Alaska is a large and diverse state, with an area twice the size of Texas and a population of less than 800,000, making it the most sparsely populated state in the nation. It is also 500 miles away from the contiguous U.S. and shares a border with both Canada and Russia. Many are attracted to the Last Frontier for its remoteness, natural bounty, and culture of individuality and respect for privacy. Alaska’s history with cannabis is a confusing and long one, with periods of tolerance and criminalization, but in 2015 it became one of the first states to legalize recreational marijuana.
Steve Brashear, founder and CEO of Great Northern Cannabis, a leading and early business in the Alaskan cannabis market, had started considering entering the marijuana business as a career Plan B. He also saw it as a way to scratch his entrepreneurial itch.
“Before I ventured into the cannabis industry, I worked in the oil and gas industry as a regulatory compliance and permitting specialist. When oil prices tanked in 2015, the industry began a significant contraction in terms of operations, assets, and personnel. As the threat of layoffs loomed, I began to explore other opportunities in case I lost my job,” Brashear said, adding, “the timing and circumstances were right, and I officially launched Great Northern Cannabis in October 2015.”
What started as a backup to his job in the oil business has turned into two storefronts, two cultivation facilities, a commercial kitchen to produce edibles, a cannabis oil extraction lab, as well as a corporate office, with plans of further expansion. Although Brashear survived the eventual layoffs he anticipated, he walked away from the oil industry to focus on his budding marijuana enterprise.
In some respects, the recreational marijuana industry in Alaska is not unlike those found in other U.S. states, facing some of the same federal roadblocks and headaches brought on by cannabis’ continued federal prohibition. The regulatory environment is similar to those in other states, with taxation at state and municipal levels, zoning and licensing restrictions.
“In Alaska, banking services are extremely limited for cannabis businesses, because cannabis is still federally illegal in the United States. The lack of banking services creates accounting and public safety issues by requiring operators in the cannabis industry to be all-cash businesses,” Brashear says.
In addition to a lack of banking services, cannabis businesses in Alaska are also hamstrung by IRS Rule 280E, put in place after a drug dealer sued the government for the ability to deduct business expenses. The rule disallows nearly all business deductions except Cost Of Goods Sold (COGS) for any business “trafficking” in schedule I or II substances, including marijuana. The end result is that cannabis businesses pay a much higher effective tax rate than a typical company, and the federal government potentially seeing more revenue from keeping marijuana scheduled than not.
The effective tax rate increase can be quite substantial according to Brashear. “Due to the federal illegality of cannabis, the IRS limits tax deductions for licensed cannabis businesses to only the COGS. In other words, only the cost of your inventory is tax-deductible. Other common business expenses such as labor, rent, and marketing are largely non-deductible. The effect of IRS Rule 280E is that many licensed cannabis businesses ultimately pay realized tax rates of 80-90%.”
The regulatory maze in Alaska is not unlike those in other states. Physical locations are subject to zoning laws, the state imposes an excise tax of $800/pound, while local governments can impose an additional tax, as Anchorage does, adding a 5% retail tax to cannabis products. Alaska also requires those with a direct financial interest in a cannabis business to be a legal resident of the state.
Steve has the following advice for interested cannapreneurs in Alaska: “Anyone considering the launch of a new cannabis business should be well-capitalized and have a strong team with expertise in business, regulatory compliance, accounting, finance, public relations, government affairs, and cannabis. Operating a licensed cannabis business in Alaska can definitely be a challenging and rewarding experience, but it’s not for the faint of heart.”
For Beshear at least, the cannabis industry also has some great positives, including seeing how cannabis changes people’s lives. “One of the most enjoyable aspects of working in the Alaskan cannabis industry is the opportunity to interact with such a diverse group of people. Customers include people from all walks of life – doctors, lawyers, college students, wait staff, mechanics, veterans, and many others. The cannabis consumers include people across all levels of the economic spectrum,” he says.
“Working in the cannabis industry provides you with a close-up view of the difference that cannabis makes in the lives of so many people. It’s a rewarding experience. Working in the cannabis industry is also exciting because it’s a new industry in which entrepreneurs are charting the course and making history. As cannabis entrepreneurs, we are truly steering the ship of a brand new industry, setting the bar for new achievements, and overcoming unique challenges on a daily basis,” Steve continues.
What will the Alaskan market look like in five years? Beshear sees a further consolidation of the market while it becomes harder to enter.
“In five years, I believe the Alaska cannabis industry will look much different than it does today. Specifically, I believe it will be characterized by many more mergers and acquisitions as competitors team up and the stronger companies gobble up the weaker ones. I believe you’ll see several of the top cannabis companies establish market dominance across the state, and the barriers to entry will likely become even more daunting,” Steve says.
He also gave some tips to those venturing to the Great White North, which includes visiting one of Great Northern Cannabis’ stores of course, but also some other rules to remember.
“Tourists should also be aware that it’s not permissible to carry cannabis with them back home on a plane or a cruise ship. They should plan to enjoy their cannabis during their stay in Alaska. It’s also important for them to know that public consumption is illegal, so they should not smoke on the street.”