Avoiding 'pot' holes: A guide for starting a marijuana business in Alaska

Starting a marijuana business in Alaska

The dozens or hundreds of new marijuana businesses in Alaska this year will be climbing a mountain.

 

There’s one big difference between summiting Denali and opening the doors of an Alaska pot shop: There is no guide for starting a marijuana business in Alaska.

Unlike every other state that has legalized recreational marijuana, Alaska is starting from scratch, with no medicinal dispensaries to show the way.

In the next year, dozens — if not hundreds — of businesses across Alaska will struggle forward to take advantage of a new industry. Two and a half months before the application period opens for marijuana licenses, there are nearly three dozen active businesses registered with names that include marijuana or cannabis. There are dozens more with names that include “weed” or “green.”

At stake for these businesses is a share of a new industry expected to be worth more than $100 million. State tax revenue alone is estimated to be between $5.1 million and $19.2 million.

Between these startups and their revenue is a mountain of regulation. At the beginning of this month, the Marijuana Control Board signed 133 pages of new regulations, but those haven’t been finalized, and a series of other state agencies including the Department of Environmental Conservation, Department of Labor, even the Division of Weights and Measures, are just getting started.

Sizing up the terrain

In 2014, when Alaskans approved the sale of recreational marijuana, they did so with a ballot measure that promised to “regulate marijuana like alcohol.” Cindy Franklin is the state’s director of the Alcoholic Beverage Control Board, and now she’s also the director of the Marijuana Control Board.

“This is a complex process,” she said of starting up a marijuana business, but it’s not entirely dissimilar from alcohol, which has been operating under fairly constant rules in Alaska since 1980.

“While it’s complex, it’s not impossible. It happens every day,” she said.

Bleeding Heart Brewery in Palmer is the state’s newest brewery — so new that its license is still pending in front of the alcohol board.

“We are intentionally a nano, niche brewery,” said one of its founders, Zach Lanphier, “but we still have to jump through all the hoops.”

For Bleeding Heart, those hoops have meant more than a year of paperwork and waiting. The biggest wait, 205 days, came from the federal government’s tax licensing board.

“It took us 205 days for us to finally be approved to give them money — not to brew, not to sell alcohol, just to give them money,” Lanphier said.

Other permits — state and local — needed months more.

Marijuana businesses aren’t regulated by the federal government, which still considers them illegal. That leaves only state and local authorities, but “only” conceals the size of the work to be done.

“Whoever wants to open a dispensary, have more money than you would expect you’d need,” Lanphier advised, “and double your timeline.”

What route to take?

To date, the state of Alaska has not released any guidance for new marijuana businesses. While the experience of alcohol businesses provides some guidance, some in the state are pointing Alaskans Outside. Krystyna Markiewicz, an expert with the Alaska Department of Labor, suggests examining the business readiness guidebook created by Oregon. (http://www.oregon.gov/olcc/marijuana/Documents/BusinessReadinessGuide_Re...)

“They are really good,” she said. “When we start assisting employers ... we would probably put something like this together.”

The first step in Oregon’s checklist — and a first step recommended by Alaska officials — is to simply check whether marijuana sales are legal in your town or area. Alaska’s marijuana regulations allow communities to opt out of retail sales, and even though those regulations haven’t been fully implemented, some towns have already voted to ban retail sales — Palmer, for one.

There are four types of marijuana license — retail sales, manufacturing (as in edibles), growing, and testing — and towns may forbid any or all types of marijuana business.

The Marijuana Control Board has been informally keeping track of towns that have imposed bans, Franklin said, but there’s not yet an official list. For now, staying legal is up to future business owners.

Financing the opportunity

Unlike alcohol-related businesses, which can raise money from Outside — Bleeding Heart Brewery used a Kickstarter campaign — Alaska’s marijuana businesses are limited to Alaska backers. According to state statute, every business partner in an Alaska marijuana business must be a state resident eligible for a Permanent Fund Dividend.

Because of federal restrictions, banks won’t loan marijuana businesses money, and federal small-business loan programs are closed as well. That means backing has to come from individual Alaskans in handshake deals.

Any new business needs a name and a business license, which means a trip to the Alaska Department of Commerce and a $50 fee. According to the database of licensed Alaska businesses, dozens of marijuana entrepreneurs have already taken this step.

Limited Liability Corporations, commonly referred to as LLCs, are frequently used to organize financial backers behind a business. LLCs also must be registered with the state, and the Department of Commerce database already lists an ample slate of LLCs organized to promote marijuana oils, tourism and retail sales.

Local limits

Once a prospective business has its financial footing set, it needs to start looking at its physical footprint.

Even within towns that allow retail marijuana, there will be restrictions on where it can take place. The state says all marijuana businesses have to be 500 feet from schools and churches. Towns can add their own restrictions. Juneau, for example, has already passed a zoning ordinance covering the marijuana industry. That ordinance restricts cultivation and sales to different areas of the city, limiting the real estate available to entrepreneurs.

“Your big issues with the municipality are land use and zoning and the community council,” Franklin said.

Chrissy McNally is in front of the marijuana issue for the City and Borough of Juneau’s Community Development Department and said that if a business needs help, the office has an easy tool to figure out the correct zone for a business and whether a particular lot falls within a buffer zone.

Once a marijuana business has picked a spot and double-checked to make sure the land is zoned appropriately, it’s likely to need a permit from a planning commission or a similar local agency.

“I know at some point they’ll have to get a conditional use permit,” said Dennis Watson, a member of Juneau’s marijuana task force and a planning and zoning commissioner, at the final meeting of the task force in December.

