted that it’s not so common to fine “landlords after those renting his venue went out of control.”

Board ponders tax changes as $1M per month pours in

A million dollars per month in marijuana taxes paid mostly in cash to the Alaska Department of Revenue is creating a few headaches. About 76 percent of all taxes are paid in cash, Tax Division Director Ken Alper said, and the rest comes in money orders. The Department of Revenue made a presentation June 13 before the Marijuana Control Board at its meeting in Anchorage to address the issue of taxes. The board is pondering a recommendation to the Legislature to change the tax structure on the industry to a retail tax from the current flat excise tax on cultivators, but wanted input from Revenue before making its proposal. That led to an in-depth discussion about what’s currently going on in the cash-only industry. Chairman Mark Springer asked if collecting taxes in cash “stinks as much as you thought it was going to?” “Yes,” said Revenue Audit Supervisor Kelly Mazzei, who made the presentation to the board with Alper and Deputy Director Brandon Spanos. Large volumes of cash necessitated the recent purchase of a new money counting machine at the Department of Revenue. The new machine, similar to what banks use, cost $20,000. “We’ve had one since we started accepting cash,” Spanos said. “But it had only two trays. One tray for cash and two for the money to come out. We needed to separate it by denomination and it takes more time. We’ve lost bodies in the Tax Division due to budget cuts so we’re doing more with less people. In order to continue to process the same amount of cash, we’ve purchased a larger machine with nine output trays.” Over the past four years, the Revenue Department lost 22 positions to budget cuts and is down to 107 positions to handle the different taxes the state collects. Meanwhile, the number of taxpayers continues to grow as new marijuana cultivation licenses are granted. That wasn’t a bad problem to have when the state began collecting incrementally more in taxes per month, Revenue officials said. “It’s been a big headache over the past few years,” Spanos said. “We’re pleased that we are able to accept the payments and process them, but it would make things easier if Congress did something to help banks feel more comfortable taking the cash. And it would be safer for everyone, not only for our employees.” Revenue hires an armored truck to take the money to the bank, Spanos said. The cash counting activity goes on almost daily, he said. The many questions from business owners also resulted in spending a considerable amount of time on the phones, Spanos said. “We talk with every new licensee on the phone. We’re getting welcome packets to everyone and issue instructions on how to pay in cash. We’ve done more FAQs. Then the almost daily processing of cash and the cost of transporting the cash,” Spanos said. “And it’s not slowing down.” Other states such as Colorado, California and Oregon have also been struggling with the cash-only nature of the business. Board member Brandon Emmett found, while attending an industry conference in Washington, D.C., that Washington state has adapted by having the taxpayers make a deposit at a specific bank. “They have worked out that 97 percent of their tax payments are made through Salal (Credit Union of Seattle) to alleviate safety concerns,” he said. “Have you explored doing something like that?” Alper responded that yes, they’ve explored establishing a bank account that the industry taxpayers can use to make direct payments to the Revenue Department. “The problem is that no bank or credit union is willing to work with the industry. If one were to step forward, we would work with them,” Alper said. The fear is that, given marijuana’s continued listing as a Schedule I drug in the federal Controlled Substances Act, banks could be charged with breaking the law by accepting money from the industry. But these smaller credit unions, such as Salal, have worked out ways to remain in compliance with state laws and early on received the guidance of the U.S. Treasury’s Financial Crimes Enforcement Network, or FinCEN. In February of 2014, just as Colorado and Washington were setting up their recreational marijuana markets, FinCEN released guidance saying that they would not charge a bank with federal crimes for accepting weed money if the financial institution made sure that the business was following all state laws and the directives of a previous memo from the Department of Justice, according to an industry publication called The Stranger. As for progress made proposing a shift in how the Alaska industry is taxed, the board is still in the fact-gathering mode, Springer said. At the June 13 board meeting, discussion was also tangled up in what voters intended in supporting the initiative that made marijuana legal. Board member Loren Jones noted that the $50 per ounce tax at the cultivator level was put to the public as part of the initiative when they voted to make marijuana legal in the state. “Now we’re going to come back and say it’s not right. Now we’re saying it’s killing the industry,” Jones said. “Every industry says it’s overtaxed.” But board member Emmett countered that there’s shame in admitting they “got it wrong.” “It was palatable to voters at the time, but it’s not working. If we had a black market on the ropes, almost stamped out, then it wouldn’t be an issue,” Emmett said. As it is, the legal industry has a hard time competing on prices to customers when they must calculate in $800 in taxes per pound of marijuana. Growers in California and elsewhere are making illegal shipments to Alaska that continue to fill the black market niche. To be more competitive, prices at the counter for marijuana sales need to be lower, matching with the high supply available from Alaska’s 90 cultivators, he said. Considering the industry brings in about $10 million monthly in revenue and pays $1 million a month in taxes, the tax is working out to be 10 percent, Alper pointed out. “That’s not a gigantic tax when you look at the whole picture,” he said. Only the Alaska Legislature can change tax laws. Alper said the Department of Revenue will be running various scenarios for a report for the board in the coming months to help it decide on what to recommend to the Legislature. Naomi Klouda can be reached at [email protected]

