It’s been ten years since Alaska voters legalized recreational marijuana, but businesses say they have little to celebrate under the strain of a tax system that hasn’t kept up with the budding industry.
Industry leaders say the tax system, which is largely unchanged from the 2014 voter initiative and ranges from $12 to $50 per ounce, makes it difficult for businesses to stay afloat with falling prices and increased competition with black-market marijuana and hemp-based THC products that exist in a legal gray area.
That could change under Senate Bill 73 by Anchorage Democratic Sen. Matt Claman, which proposes standardizing the tax rate for marijuana in Alaska at a flat $12 per ounce.
“As the industry has evolved, however, that tax rate has failed to keep pace with rising business costs and falling prices. Today, the industry faces competition against a thriving, unregulated black market and substantial regulatory and financial headwinds,” Claman told the Senate Labor and Commerce Committee at a hearing earlier this week. “While most of the past decade saw a significant growth in the marijuana industry, the past few years have shown a decline in tax revenue and an increasing number of small businesses going under.”
The proposal is similar to legislation last year but lacks an eventual transition to a sales tax system. That two-staged approach was recommended by a working group convened by Gov. Mike Dunleavy ahead of the 2022 legislative session, but industry leaders said that consensus on an eventual switch to a sales tax has evaporated.
Their immediate priority is to get lower taxes and then revisit the issue.
“Honestly, these businesses are in triage,” Lacy Wilcox, the vice president of the Alaska Marijuana Industry Association, told the Senate Labor and Commerce Committee. “We really wanted to get some measure passed before they go out to business, and then we’re really not having a discussion much at all.”
Wilcox and other industry members told the committee that a big part of the frustration is how federal income taxes are applied to marijuana businesses. Unlike other companies, marijuana businesses are barred from deducting costs like rent and supplies. It means that companies end up paying taxes on what they call “phantom income.” Interestingly, while companies can’t deduct the cost of rent from their taxes, they can deduct the cost of the marijuana itself.
Another major headache has been the introduction of hemp-based THC products that operated in a legal gray area of federal law outside of the reach of the state’s marijuana laws, meaning they’re not taxed or even required to check the age of the buyer. The state has taken some steps to limit hemp-based THC products in Alaska, but marijuana industry members said that enforcement has been spotty or non-existent with disagreements between the Alcohol and Marijana Control Office and the Division of Agriculture.
AMCO argues that its enforcement powers only extend to licensed marijuana businesses and not beyond to gas stations and others that carry the hemp-based products.
It’s left companies and legislators frustrated.
“While the Division of Agriculture has created regulations to prohibit these products, we have seen zero enforcement with the Division of Ag or with AMCO. That means you can go into a gas station, and it’s not legal, but you can go into a gas station and buy not taxed, not age-gated Delta-9 THC gummies at 400 milligrams per container,” said Jana Weltzin, the state’s leading marijuana attorney. “Now I respect enforcement position that they regulate the marijuana industry, licensees only, well, we’re the ones playing by the rules, and we’re getting really hurt.”
Senate Bill 73 would also transition the state’s licensing rules from an annual renewal that the industry says is also overly onerous to biennial renewals. It would also renew the state corporate income tax exemption for small businesses. First approved in 2012, it is set to expire this year, making for another spike in operating costs for small businesses.
According to an analysis by the Department of Revenue, the measure would result in the state foregoing about $14 million in annual revenue.
While cutting revenue at a time when the state is feeling the pain of a tight budget could be difficult politically, there were several legislators and the industry that said it would be a small cost to keep the industry afloat.
Matt Acuña Buxton is a long-time political reporter who has written for the Fairbanks Daily News-Miner and The Midnight Sun political blog. He also authors the daily politics newsletter, The Alaska Memo, and can frequently be found live-tweeting public meetings on Bluesky.
