Get your applications in now! The newest green rush sweeps through Oregon and Alaska.
By Garrett Rudolph
The taxes are too high. The process is going too slow. Far too many municipalities are enacting bans and moratoria. Listening to the complaints from the public, one might think business plans were being abandoned left and right in Alaska.
Instead, these challenges only seem to fuel the fervor among prospective business owners.
For people like James and Giono Barrett of Rainforest Farms, Sara Williams of Midnight Greenery, Dollynda Phelps of Peace Frog Botanicals and Jeremiah Emmerson of Kachemak Kind, there’s a race to create the foundation of Alaska’s industry.
Cynthia Franklin hears every concern voiced by enthusiasts, industry professionals and anxious community members. But the big picture issues could be far more complex than just the speed of licensing and details about taxes, the director of the Alcohol and Marijuana Control Office says.
While each state is unique, Oregon and Alaska have clearer paths to follow because of the states that have illuminated the trail.
State of the Program
The Alaska Alcohol and Marijuana Control Office was scheduled to begin accepting applications on Feb. 24, 2015, with the first licenses expected to be granted at the agency’s June board meeting.
Bruce Schulte, one of the two cannabis industry representatives serving on the Marijuana Control Board, says cultivation, testing and processing applications will receive top priority for licensure.
“We don’t want to make the mistake that Washington did,” Schulte says, referencing the shortage of product available on the market when Evergreen State retailers first opened their doors.
There’s a lot that needs to happen in the meantime to ensure a fully functioning industry.
For instance, the state is still working on putting the traceability software in place. The request for proposal (RFP) timeline has the traceability software contract being signed Feb. 16, with full implementation expected by May 23.
“It’s an amazingly short timeline for that project,” Franklin acknowledges.
Alaska is the first state to legalize recreational marijuana without having an operational medical marijuana sector to lean on, so the state is developing its entire regulated market from the ground up.
“We don’t have any medical stores, so we can’t go in like Oregon and say, ‘Hey, all you medical stores, now you can sell to anybody who’s over 21,’” Franklin says.
Despite a variety of concerns, many aspiring businesspeople praised the final regulations signed into law by Lieutenant Governor Byron Mallott on Jan. 22.
“I think Alaska’s got a pretty awesome set of regs,” James Barrett says. “There are always things that could be better, but compared to other states, there’s way less red tape.”
Cory Wray, executive director of the Alaska Cannabis Institute and general manager of the NW Cannabis Classic, says he appreciated that regulators did not institute a lottery or arbitrarily cap licenses.
“They are going to let the market decide. … The barriers to entry are fairly low, and that’s a good thing,” he says. “Overall, from our perspective, Cynthia Franklin has done an incredible job. Her team met a very strict deadline, in terms of getting the rules and regulations written, and they were transparent with the public.”
The state has taken plenty of criticism as well. But the best aspect of the rulemaking process was the board’s willingness to listen to a tremendous amount of public input, Phelps says.
The ban of out-of-state investments — similar to rules in Washington and Colorado when those markets launched — drew significant controversy. Some lauded the state for giving Alaskans the controlling share of Alaska’s industry. Others called it a death sentence, saying the local industry wouldn’t be able to raise the capital necessary for success.
“Every single industry has regulations,” Williams says. “I don’t see them as oppressive. I don’t see them as controlling the industry. They’re just providing guidance for how the industry will start.”
Williams says the five-milligram serving size of THC for edibles is one of her biggest complaints. Wray wishes marijuana delivery services were permitted, due to the size and travel restrictions of Alaska. Others criticize a proposal by the Department of Revenue that would tax sugar leaf at $50 an ounce — the same rate as flower.
Overall, the cannabis industry “lost a few things, but won a lot more than we lost,” Emmerson says. Perhaps the biggest victory for the cannabis industry during the rulemaking process was the allowance of on-site consumption for retail establishments. It’s the first law of its kind in the entire country.
Advocates say allowing on-site consumption helps normalize cannabis. Others see it as a potential business opportunity. Ultimately, those who oppose marijuana do not want to see it in public, Phelps says.
“If you don’t want to see it, there needs to be a place for people to go,” she adds.
Most of the details still need to be hammered out regarding on-site consumption, but cannabis clubs and cafes would give consumers places to congregate, as well as allowing the industry to capitalize on tourism.
Crashing economy
Schulte doesn’t mince words when talking about Alaska’s financial situation.
“Our economy is on the verge of some really scary times,” he says. “There’s no getting around that. … It’s an awful time to be trying to set up a fledgling industry.”
