Outsiders aren’t allowed to invest in Alaska’s marijuana industry, but like Lower 48 states, they’ll sure try.
Alaska saw its first open attempt at an Outside company finagling its business structure to get into the Last Frontier’s burgeoning cannabis industry.
At the most recent Marijuana Control Board meeting on Oct. 28, the board rejected a license application for Wild Flower Holdings LLC, the first time the board has rejected anything since opening the application process in February.
Few items stacked up to the board’s or Alcohol and Marijuana Control Office’s eyes.
Board Executive Director Cynthia Franklin said she dealt mainly with Outside parties over the license.
The license application itself was duplicate of Dream Green Farms’s successful application; Wild Flower had even left Dream Green Farms’s name on the application.
The application also listed plans for only 10 plants, which licensed Alaska growers later said was so uneconomical as to be highly suspicious.
Further, it appeared to the board that the LLC owner, Andrea Gribbons, had little knowledge of the industry. Franklin and board members probed the applicant for information about how the business would operate, but she seemed to have little idea.
Rather, she ceded certain information to management consultants from Arizona company Happiedaze LLC, which owns the property proposed on the license.
Board members voted the license down.
“You know me,” said board member Brandon Emmett, who holds an industry stakeholder seat. “I’ve advocated pretty hard in the past for Outside investment just because I think it’s so important that these businesses have access to capital. But it seemed clear to me that this applicant really didn’t know the business, and I think as a board it’s important we have knowledgeable people owning these licenses.”
The concept of the owner-operator lives strong in Alaska regulation.
Alaska bars non-residents from any indirect or direct financial investment in a marijuana license, intended to prevent both criminal money laundering and to give Alaskans a foothold in the industry without being overwhelmed by the beginnings of Big Marijuana.
There are two main types of workaround for residency requirements, involving either management agreements or real estate.
Management agreements, where a business owner cedes operation to consultants or contractors, are both legitimate and common ways for businesses to get needed expertise or to get hold of tax certain tax advantages.
They also create a window for non-residents to maneuver into controlling positions by skirting regulation language.
Real estate is the easiest and most above-board way for nonresidents to invest.
State and local zoning regulations have caused a space crunch, especially in areas with low vacancy rates like Anchorage, Seattle or Denver.
Deep-pocketed nonresidents can offer a solution. They buy the property and lease it to cannabis growers at up to four times the average rental rate, or ask for a portion of the license’s revenue along with the rent.
Vince Sliwoski, an attorney with law firm Harris Moure, said residency requirements in Oregon produced the same kind of workarounds.
“People are always scheming to find ways around the residency requirements,” he said. “Usually they go against either the spirit or the letter of the law.”
Sliwoski said the workarounds typically involve some kind management agreement like the one seen by the Marijuana Control Board. Usually, he said, regulators pry until they find out who’s making the actual money.
“Eventually they figured out the residency rules weren’t really doing anybody any good,” said Sliwoski.
In 2016, Lower 48 marijuana markets have been scaling back their residency restrictions. Oregon removed residency requirements entirely in March 2016. Washington eliminated a requirement for non-resident investors that made them fill a six-month residency before being allowed to invest in Washington businesses.
In Colorado, a bill passed in April that has not yet been signed that lifts the current two-year residency requirement for all license holders. Instead, it simply requires one of the company’s officers be a Colorado resident.
DJ Summers is a reporter for the Alaska Journal of Commerce. Reach him at firstname.lastname@example.org.