The Alaska Marijuana Control Board accepted its final draft of the regulations that will govern the new industry, legalized by Ballot Initiative 2 in November 2014.
The new cannabis industry regulations include a concession to marijuana clubs that still leaves a hazy legal area to be challenged later, a quasi ban on Outside investment, revisions to concentration limits, allowances for retail operations and limited cultivator licenses, and clarifications to packaging requirements.
The final draft of cannabis industry regulations do not satisfy every public comment, nor do they zip closed every potential legal challenge or hiccup, but Marijuana Control Board chairman Bruce Schulte believes their completion alone is a success, with the board having learned from the mistakes of Lower 48 state regulations.
“We’re the fourth state to do this,” said Schulte. “It’s not perfect, but I hope and think it’s as good or better than Colorado or Washington. Even if we’re better than the two who preceded us in regulation, that’s a win.”
Outside investors welcome
if registered to vote in Alaska
After banning Outside investment in the first half of the day, the board broke open the dam for Outside money at the end of the day with a last-minute amendment.
Outside investors are welcome in the Alaska cannabis industry as long as they fulfill the residency requirements of Alaska voter registration and cancel whatever voter registration they hold elsewhere.
By voting registration rules, residency only requires an Alaska address, and can be done electronically. Theoretically, a Californian investor could become an Alaskan under voting registration requirements by renting an Anchorage apartment and canceling his San Francisco ballot card.
Mark Springer introduced the motion following hours of debate limiting Outsider dollars, which industry representative board members Schulte and Brandon Emmett had stubbornly resisted.
“We’ve systematically removed every source of investment for this industry,” said Schulte. “We’re quickly getting to the point there’s only 15 people who will be able to get into this industry.”
Previous regulations specified that licensees must follow Permanent Fund residency rules, which are much more stringent than voter registration. Board members opposing the new rule said it would open floodgates to the exact Outside influx the board had spent months trying to avoid.
“I really have a problem tying residency to voter registration,” said board member Loren Jones. “I think we’ll end up with an awful lot of owners that aren’t residents. I think that’s what we’re trying to avoid and what we’ve debated about.”
Emmett said there would be no other way to open up the money in the state.
“Unless someone is on the license, and within the state, they can have no interest in the business,” he said. “Unless we can go back and change that, we need to support this amendment.”
Board director Cynthia Franklin bucked at the idea, saying the board does not have a robust enough staff to verify whether all the applicants have in fact canceled all other voter registration.
“I think we’re headed to the point where you’re not going to have any applications to review,” Schulte said in response.
Alaskans who had lobbied to keep Outside money Outside are not enthused, fearing a takeover of well-financed Lower 48ers.
“Out-of-state newly transplanted Alaskans will now own a majority of cannabis businesses in Alaska,” said Jessica Jansen, co-founder of CannaFarm Co-op.”The board gave away the cannabis industry.”
Earlier draft proposals had tried to strike a balance between outright banning Outside investment, which could hamper the fledgling industry, and unlimited Outside investment, which could force Alaskans out of the industry by sheer volume of influx dollars.
One such amendment had been introduced earlier and would’ve allowed up to 25 percent investment in Alaska marijuana businesses, but was voted down. The intent behind the amendment was to favor Alaskans in the industry, which stakeholders say is beyond a moot point with the new rule.
“Alaskans had value, now they don’t,” said industry attorney Jana Weltzin. “You know what they need you for? Employees. You’re all just employees now.”
The board voted in favor of the measure 3-2, with Jones and Peter Mylnarik voting against.
Even though Springer, Schulte, and Emmett supported the measure, after the meeting each expressed a note of regret. They had been trying to find a middle ground but perhaps overshot the mark, they said.
“I really would have preferred to see something in the middle,” said Schulte. “I sort of agree with the effort to keep it controlled, so I’m concerned this could’ve gone too far.”
Marijuana bars in, marijuana
clubs not quite out
More than 500 pages of public commentary flooded the board by the Nov. 11 deadline, the bulk of it concerned with the same handful of controversial licensing requirements.
