Board proposals show ‘general ‘ignorance’
By Ben Adams
I have a bias: I love Alaska. I think it’s the greatest place on Earth. When Ballot Measure 2 passed last November, making Alaska the fourth state to legalize adult use cannabis, I was thrilled. I began to pour a huge amount of my energy into Alaska. I believed Alaska had the potential to be a world leader in legalizing cannabis from the ground up. Although medical cannabis has been legal in Alaska for years, there is no system of dispensaries or other commercial activity.
The potential was enormous. I wanted this to succeed as much as anyone. I have talked to hundreds of Alaskans, from the governor on down, about this opportunity. I have travelled to Alaska and participated in the process as much as possible.
With that background in mind, I have been horrified over the last few months watching the regulatory process unfold in Alaska. Those who are drafting, and promoting, the regulations, have a fundamental misunderstanding of the Cole Memo. That misunderstanding, coupled with a general ignorance of the cannabis Industry, has led to multiple proposals that are industry killers.
Among the worst of the regulations is a ban on raising money, unless the investor wants to be a licensee. The proposed regulation reads, “A person other than a licensee may not have a direct or indirect financial interest in the business for which a marijuana establishment license is issued.” This regulation, coupled with the residency requirement, will effectively bar the average person from starting a cannabis business in Alaska.
Alaskans may not be able to raise money from inside or outside Alaska. Any business is expensive to start. It is estimated that the security requirements alone for an Alaska cannabis business will be in the six figures.
This is doubly frustrating because this regulation is a clear violation of Ballot Measure 2. Alaska Statute 17.38.090(a) prohibits the Marijuana Control Board from making regulations that make the operation of marijuana establishments “unreasonably impracticable.” The ability for a new business to raise money is a fundamental part of doing business. Furthermore, the residency requirement appears to be a violation of the Privileges and Immunities Clause of the U.S. Constitution. It is my legal opinion that the residency requirement is grossly unconstitutional as written. Lawsuits are likely to follow. I know several Alaskan attorneys who feel as strongly as I do and have volunteered their time to sue the state regarding this issue.
Unfortunately, the damage doesn’t stop there. There is a proposed ban on cannabis clubs. This is foolish. Public consumption of cannabis in Alaska remains unlawful. The population of Alaska is well under 1 million, but the number of tourists is far greater than that. Many of those tourists arrive by cruise ships, which do not allow cannabis on board, to my knowledge. Many tourists who might otherwise purchase cannabis will probably not wish to break the law or cruise ship policy. For the Marijuana Control Board to deny this market to entrepreneurs is a huge blow.
The board is also not concerned with the IRC 280E issues that plague this industry, having recently voted to ban non-cannabis products in a retail operation. One way to minimize the 280E issues is to minimize floor space dispensaries dedicate to “trafficking in a Schedule I controlled substance.”
Unfortunately, the board does not appear concerned with the success of this industry. There are multiple proposals that show a general ignorance. For example, because you cannot sell an alcoholic product that is greater than 76% alcohol in Alaska, the regulations propose a cap of 76% THC in cannabis products.
There is one final major problem. At the time of writing, I am not aware of a plan to stagger the granting of licenses. Applications for all parts of this industry can be submitted Feb. 24, 2016 and licenses must be issued by May 24, 2016.
Even assuming that every cultivator grows an eight-week strain, the first cannabis will not reach the retailers or manufacturers until August 2016. By then, many tourists have gone home. That means income from the industry in 2016 will probably be marginal. In fact, I believe the industry may actually cost the state money in 2016. Without tourists, it is an open question if there are enough Alaskans to support a thriving legal market. My rough calculations, from estimates by the Marijuana Policy Project and other reputable sources, is that there are likely to be about 26,000 initial consumers in the legal cannabis market in Alaska.
Here is the danger. Only 53% of Alaskans voted for legal cannabis. Strong opposition remains in the Alaska Legislature. The price of oil is in decline and Alaska relies heavily on oil income. Under the state constitution, the Legislature may repeal Ballot Measure 2 in February 2017. If the legalization of cannabis is costing the state money, it may very well be made illegal again as early as possible.
It is with a heavy heart that I write this opinion. However, when I consider the size of the market, the proposed regulations, the attitude of many Alaskans and the ability of the Legislature to kill this industry just as it begins, I believe that Alaska has little chance of successful legalization with the regulations as proposed. The Marijuana Control Board has until Nov. 24, 2015 to finalize the regulations and many are hoping that the course will be reversed before the rules are finalized.
While I believe many of the proposed regulations are illegal and unconstitutional, it will take energy and capital to resolve these issues. Entrepreneurs will have to decide if this energy is worth the struggle and risk. Alaska remains a place of immense beauty and potential.
Ben Adams is a cannabis attorney based in California whose heart is in Alaska.