Agriculture, Forestry & Economic Development - Senate
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Bills discussed (10)
| Bill | Title | Sponsor | Status |
|---|---|---|---|
|
SB400
Act 933
· 5 mentions in agenda, chapter, transcript
Matched: “…Jr Sen. Jamie Scott REGULAR AGENDA Number Sponsor Subtitle SB400 Irvin TO AMEND THE FAIR-FUNDING PROGRAM. SB455 J. Bryant TO…”
|
TO AMEND THE FAIR-FUNDING PROGRAM. | Irvin | Notification that SB400 is now Act 933 |
|
SB464
Act 698
· 4 mentions in chapter, transcript, agenda
Matched: “SB464 A. Clark TO AMEND THE LAWS CONCERNING SALES OF RAW MILK; AN…”
|
TO AMEND THE LAWS CONCERNING SALES OF RAW MILK; TO ALLOW SALES OF RAW MILK … | A. Clark | Notification that SB464 is now Act 698 |
|
HB1656
Act 1024
· 2 mentions in chapter, agenda
Matched: “HB1656 Beck TO AMEND THE LAW REGARDING OIL AND GAS PRODUCTION AND…”
|
TO AMEND THE LAW REGARDING OIL AND GAS PRODUCTION AND CONSERVATION. | Beck | Notification that HB1656 is now Act 1024 |
|
SB455
· 2 mentions in chapter, agenda
Matched: “SB455 J. Bryant TO ALLOW REGULATION OF HEMP PRODUCTS BY ARKANSAS…”
|
TO ALLOW REGULATION OF HEMP PRODUCTS BY ARKANSAS TOBACCO CONTROL; AND TO AMEND THE UNIFORM … | J. Bryant | Died in Senate Committee at Sine Die adjournment. |
|
HB1149
· 1 mention in agenda
Matched: “…; AND TO PRESERVE TIMBER AT THE PINE TREE RESEARCH STATION. HB1149 Vaught CONCERNING VEGETABLE GARDEN PROTECTION. SB281 Gilmor…”
|
CONCERNING VEGETABLE GARDEN PROTECTION. | Vaught | Died in Senate Committee at Sine Die adjournment. |
|
SB281
· 1 mention in agenda
Matched: “…TION. HB1149 Vaught CONCERNING VEGETABLE GARDEN PROTECTION. SB281 Gilmore TO AMEND THE LAW REGARDING AGRICULTURE; TO ESTABLIS…”
|
TO AMEND THE LAW REGARDING AGRICULTURE; TO ESTABLISH THE PRODUCER BILL OF RIGHTS FOR COMMODITY … | Gilmore | Died in Senate Committee at Sine Die adjournment. |
|
SB290
Act 921
· 1 mention in agenda
Matched: “…IRE CERTAIN ACTIONS RELATED TO COMMODITY CHECKOFF PROGRAMS. SB290 B. Johnson TO PROHIBIT A MORATORIUM ON THE ISSUANCE OF PERM…”
|
TO PROHIBIT A MORATORIUM ON THE ISSUANCE OF PERMITS IN WATERSHEDS AND OTHER BODIES OF … | B. Johnson | Notification that SB290 is now Act 921 |
|
SB466
· 1 mention in agenda
Matched: “…HE FARM WHERE THE RAW MILK OR RAW MILK PRODUCT IS PRODUCED. SB466 J. Dismang TO PLACE A MORATORIUM ON CERTAIN HEIGHTS OF WIND…”
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TO PLACE A MORATORIUM ON CERTAIN HEIGHTS OF WIND POWER DEVICES; TO REQUIRE THE ARKANSAS … | J. Dismang | Died in Senate Committee at Sine Die adjournment. |
|
SB84
· 1 mention in agenda
Matched: “…ECLARE AN EMERGENCY. DEFERRED BILLS Number Sponsor Subtitle SB84 B. Johnson TO PROHIBIT A MORATORIUM ON THE ISSUANCE OF PERM…”
|
TO PROHIBIT A MORATORIUM ON THE ISSUANCE OF PERMITS IN WATERSHEDS AND OTHER BODIES OF … | B. Johnson | Sine Die adjournment |
|
SB85
· 1 mention in agenda
Matched: “…SSUANCE OF PERMITS IN WATERSHEDS AND OTHER BODIES OF WATER. SB85 Caldwell TO PRESERVE PUBLIC PROPERTY; AND TO PRESERVE TIMBE…”
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TO PRESERVE PUBLIC PROPERTY; AND TO PRESERVE TIMBER AT THE PINE TREE RESEARCH STATION. | Caldwell | Died in Senate Committee at Sine Die adjournment. |
Machine transcript
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- October 2, 2026
Uh, sorry, we're late. We, we've had a, uh, uh, a big debate in joint budget, and we're trying to get everybody here, uh, chair sees a Quorum, uh, Senator Clark, I'm gonna recognize you first. We'll try to get you out of the way. I
Clark is Senate Bill 464 if you would recognize your identify yourself and you recognized. Allan
Senator Alan Clark
Unverified
0:55
Clark, State Senate District 7. And, uh, have
Speaker 8
0:58
an amendment on the bill. everybody give you a minute to look at the amendment. The amendment
Senator Alan Clark
Unverified
1:07
is adding an emergency clause. That's all it does. And Because, uh, grass are so good in April, it's the big. Uh, big month for Uh
Milk and cheese production. why they asked for the emergency clause. You Come here.