Alaska relies heavily on oil for its operating budget. In recent years, about 90% of state spending has been tied to oil revenue, while crude oil has hovered reliably close to $100 a barrel.
But mid-2014 saw oil prices start to slide. After closing 2014 in freefall, the price continued to plummet until hitting a 13-year low on Jan. 20, 2015 at $26.55 a barrel.
For Alaska, this means a budget deficit of at least $3.5 billion. The state has implemented hiring freezes, and some legislators are pushing for drastic cuts to state agencies.
The Alcohol and Marijuana Control Office has 17 employees tasked with all aspects of licensing, regulating and enforcing state alcohol and marijuana laws. It can’t afford to hire more employees and can’t afford to lose any. The likely flood of marijuana license applications has put the agency in a state of high anxiety.
“It’s like a small group of people sitting in a room knowing that a bomb is about to fall on you,” Franklin says.
There’s no way to gauge how many applications will be submitted, but Franklin knows the agency is poorly equipped to handle such a significant task. She’s aware of the perception that the state is moving too slowly, and she’s familiar with similar complaints from Washington state. But there isn’t much she can do about it.
“We know this team is too small,” she says. “It’s one of the challenges.”
And Alaska’s budget woes are at the center of a much larger political conundrum.
Beginning in 2017, the Legislature will have the power to repeal Ballot Measure 2, the voter initiative that allows for a regulated cannabis industry. As many cities and boroughs scramble to ban or severely limit marijuana businesses, there’s a great deal of fear that Alaska’s cannabis industry might not have long to live. It’s a dark specter that hangs over state agencies and prospective business owners alike.
“We keep it in our mind that we could do all this work and our legislators could wad it up and throw it in the trash,” Franklin says. “We hope that doesn’t happen, obviously.”
There’s a mountain of pressure on the up-and-coming cannabis industry to generate tax revenue for the state. The more revenue marijuana generates for the state, the better chance the program has of enduring the inevitable attacks from prohibitionists. But in all likelihood, the first marijuana retail stores won’t open until fall, giving the industry only a small window to guarantee its own survival.
Getting organized
Several industry associations have been developed to bring Alaskan cannabis business owners together.
Schulte, the chairman of the Alaska Marijuana Industry Association, says its goal is to “be the authoritative statewide advocacy and education resource for cannabis.”
The AMIA is open to any license holder, and offers affiliate memberships for those involved in ancillary businesses. One purpose of the AMIA is to present Alaska’s cannabis industry in a positive light, rather than making it easy for detractors to point fingers.
“We’ve got a lot of yahoos that draw negative publicity for the industry,” Schulte says. “Let’s head that off right now and get the most respectable adults in the room together and start this organization.”
Meanwhile, the Alaska Small Cultivators Association focuses on growers using up to 500 square feet.
“We believe they’re the bread and butter, the mom-and-pops of the industry,” chairman Emmerson says. “We felt they needed a voice.”
By banding together, small-scale growers can have more group buying power and a stronger voice when it comes to lobbying for boutique businesses, Phelps says.
The ASCA will also offer affiliate memberships, much like the AMIA.
The Testing Question
Regardless of the regulatory structure, the sheer size of Alaska poses a number of challenges. With more than 660,000 square miles of land, Alaska is larger than Texas, California and Montana put together. Combine its size with endless stretches of dense wilderness, a large amount of federally-owned land, limited statewide road systems and a breathtakingly complex coastline, and it’s easy to see why Phelps says the state is “geographically challenged.”
That’s why analytical testing seems to be at the forefront of everybody’s mind.
It’s the one component that could sink Alaska’s cannabis industry before it even launches. At the very least, testing requirements and the unique challenges of the state will dramatically hinder the industry’s ability to spread throughout Alaska. It doesn’t take much imagination to see how a lack of testing license applicants could derail a smooth launch. According to Franklin, only about 60% of Alaska residents live in communities accessible by road. Travel — even between major cities like Anchorage and Juneau — often requires a boat or airplane, and might include crossing international borders. These are uncomfortable prospects for cannabis entrepreneurs looking to operate by the book.
While some people clamor for more specific testing regulations, Franklin says the rules were intentionally vague “to provide maximum flexibility for whatever people can think of to get product tested.”
The answer might require some creativity. It could mean mobile testing labs, courier services or a completely new concept altogether.
“I do believe people are entrepreneurial and they will find a solution to this problem,” Franklin says. “I have a ‘Field of Dreams’ attitude about testing — if you build it, they will come.”
