LEGISLATIVE RESEARCH SERVICES

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1 LEGISLATIVE RESEARCH SERVICES Alaska State Legislature Division of Legal and Research Services State Capitol, Juneau, AK (907) phone (907) fax Research Brief TO: Senator Lesil McGuire FROM: Chuck Burnham, Legislative Analyst DATE: November 28, 2014 RE: Establishing Mechanisms for the Regulation of Marijuana in Alaska LRS Report You asked numerous questions about the legalization and regulation of recreational marijuana in Alaska under Ballot Measure 2, approved in the 2014 general election. Below we list your questions in turn and follow each with our responses. As you know, in the recent general election, Alaska and Oregon became the third and fourth states, behind Colorado and Washington, to legalize the recreational use of marijuana for adults aged 21 and over. These initiatives mark the first successful efforts in the U.S. to establish a regulatory framework for recreational marijuana. Although Colorado and Washington voters approved their respective initiatives in 2012, it has been less than a year since legal sales of the drug began. In other words, these are very early days in this new era and answers to several of your questions remain unclear as circumstances rapidly evolve. Therefore, although we attempt to address each of your questions, a number of our responses are necessarily incomplete and will remain so until regulatory authorities in each of the four states where recreational marijuana is legal have time to establish and refine their respective regulatory systems. 1 Compare Ballot Measure 2 with retail marijuana laws in Colorado, Oregon, and Washington Table 1 (attached) compares several provisions of the four state measures that have legalized recreational marijuana. (We discuss a number of these provisions in further detail throughout this report as they relate to Alaska.) The measures share similarities, such as prohibiting sales to persons under age 21 and disallowing marijuana use in public, but substantial differences exist. For example, Washington is alone among the four states in forbidding any amount of home cultivation for private use. Alaska and Oregon levy excise taxes according to weight sold at the wholesale level, while Colorado and Washington base taxes on the value of both wholesale and retail transactions. Alaska is the only one these states that does not yet have a designated revenue expenditure scheme for marijuana taxes. Licensure fees, where they have been established, vary widely both among and within states from $1,000 to $10,800 depending on the type of license in question. In Alaska, Colorado, and Oregon, municipalities can exert substantial control over marijuana establishments through zoning and other rules, and can prohibit the industry completely through ordinance or ballot measure. Washington s law explicitly preempts local ordinances; however, that provision has been brought into question by a non binding opinion of the state Attorney General and is now the subject of litigation. 2 More generally, the measures differ in their level of detail and specificity. A simple indicator of this is the fact that voters in Oregon and Washington considered initiatives of 38 pages and 65 pages, respectively, while the electorate in Alaska and Colorado cast ballots on respective measures of 8 pages and 9 pages. The shorter initiatives allow for greater flexibility in the process of promulgating regulations to govern marijuana industries but may also open the door on the possibility that supporters of those measures will end up with a regulatory regime that they did not anticipate. 1 In this report we consider only state legal and regulatory issues. As you know, the legalization of recreational marijuana at the state level conflicts with federal drug, tax, and commerce laws. Although the administration of President Obama has thus far declined to challenge the new state laws, it is not clear what federal policy will be in the future. This adds an obvious level of uncertainty as state regulatory schemes are developed. 2 Washington Attorney General Opinion 2014 No. 2, January 16, 2014, A news article on the pending litigation is available at marijuana legalized a city in washington statesays not so fast.html?_r=0.

2 Are retail recreational marijuana establishments mandated in Alaska s initiative? Nothing in the Act to Tax and Regulate the Production, Sale, and Use of Marijuana (hereinafter, the Act) directs any public or private organization to establish retail outlets for marijuana sales in Alaska. Rather, several sections of the Act create the framework for a private sector retail industry by directing state regulators to establish a system of licensing and control ( ) under which that industry will function. Section specifically bars regulators from prohibiting the operation of marijuana establishments. Although not explicit, the initiative appears to assume that demand for retail marijuana exists and that, under free market principles, businesses will be developed to meet that demand. What would happen if the Alaska Legislature took no action to implement Ballot Measure 2? The Act mentions the legislature just once providing it the authority to establish a Marijuana Control Board (in , which we discuss in greater detail below). 3 Unless and until the legislature establishes such a Board, authority for rulemaking and the promulgation of regulations is vested in the Alcoholic Beverage Control (ABC) Board. Pursuant to , the ABC Board has nine months from the effective date of the Act to adopt regulations in accordance with the parameters set out in Ballot Measure 2. 4 Should the designated Control Board fail to perform as directed, regulation falls to local governments under The local regulatory authority would then administer the recreational marijuana industry within its political boundaries pursuant to the framework and provisions of the Act. It s worth noting, however, that (c) reads, Nothing in this section shall limit such relief as may be available to an aggrieved party under AS 44.62, the Administrative Procedure Act. It is not immediately clear who may have standing as an aggrieved party should the State s designated regulatory authority fail to implement the Act, or if such parties could compel that Board to take action. For an opinion on this matter, we recommend that you contact Legislative Legal Services. What is the procedure for the Alaska Legislature to establish a Marijuana Control Board (MCB)? What would its composition be, how would members be appointed, and what would be its relationship to the ABC Board? Article II, Section I, of the Alaska Constitution vests all of the legislative power of the state with the 60 member Alaska Legislature. That said, Dr. Gordon Harrison, author of Alaska s Constitution: A Citizen s Guide, writes that all states legislatures routinely delegate authority. According to Dr. Harrison, The courts have allowed the [Alaska] legislature to delegate power to administrators if this power is accompanied by explicit guidelines and policy directions. Delegations of legislative power must be sufficiently narrow and specific to give the administrative agent reasonable standards to follow and the courts a basis for determining when the agent has exceeded the bounds of the delegated authority. Measures that fail this test are unconstitutional... On the other hand, the Alaska Supreme Court has upheld the legality of several legislatively created boards that were challenged on the grounds (among others) that their enabling statutes delegated excessive authority to 3 To answer your question more directly, Ballot Measure 2 does not appear to contemplate a significant role for the legislature in designing the regulatory framework. This is by no means an exceptional circumstance, however. As you know, were the legalization of recreational marijuana a legislative measure, executive branch agencies would promulgate and enforce regulations in accordance with the enacted law. In the case of initiatives, voters, in effect, serve as the legislative apparatus directly, as is contemplated by AS The legislature, of course, maintains its regulatory review functions under AS and AS Pursuant to Article XI, Section 6, of the Alaska Constitution, the legislature cannot repeal an initiative within two years of the effective date; however, the statutory provisions brought into effect by an initiative can be amended by the legislature at any time. The Alaska Supreme Court has said that amendments tantamount to repeal in the first two years of initiative taking effect are unconstitutional (Warren v. Thomas, 568 P.2d 400, 1977). 4 Pursuant to AS , successful initiatives become effective 90 days from the date of certification of the vote by the Alaska Division of Elections, which occurred November 26, Therefore, the ABC Board or the Marijuana Control Board, if one is established by the legislature, effectively has one year from that date to promulgate regulations. LEGISLATIVE RESEARCH SERVICES, LRS NOVEMBER 28, 2014 PAGE 2 ESTABLISHING MECHANISMS FOR THE REGULATION OF MARIJUANA IN ALASKA

