Report on pot in Alaska says industry may be hitting its ceiling
After years of growth, Alaska’s cannabis industry appears to be hitting a plateau, with the pace of employment and tax revenue increases leveling off.
The assessment comes from a new report this month on Alaska’s economic trends by the state’s Department of Labor and Workforce Development, which finds the industry has “matured” since last evaluated.
Alaskans voted to legalize recreational cannabis businesses in 2014, and the first operations opened shop at the end of 2016. Employment and tax revenues ballooned in the industry’s first years, with total jobs doubling from 2017 to 2018, but has since started to level out, indicating the industry may be approaching a ceiling, if not already there.
“The industry has settled in since that first snapshot. Jobs, wages and taxes have continued to grow, but at a slower pace each year,” wrote Karinne Wiebold, the report’s author.
Though the industry averaged 1,566 jobs associated with cannabis in 2021, bringing with them $48.3 million in wages to employees, state analysts believe that may be an undercount, noting that currently there are “7,000 active marijuana handler permits, which is a rough proxy for the number of people who have participated in the industry in some way within the last three years.”
2021 saw $28.9 million in excise taxes on cannabis brought into the state’s general fund, which does not include additional sales taxes collected in some cities and boroughs.
The pandemic is a complicating variable, according to the researchers, having arrived as the cannabis industry was in a rapid growth phase and obscuring market equilibrium.
“It remains to be seen how much marijuana Alaska consumers and visitors want, how many cultivators it takes to produce it, and how many stores (and in what locations) can be profitable,” the report notes. “While growth moderating over the last couple of years could be the industry settling, it’s also possible that COVID-19 tempered expansion. Demand could pick up as the pandemic winds down. Few out-of-state seasonal workers showed up in 2020, and product demand was likely reduced as few visitors came that year and a fraction of the typical number returned in 2021.”
As of December of this year, the state counts 459 active licenses, a figure that includes retail stores, cultivators, manufacturing businesses that make products like edibles and concentrates as well as just two testing facilities for the state’s entire industry. The largest share of those licenses, 133 of them, are in the Matanuska-Susitna Borough. Anchorage hosts 105, the Fairbanks North Star Borough 71, with 66 on the Kenai Peninsula and another 84 spread across Southeast, Western Alaska and less dense areas of the Railbelt.
To date, the state has received more than $119 million from excise taxes on cannabis, which are calculated through flat rates when cultivators sell flower or trim to manufacturing or retail businesses. The mechanism does not take potency into account, which some in the industry have criticized for offering an economic imperative to grow higher-strength product that commands a higher retail price.
The report notes that federal prohibitions on cannabis make for a lot of challenges, particularly in Alaska given how much of the state is not connected by roads.
“This means that with few exceptions, cannabis in any form can’t be transported by air or sea,” the report points out. “Samples must be tested before sale, and Alaska’s two testing facilities are on the road system, so cannabis tends to be grown on the road system as well. Remote operators must grow their own and arrange for testing or take frequent trips to the grow facilities to pick up and transport the product in person.”
This puts business owners and residents in a legal gray zone between federal and state rules each time they board a commercial flight or ferry with cannabis on their person.
“The state allows cannabis products on intrastate commercial flights as long as they stay with the traveler (so, carry-on only),” Wiebold said. “The federal government has instructed the Transportation Security Administration to contact local law enforcement when they encounter marijuana to ensure it follows state law.”
The federal government’s stance towards cannabis has oscillated with different presidential administrations. During the Obama administration, the Justice Department deferred to state laws in deciding how to apply resources, which meant Alaska and several other states’ industries had fewer threats of legal sanction hanging over them. That guidance was reversed under the Trump administration, although there was scant interference or prosecution in states with legal cannabis industries. So far, the Biden administration’s approach, as the report notes, has been “hands off” when it comes to federal law enforcement over cannabis.
Though there are few signs that federal legalization of cannabis is on the immediate horizon, especially with the U.S. House flipping from Democratic control to a Republican majority in January, such legislation would upend Alaska’s existent industry, the state analysis notes. Alaska cannabis licenses have a residency requirement that has largely kept out major investors and ownership groups from the Lower 48. Likewise, more inexpensively grown product from saturated markets along the West Coast could undercut local cultivation businesses if shipping it were suddenly legal.