Bill to recognize states’ rights on marijuana gets Trump support

Sens. Lisa Murkowski and Dan Sullivan joined a bipartisan group of lawmakers in Congress June 8 to support legislation that ensures states the right to regulate marijuana and allow banking services for the industry. Murkowski said the new legislation “brings the policy swing to an end, by saying unequivocally that the states have supremacy when it comes to marijuana regulation.” President Donald Trump told a group of news reporters in Washington, D.C., the same day as the STATES Act was introduced that he will likely support it. The Strengthening the Tenth Amendment Through Entrusting States Act, or STATES, doesn’t legalize marijuana in states that haven’t passed their own measures. But it works to address conflicts between state and federal marijuana laws. The bill was co-authored by Sens. Cory Gardner, R-Colo., and Elizabeth Warren, D-Mass. Sullivan said it’s important for this bill to advance in light of confusion cast over states with legal marijuana when the so-called Cole Memorandum was rescinded by Attorney General Jeff Sessions in January. The memo authored by former Deputy Attorney General James Cole under the Obama administration outlined guidelines that amounted to nonenforcement of federal marijuana laws in states where it had been legalized. Rescinding it created uncertainty of whether Sessions, an opponent of legalization, would begin enforcing federal law that classifies marijuana as a schedule one substance under the Controlled Substances Act, along with heroin, cocaine and LSD. “When the Cole memo was rescinded, it created a lot of additional confusion,” said Sullivan spokesman Matthew Shuckerow. “It was already out there, particularly in states that have it legalized and that created confusion as well.” Marijuana businesses have achieved a level of industry acceptance, he noted. Sullivan has heard from bankers saying they would not mind doing business with the industry. Credit unions and banks signed on as endorsing the bill. “This (act) would in many ways address those concerns,” he added. “By stating that bank transactions do not constitute illegal trafficking. It would pave the way to do business with banks and for banks to accept dollars from the operations.” One of the biggest problems facing cannabis business owners is the cash-only nature of transactions. Even to pay their state license renewals, they are taking cash to the bank and purchasing money orders that then are sent into the Alcohol and Marijuana Control Office, said Jana Weltzin, an attorney specializing in Alaska cannabis regulations. She analyzed the STATES Act to see how it might impact her clients. “If it goes through, and it looks like it has some likelihood, it would exempt marijuana businesses from being subject to the CSA (Controlled Substance Act) as long as they are in full compliance with the state regulatory process,” Weltzin said. Banks and credit unions could open accounts for marijuana business owners after going through their own due diligence to make sure the business is in compliance with state laws, Weltzin said. Weltzin has spoke with officials from Key Bank, answering questions about what forms should they ask for in determining if a potential client is operating under state regulations. “If this passes, and a company owner comes in and says he want to open a bank account, the bank will look at all his documents from AMCO. If there are notices of violations, then he is not within the exemptions,” Weltzin said. “This (law) would not be a change on prohibition. It’s a deference to the state laws and trusting the compliance and regulatory system to the state.” Alaska’s congressional delegation has seen the federal-state divide on marijuana legalization as a states’ rights issue. Rep. Don Young, a founding member of the Cannabis Caucus, has long taken this position and has repeatedly introduced bills in the House of Representatives to reconcile the conflict. “We’ve come together — lawmakers from both sides of the aisle — to offer a state-based solution to areas where state and federal marijuana laws are in conflict, including issues relating to production, sale, distribution, enforcement and longstanding challenges surrounding banking and the lack of access to financial institutions for marijuana-related businesses,” Sullivan said in a statement. Months ago, he stated that the repeal of the Cole Memorandum could be the impetus necessary for Congress to find a permanent legislative solution to these issues. The STATES Act should be an effective vehicle and its strength comes in terms of broad support from diverse groups. The act would amend the Controlled Substances Act so that its provisions would no longer apply to people in compliance with state or Tribal laws relating to marijuana activities as long they comply with a limited number of basic safeguards. On the banking front, it would clarify that state-compliant financial transactions do “not qualify as trafficking and do not result in proceeds of an unlawful transaction.” It would remove industrial hemp from the list of controlled substances under the CSA and prohibit the distribution of marijuana at transportation safety facilities such as rest areas and truck stops. The bill emphasizes no-distribution or sale of marijuana to persons under the age of 21, other than for medical purposes. Certain criminal provisions under the CSA would continue to apply such as prohibiting endangering human life while manufacturing marijuana and prohibiting employment of people under age 18. Supporters of the legislation include the American Civil Liberties Union, Americans for Prosperity (founded by Charles and David Koch), and a cross section of advocacy, law enforcement and financial organizations. Where other legislation addressing legal marijuana has fallen by the wayside, this bill holds promise of passage because of Gardner’s prep work on the bill, Shuckerow said. Gardner, a Republican, represents Colorado, one of the first to legalize recreational marijuana. He threatened to hold up judicial nominees if something couldn’t be resolved in the federal-state conflict over legal marijuana after Sessions rescinded the Cole Memo. According to the Denver Post, Gardner succeeded in holding up 11 nominees from getting a Senate floor vote between January and April, the last step before they can be seated on a bench. In early April, Trump and Gardner struck a deal that ended the deadlock: Trump would support “legislative solution(s) to fix this states’ rights issue once and for all,” Gardner told the Washington Post. In the end, Gardner achieved broad bipartisan support for this bill. “We’ve seen steady momentum building,” Shuckerow said. “The tide is switching. Now two-thirds of Americans live in states where there is some kind of legal marijuana.” Since the bill was just introduced, it’s difficult to tell when it will come to a vote. “The reality is there’s a shrinking calendar left this session. But there’s a sincere bipartisan effort,” Shuckerow said. “The legwork is already done. It’s been negotiated and discussed, and that is very helpful.” Naomi Klouda can be reached at [email protected]    


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