But one of the concerns that keeps Franklin up at night — and it’s not a short list — is the possibility of not receiving any testing license applications. She says she “has some plans in her pocket if that happens,” but hopes it doesn’t come to that.
AK Green Labs, which called itself “Alaska’s first in-state cannabis testing facility,” posted on its website that the lab was closed and will reopen as soon as it is permitted. According to the website, the lab is currently for sale.
Schulte suspects testing will be revisited by the state Marijuana Control Board in the near future, “just because I don’t really think it was given due consideration,” he says. “We had so many other things we were trying to tackle simultaneously.”
Local control
Alaska’s marijuana rules, similar to those regulating the alcohol industry, were designed to give the most control to local municipalities.
On one hand, it allows business regulations to be tailored to the needs and desires of each community. On the other hand, it puts a great deal of power in the hands of local politicians.
“The greatest threat to the marijuana industry in Alaska is local lawmakers,” Wray says. “Through zoning ordinances, and even outright bans, local lawmakers have proven to be the largest challenge.”
The two most consistent sales pitches for legalizing marijuana involve tax revenue and eliminating the black market. When city officials take it into their own hands to ban legal marijuana, it proliferates the black market and deprives the state of potential tax income. It also kills business opportunities that can create jobs and contribute to the local economy.
Yet, one after another, local lawmakers stand in the way of progress in places like Wasilla, Bethel, Homer, Palmer and Soldotna.
The Wasilla City Council recently voted unanimously in favor of an outright ban, “which is ironic because Wasilla is pretty much acknowledged as the source of most of the really good weed in Alaska,” Schulte says.
“I can name you 10 black market growers who voted ‘no’ (against Ballot Measure 2) because they’d lose their livelihood,” Williams adds.
“Maybe in a few years we will see how it works out for the rest of the state. Maybe we will think about it then,” Wasilla councilman Brandon Wall said at the meeting, according to a story published on the KTVA website.
“Apparently they think somehow that banning it will keep cannabis out of their community,” Schulte says.
Meanwhile, other cities recognize the economic and social value of legalized, regulated and taxed cannabis. For example, Fairbanks is “ready to rock,” Schulte says.
“They’re embracing this as an economic opportunity.”
Ready to Boom
Hundreds, if not thousands, of entrepreneurs are waiting patiently for the Alcohol and Marijuana Control Office to begin the application process, anxiously planning to be first in line when the madness starts.
Williams remembers somebody asking her why she wanted to be first.
“I’ve been part of this process since the beginning,” she says.
Williams says the prohibition of out-of-state money has forced her to scale back her business plans for Midnight Greenery.
“In January 2015, we came out with the grandiose idea that we were going to be seed-to-sale,” she says. “We were going to do it all and we were going to be amazing at it.”
When out-of-state investments were banned and raising $2 million in capital became unrealistic, Midnight Greenery shifted its focus to retail.
“Inevitably, cultivation facilities will fail, and we will buy them up at that point,” Williams says.
The Barrett brothers also altered their business plans because of the financing rules.
Rainforest Farms was originally envisioned as a large-scale grow operation. Now, the cultivation end of the business is smaller, with only about 2,700 square feet to start, but the company will shift its focus more toward retail. They hope to add a light-deprivation greenhouse with supplemental LED lighting in 2017.
All things considered, this might be better, James Barrett says. They were able to keep more ownership of their business by starting smaller.
Emmerson and Phelps are both applying for small cultivator licenses.
“We’ve put too much energy and time and dedication into this process, that it would be silly not to go forward at this point,” Phelps says.
But not everybody’s jumping into untested waters.
“Honestly, I’m not really waiting, but I’m going slow until I know what the local rules look like,” Schulte says.
Despite a great deal of consternation and uncertainty, industry members and enthusiasts remain optimistic about the upcoming year.
“The demand for quality marijuana in Alaska is very strong,” Wray says. “Consumers want lab-tested marijuana; they want to know where it has been grown, how it was grown, what pesticides were used. Consumers want product information and product variety; they want to know THC and CBD levels; they want to compare and contrast products. And cannabis consumers are willing to pay for this experience. Cannabis consumers do not want to buy marijuana in a dark alley. They want to walk into a well-lit, safe and friendly environment where they can ask questions and interact with knowledgeable sales associates.”
If only these were the sole factors determining the health of the industry, there would probably be a lot more entrepreneurs sleeping soundly in the Land of the Midnight Sun.