Marijuana clubs, the hottest topic by far according to board members, will continue to be a gray legal area even if they lose ground to the marijuana retail onsite consumption allowance introduced by Schulte, which paves the way for a marijuana café-like establishment. Schulte’s amendment struck the previous draft’s prohibition on clubs, acknowledging the board’s inability to prohibit a nonexistent license type, and created a new addition.
Subject to approval by the board, marijuana retail establishments can now request “onsite consumption allowances” when applying for a license. Unlike clubs, where paying members bring their own cannabis, retail stores would sell product to the onsite consumers.
Retail stores will also now be allowed to sell non-marijuana consumable products such as snacks and beverages and refrigerated products.
Though the new definition allows retail onsite consumption, it still doesn’t clear up the legality of existing clubs.
Schulte clarified he is not endorsing clubs, simply acknowledging the board’s total lack of authority to prohibit or allow them.
“The intent here is to solve a legal ambiguity,” Schulte said. “If we can’t regulate them, we can’t prohibit them.”
Pot clubs, which do not sell cannabis but allow on-premise consumption and sharing, walk an unmarked path. The board, industry, and many local governments have openly acknowledged they want some kind of cannabis consumption venue, but Ballot 2 created no such license.
The Legislature would have to create the license type in order for the board to regulate clubs, and Schulte doubts that would happen. Creating a license subset in regulation, theoretically, takes pressure off a Legislature beset with a budgetary crisis, AK LNG Project plans, and little stomach to wade back into Ballot 2 territory they’d established the board to oversee.
The board prohibited marijuana clubs in the first draft regulation package to public outcry from industry and legal voices, including marijuana business attorney Jana Weltzin, who directly challenged the Department of Law’s prohibition.
Regardless of the new license allowance for onsite consumption, the currently operating clubs will continue. Theresa Collins, owner of Anchorage’s Pot Luck Events marijuana club, said she has no plans to shut her doors.
Several arguments will need to be addressed as a result, depending on whether the board chooses to exercise any enforcement against Collins’ establishment or Soldotna’s Green Rush Events.
Franklin hinted at some main concerns with marijuana clubs two nights prior, addressing the Alaska Municipal League regarding cannabis regulation. She supports a licensed consumption venue, she said, but not clubs in their current form.
Franklin said leaders should discourage the black market, which she claims marijuana clubs enable by virtue of allowing unregulated consumption. If marijuana club users aren’t getting their product from retailers, she said, they could be buying dangerous and untested product from criminal producers.
“There’s a danger that marijuana clubs will serve as a great place for black market dealers to move their product,” Franklin told the crowd of municipal officials. The untested product, she said, could cause health concerns. “What happens if there’s marijuana tainted with E. coli, and everybody at the club is passing it around and smokes it?”
Franklin also makes an economic argument against clubs, in that they will unfairly compete with licensed establishments. Alcohol regulations prohibit bottle clubs, where people bring their own beverages, on the grounds that they will siphon business from licensed bars who must jump regulatory hoops.
“A bigger question for you as local governments, is the effect that clubs have on legal businesses,” Franklin told the league. “The reason bottle clubs are prohibited is so that they can’t compete with licensed liquor establishments.”
Clubs will eventually force a decision about what a “public place” entails, which forms the Department of Law’s core argument against clubs. Board member Loren Jones, the only dissenting vote to removing the club prohibition, worried about the same thing even in relation to the new retail consumption allowance.
“A retail store is a public place,” said Jones. “It is a restricted public place but it is still a public place.”
In response to marijuana-themed events in the summer, the board made an emergency definition of “public place” to cut down on open air smoking. Staff amended the definition to exclude retail establishments granted an onsite consumption provision.
“‘Public place’ means a place to which the public has access and includes, but is not limited to, streets, highways, sidewalks, alleys, transportation facilities, parking areas, convention centers, sports arenas, schools, places of business or amusement, shopping centers, malls, parks, playgrounds, prisons, and other portions of apartment houses and hotels not constituting rooms or apartments designed for actual residence such as hallways, lobbies, and doorways,” the regulation reads.
Franklin and the Department of Law believes this applies to clubs as well, though clubs charge membership fees and only admit adults over the age of 21. Franklin said movie theaters are public places despite charging an entry fee.
