Gov. Hutchinson counts regulatory costs of marijuana amendment

Passage of the Arkansas Medical Marijuana Amendment would cost the Arkansas Department of Health and the Department of Finance and Administration between $4 million and $5.8 million annually to regulate, with the state forced to come up with the money on the front end before sales tax revenues cover a portion of the cost, Gov. Asa Hutchinson and officials from those two agencies said Tuesday.

Hutchinson said the Department of Health would spend between $2.1 million and $3.1 million annually, while DFA would spend between $1.9 million and $2.7 million. The figures did not include extra costs to the Arkansas State Police, Hutchinson said.

He said the amendment “is like setting up a mini-federal system of (the Food and Drug Administration), health, enforcement at the state level, and that takes a while.”

An analysis by DFA of six states that have legalized medical marijuana but not recreational marijuana found the state could expect sales of $38.3 million annually at 18-24 months, resulting in $2.5 million in sales tax revenues, of which 10%, or about $250,000, could be devoted to enforcement.

The Legislature could enact additional fees to make up the difference, which Hutchinson said he would expect to happen, saying, “I don’t think the legislators would want the taxpayers to subsidize any more than we have to of the marijuana business.”

Hutchinson said costs over the next two years could be $10 million. Much of the enforcement mechanisms would have to be created quickly, before revenue is collected. The governor plans to present his budget on Nov. 9, the day after the election. He said his budget does not include those funds, so they would have to come from supplements and rainy day funds. Then he would have to adjust the 2018-19 budget.

Voters are voting on the amendment this election cycle. It would define which conditions qualify for legal marijuana use in Arkansas and allow the creation of for-profit dispensaries.

The amendment’s sponsor, David Couch, said the six states aren’t a good comparison with Arkansas.

“This is the same report they issued last week with just different actors on stage,” he wrote in a text. “The report … uses select data to come to the conclusion they want. They use figures from Nevada, which has just started its program. That figure was 93 cents per (capita). They ignored Arizona which is $33 per (capita). Both Nevada and Arizona allow grow-at-home, which Issue 6 does not. The alleged cost is nearly twice what the DHS estimated the costs would be in 2012 and that proposal included more dispensaries and a very liberal grow at home program. The report is clearly based on voodoo economics.”

Ann Purvis, Department of Health deputy director for administration, said her department would have to create a “comprehensive regulatory scheme” in a short amount of time, including registration cards for patients and caregivers, testing standards, a process for adding qualifying conditions, and a system to track the amount of marijuana dispensed to patients.

Paul Gehring, DFA revenue legal counsel, said DFA would have to increase its audit staff because most marijuana businesses would be cash-based.

That’s because banks in other states have been reluctant to open accounts for marijuana-based businesses, said Bank Commissioner Candace Franks. She said banks are insured by the Federal Deposit Insurance Corporation, and depositing money generated by marijuana businesses is a violation of numerous federal laws, including the Controlled Substances Act, the Bank Secrecy Act, the Patriot Act, and money laundering and racketeering laws. Even a personal account with money derived from a marijuana-based business is a violation, with the funds subject to forfeiture at the federal level. The Obama administration has promised forbearance for banks that work with such businesses, but a new president will take office in January, she said.

As it is, the amount of suspicious activity reported as required by law has skyrocketed in Colorado, where recreational marijuana is legal, she said. In 2012, she said banks in that state filed 674 suspicious activity reports with the Department of the Treasury. After legalization, that number rose to 10,000 a year.

Hutchinson said that in the next six to eight months, banks would not open such accounts on advice of legal counsel because of the uncertainty of the federal position.

He said casual conversations with other governors with experience with medical marijuana have said the issue will consume the legislative session.

“And so whereas now, I’m looking at the next legislative session with specific economic growth initiatives, education initiatives, there will be a huge derailing of that trying to understand and to implement the marijuana regulatory environment and the costs associated with it,” he said.