Insane pot taxes in Alaska show a crash is possible in the industry
JUNEAU, Alaska (AP) — In a push to get Alaska voters to legalize marijuana, supporters suggested a tax on growers of $800 a pound — though they knew it would be unworkable in the long run.
The tax aimed to show that the industry was willing to pay its share, said Brandon Emmett, who was part of the successful 2014 legalization campaign. The hope was that once pot become legal, the industry, regulators and lawmakers would work together to revamp the figure, he said.
"So far as I can tell, we gambled poorly because that's not happening," he said, adding, "And I think we're running headlong into a crash."
Growers say the tax is squeezing their profit margins, and some complain that it keeps prices artificially high. The Marijuana Control Board, which regulates the industry, plans to discuss tax and supply issues with state officials Wednesday.
In California, licensed pot businesses are blaming combined state and local tax rates that can approach 50 percent for driving sales back into the black market. Some lawmakers are proposing a temporary tax cut.
Washington state lawmakers scrapped a three-tier tax structure in 2015 and replaced it with a single excise tax of 37 percent at the point of sale, a change sought by the industry.
Alaska is unique in that no other legal marijuana state taxes purely based on volume, said Mike Emers, managing owner of Fairbanks cultivator Rosie Creek Farm.
"What's happening right now is I am working to pay taxes and to pay my employees, and that's basically it, and with almost zero left over for any profits or to pay down debt," said Emers, who has five to seven employees, depending on the time of year.
"I'm one of those people who have put everything into this, so I have no other choice. I can't back out now without declaring bankruptcy," he said.
Emers said he has it a bit better than some other growers: he has an outdoor operation and pays relatively little for utilities.
Gov. Bill Walker's administration has no official position on the tax issue, said Ken Alper, director of the state Tax Division. The state also taxes alcohol and cigarettes by volume, he said.
If the industry "is overwhelmingly wanting to go in a different direction, we'll work with them," Alper said, adding that legislation would be needed to change the tax structure.
The tax is $50 an ounce for any part of the marijuana plant's bud and flower and $15 an ounce for the rest of the plant. It is paid by growers and imposed when marijuana is sold or transferred from a grow facility to a retail shop or manufacturing facility.
The state Department of Revenue said last year that it lacked the authority to establish different tax rates for lower-quality flowers.
But officials later realized they could create special definitions, for something like an immature bud that is different than a bud for smoking, Alper said. They could then try to establish a different tax rate based on those definitions. He said the hope is to write such regulations.
That's one aspect business owners want addressed. For the overall tax structure, many are interested in a tax at the retail level, said Cary Carrigan, executive director of the Alaska Marijuana Industry Association.
Alaska has no statewide sales tax, though some communities impose such taxes. KSRM radio reports that the Kenai Peninsula Borough is weighing a potential "sin tax" on cannabis, alcohol and tobacco.
Carrigan said there needs to be a tax but that the current structure burdens growers too greatly.
"If the cost of growing a pound of cannabis is $650 and the tax on a pound of cannabis is $800, obviously something's got to give," he said.—BECKY BOHRER, AP
Associated Press writer Michael Blood contributed to this report from Los Angeles.