The Alaska Department of Revenue (ADOR) recently announced that it had adopted changes to the state’s cannabis tax rate. To this point, Alaskan cultivators have paid taxes of $50 per ounce ($800 per pound) on wholesale transfers of flower, as well as $15 per ounce ($240 per pound) on transfers of trim. Many have reportedly complained that high tax rates are propping up retail prices and pushing consumers to seek out more affordable product elsewhere, stifling demand in the regulated market.
The new rules do not alter current tax rates, however, but rather add new product categories subject to taxation, along with corresponding levies. In addition to flower (now called “mature bud”) and trim, which will continue to be taxed at the rates noted above, now “immature” and “abnormal” bud are defined. The new product categories will both be taxed at a rate of $25 per ounce ($400 per pound).
Presumably, much of the flower that could be categorized as abnormal or immature is already being sold to processors for extraction or product manufacturing. If growers have been categorizing such product as flower, then they will see lower tax burdens when the changes go into effect at the beginning of 2019.
However, if such plant material was previously being classified as trim, then the tax burdens of cultivators could increase with the new rules. In other states that tax product based on flat amounts per weight, or employ standard average market rates calculated by regulators, we have heard reports of lower-quality flower being sold to processors and classified as trim for tax purposes. In Colorado, for example, regulators this year created the specific tax category of “bud allocated for extraction,” to account for such practices and provide taxation that reflects the amounts for which buyers and sellers are trading such product.