Pubdate: Wed, 26 Aug 2015
Source: Alaska Dispatch News (AK)
Copyright: 2015 Alaska Dispatch Publishing
Contact:  http://www.adn.com/
Details: http://www.mapinc.org/media/18
Note: Anchorage Daily News until July '14
Author: Laurel Andrews

ALASKA GROWN: SHOULD ALL MARIJUANA ENTREPRENEURS BE ALASKA RESIDENTS?

Marijuana industry advocates are crying foul about a residency clause 
in Alaska's draft marijuana regulations that would require all 
business owners and investors to be Alaska residents.

With the deadline for crafting Alaska marijuana regulations just 
three months away, the Marijuana Control Board must decide whether 
the requirement -- which board member Brandon Emmett said "basically 
crushes the American dream" -- is the best choice for a fledgling 
market teeming with risk.

Current draft rules read like this: Anyone who wants a marijuana 
business license, whether an individual, partnership, limited 
liability company or corporation, must be an Alaska resident. That 
includes every corporate shareholder and partner. Only a licensee may 
have a "direct or indirect financial interest," and all licensees 
must be Alaska residents.

Growers, retail stores, manufacturing and testing facilities -- and 
any investors -- must all be Alaska-grown.

At the Marijuana Control Board meeting in mid-August, business owners 
were dismayed by the proposed regulation, which they believe will be 
detrimental to a new industry that will require hefty startup costs 
and involves myriad risks.

Midnight Greenery CEO Sara Williams said later the requirement is 
"the difference between whether this industry succeeds or doesn't 
succeed." She also questioned whether the residency requirement is legal.

'The song has completely changed'

The proposal is unique to Alaska's proposed marijuana regulations, 
not mirrored in the state's alcohol statutes. It was proposed 
partially to satisfy the Cole Memo, a 2013 memo from the U.S. 
Department of Justice that provides guidance to states that have 
legalized marijuana. To avoid federal interference, the memo says, 
there are eight priorities states should follow, including keeping 
marijuana in-state and preventing revenue from going to illegal 
actors such as gangs or cartels.

By keeping businesses homegrown, Alaska ensures it knows exactly 
where all the money is coming from, said Alcoholic Beverage Control 
Board Director Cynthia Franklin.

"When ownership interests are coming in from everywhere, it's much 
harder to track," potentially putting the state at risk of federal 
interference, Franklin said.

After marijuana was legalized in November, the rallying cry from many 
was that the industry be Alaska-grown, Franklin said. Residency 
requirements were also viewed as a way of bringing existing black 
market actors in Alaska into the legal market, without being overrun 
by big business.

"The song has completely changed" now that the rules are being 
crafted, she said.

Marijuana industry attorney Jana Weltzin called the Alaska residency 
proposal a bad idea that creates a barrier to entry in a market 
already shut off from bank loans.

"Let's be honest: It's not that tricky to get around these regs. It's 
really not," Weltzin said, adding those willing to invest in a 
business based on loopholes are likely to be the very kinds of people 
the state is trying to dissuade from entering the market.

"While I'm all about Alaskan-grown ... I see this as being a 
shortsighted view of what this market is actually going to be," Weltzin said.

But Franklin questioned whether Alaska's marijuana industry can 
really support the demand some entrepreneurs believe will exist in the state.

"The idea that Alaska is going to be a Mecca for marijuana is a 
flawed concept. The rest of the country is going to go legal," Franklin said.

'It's hard to know which way to turn'

The requirements resemble standards in Colorado and Washington. In 
Washington, all businesses and investors must be residents for at 
least six months, said Washington State Liquor and Cannabis Board 
spokesperson Mikhail Carpenter. In Colorado, there's a two-year 
residency requirement for all owners and investors. Employees must be 
residents when they apply. However, in May, Colorado made changes to 
the law that appear to crack open the door to outside investment.

Establishing Alaska residency requires proof that one lives and works 
in the state. For instance, the Alaska Permanent Fund dividend 
requires documents such as employment and school records or vehicle 
registration.

Still, some marijuana businesses and attorneys question whether the 
residency requirement is legal. And like so many questions 
surrounding the newly legalized marijuana industry, the answer isn't clear.

The debate rests on the balance between federal laws regulating 
commerce and the fact marijuana remains illegal at the federal level. 
Two clauses of the U.S. Constitution -- the Immunities and Privileges 
clause, which guarantees citizens equal rights across states, and the 
Commerce Clause, which allows the federal government to regulate 
industry among the states -- have been invoked by marijuana 
entrepreneurs and attorneys.

"There's two realities here. ... There's the argument that 
constitutionally you can't be favoring in-state market actors," 
marijuana industry attorney Weltzin said. "The rebuttal to that would 
be: Well, it's not legal under federal law, so technically it's a 
black market."

Marijuana Control Board chair Bruce Schulte called the situation "a 
continuous loop, and I don't know where you stop."

With marijuana, "because we have so many competing legal statuses, 
it's hard to know which way to turn," Schulte said.

'Boundaries at the borders'

It's not the first time residency requirements have been questioned 
in Alaska; the state has a long history of contentious court cases 
involving residency. Perhaps most applicable are the Alaska-hire 
requirements, which in the 1970s and '80s were struck down three 
times by state courts.

In 1986, the Alaska Supreme Court ruled the Immunities and Privileges 
clause was violated by a state law requiring contractors to hire a 
limited number of nonresidents. Today, there is a more limited 
version of Alaska hire in effect, based on unemployment rates.

"I'm sure they had good intentions, but this follows the fine 
tradition in Alaska of putting up legal boundaries at the borders and 
hoping they'll fly," said Larry Persily, former deputy commissioner 
of the Department of Revenue and journalist who covered the residency 
lawsuits in the 1980s.

There are already residency requirements in effect in many other 
aspects of Alaska life, such as the PFD and personal-use fishing. 
Where the marijuana regulations fall on the spectrum remains to be 
seen. And to challenge this aspect of the industry, someone would 
need to file a costly lawsuit.

"Who's going to pay for it?" Weltzin said.

A possible way forward, said Marijuana Control Board chair Schulte, 
is allowing outside participation but making sure it's specific and 
explicit -- "making the (regulations) sufficiently detailed so that 
we don't leave huge loopholes," Schulte said.

"It's an interesting discussion and I'm not sure we're done with it," 
Schulte said.

The board is still crafting the regulations, and the public will 
still be able to give written and verbal comments on proposed 
regulations in coming months.

Under state law, marijuana regulations must be in place by Nov. 24.
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MAP posted-by: Jay Bergstrom