riving through downtown Fairbanks, it’s easy to bypass Nature’s Releaf, a local cannabis shop nestled between apartment buildings and smaller home-style retail shops. The green-sided building with its black-pitched roof sits unassumingly with a subtle green and white circular logo of a single cannabis leaf poised over two open hands.

Before the legalization of recreational cannabis in Alaska, Barbara Paschall, owner of Nature’s Releaf, purchased the historic downtown property for a different kind of business development. However, when Ballot Measure 2 passed in 2014, her vision for the property changed, and she opened a family-owned cannabis dispensary, venturing later into product cultivation. Owning a business in such a highly regulated industry means Barbara understands the social and economic impact cannabis has made in Alaska during the first decade of legal sales.

Entering a cannabis dispensary is much like entering any other retail shop, with the exception that all shoppers must be at least 21 years old and show identification before making a purchase. Other than that, each cannabis shop carries its own vibe. Some larger, statewide stores make a more clinical presentation, while local places like Nature’s Releaf are warmer and more down-to-earth. Manager Karissa Paschall says personalized service is essential to ensure customers receive the products that fit their needs.

On display in cabinets and glass counters are a variety of cannabidiol (CBD) products, concentrates, cannabis flowers, and deli-purchased buds that are weighed out at any amount from glass jars. Purchasing via the deli allows the store to keep buds in a humidity-controlled environment, offer a wider selection, and prevent products from getting crushed, as often happens with prepackaged cannabis.

“We were the first to offer the deli service in Fairbanks,” says Karissa. “It’s a testament to the high standards we place on delivering an excellent product to our customers.”

Alaska has a complicated history with recreational cannabis. In 1975, the Alaska Supreme Court ruled in Ravin v. State that the privacy protection added to the state constitution in 1972 allowed adults to possess, cultivate, and consume small amounts of marijuana in the home. This ruling became the first and only state or federal court to announce a constitutional privacy right that protects some level of marijuana use and possession. Challenges to this ruling followed, though.

In 1990, Alaskan voters approved a ballot initiative recriminalizing marijuana possession; however, in Noy v. State, the Alaska Court of Appeals held that ballot initiatives are subject to the same constitutional limitations as legislative enactments, so the portion of the amended statutes criminalizing possession of less than four ounces of marijuana in the home was unconstitutional. By that time, Ballot Measure 8 had legalized marijuana for medical use in 1998, but initiatives for recreational use failed in 2000 and 2004.

In June 2006, the Alaska Legislature amended the law to prohibit the possession of more than one ounce of marijuana and to make possession of more than one ounce of marijuana a class A misdemeanor. A month later, Juneau Superior Court Judge Patricia Collins struck down the law, ruling it unconstitutional. In April 2009, in a 3-2 ruling, the Alaska Supreme Court ruled in State v. American Civil Liberties Union of Alaska to vacate the lower court’s ruling, finding that the plaintiffs lacked standing to sue in the first place. It wasn’t until 2014 that voters approved Ballot Measure 2 to legalize the possession and sale of recreational marijuana, regulating it like alcohol sales.

As a cannabis retailer that also started cultivating in 2022, Nature’s Releaf is well-versed in local and state tax law. Under the City of Fairbanks Ordinance 6172, cannabis retailers within city limits are subject to a 5 percent retail sales tax on all sales of marijuana and marijuana products. A similar 5 percent retail sales tax exists for cannabis retailers within the Fairbanks North Star Borough; however, it exempts retailers within the Fairbanks and North Pole city limits that pay local taxes. North Pole’s is set at 6 percent.

Local and borough sales taxes vary throughout the state. Anchorage and the Matanuska-Susitna Borough are also set at 5 percent; however, sales within the cities of Palmer, Wasilla, and Houston are partially exempt from borough sales tax by the amount of tax the city separately levies, up to 3 percent of the sales price. Each dispensary is responsible for abiding by marijuana retail sales tax law in their area and any exemptions that may apply.

For cannabis cultivators, a state sales tax is imposed when marijuana is sold or transferred from a grow site to a retail store or manufacturing facility. The state tax rate is $50 per ounce on marijuana bud/flower, $25 per ounce on immature, seedy, or failed marijuana bud/flower, and $15 per ounce on other parts of the marijuana plant (“trim”). Clones are taxed at a flat rate of $1 per marijuana plant. The current version of the state tax law evolved between 2016 and 2018 through legislation and through regulations by the Alaska Department of Revenue.

“Although the ballot initiative passed in 2014, the first taxable transfers of marijuana didn’t happen until October of 2017,” says Brandon Spanos, deputy director of the department’s Tax Division. “That gave us time to prepare.”

Barbara has no qualms with the tax rates, but she is perplexed by the challenges of making tax payments. Federally regulated banks cannot accept funds from cannabis businesses because federal law still prohibits the possession, distribution, and sale of the drug. Any bank that attempts to receive funds from the cannabis industry risks criminal liability for “aiding and abetting” a federal crime and money laundering. This has created a cash-and-carry situation where retailers and cultivators must pay taxes via wire transfer, cashier’s check, money order, bank check, or cash. Until federal laws change, Automated Clearing House debit payments ordinarily used for electronic funds transfers aren’t an option.

“It’s difficult, and sometimes you’re made to feel like a criminal,” says Barbara. “If you need a money order over $2,000, then you’re asked for ID, and they put your name down on a special list. It took some getting used to during the first year.”