“You’re not a member of the movie club when you buy a ticket,” Franklin said. “That’s still a public place.”
As of yet, this interpretation has not been challenged or taken to an Alaska court for specific rulings resultant from any prosecutions, or any challenges from other establishments who charge membership or entry fees who otherwise might not be considered a “public place,” such as bars, strip clubs, cigar bars, or private social clubs.
No charges have been made against pot club owners or members for public consumption. Club owner Charlene Egbe was indicted for four felonies for operating Alaska Cannabis Club, but each charge was for sale of marijuana, not for allowing consumption in a public place.
Public consumption only carries a $100 fine. Franklin said an “enthusiastic prosecutor” could potentially assign all a marijuana club’s consumption onto the owner.
500 feet buffer remains unchanged
The board failed to revise buffer limits for marijuana operations after a proposal to allow them within 200 feet of churches, which would have mirrored alcohol regulation’s church buffer. Regulations maintain a 500-foot buffer zone from children’s centers, schools, and churches.
Schulte said he was responding to public concern.
“My amendment is really in response to the communities where we have gotten specific feedback,” said Schulte.
Emmett had even proposed Schulte’s original amendment down from 200 feet to 100 feet, an idea he got from the Fairbanks-North Star Borough Assembly, but the motion failed 2-3, with Schulte and Emmett in favor.
Boroughs and local governments including Fairbanks-North Star Borough spoke against the 500-foot buffer zone, which is only half the federal Drug Free Zone standard of 1,000 feet. Alaska’s small towns and villages, particularly Southeast Alaska communities with heavy tourism economies, will have difficulty finding child-free space in any of the areas zoned for business.
In narrow Ketchikan, churches and daycare centers dot the downtown area on street level and second floors. Representatives from Sitka and other Southeast communities, cruise-based tourist destinations, expressed similar concerns.
In Fairbanks, there are worries that the buffer zone will kill the tourism that comes through Fairbanks’ downtown area, which has cramped conditions similar to Southeast Alaska communities.
Assistant Attorney General Harriet Milks said the board’s “first loyalty” should be to the statute, not to public comment.
“Anyone can send in 500 comments,” said Milks, “that doesn’t mean the issue is 50 times more important to the board.”
Broker licenses eliminated
The board removed the entire subset of a brokerage license with an amendment introduced by member Peter Mylnarik.
Brokerage licenses establish go-between options for cultivators and retailers or manufacturers. Under previous drafts, limited cultivators were required to sell only through brokers, causing public backlash from small growers who say the brokerage fees would kill their entire business.
Mylnarik said he was aiming for consistency, as the board acknowledged for months that it cannot create a new license type not specified by Ballot 2. Earlier language had specified that broker licenses are a “subset.” Mylnarik argued that they are in fact a totally separate license, as they take no part in any of the activities associated with marijuana cultivation.
Potency limits and retail particulars
The board also reversed several contentious regulations it had made in earlier drafts regarding what retailers can and can’t do.
To an audible cheer from the audience of potential retailers, the board voted 3-2 to allow marijuana licenses to sell branded merchandise.
“I think it’s necessary for businesses to be able to brand themselves,” said Emmett. “If we ultimately want to have responsible actors, this incentivizes them to do so.”
Schulte also clarified the packaging requirements for retail stores, creating marijuana’s version of a liquor store’s brown paper bag. Marijuana packages may be transparent in retail stores, but all product leaving the store must be in opaque, child-proof packaging.
Previous drafts had a complicated array of cultivator requirements for packaging. Childproofing edibles packages was a main concern, but Schulte said children are only the responsibility of their parents, not marijuana licensees.
“Ultimately, when someone’s in a home with children, they have to take responsibility for that,” he said.
Potency limits also got a rewrite. Previously, marijuana extracts were capped at 76 percent, mirroring Alaska’s 151 proof alcohol limit. Schulte said the number doesn’t translate to alcohol, and the board revised marijuana concentrate to have no upward limit.
DJ Summers is a reporter for the Alaska Journal of Commerce. He can be reached at daniel.summers@alaskajournal.com.