3 administrators (see, for example, DeArmond v. Alaska State Development Corporation, 376 P.2d 717, 1962; and Walker v. Alaska State Mortgage Association, 416 P.2d 245, 1966). 5 So, at a simplistic level, in order to establish the MCB, the legislature must draft and approve statutes creating an MCB that meet constitutional requirements. Ballot Measure 2 is silent on the Board s composition, appointment authority, and relationship to other regulatory bodies. Those issues are policy questions left to the legislature. It is reasonable to assume, however, that the existing regulation regime for alcohol is a likely model, and the initiative seems to indicate as much by making the ABC Board the default regulatory authority for recreational marijuana. The enacting legislation for the ABC Board is codified at AS What can the legislature do to direct the MCB in the areas of marketing, packaging, availability, and licensing of retail marijuana products? Pursuant to , the regulatory authority for recreational marijuana is directed to adopt regulations that include the following: Procedures for the issuance, renewal, suspension, and revocation of a registration to operate a marijuana establishment; A schedule of application, registration, and renewal fees, provided that application fees shall not exceed $5,000, with this upper limit adjusted annually for inflation, unless the board determines a greater fee is necessary to carry out its responsibilities under this chapter; Qualifications for registration that are directly and demonstrably related to the operation of a marijuana establishment; Security requirements for marijuana establishments, including for the transportation of marijuana by marijuana establishments; Requirements to prevent the sale or diversion of marijuana and marijuana products to persons under the age of 21; Labeling requirements for marijuana and marijuana products sold or distributed by a marijuana establishment; Health and safety regulations and standards for the manufacture of marijuana products and the cultivation of marijuana; Reasonable restrictions on the advertising and display of marijuana and marijuana products; and Civil penalties for the failure to comply with regulations made pursuant to this chapter. The above list is not exhaustive of the areas in which the legislature, through enabling legislation, can direct regulators. As we mentioned above, the Act s section on rulemaking only prohibits rules that make operation of retail marijuana establishments unreasonably impracticable, which is defined in (14) as meaning that the Measures necessary to comply with the regulations require such a high investment of risk, money, time, or any other resource or asset that the operation of a marijuana establishment is not worthy of being carried out in practice by a reasonably prudent businessperson. The precise measures that might be considered to be unreasonably impracticable are not delineated. The scope of regulatory authority provided to the ABC Board in its oversight of the alcoholic beverage industry may provide some indication, however. Pursuant to AS , the ABC Board may address the following: 5 Gordon Harrison, Ph.D., Alaska s Constitution: A Citizen s Guide, 5 th Ed., p. 47, LEGISLATIVE RESEARCH SERVICES, LRS NOVEMBER 28, 2014 PAGE 3 ESTABLISHING MECHANISMS FOR THE REGULATION OF MARIJUANA IN ALASKA

4 Employment, conduct, and duties of the director and of regular and contractual employees of the board; Procedures for the issuance, denial, renewal, transfer, revocation, and suspension of licenses and permits; Terms and conditions of licenses and permits issued; Fees for licenses and permits issued for which fees are not prescribed by statute; Conduct of regular and special meetings of the board; Delegation to the director of routine administrative functions and powers; The temporary granting or denial of issuance, transfer, and renewal of licenses; Manner of giving any notice required by law or regulation when not provided for by statute; Requirements relating to the qualifications of licensees, the conditions upon which a license may be issued, the accommodations of licensed premises, and board inspection of those premises; Making of reports by wholesalers; Purchase of fidelity bonds by the state for the director and the employees of the board; Prohibition of possession of alcoholic beverages by drunken persons and by minors; Required reports from corporations licensed under this title, including reports of stock ownership and transfers and changes of officers and directors; Creation of classifications of licenses or permits not provided for in this title; Establishment and collection of fees to be paid on application for a license or permit; Required reports from partnerships and limited partnerships licensed under this title, including reports of transferred interests of 10 percent or more; and Required reports from limited liability organizations licensed under this title, including reports of any change of managers, and the transfer of a member's interest if the transfer equals 10 percent or more of the ownership of the limited liability organization. As you can see, the scope of these regulations, which includes the ability to determine the terms and conditions of licenses and permits, provides the ABC Board with very broad authority. The Board has used this authority to, among numerous other actions, establish a multi tiered licensing regime, restrict hours of operation, limit container sizes, determine location of licensed facilities, implement training requirements for servers, issue specifications for advertising, and impose numerous limitations on the serving of alcohol to or around minors. Of course, it is unclear how courts will treat a future challenge to a given regulatory requirement but, clearly, there is ample precedent in Alaska for a tightly regulated industry that serves intoxicating substances. What will be the amount of licensing fees, how will regulatory agencies be funded, and at what cost? As we noted above, the rulemaking requirements of (a)(2) include the following: A schedule of application, registration and renewal fees, provided, application fees shall not exceed $5,000, with this upper limit adjusted annually for inflation, unless the board determines a greater fee is necessary to carry out its responsibilities under this chapter. LEGISLATIVE RESEARCH SERVICES, LRS NOVEMBER 28, 2014 PAGE 4 ESTABLISHING MECHANISMS FOR THE REGULATION OF MARIJUANA IN ALASKA

