The Finance Committee asked borough staff to research taxing marijuana at the retail level. The borough currently charges an excise tax on marijuana cultivation, but instead may decide to levy a special tax on consumers.
An excise tax, which is different from a sales tax because it is imposed by the assembly instead of voted on by a community, is currently being levied at $5 per ounce, to be paid by the cultivator.
Other cities in Alaska that charge an excise tax are Petersburg, at $25 an ounce, and Houston at $10 an ounce, according to an informal CVN survey. The state keeps no records on such taxes.
Erika Merklin from Resurrected Dreams, Haines’ only licensed cultivator, told CVN that to absorb the excise tax when she begins selling to retail that she’s “just going to have to charge a higher price, [which] makes me less competitive in the marketplace.”
Ultimately, cultivators tacking on an excise tax when selling to retail stores may cause retailers to seek suppliers in municipalities that do not impose the fee.
That is the case with retailer Jason Adams from Haines’ only dispensary, Winter Greens, and cultivator Gary Morgan of Moog Droog in Petersburg.
Borough Manager, Debra Schnabel, said at the meeting last week, “I would like to know how it’s working in Petersburg, because if what we’re trying to do here is encourage a grower and encourage retail, then I have to know [how it is working there].”
“As a retailer, we avoid Petersburg, and we’re not the only retailer that does that, because of the cost,” Adams told the committee on Thursday.
Petersburg’s sole grower, Gary Morgan, was interviewed by the CVN in July of 2017 when he first opened his shop and said at the time the tax was “not difficult whatsoever.” He has since changed his perspective.
“It’s amazing what a year will do,” he said this week. “The prices have been dropping so quickly. There’s pretty good supply out there compared to a year ago. It’s making it very difficult to make a living at this at all.”
According to Morgan, a typical pound of cannabis costs $3,400. After the state excise tax of $50 per ounce, the local excise tax of $25 an ounce and federal taxes, he must still pay testing fees, wages, and other bills.
“In the meantime, I’m working construction all winter,” Morgan said. He quit his job at an electric utility company nine months ago, but has gone back to work because of decreasing profits.
“The borough of Petersburg is putting me at a disadvantage,” Morgan said. “The cultivation business with the excise tax is just doomed.”
Susan Burrel, owner of the only retail store in Petersburg, the 420, says she is affected by the excise tax “if you’re looking at the bigger picture,” she said. “Every time I bring pot in I have to pay $25 an ounce for that.”
To combat the tax and help his suffering business, Morgan plans to open up a retail shop this spring “so I don’t have to pay taxes on [the marijuana] until I sell it,” he said. “I’m going to keep producing, but stock it away and wait ’til I can set the price to sell it,” he said. “What the retail allows me to do is mark up the price to cover the excise tax.”
Morgan plans to go back to Petersburg’s assembly to discuss changing the tax structure. “I do want to contribute, but for a small company like me I’m contributing far beyond a normal business of similar income. My taxes, when I last checked, were around 50 to 60 percent of my total income.”
Merklin encourages the borough to look to other cities for examples. “I’d rather focus on the majority of people that are not having that excise tax,” she said.
Fairbanks, Juneau, Anchorage Mat-Su, and Ketchikan have sales taxes on marijuana products instead of excise taxes. Merklin and Adams want the borough to wait a period of two years while they get established.
“The other thing is – what if my crop fails?” Merklin asked. “You’re putting all the eggs on me and it’s great to have that faith, but it’s not smart to do that if you really want your tax money.”
Morgan, whose crops failed in a power outage this year, said he lost around $30,000.
“If Haines decides to do an excise tax, it makes a lot more sense to do a percentage tax based on the sale instead of a set price, because if the price goes down the tax doesn’t increase,” Morgan said. “It’s a much more fair way to do it then to have a set dollar price.”
The Haines Borough hasn’t collected any marijuana excise tax because staff were confused as to whether or not the assembly wanted to tax only local cultivators, or all cultivators who sell to local retailers.
The finance committee directed staff to research imposing tax at the point of sale, which will be discussed at the Sep. 25 assembly meeting.