Alaska’s Plan for Implementation of the Act to Tax and Regulate the Production, Sale and Use of Marijuana Jon Bittner Deputy Commissioner Department of Commerce, Community and Economic Development presented to the Alaska Government Finance Officers Association Spring 2015 Conference April 29, 2015

2 Commerce, Community and Economic Development The Department of Commerce, Community and Economic Development’s mission is to promote a healthy economy, support strong communities, and protect consumers in Alaska. The department will be the home of the Marijuana Control Board, a regulatory and quasi-judicial agency for control of the manufacture, possession, and sale of marijuana and marijuana products in the state.

November 4, 2014 Statewide election held. Ballot Measure 2 passes 53% to 47%. November 24, 2014 Vote certified by Division of Elections. Statues enacted by operation of law 90 days later. January 20, 2015 Legislature gavels in. Multiple bills related to the marijuana industry discussed. February 24, 2015 Statutes enacted. The nine month deadline for developing regulations begins. November 24, 2015 Deadline for the board to adopt regulations; if not adopted by this date, local governments have the option of establishing their own regulations. Final regulations package submitted to the Governor’s Office and Department of Law for review and approval. February 24, 2016 Board must start accepting applications and must act on them within 90 days of receipt of application. If the board has not adopted regulations, applications may be submitted directly to local regulatory authorities. March 26, 2016 Tentative effective date of regulations; effective date will be 30 days after the Lt. Governor’s Office files the approved regulations. May 24, 2016 Initial marijuana industry licenses expected to be awarded. 3 Implementation Milestones

Persons 21 years of age or older may legally –Posses, use, display, purchase, transport 1 ounce or less –Posses, grow, process, transport 6 plants (3 or less may be mature/flowering) –Transfer to a person 21 years of age or older 1 ounce or less and up to 6 immature plants –Manufacture, possess, purchase marijuana accessories Licensed, taxpaying people can operate marijuana-related facilities –Cultivation –Product manufacturing –Testing –Retail 4 Ballot Measure 2 – What’s New Additional information available at marijuana.dhss.alaska.gov and commerce.state.ak.us/dnn/abcmarijuana.dhss.alaska.govcommerce.state.ak.us/dnn/abc

Public consumption not permitted Marijuana DUI laws unaffected Medical marijuana laws unaffected Employers may still restrict marijuana use in the workplace Private property owners, employers, schools, hospitals, recreation or youth centers, correction facilities, corporations or any other entity who occupies, owns or controls private property may prohibit or otherwise regulate the possession, consumption, use, display, transfer, distribution, sale, transportation or growing of marijuana on or in that property 5 Ballot Measure 2 – What Doesn’t Change

HB 123 creates a Marijuana Control Board similar to the Alcoholic Beverage Control Board and served by the same administrative staff. The board will be tasked with developing regulations covering all aspects of marijuana cultivation, processing, and commercial sale. Once signed into law, the legislation will give the Marijuana Control Board the authority necessary to oversee and uphold regulations related to marijuana production and distribution. 6 Legislation: House Bill 123

7 Marijuana Control Board Structure To be considered to serve on the Marijuana Control Board, submit your resume to the Alaska Office of Boards and Commissions:

Local options for alcohol in Title 4 provide a starting place for marijuana local options in Title 17 AS permits local governments to –Prohibit establishments –Enact ordinances to regulate time, place manner, and number of establishments –Establish annual operating fees –Establish civil penalties for ordinance violation –Create local regulatory authority (will receive half of state application fees, provide input on applications to the marijuana control board, issue regulations if the state fails to meet deadlines in the initiative) Over the interim the legislature will continue to work on House Bill 75 –Could prohibit marijuana businesses in much of the unorganized borough and have communities opt back in to marijuana regulations OR –Use the opt-out system that was outlined in the ballot initiative 8 Local Government Control