5 The provision at once sets a fee limit and gives the Board the authority to exceed it. This contradictory directive may be a nod to the fact that nobody really knows how much it will cost to regulate this as yet nonexistent industry. 6 Presumably, regulatory expenses will be a factor in establishing the cost of licensure and the fees collected will fund the regulatory agency; however, those funding mechanisms are not contemplated by the Act. A document jointly prepared in early 2014 for the ABC Board by executive branch agencies that may be impacted by the enactment of Ballot Measure 2 attempts to quantify some of the first year regulatory costs. The departments most likely to incur direct regulatory costs are Commerce, Community, and Economic Development (DCCED), which houses the ABC Board, and the Department of Revenue (DOR), which will collect taxes on sales. The report estimates first year costs of roughly $1.5 million for DCCED and $650,000 $800,000 for DOR. The figures do not include the costs of establishing a Marijuana Control Board. Further, the contributors to the report caution that there are numerous unknowns in the state s implementation of this initiative. The agencies therefore recommend that their estimates be regarded as illustrative. We include a copy of the agency report as Attachment A. What degree of control will municipalities have over licensing and regulation? Pursuant to AS , local governments may prohibit cultivation, manufacture, and/or retail sales of marijuana by ordinance or voter initiative. Those governments may similarly enact measures to limit the time, place, manner, and number of marijuana establishments as long as they do not conflict with provisions of the Act. As we mentioned above, if the state regulatory body fails to establish regulations and/or start issuing licenses within the timeframe established by law, local governments have the option of establishing their own regulatory authorities to do so. What are the projected tax revenues to the state? The State of Alaska has not published a projection of tax collections from the sale of recreational marijuana and very few robust independent analyses have been attempted, with most being not much more than back of the envelope affairs. In many ways, the math of the issue is very simple tax revenues equal the weight of marijuana at the wholesale level multiplied by the $50 per ounce excise tax imposed by The problem is that no one knows with any degree of certainty how much demand for marijuana exists currently, and what portion of that demand will transfer to the legal retail market. A primary variable that will drive market demand is the retail price, which, in turn, will be impacted by supply issues, licensing and regulatory costs, and the price difference between legal sources of marijuana and the black market. If legal marijuana is more expensive than other sources, demand for retail products will obviously be weakened. To fill the information vacuum left by the lack of an official revenue forecast, Colorado s Marijuana Policy Group (MPG) published a report on the topic in October The MPG is a consortium of university researchers and economic consultants specializing in marijuana market design and policy that provides market analyses for the Colorado Marijuana Enforcement Division. 9 The MPG study of market demand in Alaska finds that, if the pre tax retail price of marijuana is similar to that in Colorado ($14 per gram), first year retail sales would total roughly $55.6 million and generate about $7 million in excise tax revenue. Prices would decrease and revenues grow as the market matures, reaching approximately $107 million in 6 The ABC Board maintains a frequently asked questions section on Ballot Measure 2 on its website at 7 It is important to note, however, that the state will also collect corporate income taxes from marijuana businesses, and municipalities with local sales taxes will also receive revenue. 8 According to a report by the Alaska Dispatch News (ADN), requests to the administration of Governor Parnell for estimates of tax collections were refused, and executive branch agencies were prohibited from using state resources to make such an estimate ( official forecast planned revenue alaska marijuana taxes anyones guess). 9 The MPG states in its report that it took no position on the Alaska ballot measure and was not paid for its work. Instead, it developed the report to help Alaska voters understand potential sales and tax revenues under a legal marijuana regime. The Group describes itself as a collaborative effort between the University of Colorado Boulder Business Research Division ( and BBC Research & Consulting ( in Denver. Both entities have offered custom economic, market, financial and policy research and consulting services for over 40 years. LEGISLATIVE RESEARCH SERVICES, LRS NOVEMBER 28, 2014 PAGE 5 ESTABLISHING MECHANISMS FOR THE REGULATION OF MARIJUANA IN ALASKA

6 sales and $23.8 million in tax revenue to the state by 2020 at retail prices of about $8 per gram. To provide some context, in fiscal year (FY) 2013 alcohol excise tax collections in Alaska totaled roughly $39.6 million on sales of 18.3 million gallons. Of the taxes collected, about half $19.8 million were dedicated to substance abuse treatment and prevention programs and the remainder were general funds. 10 We include the MPG market study for Alaska as Attachment B. It is important to reemphasize that there is simply no way to accurately estimate tax revenues from a regulated market of a product that, until very recently, was illegal everywhere. Every economist and policy analyst whose research or comments we reviewed for this report stressed that there are far too many uncertainties in basic economic variables to allow for reliable estimates of sales or revenues. Taylor Bickford, spokesman for the primary backers of Ballot Measure 2, told the Alaska Dispatch News that it would be wildly irresponsible to make tax and revenue estimates. 11 Although this language may be a bit strong, we nonetheless agree that projections related to Alaska s nascent marijuana market are speculative. What standards are in place with regard to driving under the influence (DUI) of marijuana? Driving under the influence of marijuana is currently illegal across the country, including Alaska, but laws vary from state to state. Per se statutes, like Alaska s, take a zero tolerance approach, criminalizing driving with any amount of controlled substances in the bloodstream, including tetrahydrocannabinol (THC), which is the psychoactive substance in marijuana. Our cursory review identified 12 other states with similar zero tolerance laws. 12 Alternatively, some states designate a specific threshold of a substance that maybe present in the driver s system. We identified nine states Colorado, Montana, Nevada, North Carolina, Ohio, Pennsylvania, South Dakota, Virginia, and Washington with laws criminalizing having specific amounts of THC in a driver s system. For example, Nevada and Ohio have thresholds of two nanograms of THC per milliliter of blood, while Colorado, Montana, and Washington allow five nanograms per milliliter. Proponents of per se laws note that such measures have been applied to commercial drivers in the U.S. by federal law for over 20 years and have proved effective. 13 Additionally, such laws are widely used in many countries in the developed world outside the U.S. including the E.U., Canada, Australia and New Zealand. Advocates of such measures also maintain that a benefit of a per se regime is that prosecutors do not have to meet more complex and difficult to prove standards to establish guilt. 14 Opponents of per se laws argue that they are potentially unfair because drivers can be charged with and convicted of DUI for operating a motor vehicle while not actually being impaired. For example, an individual who smokes marijuana on Friday night and gets pulled over by law enforcement while driving on Saturday may not be impaired but may still hold detectable amounts of THC. 15 In a state with per se laws this driver could be found guilty of DUI. Another commonly raised concern is that people metabolize THC at different rates and the degree of impairment varies considerably according to a number of 10 Alaska Department of Revenue, Tax Division, 2013 Annual Report, pp (pp of the.pdf file), 11 Susanna Caldwell, With No Official Forecast Planned, Revenue from Alaska Marijuana Taxes is Anyone s Guess, ADN, September 11, 2014, official forecast planned revenue alaska marijuana taxes anyones guess. 12 These states are Arizona, Delaware, Georgia, Illinois, Indiana, Iowa, Michigan, Oklahoma, Oregon, Rhode Island, Utah, and Wisconsin. We identified these states using a variety of sources including the Governors Highway Safety Association (GHSA) and the National Conference of State Legislatures (NCSL). A document from GHSA from August 2014 on per se drug impaired driving laws is available at Similar data with slight discrepancies due to changes in laws after the information was compiled is available from the National Conference of State Legislatures (NCSL) at This document includes relevant statutory citations. 13 Information on this law from the Federal Motor Carrier Safety Administration can be viewed at drug andalcohol rules and safety/drug alcohol testing/what if i fail or refuse test. 14 Among our sources was Corrine Shea, director of communications, Institute for Behavior and Health, an entity that promotes, among other things, strong drugged driving laws ( Ms. Shea can be contacted at In April 2014, the Arizona Supreme Court heard a case similar to this hypothetical. In Arizona v. Shilgevorkyan the court ruled to dismiss a DUI charge against a driver who admitted to smoking marijuana the night before being pulled over and whose subsequent blood test detected the presence of THC. An Associated Press article on the case can be viewed at supreme court no dui formarijuana unless person is actually impaired/. LEGISLATIVE RESEARCH SERVICES, LRS NOVEMBER 28, 2014 PAGE 6 ESTABLISHING MECHANISMS FOR THE REGULATION OF MARIJUANA IN ALASKA