To get a head start, McNally recommends what’s called a pre-application conference. She held the first one for a Juneau marijuana business in the first week of the new year.

During that conference, a business comes in with a proposal and site plan and sits down with different city departments to explain what to expect.

“It doesn’t have to be a full application, but you should have a pretty good idea of what you want to do,” she said.

At that meeting, McNally will also lay out a timeline.

“I would say at a minimum … two months” to get a conditional use permit, she said, adding that specific cases will vary.

Once a business has its conditional use permit, it can get a building permit for any renovations that have to be done to open a new store, lab, growing facility or manufacturing facility. It usually takes one to two weeks to get that permit, McNally said, and inspectors — including the fire marshal and building inspectors — will need to sign off on the work to ensure the building is safe to use.

Even before construction, if a business has its local permits in hand, it can start to seek two other permission slips, this time from the state.

State control

Much of the attention on the marijuana issue has been focused on the permits to be issued by the state’s Marijuana Control Board. That board actually comes into the process fairly late from the perspective of a business.

Before applying to the state board, the first step is to advertise. Like businesses that deal in alcohol, marijuana businesses are required to state their intentions. That means posting a copy of the application — completed but not submitted — at the business location and on a public notice board.

The new business is also required to post a notice in the local newspaper once a week for three weeks. If there’s no newspaper nearby, it has to make an announcement on the radio for three weeks.

The whole process is intended to make sure every neighbor knows that a new marijuana business is about to open.

Only after that notice period is the business allowed to send in its application. That application includes everything the local planning and zoning office needs, plus a business plan, a list of all the financial backers (who also must have passed a marijuana-handling certificate class).

Businesses that deal with edible or drinkable marijuana products have another hurdle: As they apply for a state marijuana permit, they also need to apply for a Department of Environmental Conservation food permit.

“You could start a marijuana application .. and then go over to DEC and say that I’ve initiated the process,” Franklin said. “We are not going to consider your application complete until we have a check-box from them. … It’s like rocking back and forth.”

Kim Stryker manages the state’s food safety program and said marijuana businesses manufacturing edibles should expect to be treated just like anyone else.

“If they’re going to need a food manufacturing (permit) … then they would need to have the equipment and buildings just like any other food processing or restaurant,” she said.

That means having countertops and surfaces that can be kept sterile, using safe refrigeration and food-handling techniques, and keeping sanitation in check.

“Our mission is to ensure safe food,” she said. “We understand that it’s our job to facilitate the implementation of the citizen initiative, and we’re committed to doing that.”

For both state permits, businesses are advised to apply once they have a local construction permit but before they start actual construction.

“It’s much easier for you to know what you need out of the gate,” Stryker said, if you talk to an expert first.

The permitting process for both the marijuana control board and environmental conservation involves submitting site plans, and it’s much easier to change a plan than it is for something that’s already been built, Stryker said.

DEC regulations state that a business should apply for a permit at least 30 days before beginning construction or operation, and Stryker said a business should expect to spend at least that amount of time in the process.

The state marijuana permit is expected to take up to 90 days for approval, but that limit can be extended if a business needs to change something to meet regulations or because another permit hasn’t yet been issued.

Weighed and measured

Water-quality and air-quality experts with Environmental Conservation said it’s unlikely that any marijuana operation would require a pollution permit. Only outdoor grow operations would need a water discharge permit, and indoor growing operations would likely send their water into a municipal sewer system (where a local permit may be required). The state’s air-quality regulations are designed around air pollution — there’s no provision for odor — which means marijuana operations should not be affected.

There is one small permit that marijuana businesses will need to get, and it comes from an unlikely place — the Alaska Department of Transportation. Don Brewer is the state’s chief of weights and measures, and he’ll be the person in charge of making sure that every marijuana scale in the state is accurate.

“Anytime a business is using a scale in commerce, they need to register it with the state of Alaska,” he said.

For new businesses, he said the biggest thing to know is to buy a certifiable scale, not just one off the shelf. That scale will need to be professionally calibrated, then certified by Brewer’s division.

You’ve probably already seen his work — each gas station pump in the state carries a label from the division of weights and measures. Each marijuana scale will have to do the same.

Taxed and spent

When a business has all its permits in hand, when it’s built a storefront and stocked its shelves, there’s one final hurdle: taxes. It’s likely to be a big one.

Under federal law, any bank working with marijuana business could face prosecution. That has meant that businesses in Colorado, Washington state and Oregon are cash only, hauling sacks of paper bills to pay staff, buy electricity, even pay taxes. That’s likely to be the case in Alaska as well, said Brandon Spanos, deputy director of the tax division within the Alaska Department of Revenue.

“Cash deposit is really our biggest issue,” he said.

Speaking in December, Spanos said the division is re-drafting its regulations and procedures so it has the capability to handle millions of dollars in physical bills once sales begin.

“We have other issues that are going to be discussed in the regulations as well, but they’re kind of lesser,” he said. “Receiving the cash is the big issue.”

Cash transactions promise to be a huge hurdle for businesses as well. Spanos said the state is currently planning to accept payments only in Anchorage, and possibly in Juneau. Anyone operating a marijuana business outside those two cities will have to travel to pay their bills.

“We don’t have sufficient employees in all the locations to be able to collect the cash,” Spanos said. “There’s going to be a limited number of locations.”

In the first full year of operations, Spanos expects the state to earn $12 million in revenue from marijuana, all of it in cash.

Cash will mean a need for armored cars, guards, and tellers to handle it all — both on the business side and the state’s side.

Even once the doors are opened and marijuana starts flying off the shelves, this is one obstacle that won’t go away any time soon.

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