OK, very good. Uh Everybody sees the amendment. It's uh Declared mercy. Fair enough. Uh, motion on the amendment. Du pass 2nd
2nd senator Stone, all in favor of the amendment, say aye.
Senator Alan Clark
Unverified
2:02
All oppose your amendment passes, you're welcome to. SB 464, uh, is Uh Does the 3 things, uh, it Clarifies uh that. Raw milk products. Uh, can be sold. That it lists the. Page 2 Uh, raw milk products means a
consumer product that is the result of processes that include raw milk or raw cream as an ingredient, including without limitation, butter, buttermilk, cheese, cottage cheese. Keer yogurt costrom and other derivative products, uh, that's primarily about cheese, but it raw milk products, period. Uh, it also adds natural food stores to, uh, the places that raw milk and raw milk products can be sold, they asked to be added.
And it also changes the size of the sign that you need to put up. To sell it from But 2 ft by 4 ft, that's, uh, line 30 on page 2 to 18 inches by 24 inches, which is still a big sign, but 2 ft by 4 ft is just. too big. Uh, and, uh, that's what it does. I'd be happy to take any questions. Questions from the committee.
Speaker 26
3:31
Question the chair, we're still on the amendment,
Mr. Chair, we passed the amendment we passed the amendment? OK. The amendment was an emergency clauses amendment was an emergency clause. OK. No questions. I was trying to
look, we've got a lot of paperwork today, got a lot of people signed up. Uh, quite a few more than usual, uh, taking a few minutes to look at that. Uh, anyone in the audience wish, wish to speak for or against this bill.
Senator Alan Clark
Unverified
4:04
Senator Clark, would you like to close for your bill? Yes, spared you all the details of how. Say raw milk is compared to ibuprofen, but it's one person, 3 people in 21 years died from raw milk in the US 16,000 a year died from ibuprofen. Uh, we won't go into any of the rest of that, uh. This Just allows people who want to buy these products to buy them, uh, and clo, we appreciate a good vote. I wish the committee. Motion to pass, but Senator
Stone, 2 Senator Crow, all in favor say aye, all
Speaker 33
4:37
opposed. Congratulations, Bill. Thank you, Mr. Chair. Thank you, members of
the committee. OK, uh, Senator Irvin. Thank you. It's the Senate Bill 400. Yes,
Senator Missy Irvin
Unverified
4:56
sir. Thank you, Mr. Chair. Cen a bill for Senator Missy Urban District 24, Senate Bill 400. Senator, you would identify yourself for
the record, and you're recognized. Thank
Senator Missy Irvin
Unverified
5:08
you, Mr. Chair. Senator Missy Irvin, District 24. Uh,
this is Senate Bill 400, um, this has been a couple of, I would say about 6 months' worth of, uh, work with a different, uh, legislators, executive branch folks, and people, um, in different people's districts. So if you look at the House members as the co-sponsors on this bill, uh, we all worked together to create this, uh, this bill together.