7 factors specific to the individual driver in question; therefore, it can be problematic to determine if a person is impaired based strictly upon THC levels. Current Alaska Law In Alaska, a person is guilty of DUI if he or she operates a motor vehicle while under the influence of an alcoholic beverage, intoxicating liquor, inhalant, or any controlled substance, alone or in combination (AS [a][1]). Alaska statute does not define a legal limit for THC in drivers. 16 The impaired driving statutes do not distinguish among different types or compounds of THC, nor does state law establish a permissible grass to gas timeframe for drivers. In most cases, if a motorist is pulled over by law enforcement in Alaska and the officer believes the driver is affected by marijuana or any other controlled substance, a court order is required to obtain a blood or urine sample. Alaska, like four other states (Alabama, Massachusetts, New Jersey, and West Virginia), does not extend the concept of implied consent to driving under the influence of a controlled substance except in instances of crashes involving serious injury or death. 17 By contrast, under the doctrine of implied consent in Alaska, a driver suspected of driving under the influence of alcohol who refuses to be tested would generally face the same penalties as a person found guilty of DUI. 18 Under current law, a driver in Alaska who is found to have THC present in the body will likely be prosecuted for driving under the influence. Unlike laws in a number of other states, Alaska statutes contain no exceptions regarding such driving offenses for individuals who are using marijuana for medical reasons. Finally, nothing in Ballot Measure 2 addresses whether a legal limit (zero tolerance or otherwise) will be assigned to THC levels for impaired driving. The only mention of marijuana use and driving in the measure reads as follows: AS (b) Nothing in this chapter is intended to allow driving under the influence of marijuana or to supersede laws related to driving under the influence of marijuana. Washington and Colorado DUI Laws Pertaining to THC Levels Washington laws set a DUI limit for THC in the blood at five nanograms per milliliter of blood. Additionally, the statute stipulates that this limit remains in effect for two hours after driving. The measure also states that a person can be charged with DUI even if he or she is entitled to use a drug under the laws of the state (medical marijuana, for example). Revised Code of Washington ) A person is guilty of driving while under the influence of intoxicating liquor, marijuana, or any drug if the person drives a vehicle within this state: (a) And the person has, within two hours after driving, an alcohol concentration of 0.08 or higher as shown by analysis of the person's breath or blood made under RCW ; or (b) The person has, within two hours after driving, a THC concentration of 5.00 or higher as shown by analysis of the person's blood made under RCW ; or (c) While the person is under the influence of or affected by intoxicating liquor, marijuana, or any drug; or 16 Alaska Deputy Attorney General Rick Svobodny provided input for this section. Mr. Svobodny can be reached at (907) We identified states without implied consent laws for driving under the influence of a controlled substance from a December 2009 report from the National Highway Traffic Safety Administration entitled A State by State Analysis of Laws Dealing with Driving Under the Influence of Drugs ( AS (g) and AS pertain to implied consent when a serious motor vehicle accident has occurred. 18 AS LEGISLATIVE RESEARCH SERVICES, LRS NOVEMBER 28, 2014 PAGE 7 ESTABLISHING MECHANISMS FOR THE REGULATION OF MARIJUANA IN ALASKA

8 (d) While the person is under the combined influence of or affected by intoxicating liquor, marijuana, and any drug. (2) The fact that a person charged with a violation of this section is or has been entitled to use a drug under the laws of this state shall not constitute a defense against a charge of violating this section. 19 Colorado Revised Statutes As is the case in Washington, the impairment level in Colorado is five nanograms of THC per milliliter of blood; however, Colorado's law allows drivers to submit evidence in court to try to prove that they were not impaired even though their THC blood levels were above the legal limit. Whether pulled over for an alcohol or marijuana DUI charge, a Colorado driver can consent to or refuse a blood test; however, refusal to take the test is both admissible in court and a basis for revocation of a driver's license. 20 We hope this is helpful. If you have questions or need additional information, please let us know Colorado House Bill , which set the set the limit of THC at five nanograms per milliliter, is available at Also, a document from the Colorado Office of Legislative Legal Services summarizing Colorado s impaired driving laws is available at LEGISLATIVE RESEARCH SERVICES, LRS NOVEMBER 28, 2014 PAGE 8 ESTABLISHING MECHANISMS FOR THE REGULATION OF MARIJUANA IN ALASKA