Definitions: edibles, public, possession, marijuana Licensing: strict limitation, population-based, merit-based Labs: establishment, state certification Hash oil and solvent extraction: manufacturing processes, local government land-use rules and zoning restrictions Edibles: Serving size, total THC per package, adulterated products, warning labels Packaging: child-proof containers, differentiation from marijuana-free products Advertising and education: marketing to minors, state-level guidelines, local-level limitations 9 Regulatory Considerations

Primary issue will be the ability to accept and use marijuana business money in the banking system While a marijuana business will be legal in Alaska, such a business is not legal under federal law; federal law governs the U.S. monetary system The U.S. Department of Justice, through the Cole memo, offers guidance to financial institutions that choose to receive funds from marijuana business. –Financial Crimes Enforcement Network (FinCen) reports must be filed by institutions accepting accounts from marijuana businesses Financial institutions have three overarching concerns –Cost of compliance with federal regulations, including FinCen transaction reports as well as increased staff/storage costs to handle the cash –Potential liability for inadvertent failure to comply –Whether accepting marijuana based business meets with the institution’s board/shareholder stated objections 10 Banking and Securities Considerations

Raising capital should not be a concern; both Alaska and the U.S. Securities and Exchange Commission have provisions under current law The Division of Banking & Securities is working with the FDIC and National Credit Union Administration to examine the industry as a whole, including risk and all of the other elements that support a sound and competitive banking system, security of deposits and customers, appropriate liquidity and prevention of injurious credit expansions and contractions The division is prepared to examine and appropriately regulate businesses that elect to bank the marijuana industry –The division is in close contact with other state regulators as well as federal counterparts as new issues arise and methods of review and regulation are developed Strategies to support the new industry –Encourage new banks and credit unions –Allow branches from banks outside Alaska 11 Banking and Securities Considerations

Marijuana businesses may find it hard to procure business insurance. –Workers’ Compensation: unless owned by a large established employer, will most likely be insured through the Assigned Risk Pool. –Property Insurance: may be available, but the insurer will be concerned with the value of the crop and the potential for increased vandalism and theft. Those growers with increased security may have more options available to them. Businesses that are involved in the sale of marijuana and marijuana products and/or the consumption of marijuana edibles and accessories will find limited options but those that are selling paraphernalia and souvenirs may have more options available. –General Liability: perhaps one of the hardest types of insurance to secure for marijuana businesses. Most insurers will be extremely reluctant to insure risks that may result from the consumption of a Schedule I substance. The Division of Insurance does not expect admitted insurers will provide property and casualty insurance to marijuana businesses. However, non-admitted insurers (e.g., James River, Lloyds of London, Lexington Insurance) or surplus line insurers may provide property and casualty products to these businesses. Because price of the insurance corresponds to the risk the underwriter feels that it presents, insurance will likely be priced fairly high for marijuana businesses. Once a track record is established, historical data developed, regulations enacted and IF marijuana is removed from Schedule I, the procurement of insurance may become easier and less expensive. 12 Insurance Considerations

The Tax Division of the Department of Revenue currently collects several excise taxes; it is well within their ability to collect the marijuana tax –Alcohol and tobacco are currently taxed at the wholesale level –Since there will be no marijuana import, taxing cultivation facilities at their first point of sale is the most comparable to what the division is already doing Based on the best available data, the department’s economic research group estimates first-year revenues between $5 and $20 million Tax enforcement can be an additional tool to investigate and shut down unlicensed growers; the department’s criminal investigations unit will continue to work with state and local law enforcement in the effort to bring businesses into compliance Currently, the department does not estimate additional operating expenditures to collect, administer, and audit marijuana tax filings. A separate taxpayer module is already funded and will be ready in time for the expected first tax payments. 13 Revenue Considerations

Jon Bittner Deputy Commissioner Department of Commerce, Community and Economic Development (907) Questions? Cynthia Franklin Director Alcoholic Beverage Control Board (907) Kevin Anselm Director Division of Banking & Securities (907) Brandon Spanos Deputy Director, Tax Division Department of Revenue (907) Lori Wing-Heier Director Division of Insurance (907)