Spanos says the most significant hurdle following the approval of Ballot Measure 2 was developing a more efficient way to accept tax payments in cash. Alaska was the third state to legalize marijuana for recreational use, with the other two states already dealing with major issues around cash collection. Spanos says the division had heard about lines out the door in other states, as taxpayers with cash payments waited to process payments. In Alaska, cultivation operations began the same year the state entered a deficit situation, so the Department of Revenue didn’t receive additional positions or appropriations to stand up the new tax. In fact, the department had to cut positions over the next four years.

“We were literally doing more with less,” says Spanos. “It was a very big lift. And our solution to lines of taxpayers with cash was to install a drop safe for cash payments.”

Spanos says Alaska is the first state to take payment this way. He says it’s proven to be an efficient use of state resources. Cultivators can deposit their tax payments in seconds, and Department of Revenue staff can process them in batches.

State tax revenue on cannabis cultivation increased rapidly from FY2017 to FY2019, peaked at nearly $30 million in FY2022, and decreased slightly in the following two fiscal years. In FY2024, which ended June 30, state tax revenues were calculated at just more than $27 million.

Revenue collected from the marijuana tax goes into the General Fund. Every month, 50 percent of the marijuana revenue is transferred into the Recidivism Reduction Fund and 25 percent into the Marijuana Education and Treatment Fund. The latter program is patterned on tobacco cessation campaigns, including population surveys, while the former program supports case managers for individuals in the justice system, substance abuse treatment in state prisons, and the Council on Domestic Violence and Sexual Assault. The Alaska Legislature may also use the annual estimated balance in the fund to make appropriations to the Departments of Corrections, Public Safety, Health, and Family and Community Services for recidivism programs.

While the use of state revenue is clearly spelled out, Barbara wishes local governments were more transparent in how city and borough sales taxes are used.

Alaska is notorious within the legalized cannabis market for having the highest retail prices. Industry tracking site LeafLink puts the average at $2,400 per pound for premium-grade flower, more than $300 more than next-ranked Missouri. (Nevada has the cheapest at $691 per pound.)

Taxes influence product prices, and while there are more dispensaries than when Nature’s Releaf first opened in 2018, Barbara says quite a few have closed in recent years. Both Barbara and Karissa suspect that the reason is competition with a resurging illicit market that allows sellers to dodge taxes. This trend led to industry leaders advocating for a change in the state’s marijuana tax system from a per-ounce tax to a sales tax.

House Bill 119 passed in May, replacing the $50 per ounce tax with a 7 percent tax on cannabis sales, which would drop the excise below $12 per ounce (on par with the state tax on a gallon of high-proof liquor). Four days later, House members tried a different approach: Representative Jesse Sumner of Palmer offered an amendment to Senate Bill 89, originally meant to raise the legal smoking age from 19 to 21, that would slash the $50 per ounce tax to $12.50. However, the legislative session ended before the Alaska Senate could finish either bill.

Barbara says other policies besides taxes affect the profitability of dispensaries in Alaska. She points to the Industrial Hemp Program, which the Alaska Legislature enacted last year. Through the Alaska Plant Materials Center in Butte, part of the Alaska Department of Natural Resources, the program was meant to promote cultivation, production, and marketing of marijuana’s non-drug variety, used for fiber and oil.

However, Barbara has seen some unintentional consequences. She says the application and fee structure for manufacturers and retailers, in and out of state, is cumbersome and expensive and has affected CBD inventory in many retail stores. For instance, manufacturers of industrial hemp products and extracts must pay an annual registration fee of $25 per product unit, and a new registration is required yearly for every registered product.

“Paying $25 per item gets expensive fast for a manufacturer,” says Barbara. “And few retail stores have enough employees to spend time completing extensive paperwork and arrange fee payment.”

Furthermore, retailers carrying CBD products must pay an annual registration fee of $100 per store or location and submit a list of products intended for sale, including the product name and brand. She says these are just a few examples of the program’s requirements and fee schedule that also applies to the testing, processing, and transporting of hemp products.

The legislature budgeted $375,000 for a pilot program to increase the in-state production of industrial hemp, particularly CBD oils that cannabis manufacturers now source from the Lower 48. In August, Governor Mike Dunleavy struck the funding out of the budget, saying it was being spent on a non-existent industry.

As CBD inventories have shrunk, Barbara says more people are ordering their products online. She says this workaround allows them to purchase preferred brands, regardless of whether they are quality products.

“That defeats the purpose of the program, which is to contribute to the Alaskan economy,” says Barbara. “It also drives more people to black market sellers or to venues that are selling items that claim to be CBD but aren’t.”

Though people have strong opinions about legalized cannabis, Barbara says the downtown Fairbanks community has always been friendly to her company. She says people in nearby apartments and buildings have appreciated Nature’s Releaf’s efforts to improve the area.

Last year, Nature’s Releaf completed an expansion that significantly increased its retail space. The original shop was a single L-shaped counter with select jars on the wall and an additional locked cabinet. The expansion increased the counter and wall space, which allowed Barbara to double the number of products available. In addition to bringing in more cannabis product lines, Nature’s Releaf also started offering a small selection of branded clothing.

Barbara expects that cannabis policy will continue to evolve as the public becomes more aware of issues and understands more about the industry.

Ten years from now, the market will have shaken off the early growing pains. At twenty years, the industry will almost be old enough to legally buy its own product.