9 Legalization Vehicle Primary Regulatory Agency Table 1: Selected Provisions of Successful Recreational Marijuana Legalization Initiatives Alaska Colorado Oregon Washington State Ballot Measure 2 Amendment 64 Measure 91 Initiative 502 Alcoholic Beverage Control Board or Marijuana Control Board, if established by the legislature. Department of Revenue, Marijuana Enforcement Division (MED). Liquor Control Commission (OLCC). Liquor Control Board. Home Cultivation Up to 6 plants, with 3 flowering at any time. Up to 6 plants, with 3 flowering at any time. Up to 4 plants; limited to 8 ounces of useable marijuana at any given time. None permitted. Driving Under the Influence No chemical limit specified; typically a court order is required to compel a blood sample. THC content of 5 nanograms per milliliter of blood. No chemical limit specified. THC content of 5 nanograms per milliliter of blood. Tax Structure $50 per ounce levied on initial wholesale transaction plus local sales taxes, if applicable. 15 percent excise tax on cultivator; 10 percent special sales tax; 2.9 $35 per ounce, paid by the producer. percent standard sales tax; additional local taxes can be levied. 25 percent excise tax on sales from grower to processor, processor to retailer, and retailer to customer; plus local sales taxes. Revenue Use None yet specified. Marijuana Tax Cash Fund / Marijuana Cash Fund. Monies used to fund MED, school construction, expanded education and prevention efforts, and law enforcement. Revenue sharing with local governments that allow marijuana sales. 40% to Common School Fund; 20% to Mental Health, Alcoholism and Drug Services; 15% to State Police; 10% to Cities for enforcement of the measure; 10% to Counties for enforcement of the measure; 5% to Oregon Health Authority For Alcohol and Drug Abuse Prevention. Complicated allocation: first money goes to fund administrative costs, various research projects and prevention or substance abuse programs; later money is split between more marijuana specific programs, general healthcare spending, and the state s general fund. No municipal revenue sharing. Licensing Regime Measure contemplates retail establishments but doesn't delineate license types. Sets an upper limit of $5,000 for fees, but allows adjustment to meet regulatory cost needs. Vertical Integration for first 9 months (retailers had to grow 70 percent of their product until 10/1/14). Grower/processor/retailer licensed by MED. $5,000 application fee plus licensing costs of $2,200 $8,000, depending on type of business. Renewal fees vary widely $2,500 $10,800. License applications will be accepted beginning Jan. 4, Producer, processor, wholesaler, and retail licenses offered. Fees are preliminarily set at $1,000 annually plus application costs of $250. Growers, processors, and retailers must be licensed. No vertical integration allowed: growers and processors cannot be retailers, though joint grower processor licensed issued. Retail licenses capped at 334 for the state. Fees vary by type from $3,000 $6,500. Legislative Research Services Report , November 2014 Page 1 of 2

10 Table 1: Selected Provisions of Successful Recreational Marijuana Legalization Initiatives (continued) Alaska Colorado Oregon Washington State Diversion Prevention No provisions in measure. May be addressed through development of regulations. Seed to Sale Tracking System; limits on quantities purchased /possessed; education campaigns; video surveillance requirements. No provisions in measure. May be addressed through regulation. Marijuana import / export for distribution is a Class C felony. Same measures as Colorado. Tight control over licensing and deliberate roll out to enhance prevention of interstate diversion. Local Control Municipalities may prohibit marijuana cultivation, processing, and sales by ordinance or voter initiative. Can govern the time, place, number, and manner of marijuana establishments and their operations. If the state fails to establish a licensing regime within 12 months, municipalities may implement the Act. Counties, municipalities can opt out. Local governments can regulate the number of grow operations and dispensaries. Local governments can assess additional taxes. Local governments can issue zoning and other ordinances regulating production and consumption. The measure preempts local ordinances. Municipal governments may not prohibit licenses except via general election. Measure 91 allows local governments to adopt time, place and manner restrictions to regulate public nuisance. Preempts local drug laws, but some localities seeking to use zoning laws to effectively exclude stores were encouraged by non binding state Attorney General opinion. Litigation is pending. Selected Regulatory Features Monthly cultivation and sales reports required to include identity of wholesale buyers. Extensive criminal background checks Product standards and testing to be for all licensees; scaling up of product developed through regulation. and potency testing. Labeling requirements imposed. Extensive criminal background checks of all licensees; broad product safety testing. Official Analyses Required or Produced None. State commissioned a survey of market demand. Separate revenue analyses/projections conducted by the Department of Revenue, Governor s Office of State Planning and Budgeting, and the Colorado Legislative Council. OLCC required to compile research on marijuana DUI and report to legislature by January Initiative mandates cost benefit analysis conducted by Washington State Institute for Public Policy (WSIPP), with preliminary report in 2015 and subsequent reports in 2017, 2022, and Notes: This table is not exhaustive of all of the legal provisions within the recreational marijuana initiatives in these four states. Source: Websites of regulatory agencies; the Brookings Institution, washington colorado legal marijuana comparison wallachhudak ; and text of ballot measures: Alaska Proposed Law.pdf; Colorado Oregon Washington Legislative Research Services Report , November 2014 Page 2 of 2

11 Attachment A Estimates of Costs to the State of Alaska for the Implementation of the Initiative Proposing an Act to Tax and Regulate the Production Sale, and Use of Marijana, Report to the Alaska Alcoholic Beverage Control Board, February 2014

