By John Schroyer
Established cannabis companies looking to expand into new markets could find a major opening in Alaska if a recent legislative proposal becomes law.
The measure – introduced in the state Legislature last week – would ban applicants seeking recreational cannabis licenses from accepting investments by third parties. That stipulation could give established companies a big edge over small startups and individual entrepreneurs, according to some observers, as licenses applicants would more or less need to be entirely self-funded.
It’s also possible that existing companies from other states could bypass a proposed one-year residency requirement for individuals seeking licenses. In its current form, the legislative bill would require only the registered agent of a corporation applying for a license to be a resident of the state.
That could open the door for companies in other markets to easily team up with a local to submit an application.
“Everybody except corporations that are well-funded are going to be (out of luck), because either you have the money to do this on your own, or you’re prohibited from getting investors,” said Ben Adams, a California cannabis attorney who’s in the process of moving his practice north, to Alaska. “The system right now is definitely geared towards allowing one or two big players to come into the state and really clean up.”
Adams said that the registered agent can easily be a figurehead role, which means it would be a simple requirement for out-of-state companies to work around.
In fact, the same requirement is already in place for general businesses operating in Alaska. The only necessity is that the agent be a state resident and maintain a registered office, which “may be the same as the place of business of the corporation,” according to state statute.
“There’s no requirement (the registered agent) be any specific person,” Adams said. “It could be a secretary. It could be an attorney. It could be an accountant.”
Another factor to consider is that though there would be plant-count limits for some of the cultivation license categories, the proposed regulations do not include a limit for major producers, Adams said.
Adams estimated that if a company with $4 million to spare were willing to set up a vertically integrated operation in Anchorage or other towns, with its own cultivation, manufacturing and retail licenses, such a business could conceivably corner the Alaskan market.
“The sky could be the absolute limit. I don’t think there would be anybody who, quite frankly, could compete with that,” Adams said.
Alaska is unique so far when it comes to recreational marijuana states, in that the bill under consideration includes six different license types: producer, processor, retailer, boutique producer, broker, and home grower. (That doesn’t include testing labs, which would be certified by a different state agency, instead of the proposed Marijuana Control Board.)
The only cultivation licenses with plant count limits are boutique permits, which would be limited to 50 plants, and home grow permits, which have a limit of six plants under Ballot Measure 2. It would still be legal for anyone to cultivate up to six plants for personal use, but to sell it to retailers, a private individual would need to obtain a license.
Consultant Kris Krane, of Phoenix-based 4Front Advisors, said he “absolutely” expects well-funded marijuana companies to take a serious interest in Alaska.
“I’d be very surprised if you don’t see some of the national groups out there,” Krane said. “It’s far away, it’s a small population, but it’s still a market. There are still cannabis consumers in Alaska.”
Still, some major players may take a pass on Alaska, given that the entire state population is only about 740,000, and the largest city – Anchorage – has only 300,000 residents.
Indeed, the California-based cannabis consultancy and management firm MedMen will likely skip Alaska to focus on projects the company has underway in other states, such as Nevada and Maryland, according to Adam Bierman, the company’s managing partner.
And, of course, the bill has a long way to go before it becomes law.
Its first scheduled hearing before the state Senate’s Judiciary Committee is Thursday morning, and the legislative session lasts until April 19. None of the five members of the committee returned calls seeking comment on Monday. And although Adams is optimistic about the measure’s chances, other stakeholders are more cautious.
Taylor Bickford, spokesman for the Campaign to Regulate Marijuana Like Alcohol in Alaska, said the current bill is “very much a work in progress,” and said it’s possible the measure may not even pass this year. And even if it does, he said, he expects “significant changes” to be made to it.
“You’ve got a lot of small-time local players that want to get into the industry that are worried that the rules are going to be written in such a way that the market will be taken over by so-called ‘big marijuana’ from the outside,” Bickford said. “The local industry in some cases is going to be supportive of restrictive residency requirements, and there are others that realize that a rising tide sells boats. So there’s a balancing act there.”
There are also local ordinances to take into account. Municipalities will likely retain the authority to limit the number of marijuana businesses within their borders, or even ban them altogether, which could shrink the number of business opportunities in the state even further. And the legislature still has another nine months to craft final regulations for the industry.
So the question of a major business opportunity in Alaska could be premature.
“Without more information on what the market dynamics are going to look like, it’s really hard to say whether something like that is a realistic scenario,” Krane summarized.
John Schroyer can be reached at email@example.com