In a 36-3 vote, the Alaska House of Representatives recently passed House Bill 119, which would make major changes to the state’s taxation of marijuana sales and other regulatory requirements for the industry. These tax changes would ideally be a positive for stakeholders in the marijuana business by leveling competition with unlicensed sellers. We discuss the key changes in the bill below, explain the state’s urgency in altering its current marijuana tax system, and discuss the next steps for the bill to become law.
Alaska’s Current Marijuana Tax Structure and the Reasons for Change
Alaska was one of the first states to legalize the sale and possession of marijuana for recreational use in 2014. As a part of this marijuana revolution, the state also implemented an excise tax on a cultivation facility’s sale to a retailer or product manufacturing facility under Statute 43.61.010. The excise tax is $50 per ounce of marijuana that is sold or transferred. The marijuana cultivation facility is responsible for paying and reporting the owed tax on a monthly basis.
Despite being early to the legalization of marijuana, Alaska has one of the highest weight-based excise taxes compared with other states. The problem for cultivators, manufacturers, and retailers in the Alaska marijuana market is that the $50 per ounce tax, along with other regulatory costs, strongly discourages legal sales because of the better rates that consumers can get through black market transactions. In 2022, the Governor established an Alaska Advisory Task Force on Recreational Marijuana to better understand these issues and develop recommendations for improving the state’s regulatory framework for the marijuana and hemp industry.
How HB 119 Would Change Alaska’s Marijuana Tax
If enacted, HB 119 would change Alaska’s Marijuana tax regime in two key ways. First, the bill would reduce the excise tax by 75 percent from $50 per ounce to $12.50 per ounce from July 1, 2024 until January 1, 2025. This tax would still be the responsibility of marijuana cultivation facilities for their sales or transfers to retailers and manufacturers.
Second, HB 119 would establish a seven percent tax on the retail sale of marijuana and marijuana products intended for human consumption that are sold by a retailer to a consumer. The retailer would be responsible for collecting this sales tax from the customer at the time of sale and remit the collected tax on a quarterly basis. The new sales tax on retail sales of marijuana would not take effect until January 1, 2025. However, the other sections of HB 119, including the reduced cultivator tax, would take effect as soon as July 1, 2024, if passed.
The Next Steps for HB 119 and What It Would Mean for Distributors and Retailers in Alaska
After passing the House of Representatives, HB 119 was sent to the Senate on May 11, 2024 for an initial reading and promptly referred to the Finance Committee for further review and recommendation. From there, the bill could be referred to other Committees in the Alaska Senate or could return to the Senate Floor to vote on its passage with approval then going to the Governor for signature.
Meet with Marijuana and Tobacco Tax Professional Today
As the lawful marijuana and hemp industry continues to evolve with new products and business models, state legislatures and regulatory bodies are likely to continue updating their policies on tax and licensing. Companies at all levels of the marijuana, tobacco, and vapor product supply chain must stay aware of these changes and how they will impact compliance obligations. The continual change and development of the marijuana industry and its regulatory framework means that issues with compliance will not be uncommon. Our tax and licensing professionals can help your business as they face audits and other unfavorable decisions from regulating agencies that negatively impacts your operations.
Schedule a free consultation with our tobacco and marijuana tax professionals today.