Um, what this bill does is it changes to bring a very basic level of accountability and transparency for the funding that, that we send to the different fairs, uh, and, uh, there's some amendments that have been made that have been engrossed in the bill, uh, which were requested one was, uh, that the county extension. agent on page 3 at the very top line 1, a county extension agent shall serve as an ex officio member of the county fair board. Um, that was requested by the University of Arkansas and um
extension extension cooperative extension. Extension Um, the second one is on page 3 and 4, exhibitor may participate in one district fair of his or her choice. Um, that's to accommodate those, uh, families that may live like on the border of, of a county so that they can choose which district fair they want to participate in, um, and then the, I think a very good, I worked with a lady in Sharp County, um, he's on the fair board, uh, lines 35 and 36, we
included a definition of fair, um, you know, which, uh, includes, uh, without limitation, because they could do more than this, um, livestock shows, consumer and family science. So, we're talking about the canning, the, um, horticulture, different kinds of things like that that you would find at a fair, which is different from a livestock, uh, because those fundings are kind of put into one bucket, um, and uh sparsed out depending on a livestock show versus a fair. So we really needed a definition of
what a fair was. And so we added that as well, um, the, the Counties that are assigned here or what they currently are, um, and, um, or what, uh, had been original to to where those districts were. We as the legislators that met and talked with the Department of Ag about this felt like it was just best to go ahead and subscribe that, um, and, uh, the, and I want, I want to talk about the accountability part of it. It's very, very simple. Um, it's just
a financial statement and a plan. Um, and then a certificate of good standing, um, from the Secretary of State's office because they need to be nonprofit as organizations. Several of them were nothing. And so I think it's important for us if we're sending tax dollars to an entity that we have something to tie back to, so that nonprofit status, uh, is important. Um, and then if, um, a county fair that utilizes any county facilities, um, they would submit this to the plan to
the Quorum Courts for approval. Or they submit it to the department. The reason why we put this in the bill is to create that kind of local input opportunity and collaboration. Oftentimes there are rural community grants. I think I passed a bill through here on rural community grants, which would allow for in-kind donations of a fifty-fifty, uh, kind, um, to be not just, uh, asset, liquid assets, or money, but it could be, um, in-kind donations of time, labor, equipment, material, those kinds
of things. And so a lot of times your county fair boards aren't familiar with those types of um opportunities for funding, but your Corm Court is. So having that right there gives that opportunity for some collaboration and communication between those fair boards and those counties, um, and so that's why that is in the bill, uh, because in those counties can assist with any kind of funding mechanism that they, uh, could help with on improvements to the fair property that they're utilizing the building.
and things like that. So that's why that's in the bill. So, um, and, and again, this is a very simple. These are one page, 2 page, it, it avoids all of the kind of administrative burden on the Department of Ag as far as like, um, a a application for funding, um, You know, filling out any of that, it's just, it's the onus then becomes on the fair boards to submit, here's our plan, here's our financial statement. This is where we sent the money, uh, and then that's how we go forward. So,
Happy to answer any questions. You want to have a question? Seeing no, I do have some uh folks that signed up or Senator Hickey, absolutely. Just,
Senator Jimmy Hickey, Jr
Unverified
10:04
just about the, about the bill right here on, on page 2, I just want to make sure we're not doing
something that we're not intending. 29 to 33 right here. It, it says the county fair that utilizes county facilities or county funds for livestock shows shall
submit the information. Never mind, it's a shell. I was worried that if the quorum Court, didn't, didn't review it that then leg audit would not, would not be able to look at it. Oh yeah. So, because it said before. Or it's, it's page 2. It's Lines 29 to 33. I know it, I know our law here says that they shall submit it, but what if they, what if they don't? Is that gonna, is that gonna somehow gonna create so
that Arkansas legislative audit could not look at it because we've got that before in there. Does that make sense? Am I making any sense? shots in. But before
on 32 is what's. A little bit bothersome to me. And I, I think because of, because
Senator Missy Irvin
Unverified
11:21
it has a shell, then I, I think like audit would absolutely be able to have it then. That's,
Senator Jimmy Hickey, Jr
Unverified
11:27
that's my only worry is, is somehow, if they don't, if they don't present it to it. I know it says that it shall. I don't want to in any way limit leg
audit from ever being able to go in and look at
Senator Missy Irvin
Unverified
11:38
it. Um, I, no, I agree with you. I think I can tell you that like a it is watching every single bill because they've come to me when they've had language in one of my other bills and asked for any kind of amendment to that would not, that would prevent them
from getting that information, and they have not contacted me about this bill. That's #1, but #2, I think like audit, if I'm not mistaken, they have language that allows for any type of, uh, review and audit of any taxpayer fund that gets sent out the door. That's what they've told me as long as we're sure that it's
Senator Jimmy Hickey, Jr
Unverified
12:08
not limiting them in any way. Of course, it's a Senate bill, so we could, we could get that. Yeah, not, yeah, absolutely not my intention. I definitely want to be audited.