12 Estimate of Costs to the State of Alaska for the Implementation of the Initiative Proposing an Act to "tax and regulate the production, sale, and use of marijuana." Summary As required by AS (a)(4), the State of Alaska has prepared the following statement of costs resulting from the implementation of the proposed ballot initiative to tax and regulate the production, sale, and use of marijuana. The initiative would legalize the personal use of marijuana for persons age 21 or older. Specifically, the statute would permit: the possession, use, display, purchase, or transportation of marijuana accessories or one ounce or less of marijuana; the possession, growth, processing, or transporting of no more than six marijuana plants (with three or fewer being mature, flowering plants) and possession of the marijuana on the premises where the plants were grown; the transfer of one ounce or less of marijuana and up to six immature marijuana plants to a person who is 21 years of age or older without remuneration; the consumption of marijuana in a non-public location; and assisting another person who is 21 years of age or older in any of the above activities. The initiative would also impose certain restrictions and penalties on the personal cultivation and public consumption of marijuana as well as prohibit the use of false identification by a person under the age of 21 to purchase or attempt to purchase marijuana. It would allow for the manufacture, possession, purchase, distribution and sale of marijuana accessories as well as the lawful operation of marijuana- related facilities such as retail stores and cultivation facilities. The initiative requires the Alcoholic Beverage Control Board (ABC) in the Department of Commerce, Community and Economic Development (DCCED) to adopt regulations to implement the law no later than nine months after the initiative is approved. However the legislature may create a Marijuana Control Board in DCCED to assume the ABC's regulatory role. Marijuana establishments must be registered and local governments could prohibit or limit the existence of and operations of marijuana facilities in their jurisdiction. The initiative also imposes a $50 per ounce (or proportionate part) excise tax on the sale and transfer of marijuana from a marijuana cultivation facility to a retail marijuana store or marijuana product manufacturing facility. The tax would be paid by the marijuana cultivation facility. Based on examination of Washington and Colorado, two states that are currently in the process of implementing similar legislation, the Governor, the Legislature, or the ABC Board may choose to establish a Task Force to represent the major stakeholders affected by the implementation of the initiative. An estimate of the potential costs for the Task Force is included under the DCCED cost statement beginning on page 3. This would be an effective method to facilitate an expedient and comprehensive gear up of the tax and regulatory framework described or established in the initiative. There are numerous unknowns in the state's implementation of this initiative and as such the cost statement provided here is illustrative. For example, it is unknown whether or not the legislature will create a Marijuana Control Board within DCCED, so the cost estimates do not reflect that potential administrative structure. Using information available from the Colorado and Washington experiences as well as other sources, state agencies have identified a range of potential costs to the state from $3. 7 to $7.0 million in the first year. It is likely that costs related to development of the 1

13 tax and regulatory framework would initially be significant. Over the longer term, it would be expected that more of the state's total costs would become public health and education activities as the extent of the impact on public health becomes more defined. Below is a summary table of agency costs followed by explanations of the estimates by individual agency. The following represents a potential range of state agency costs. The estimate does not include expenses that the legislature may or may not incur associated with the initiative, or any legal expenses that the state may incur as a result of the initiative. Summary of estimated costs to implement the Marijuana Initiative by State Agency Agency Alaska Department of Revenue Alaska Department of Commerce, Community and Economic Development Alaska Department of Health and Social Services Alaska Department of Public Safety Alaska Department of Environmental Conservation University of Alaska Office of the lieutenant Governor Division of Elections Total First Year Estimated Cost Cost Range - First Year $650,000 $800,000 $1,563,960 $1,563,960 $0 $2,987,000 $1,434,700 $1,434,700 $0 $136,900 indeterminate - $9,000 $9,000 $71,257 $71,257 $3,728,917 $7,002,817 Statement of Cost Estimates by Department Estimate of costs to the Alaska Department of Revenue to implement the marijuana initiative $650,000 -$800,000 If this initiative is approved by the voters in the August 2014 primary election, it would require DOR to incur additional costs to effectively implement it. If approved, it is presumed that this initiative would take effect thirty days after approval by a majority of qualified voters. The estimated cost to the state for the implementation of this initiative is between $650,000 and $800,000. Recurring annual costs are estimated at approximately $300,000. The estimated costs can be broken down into two categories: Personnel Services: Contractual Services: TOTAL $300,000 $ $ $650,000-$800,000 Personnel - DOR estimates that it will need to create at least three new positions to oversee the new excise tax imposed by this initiative at a cost of approximately $300,000 to assist with the administration and collection of a new excise tax. DOR would need at least one Tax Auditor III 2

14 position, one Tax Technician II position, and one Investigator III position to fulfill the needs of a new tax program. This cost is similar to the cost that is currently incurred by DOR to administer other similar types of excise taxes, and would be recurring annual costs for DOR. Contractual Services - DOR estimates that it will incur a one-time additional expense of approximately $500,000 for systems configuration. In August 2014, DOR will be complete with configuring the excise tax portion of its new Tax Revenue Management System (frms). If this initiative is approved by the voters, it will require DOR and its information system contractors to reconfigure the system to add this new excise tax. Given the limited timeframe to analyze what portions of the system would need to be reconfigured if the initiative passed, DOR's contractors have supplied an estimate of $350,000 to $500,000 for this effort. The above cost estimates represent a minimum cost given the numerous uncertainties around the referendum, and what all of the effects of its passage would be. Estimate of costs to the Alaska Department of Commerce, Community and Economic Development to implement the marijuana initiative $~563,960 The following represents an estimated cost to DCCED given the language of the ballot initiative; the actual costs will likely be different. The estimate does not include expenses the legislature or other departments may incur associated with the initiative. The Washington and Colorado marijuana initiative cost estimates were reviewed in developing this cost analysis. If the initiative is approved by voters in the August 2014 primary election, the State of Alaska, through the Alcoholic Beverage Control (ABC) Board, shall adopt regulations within nine months following the effective date, as required by AS It is presumed that the initiative would take effect thirty days after the approval by a majority of qualified voters. A local government may designate a local regulatory authority that would be responsible for processing applications submitted for the operation of a marijuana establishment within the boundaries of the local government. If the ABC Board fails to adopt regulations as outlined in the initiative, an applicant may submit an application directly to a local regulatory authority one year after the effective date of the law. In accord with AS , a local government may prohibit cultivating, manufacturing, testing, and selling marijuana through an ordinance or voter initiative. Local governments may also enact local ordinances or regulations for the governance of marijuana establishment operations as long as they are not in conflict with the initiative or regulations enacted pursuant to the initiative. If the initiative passes, the responsibility for controlling marijuana will lie with the ABC Board until or unless a marijuana control board is established by the legislature within DCCED. As was done in the state of Colorado following the passage of a similar initiative, the department recommends the creation of a Task Force to identify legal, policy, and procedural issues that need to be resolved, and to offer suggestions and proposals for legislative and executive action for the implementation of this initiative. The Task Force would need to complete its initial regulatory framework within four months of the effective date of the initiative to allow for the adoption of 3

