The Alaska marijuana industry’s push to update the state’s tax structure is gaining momentum, with most expecting a change to clear the Alaska Legislature next year. But just what a tax change will mean for prices at the dispensary will depend.
At $50 per ounce of flower, Alaska’s tax on marijuana is among the highest in the nation. The tax regime was called “wildly uncompetitive” at a recent legislative hearing, and the analysis shows Alaska’s pot prices have stayed high while prices have fallen precipitously in other states.
The average wholesale price for a pound of marijuana in Alaska is about $2,100, according to the latest numbers from the Leafly Cannabis Harvest Report. That’s about three times higher than California, where a pound can be bought on the wholesale market for less than $800, and nearly six times higher than Oregon, the state with the cheapest wholesale weed in the country at just $400 a pound.
Chris Jacques, the co-owner of Stoned Cold Cannabis, got into the marijuana industry as a bookkeeper for some of the state’s most prominent cannabis companies. He cautioned against expecting to see Oregon prices anytime soon and that Alaska’s marijuana prices reflect more than the state’s tax system.
“A lot of Lower 48 products can take advantage of the outdoor weed supply. There are only a few outdoor operators here, and they are very reliant on the weather,” he said. “They don’t grow enough to influence the price much. Alaska has very expensive electricity, increased shipping for supplies, labor is a bit more expensive, as well as insurance.”
The biggest question, Jacques noted, is just how those taxes will change.
Industry advocates and the governor’s task force on recreational marijuana have pushed for a much lower overall tax rate, with the final proposal delivered ahead of this year’s legislative session landing at a 3% sales tax. If it lands at the industry’s preferred rate, Alaska Marijuana Industry Association President Ryan Tunseth predicted that prices will fall some.
“I think prices will certainly come down — once the cultivators no longer have the $800 per pound tax, they will start lowering their prices. I don’t think it will be dramatic, but I would guess that prices across the board fall by 10 to 20%,” he said. “Flower will see the most notable price drop. Edibles and concentrates will drop, but not as dramatically.”
But legislators have been less thrilled with such a steep tax reduction, especially when state revenues slumped along with oil prices earlier this year. The House Labor and Commerce Committee responded with a new bill version that contained a 10% sales tax aimed at keeping it revenue-neutral.
If that’s the case, Jacques said not to expect to see any meaningful drop in prices. In fact, at the recent legislative hearing, a legislative aide working on the bill noted that it would actually be expected to increase the overall government take on the state’s marijuana industry. Tunseth said he’d expect the industry to drop its support for the legislation if that’s where it ends up.
The committee is set to hold another hearing on the legislation later this month.
| State | Total market value (millions) | Metric tons | Average price/pound |
|---|---|---|---|
| Alaska | $138 | 29 | $2,158.48 |
| Arizona | $250 | 92 | $1,232.59 |
| California | $1,000 | 577 | $786.12 |
| Colorado | $687 | 623 | $500.19 |
| Illinois | $445 | 77 | $2,621.41 |
| Maine | $45 | 11 | $1,855.61 |
| Massachusetts | $362 | 83 | $1,978.32 |
| Michigan | $551 | 203 | $1,231.18 |
| Montana | $50 | 13 | $1,744.59 |
| Nevada | $420 | 143 | $1,332.23 |
| New Jersey | $124 | 20 | $2,812.28 |
| New Mexico | $90 | 27 | $1,511.98 |
| Oregon | $500 | 614 | $369.38 |
| Vermont | $20 | 5 | $1,814.37 |
| Washington | $350 | 317 | $500.81 |
The accordion effect
Aaron Stiassny, the general manager of Uncle Herb’s and a member of the governor’s task force on recreational marijuana, was one of the leading voices advocating for the move from the existing tax system to the 3% sales tax. He agrees that it would lead to lower prices for consumers but stresses that it would also lead to significant changes in the industry.
The flat by-weight tax is the same for all cultivators regardless of quality, potency, or final sale price. Stiassny says that means there’s not much room for businesses to differentiate their products. A change that is more reflective of the actual value of the product, he said, would open up new opportunities for Alaska’s industry to offer both top-shelf and value products.
“When we shift the tax burden, what I expect to see is the market accordions out where there’s a separation between the top-shelf flower that will command the top dollar — similar prices to today — and those folks that are growing volume, are more efficient and want to offer more value,” he said.
He said one of his early priorities when joining the governor’s task force was to eliminate taxes on the growing or manufacturing side of the industry. Currently, taxes are paid wholesale, which he says can make it difficult for them to do business. The sales tax, he said, can do better at capturing the value added through making cartridges, concentrates and edibles.
Jacques agrees.
“At least a sales tax takes into account the final prices going out the door. A flat tax is taxed along the line even if a consumer ends up not buying the product,” he said. “As a manufacturer, we have to be very careful about how much material we run. If we produce too much, we still have to pay a tax from our grow, and as a startup business, this can be hard to plan for.”
The bottom line is that Alaska’s price likely won’t immediately plummet to the rock-bottom prices that consumers in Oregon might see. Still, Stiassny says it’s not entirely impossible for weed to become much cheaper with a tax regime change. It’d take a seller specializing in that kind of product, which he said would be possible with a sales tax.
“It probably is possible for a large grow if somebody wants to satisfy that demand,” he said. “When you shift the tax burden to retail, it allows for more creativity. Both for a more value-added product but also for more efficient operators to lower their costs and market things more competitively.”
Early signs of a difference-maker
There’s already some evidence that lower taxes equate to lower prices for customers.
One of the few tweaks the state has made to the tax system is to add a tier to the taxes for so-called immature, seedy, or failed crops at $25 per ounce. What precisely makes a crop fall into those categories is left up to the growers to determine, but the end product is typically flower with smaller, less dense buds that sometimes is less potent than the big, dense and neatly trimmed buds that fetch top dollar. There’s a noticeable visual difference, but there’s also a noticeable price difference.
Uncle Herb’s was one of the early retailers to add this kind of flower to their offerings, typically in pre-packaged bags that can go for as low as about $80 for half an ounce. That’s compared to more than $200 for a half-ounce of top-shelf weed. Others have caught on.
The amount of immature weed being sold in Alaska has steadily increased since it was first introduced. According to the latest figures from the Alaska Tax Division, the amount of immature weed and trim — typically used to make concentrates and edibles — eclipsed the amount sold under the $50 per ounce tax rate in the last tax year.
Stiassny said the pre-packs of immature weed have been popular, especially among smokers who consume large quantities or those simply looking to save a buck. In the big picture, he said their success shows there’s a large and diverse market for marijuana in Alaska and that the tax system needs to keep up.
As the Legislature considers changes to the tax rate, he stressed that the lower the rate the better it will be for the industry. For him, that’s a 3% sales tax, not the 10% currently proposed or even 6%.
“The market still has room to mature, and that’s where the tax structure can facilitate that,” he said. “If it effectively isn’t relief and is just shifting it from one sector to the next, does it allow the accordion? … We need some relief to create a more competitive landscape.”
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 Twitter.