Senator Missy Irvin
Unverified
12:22
I think that's why we have to have some level of
accountability there. Any other question? Uh, starting, we have folks signed up. Uh, Clayton Edwards, you come to the table,
Speaker 38
12:42
please. The drag center crow's chair around there you go. Mr.
Edwards, if you would identify yourself, your mic is on and you're recognized to speak against the bill. Yes,
Speaker 74
12:53
sir. My name's Clayton Edwards. I'm the president of the White County Fair Board. And the exact section that, uh, Senator Hickey pointed out, 29 through 30 on page 33 on page 2 is, that's our only concern with the bill. We're a 501c3 organization, uh, we're self-funded. We don't to get any funding from the county, uh, The county does help us out in kind with, you know, like they'll, they'll grade a road for or something like that.
But, uh, we just, we don't agree with the idea of having to submit our financials to the county court for approval. And review. Pushing from the committee of. That I'm, I'm sorry. Yeah,
Speaker 79
13:44
and so I was just trying to read through that language too, just
Senator Jonathan Dismang
Unverified
13:49
to make sure we were on the same page, and that's the county fair that utilizes county facilities or county funds for
livestock show or fair. She'll submit this information subdivision section of this county or Quorum Court for review and approval before submitting the department and Arkansas legislative audit. I mean, I think, I mean, is the concern approval before anything else
can transpire. Yes, sir. OK. the Somebody had bone
to pick with you, they could not approve and then. How long have you been in business? White County Fair, over 85 years.
Speaker 33
14:29
And, and, and never had to do, OK. No, sir, is that all
your comment? Yes, sir. OK. Thank you very much. Thank you. Uh, now, no one signed up to speak for the bill. Is there uh is there anyone I've got others to speak against it, Senator Irvi. I'm not through. That's fine. That's why I wanted to wait, but I was gonna ask if anybody showed up to speak for
Speaker 91
14:51
the bill that. OK. Fair enough. OK, uh, Andrea Volt.
I wanted to be fair on the force and the against is why I asked, but no
one signed up for it. So far, if you, your mic is on, if
Speaker 95
15:15
you would identify yourself for the record, you're recognized. Andrea Voak, Sharp County Fair, and the Arkansas Fair Managers Association Board of Directors. Um, there are several issues with this bill that, um, as a member of the Arkansas Fare
Managers Association, who has been in business for 75 years. That, um, feel like it is, um, Not in the best interest of fairs statewide in order to pass this bill. In the original bill on page 2, lines 3 and 4, it stated that there were mandated. Um Continuing education credits, um, in order for fares to receive their funding. And so today I would like to
come to the committee, not as an Arkansas fame manager board of director, but simply as a girl from Sharp County, who in 2017 knew nothing about fairs. In 2017, Sharp County Fair was failing. We had no carnival. We had limited livestock and very few entries in our family and consumer science. part. So I came on board as a volunteer to the fair that year. And I knew nothing about a fair. I did not grow up in the fair. I
did not have kids at that time that showed in the fair. And I just knew that I wanted to help my community not lose something that they had had for over 70 years. And I showed up in January of 2018 to an Arkansas fair managers association convention for continuing education credits. And I learned What it takes to make a fair affair. Since that time, we have not only grown our fare by including
a carnival. We have doubled the amount of youth we have participating in our Blue Ribbon program. Our family and consumer Science Center now has over 250 exhibitors with over 2000 entries in it, and that number continues to grow every single year. By doing away with the need of continuing education credits. What will end up happening when a board Anywhere in the state of Arkansas has a massive turnover and you have board members like
myself who do not know how to fare. And they begin to try to run a fair and they don't know the first thing about running a fair. Where are they going to go to learn what they need to know. To make a fair legal. Productive Fun And instructive for our youth. We have to think about the youth that's involved in this. One of the other things that has not been recognized with the doing away of the continuing education
credits is that the Arkansas Fair Managers Association awards 10 scholarships. Annually, amounting to over $10,000 a year to graduating seniors across the state of Arkansas. I would hate for us to have to no longer hand out those much needed scholarships to our students that are focusing on agricultural industry as their major in college. These kids that have grown up as
agricultural students in FFA in the fairs, in 4H. They have grown up on farms. They have grown up. As this as this being their livelihood, and then we are just simply going to do away with that need for them to have those continuing education credits. So, as a girl from Sharp County who knew nothing about a fair. And has learned so much from the fair. I'm going to ask the committee to please not accept
this bill because I would hate to see what would happen to fairs. When the older generation begins to leave our fair boards, and we bring on new people like myself who don't know what they're doing. Yeah To many, you have questions, Ms. Vo? Thank you very much. Appreciate your testimony. Thank you, senators.