15 regulations within the nine month requirement. The remaining Task Force work would be concluded one year after the effective date of the initiative. It is assumed that the Task Force would be comprised of a total of 17 uncompensated members representing interest groups affected by the ballot initiative: four Legislators, one each from the majority and minority of both the House and Senate; one Commissioner or their Designee from each agency affected by this initiative (DCCED, Public Safety, Health and Social Services, Environmental Conservation, Revenue, Law, Corrections and the University of Alaska); one member of the initiative campaign; one member of the public who represents the medical industry; and three members of the public at-large, with one representing rural Alaska. Task Force members will receive travel and per diem. The actual composition of the Task Force may be different. The estimated total cost to DCCED for the implementation of this initiative is $1,563,960 for the first year and $1,413,140 for the second year. Business Registration Examiners, Range 13 C - 2 at $73,000 each Investigator Ills, Range 18 C - 4 at $99,300 each Investigator IV, Range 20 C Administrative Officer I, Range 17 C Program Coordinator II, Range 20 C Total Personal Service Costs First Year $107,800 $107,800 Second Year $146,000 $397,200 $110,000 $86,000 $107,800 $847,000 Board member/staff travel and per diem Informants/underage buyers (compliance check) travel, pay, and per diem Task Force travel and per diem Total Travel and Per Diem Costs $16,600 $16,600 $85,900 $34,000 $119,900 ABC Board Warning/Enforcement Signs Envelopes Forms Postage Office Space 160 sq. ft. per employee at $3 foot Ongoing support services for new employees One-time set up costs for new positions Total Equipment, Office Space, and Supplies Costs $2,000 $800 $1,500 $2,000 $5,760 $10,000 $5,000 $27,060 $2,000 $800 $1,500 $2,000 $51,840 $90,000 $40,000 $188,140 Task Force recommendations contract funds Department of Law Assistant Attorney General Services Department of Law for expedited regulations Database Creation Database Maintenance Vehicles 4 at $33,500 $650,000 $62,500 $200,000 $500,000 $62,500 $50,000 $134,000 4

16 Vehicle Operating and Maintenance at $240 per month $11,600 Total Contracts and Services Costs $1,412,500 $258,100 Total Costs $1,563,960 $1,413,140 Personal Services All positions within the ABC Board are currently performing at or above capacity. With the passage of the initiative, the workload of the ABC Board has the potential to double or triple. If doubled, the ABC Board would require an additional four investigators, one supervisor, and two business registration examiners to regulate the marijuana industry, similar to the duties of current staff that regulate the liquor industry. The addition of an Administrative Officer I would be necessary to support the added financial requirements. A Program Coordinator II would be necessary for the facilitation, coordination, and documentation of the Task Force and for the long-term program development, planning, coordination, and oversight of this complex program. Travel and Per Diem Board If the ABC Board of Directors takes on the added responsibility of controlling the cultivation, manufacture, barter, possession, and the sale of marijuana, the current board meetings would be extended by one day, adding to the cost of lodging, ground transportation, and per diem. Investigations Investigators and underage buyers will travel to communities around the state to provide compliance checks and ensure retailers adhere to the laws and regulations of the program, similar to liquor industry compliance investigations. Task Force The Task Force will hold seven two-day meetings, with two face-to-face meetings in Anchorage and the rest conducted either by video or teleconference; this assumes ten members are located outside Anchorage. Equipment, Office Space, and Supplies Equipment and supply costs includes new employee set up, warning signs, test kits, paper products, postage, and additional office space. Contracts and Services Contract costs are for studies on market demand, effects of marijuana, and the cost of production. Regulations will need to be in place nine months after the effective date of this initiative and will require extensive work with the Department of Law. There will be significant ongoing work required by the Department of Law to meet the demands of this new program, similar to the legal demands of the liquor industry. 5

17 A new database would require the analysis and development of business rules, analysis of existing systems for parallel processes or required modifications, new system development, testing, validation, implementation, and documentation. Vehicles Additional vehicles are required to perform investigations across the state. Estimate of costs to the Alaska Department of Health & Social Services to implement the marijuana initiative $0 - $2,987,000 As written, the initiative primarily focuses on the process and procedures necessary to establish taxation and regulation of the production, sale and use of marijuana; the actions addressed in the initiative will not directly impact or cost the Department of Health and Social Services in the establishment of these procedures and regulation development. However, there is evidence that downstream health and social service consequences of implementing this initiative could be significant. The department has prepared an estimate based on research, other states' experiences, and an extrapolation of expenses the department incurs providing similar substance related services. The fiscal impact will directly relate to how many additional people begin using marijuana and how many current users increase their use. To evaluate costs, the department has considered recent studies including Proceedings of the National Academy of Science 1, and the United Nations Office on Drugs and Crime, Cannabis: A Short Review. 2 These studies note emerging findings on the harmful effect of cannabis on neuropsychological functioning data indicating cannabis is linked to addiction, cognitive impairment, motor skills deficiency, respiratory, cardiovascular and mental health problems, and has been shown to be particularly damaging to maturing brains. The consequences and outcomes of marijuana use create a significant potential for increased costs for physical and behavioral health care, child welfare services, educational systems, employers, public safety, criminal justice, community health and other aspects of state and local governments. For instance, legalization of marijuana may create an environment in which young people, in particular, perceive a lower risk of harm from marijuana use, resulting in increased use 3 According to Robert Morrison, Executive Director of the National Association of State Alcohol and Drug Abuse Directors (NASADA), Alaska has one of the highest use rates of marijuana at 11 %, 1 Persistent cannabis users show neuropsychological decline from childhood to midlife. Meier, Madeline H., Caspi, Avshalom, et al. Proceedings of the National Academy of Science. Published online August 27, Cannabis: A Short Review, Discussion Paper from the United Nations Office on Drugs and Crime Trends in Adolescent Substance Use and Perception of Risk from Substance Use. The NSDUH Report; from the Substance Abuse and Mental Health Services Administration (SAMHSA) and the National Survey on Drug Use and Health. January 3,

