The cannabis industry’s growing pains are causing unease for some stakeholders, even as the newly minted Alaska Marijuana Control Board was able to favorably change certain draft regulations.
The Alaska Marijuana Control Board decided on several changes to the draft regulations for the budding cannabis industry during its second meeting Aug. 10-11. The board set a license fee of $5,000, left an open window for Outside investment dollars, liberalized key cannabis business zoning requirements, removed a requirement for license holders to list their family members’ information on license applications and estimated the number of licenses for cannabis businesses.
While cannabis is legal to consume and possess, its sale is prohibited until the control board issues business licenses in May 2016.
Until then, the board has three sets of draft regulations to review and amend after public comment, and before recommending to the state Legislature in November.
Some changes, like the family information clause and the zoning rewrite, were a relief. Decisions about cannabis capital, however, only deepened concerns about the industry being skinned by the State of Alaska before it’s even had a chance to be sheared for tax dollars.
The board has five members, two of whom — chairman Bruce Schulte and Brandon Emmett — were appointed as industry representatives. Schulte and Emmett are president and vice president, respectively, of the Alaska Marijuana Industry Association. Both the Alcoholic Beverage Control Board and the Marijuana Control Board share division director Cynthia Franklin.
Some cannabis industry leaders think the marijuana board lacks the necessary experience to make needed changes to regulations that constrict, rather than enable, industry growth.
“The Marijuana Control Board was exposed to a facet of the Alcoholic Beverage Control Board that they have no control over,” said Lee Haywood, a local cannabis industry consultant. “They have to interpret the language that’s already been written by another entity rather than being able to create their own drafts. I know that’s the way it was written (by the Legislature), but I don’t know that the people who are writing these drafts are necessarily the people who voted for these drafts.”
Jessica Jansen, executive director of the Alaska Cannabis Growers Association and co-founder of Cannafarm Co-op, said, “There was a lot of compromise on the industry seats’ side.”
The Alaska Alcoholic Beverage Control Board wrote each set of draft regulations. The alcohol board staff, led by Franklin, drafted the proposed marijuana regulations to closely resemble alcoholic beverage statutes.
During the two days, the board skipped between the first and second sets released earlier this year making either approvals or amendments, and weighing public opinion provided to them in summarized form. The summaries were not made available to the public, though the consolidated comments were.
Cost of entry: $5,000
Among the most impactful decisions was finalizing the licensing fee for cannabis business operations. The board settled on $5,000, as written in the draft regulations. Emmett made a motion to lower the fee to $2,500, which failed by a 1-4 vote.
Public comment was heavily weighted against the $5,000 licensing fee, which some felt is prohibitive for smaller cannabis grow operations.
Grow operations are divided into two categories: those less than 500 square feet and those greater than 500 square feet of grow space. Without a tiered system of licensing with an corresponding fee structure, growers worry that the $5,000 fee will drive potential legal industry players further into the black market.
From the state’s view, the fee is large by necessity. The Marijuana Control Board is funded by unrestricted general funds, which are on the chopping block in a state with a severe budget shortfall. Franklin said cannabis business fees are high because they need to get the industry on its feet quickly before it becomes a burden for the state.
“We’ve got to get our agency to a place where work on marijuana is funded by licensing fees,” said Franklin. “That’s the only way we can insulate ourselves from the Legislature legislating marijuana by starving it to death.”
Franklin also said the $5,000 licensing fee is “chump change” compared to that of other states where cannabis sales are legal.
“Pretty much every state we saw had higher fees,” she said. “You’re funding a new industry. You’ve got to get it up and running.”
The fee structure for retail marijuana in Colorado varies by local authority. In Denver, new applicants pay a $5,000 fee, according to the Denver Business Licensing Center. In Aspen, marijuana businesses have a $2,000 operating fee, according to the City of Aspen’s business licensing website.
In Washington, the annual issuance or renewal of a retail license costs $1,000 after a $250 non-refundable fee, according to the Washington State Liquor and Cannabis Board website.
Using the $5,000 licensing fee, the board came to a rough estimate of the number of cannabis licenses that will be available.
According to staff, the ACB has a $1.6 million annual budget. At $5,000 apiece, staff estimates 320 total statewide marijuana licenses, including grow operations, manufacturing and retail.
In comparison, there are roughly 1,800 alcohol licenses in the state.
Outside cash and zoning
During the board meeting, the need for investment capital clashed with the fiercely local-first Alaska mindset. Neither side won definitively, leaving the matter open, as Emmett puts it, to “interesting ways to find capital.”
The board kept a system of residency requirements for cannabis business license holders that satisfied neither the desires for Outside dollars nor the desire of current cannabis business advocates to keep business opportunities local to the 49th state.
Due to the federal classification of cannabis as a Schedule I controlled substance, Alaska banks and credit unions refuse to handle cannabis-related accounts or loans. Cannabis businesses without their own startup capital have few options for funding.
Outside investment, however, is a possibility, though an unpopular one among the cannabis advocates who lobbied for legalization and feel protective of the newly opened business opportunities.
Others, like Emmett and Midnight Greenery CEO Sara Williams, acknowledge an Alaska-first preference but said allowing Outside investment will be the only way for businesses to get funding in Alaska without securing loans from the already wealthy in the state.
Under the draft regulations, which mirror alcohol licensing regulations, the board will not issue a license to an individual, partnership, limited liability corporation, or corporation unless the shareholders and partners are residents of the state.
Emmett argued in favor of changing the language to allow greater Outside investment, but withdrew his amendment.
In industry’s favor, the board modified several unpopular regulations involving zoning and licensing procedure.
In the draft regulations, an applicant for a cannabis business license would have had to provide the Social Security information for each of his or her family members.
The board deleted the requirement.
“It’s preposterous to think you’d have to provide sensitive information for every member of your family because you want to run a business,” said Emmett.
The board voted in favor of removing a restriction that prohibited a cannabis business from operating adjacent to a liquor license holding business.
Local governments provided public comment largely against making such prohibitions, citing the desire for cannabis tourism that they would likely thwart.
The board also changed zoning to allow cannabis businesses within 500 feet of schools and recreation and youth centers. This is closer than the federal Drug Free Zone standard of 1,000 feet, but farther than the 200 feet demarcation the board originally proposed. Colorado and Washington follow a 1,000-foot rule.
DJ Summers is a reporter for the Alaska Journal of Commerce.