The Alaska Marijuana Control Board’s October meeting saw the board take an unprecedented step in the state’s marijuana industry: It denied the renewal of a cultivation license over unpaid taxes.

The move was a long time coming as the industry and regulators grapple with unpaid tax bills that range anywhere from a few thousand dollars to several hundreds of thousands of dollars, raising questions about how marijuana is taxed and how the system should deal with cultivators who are unable or unwilling to pay their tax bills.

In the case of the business denied its license renewal, that was Fairbanks-based Alaskan Blooms which owed nearly $700,000 in unpaid taxes according to the state. Its owner and attorney asked the board for leniency, arguing that a changing market and covid made the tax rates difficult to manage but that they had a plan to pay off at least half of it by January 2022.

The board unanimously voted down the license, which only affects the cultivation side of the business.

“At a certain point we just need to revoke their license,” said board member Christopher Jaime, who holds the board’s public safety seat. “You know, they gave it a shot, they failed. It’s unfortunate but this is an egregious tax liability, $700,000 is just crazy.”

Alaska’s marijuana tax structure bills a flat $50 per ounce on marijuana at the cultivation level, regardless of the quality and potency of the flower, and $25 an ounce for “immature or abnormal” flower. There’s been talk about changing how marijuana is taxed, such as moving it to a percentage tax on sales, but there’s not yet been any serious action on that front.

With the toughening stance on enforcement, AMCO Director Glen Klinkhart told the board that the state has seen the total tax delinquency fall over the past year. As of the October meeting, it sat at $1.8 million (which included Alaska Blooms). That’s down slightly from the year before when it sat at about $2.1 million.

“It is noticeable with all of the work the board is doing to encourage people to get taken care of on their taxes. It's palpable over the last six months. Even the latest report is shorter and shorter. More people are getting caught up," he said.

He went onto note, though, that there are bigger questions about how the state should deal with back taxes. Currently, the board is only acting against back taxes when a cultivation licensee is back up for renewal. Specifically, he asked the board to consider over the coming months whether it would like to see action taken more swiftly through other penalties.

“One of the things that has been clear is that come renewal time is where the rubber is going to meet the road,” Klinkhart said. “Once we get through this period, what's the next step, because we can't wait until every renewal period," he said. "Do we want AMCO and enforcement to start with (notice of violations) or accusations when people get to a certain point in back taxes? ... It also gives some people who are maybe not completely honest with the way that they're doing their business an opportunity. It's part of their business plan.”

He noted that the board should also be considering just what amount in back taxes should trigger enforcement actions against a cultivation license. The board initially approved two other license rejections over taxes but did rescind their action in order to offer the business owners some time to get paid up with the state or get on a payment plan.

“The question is where are you comfortable with? Is it $10,000, is it $20,000? I'm pretty sure it’s not $500,000, but where is that sweet spot? On the other hand, is it a dollar?” he asked the board. “That’s where we need that direction from you.”

The board didn’t answer those questions during its October meeting but instead asked that staff begin working with the Department of Revenue to consider potential changes to continue to bring down the tax delinquency rates and address them more swiftly in the future.

Much of it all was welcome news for Alaska Marijuana Industry Association President Lacy Wilcox, who said that issues with taxation have long been an issue for the commercial cannabis industry. While there’s certainly consideration for businesses going through financial hardships, there’s also perception that those chronically not paying their taxes are using as a competitive advantage.

She said part of it is because the marijuana industry’s taxation is handled differently than every other tax-paying industry in the state. Where other businesses have a direct license with the Department of Revenue that can be revoked (and quickly reinstated) in the event of tax issues, the only leverage on the cannabis industry is the licenses.

“There are cultivators who’ve never missed a tax payment and their profit margins might be much smaller than those who choose to be delinquent to take, potentially, market advantage. There are people out there who are not paying taxes to gain a competitive edge and then there are those who really actually had a hardship,” she said. “I want to be careful that someone going through a hardship ... but in any other business it wouldn’t even be an option.”

She stressed, though, that what’s important moving forward is for the expectations the board has for the industry will be clear and consistent.

“AMIA has been asking for more enforcement so that’s not a secret,” Wilcox said. “We asked for that to happen not because we feel any particular way about any particular company but if there’s not enforcement that’s followed in a consistent way then it feels like every new marijuana control board could look at it differently and they really need to set a standard for what's allowable and what’s not allowable. … We couldn’t tell you what the bright line is in the sand, yet.”

She says there needs to be more work and effort to understand the current tax delinquency rates in the cannabis industry. Are they coming from the light-touch approach of regulators, the current taxing regime, something else or a mix of everything? She acknowledged that there’s been quite a bit of heartburn over the current taxing structure and said that changes could be warranted but cautioned that any change will need to be approved by the Legislature. With politics and the state’s budget in mind, she said that any change will need to keep annual tax revenue—nearly $29 million in fiscal year 2021—level if they want to get buy-in from legislators.

As for the talk between AMCO and the Department of Revenue, Wilcox says she hopes that the industry has an opportunity to be involved in any of those discussions.

“That's going to be the killer,” she said. “If Commerce and Revenue all of the sudden know the answer and spring it on us, hopefully it's perfect because the cannabis industry sure knows how to object."

Matt Buxton is a freelance writer in Anchorage. Comments about this story? Contact editor@AlaskaCannabist.com

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