18 along with Vermont. He also highlights that an estimated 4.4 million individuals, nationwide, met criteria for marijuana dependence or abuse. 4 While actual increases in health and social service programming are unknown, research and data provide a clear picture of the potential for increased problems associated with the legalization of marijuana. In states where medical marijuana is legal, marijuana abuse and dependence rates are almost twice as high as in those states without medical marijuana. 5 Two states that have recently legalized marijuana, Washington and Colorado, report difficulty determining the potential costs. Results of a recent report to estimate the fiscal impact of marijuana legalization in Colorado were inconclusive and four national marijuana-policy experts wrote that "the future holds more unknowns than knowns." The Division of Juvenile Justice has identified several areas in which costs could increase. Making possession of marijuana an offense that can be committed by minors but not adults creates a new status offense that is subject to specific rules governing the secure holding of juveniles. Violation of those rules could jeopardize federal funding currently received through the U.S. Office of Juvenile Justice and Delinquency Prevention. The initiative could also require increased treatment for substance abuse and mental health issues among youth held in detention. With this very brief overview of concerns about increased marijuana use and legalization, the department anticipates potential costs to DHSS in the following areas, with estimates of per annual cost increases:./ Increased substance use, dependency and addictions treatment $ or a 10% increase in treatment services for marijuana dependence;./ Increased mental health treatment services $1.1 million or a 5% increase in mental health treatment services;./ Increased physical health services through public health and our primary care providers $ ;./ Increased Medicaid costs to cover treatment and service needs $ or a 10% increase in current marijuana treatment services covered by Medicaid./ Increased enforcement of marijuana access by youth (similar to our current tobacco enforcement efforts). This expenditure will be determined upon the process developed for retail sale of marijuana $ or a potential 20% increase./ Increased prevention, education and early intervention programs for adolescents and young adults 10% community grant increase and 20% ASAP service increase = $ $ ; 4 Marijuana Regulation: Considerations from State Substance Abuse Agency Directors. A presentation to the National Conference of State Legislatures (NCSL), Spring Forum. Robert Morrison, Executive Direction, NASADAD. May 3, Toolkit for States Facing "Medical" Marijuana & Marijuana Legalization Initiatives. Community Anti-Drug Coalitions of America (CADCA). Summer

19 ,/ Increased child protection services for young children in homes with regular and persistent marijuana users (second hand marijuana smoke, neglect) training for foster parents and staff $ ;./ Increased juvenile justice services for youth engaged in marijuana use and dependency $ ;,/ Potential Human Resource activities related to employee use of marijuana and related policies $ Estimated annual potential cost increases to the Department of Health and Social Services resulting from the legalization of marijuana are $2,987,000. As indicated, these are estimates based on projected impacts depending on the actual regulations, enforcement and number of citizens who increase their use of marijuana, actual costs are likely to be different. Estimate of Costs to the Alaska Department of Public Safety to implementation the marijuana initiative $1,434,700 The ballot initiative would tax and regulate marijuana sales and allow Alaskans to cultivate marijuana for personal use. Persons 21 years of age or older could legally possess up to one ounce of marijuana or six marijuana plants (three of which could be mature), and could legally cultivate, sell and purchase marijuana through authorized marijuana-related facilities. The cost to DPS to implement the law proposed by this initiative is based on the following assumptions regarding the legalization of marijuana in Alaska; it will lead to increased demand and usage and a consequent increase in the number of people driving while under the influence of this drug; and, it will increase the illegal diversion and exportation of marijuana lawfully cultivated in Alaska. Therefore, the costs to DPS are associated with the following: 1. Increasing the number Statewide Drug Enforcement Unit trooper investigators to target the diversion and exportation of marijuana lawfully grown in Alaska; 2. Requiring more troopers to receive Drug Recognition Expert (DRE) certification to enhance their ability to detect drivers impaired by marijuana and address the anticipated increase in DUI offenses; 3. Launching a public education and awareness campaign on the dangers of driving under the influence of marijuana; and 4. Increasing the number of samples being sent out for toxicology analysis to detect the presence of marijuana in blood. Division of Alaska State Troopers: Marijuana is identified as a primary substance of abuse in Alaska, along with alcohol, cocaine, heroin, and prescription drugs. These substances are the focus of most drug enforcement efforts in Alaska. 8

20 DPS' Division of Alaska State Troopers (ASl), Alaska Bureau of Investigation, Statewide Drug Enforcement Unit (SDEU) provides a leadership role in coordinating law enforcement's efforts to reduce the availability of illegal alcohol and controlled substances (including marijuana) throughout Alaska. The SDEU primarily supports six investigative drug task forces throughout Alaska. These teams are broken down by region as follows: - Alaska Interdiction Task Force/ Anchorage Enforcement Group (sponsored by the U.S. Drug Enforcement Administration) - Fairbanks Area-wide Narcotics Team - Mat-Su Narcotics Enforcement Team - South Central Area-wide Narcotics Team - Southeast Alaska Cities Against Drugs Task Force - Western Alaska Alcohol and Narcotics Team SDEU participates with and receives assistance from several federal investigative agencies involved in drug enforcement. These agencies include the: Drug Enforcement Administration (DEA); Federal Bureau of Investigation (FBI); U.S. Postal Inspection Service; Bureau of Alcohol, Tobacco, Firearms, and Explosives (BATFE), and US Immigration and Customs Enforcement (ICE). The DEA awarded $80,000 in Marijuana Eradication grant funds to the State of Alaska in calendar year These funds were used to cover some of the costs associated with marijuana eradication in the state. In calendar year 2012, funds were shared with the Anchorage, Craig, and Kenai police departments to cover overtime incurred by officers involved in eradication operations. The following table reports the activities supported through this grant: 2012 Duml stic C his Er.1dil'.1tiu11/S11ppn ssio11 St.ttistil.d Hq)ot I for Al.i...k,1 Total Total Total Eradicated Total Eradicated Total Cultivated Outdoor Cultivated Indoor Cultivated Plants Bulk Number *Assets Grow Plants Grow Plants (Outdoor Processes of Seized Weapon Sites Outdoor Sites Indoor & Indoor) Marijuana Attest (Value) Seizure ,270 4, $36, *Assets seiz.ed include paraphernalia items such as grow lights and digital scaks and does not include manjuana plants. Given that marijuana is illegal under federal law, legalization of marijuana in Alaska will have an impact on the collaborative working relationships DPS has with its federal counterparts and could potentially affect federal grant funds DPS and local law enforcement agencies receive for marijuana eradication and suppression efforts. Should this initiative become law, it is practical to assume that arrests for simple possession will decrease. Even so, drug enforcement efforts are primarily targeted at individuals engaged in commercially cultivating and trafficking marijuana. 9