The cannabis industry is new, even if the plant has a history of thousands of years. In the Western world, lawmakers and operators are constantly dealing with new hurdles in their businesses. Some legal states have companies running more smoothly than others, while some states are still trying to figure it out. The common factor among all businesses? High tax rates.
Alaska has one of the oldest cannabis markets in America, yet the industry’s economy is dwindling, and in many ways, it’s a reflection of the astronomical taxes. According to Anchorage Daily News, the cannabis industry in Alaska faces extraordinary circumstances that put businesses across the state at risk of shuttering. Many companies across Alaska are either failing, in debt, or behind on taxes. These factors combined have turned what initially was an incredibly profitable market into burdensome operations for business owners.
In many cases, the debt incurred is primarily related to back taxes. Experts said that tax delinquency remains one of the most significant problems cannabis businesses face, and the numbers back up this claim. In a memo, the Department of Revenue revealed that 56 businesses owed $1,785,751 in back taxes, and nine of those businesses ended up closing down. Still, they owed six-figures worth of unpaid taxes back after ending operations.
The rise in tax issues is typical throughout Alaska’s cannabis industry. Cultivators even face unique tax rates in their own right that can often start digging deep into revenue. Other states charge taxes are at the point of sale. Alaskan growers pay the state $800 on the pound of bud and $240 per pound of trim — regardless of potency. On the other hand, flower remains the most popular sales category in Alaska, making up a significant portion of tax revenue.
President of the Alaska Marijuana Industry Association, Lacy Wilcox, broke down how the prices of cannabis for dispensaries ultimately cut into the grower’s profits. Cultivators can sell high THC percentage flower for $4,000/lbs. $3,000/lbs is a more typical price mark. However, a lower THC percentage flower could sell for roughly $2,000/lbs. After the $800 excise tax, growers have $1,200 left to cover their expenses such as labor, utilities, and rent. So, growers are left stressed, producing high-end products for a higher profit margin. And if the marijuana comes out mid, the cultivators have to choose–sell at a loss or toss the grow to dodge paying taxes.
Aside from the excise tax structure on cultivators, three factors are cutting into sustaining a booming industry. Retailers are creating fierce competition and saturating the market and stringent guidelines on licenses linked to real estate. Creating a license cap is contentious in Alaska’s legal cannabis landscape. The problem is that there’s no limit on issuing cannabis licenses. Alaska’s cannabis board will hand out a permit if the applicant meets the requirements. Politico reported in October that there are more cannabis stores per resident in Alaska than any other state in the West with retail stores.
One resident told ADN that enforcing a license cap discourages new, local companies from joining the cannabis industry while potentially opening the doors for out-of-state operations to monopolize on licenses. However, Wilcox surveyed 349 license-holders to determine a consensus on limits to license. Though only a third returned the survey, 70% of respondents said that they supported a cap for obtaining licenses.
In Anchorage, dispensaries weren’t necessarily spread out across the town but instead packed into specific areas. Enforcing rigid zoning laws went into play when recreational cannabis went legal in 2014. The Anchorage Assembly only allowed specific neighborhoods to house cannabis businesses. And while it’s convenient for shoppers who might be able to find a better deal down the street, it means that many of these businesses are having to cut down prices to compete with other stores that are providing the garnish for people’s glass pipes.
An extension of this issue is that licenses and properties are attached. So, a cannabis license holder can’t move their operations to another building, even if they have to shut down the shop. The circumstances could mean anything from landlords wanting tenants to vacate the premises or a spike in rent. Given the market’s oversaturation, this creates an even more significant margin for failure to occur.
While Alaska might have been early in adapting laws surrounding cannabis reform, there’s an evident problem that needs to be changed. The structure of taxes prevents profits while issuing licenses. The regulations in keeping them can easily create a problem for operators who find themselves in unexpected issues with their landlords. In October, the Marijuana Control Board in Alaska set a precedent when they shut down a cannabis business because of back taxes, amounting to upwards of $700,000. Despite the numerous pleas to repay the loan, the MCB ultimately denied the request.
Hopefully, some reform could help prevent the burdens of taxes and licenses in Alaska for its cannabis industry to turn around from its declining economic condition.