All right, somebody's got to forgive me because I can't read your handwriting, but you're from Pike County who signed up.
Speaker 103
19:46
Come on. I forgot my classes again, so I couldn't see the lines that way. You know,
Speaker 102
19:58
when you get older. That's very good. If you, the mic is on, uh,
Speaker 108
20:03
identify yourself. Hi, I'm Karen Vaughn, uh, from Pike County. I also serve on the AMFA board and on the Pike County Fair board. I've been attending this AMA convention since 1979, so I'm gonna start labeling myself. I have seen.
The production that it presents to our county fairs each year. Like any other organization, there's, there's things that need to be corrected. I totally understand that. But the good that it provides to our county fairs, the networking, for example, We have a lot of fairs and if you know anything about Pike County, we're very small, we're rural. We don't have a lot of money. But we learned just in one of our seminars, and this has happened to numerous, uh,
they've taken this idea. About doing what was called a drawdown. Our far alone we raised $18,000. I would have not have known about this idea, how to present that, how to make it work, unless I had attended a seminar at the convention for my education hours. The convention also like Andrea stated, we provide those
scholarships. The money is raised in one night at the convention. People attend this convention to get their CEUs. You know, for their fair funding. That's how all this ties together. And I'm very passionate about it. I think it's something much needed. Um, I think if we take it away, we're going to lose that part of the I I think our fears are going to suffer. Um, then the, the knowledge that
that we, we get at this meeting is just is. It's really hard to describe, um, I could go on and on and on the things that we've learned, the things we've implemented at our small county fair that are working and we're still surviving and we have a heck of a county fair. It is a good county fair. And I would just hope that you would think about. How detrimental taking those continuing education hours away, how it will impact not just now but But in the future, I think it's
um very important for us. Scott, do you have a
Senator Jamie Scott
Unverified
22:34
question. Thank you, thank you for being here. Yes, ma'am. Um, it's your only issue with the
Speaker 107
22:38
bill, the removal of the continuing education? Are you fine with everything else? I'm fine with everything else. Yes, ma'am. It's just the continued
Speaker 114
22:44
education, um, that I feel is, is needed. Um, like I said,
Speaker 108
22:49
it's just Um I just think it's important to have that to to conduct your fair.
Senator Ben Gilmore
Unverified
22:57
Yes, so thank you, Mr. Chair, and I, I've heard a couple of times about the continuing education. So clearly that's a sticking point for, for you guys. Can
you, can you just walk me through what that looks like, um, and some of the, some of the activities that take place
Speaker 114
23:10
there. Sure, um, like this, can I use this past year because it's still fresh on my mind. Um,
Speaker 108
23:16
Doctor Moffatt, I'm not sure if any of you know Doctor Moffett, um, one of the, uh, vets, um, came and he presented a program that we had to move it to the main area just to accommodate
all the people. They learned about testing medicines, things we couldn't and couldn't do with our animals, just so much information that fears would not have had or wouldn't even know where to get it, you know, that's the biggest thing is where do you find this information? Uh, one thing that, um, like I said, we do all these different seminars about fundraising. Fundraising is a huge thing for our small county fairs because we are limited on the money that we receive. Um
Another thing that we're working on is to get some of those um Accreditations like for um Safeer, um, for
Speaker 114
24:05
your, um, That's fine. You have another question just whenever she's
Speaker 120
24:10
finished, just a follow up. Oh, OK, OK. No, no, you're fine, um, just certifications that would
Speaker 108
24:17
be difficult for a small county fairs. Another thing that we did this year was show works. I don't know if that's big to anyone here makes running affairs super easy.
We taught 2 days of show work classes that would have cost probably $200. Um, to attend that class, we, we provided it for free. Just things like that are what we're doing. Thank you, Mr. Chair. So I guess my, my
Senator Ben Gilmore
Unverified
24:42
question is, this is paid for through the department, is this funds that are used from the fairs themselves that You, you co-op together to pay
for this. How does that work? The way it works,
Speaker 108
24:55
um, all of our presenters do not charge us anything.
