A significant cut to the state’s marijuana taxes is another step closer to becoming a reality.
Legislators on the House Finance Committee voted last week to advance House Bill 91, a bill that would slash the state’s tax on wholesale marijuana flower and ultimately transition to a statewide sales tax on pot, setting it up for a vote in the House. The measure has been pitched as a way to help the state’s recreational marijuana industry stay profitable as it reaches its 10-year anniversary.
The state’s marijuana tax system is largely unchanged from the voter initiative that created the system, levying a $50 per ounce tax on marijuana flower sold by growers regardless of potency or final sale price. There have been some tweaks to the system, such as allowing immature or failed crops to be taxed at a lower rate, but industry advocates say the system translates to a high fixed cost in a state where it’s already expensive to grow.
In particular, they say that the costs leave them unable to compete with a stubbornly persistent black market where products are often being brought in from other states that have cheaper marijuana and warn that federal legalization, which would see an influx of Outside marijuana, would decimate the state’s industry as it’s currently set up.
They’ve also felt pressure from within the industry as some companies have turned to legally dubious lab conversions to get cheaper vapes and edibles onto store shelves.
Those struggles have been borne out in recent years, as a growing number of licensees have exited the market altogether and tax revenue has started to dip.
Fairbanks Democratic Rep. Ashley Carrick, the bill’s sponsor, told the House Finance Committee members that the hope is to nurture the industry for years to come.
“Making the marijuana industry more sustainable will allow it to flourish for years to come, and finally, close the door on the black market,” she said.
The bill would immediately slash the wholesale tax on marijuana to $12.50 per ounce, regardless of quality. That would then transition to a 6% sales tax in 2028, which backers say would better capture the added value of things like concentrates, edibles and vapes.
It would also include some quality-of-life changes for the industry, including a transition to quarterly tax payments rather than monthly ones and fewer license renewals.
The measure faced a mixed response from legislators.
While most seemed to appreciate the challenges facing the industry, they’ve been split on the approach. Some have worried about the loss in tax revenue and pushed for a smaller tax cut, while others argued that a 6% sales tax rate is far too high.
“I’m a good Republican, and I don’t like taxes, so if the option is to have lower taxes, I’m going to go on that,” said Rep. Will Stapp, a Fairbanks Republican who made it abundantly clear that he opposed the original initiative to legalize marijuana. “The point of the bill, I think, is to make the industry competitive.”
State officials estimate that the tax changes would cause the state to lose between $6 million and $10 million in annual revenue, between a quarter and a third of what it has typically brought in.
But Carrick noted that the precise impact on the state’s revenue depends on several factors. She said there’s hope that the lower tax rate could translate into lower prices and higher demand for marijuana products, offsetting the loss of revenue.
Others argued against squeezing the industry too hard, noting that its roughly $25 million in annual tax revenue is just a drop in the bucket for the state’s overall budget.
“We’re not going to get rich as a state from marijuana. It’s just one of those things that’s not going to bring us in a big pot of money, if you will,” said Anchorage independent Rep. Alyse Galvin. “I don’t want to drive what we know is a safer product out of business.”
The bill now heads to the House floor for a vote, and then it will go next to the Senate.