To be there. It's all a volunteer basis. So anyone that's providing a class has not. Doesn't charge us a fee to do it. Um, let me, I think
what he's asking is when you ask the department talking about Department of Ag Department of Ag or
Senator Ben Gilmore
Unverified
25:17
the county fairs themselves county fair, yeah, and
Speaker 24
25:20
that's, that's the question attend the convention attend. That's correct. Yes, they have in the past. What we're
Speaker 107
25:25
working on now is doing away with our registration, not registration, let me let me
regroup that. Doing away with our dues.
Speaker 108
25:35
I've always had a problem with that also. I, I don't think we should have to pay dues. Um, so that is, um, in our
On our agenda for now is who, who pays to attend the county fairs, pay the county
Speaker 107
25:50
fairs, I'm sorry, yes sir, County fairs pay to attend through dues and registration what what
Speaker 132
25:55
were those dues that des are $500 and then a
Speaker 108
26:04
registration fee is $25 per person. Yes, sir, um, we are looking at doing away, like I said, with the dues, that is on our new, uh, OK. Any other questions?
We've got a large crowd commercial bills. I hate to rush, but we do, OK. No other questions? OK, very good. Thank you. I appreciate your testimony. Mr. Irwin, would you like, is there anyone here again, I'll ask that wants to speak for the bill and not saying it would you like to close your bill?
Senator Missy Irvin
Unverified
26:40
Thank you. The gentleman that contacted me, um, and I'd like to read his statement. He's a
teacher, uh, so he couldn't be here. The Saline County Fair Association supports this bill in full. His name is Dustin Parsons, Saline County Fair Association supports this bill in full because it allows us to already continue on working to build a strong fair. This bill does nothing to abolish the Fair Managers Association. It just doesn't tie our hands to require us to get these hours from only one place. Our county can get
flexibility now, the continuing education has not been a requirement forever. Uh, there, I think it's a recent requirement, um, and, and he says that fair Managers Association could lose out on $1000 from Celine County and uh that's the reason why the fair Managers Association wants the continuing education credits because it would be a loss of money, um, and I went to address that point. That's one of the reasons why we added the county extension agent as an ex officio. Board member of the county fair
board, your extension officer has a level of education that's really um important that can be a part of the fair boards to provide that level of expertise. Um, another thing that has been, um, stated, and I will, I will read you a text message from a lady who was on, who attended the fair Managers Association convention where they hired a hypnotist, and she texted me and said, I don't, this is a waste of my taxpayer dollars. I don't think that this is correct or right. I'm not
getting any education from it. And so several of us had gotten text messages, um, for what was happening as a waste of time. Um, and there were other pictures that were being sent to me. And so, I don't have a problem with fair boards wanting to attend that convention. I do have a problem with the limited amount of taxpayer dollars that we are sending to the county fair fairs and district fairs to be utilized. that. The purpose and the
intention of always funding fairs was for that taxpayer dollars to help those exhibitors, primarily children. The fairs are supposed to be about education of livestock shows, and consumer and family science education. The funding that we as a state of Arkansas has always sent out the door, it's supposed to be to to promote the education for the children, not the adults. But for the children.
To be able to continue to show their animals or their quilts or their canned goods, or what they grew in their garden. That's the money that's, that was the intention all along for the funding that we sent out the door. It was not to create an association to prop up for hypnotist to be at a convention. I'm sorry, that's a waste of taxpayers' dollars. In my opinion, we have very limited funding.
This is a very, very limited level of accountability. I am perfectly fine with taking the word approve out of the bill, if you want to make that as a verbal amendment, I'd be happy to do that so that it's a review only. Totally fine with that. But I think at the end, you know, I hear the concerns, but that's why you have a Department of Agriculture. That's why they are the ones in the bill that is and Westward is here and we, we worked with him on this, but that's why
On page 2, it states lines 8, uh, 3:15 that the Department of Agriculture is authorized to provide financial assistance to livestock shows and fairs. So everything that was testified to the Department of Agriculture can provide. In addition to that, the extension officers and the extension office can provide a lot of that already, um, through their, what they do and their expertise. So, Um, I, I believe we've worked
really hard and and I I'll be happy to entertain if you want
to do a verbal amendment to strike the word and approve, um, I'm happy to do that,
I see Senator Dising shaking his head, uh, uh, that would not satisfy me entirely because of the continuing education hours. So I would ask that if you want an amendment to go get a written amendment and correct both the verbal, the, the, uh, uh, approval and the. Uh
Senator Missy Irvin
Unverified
31:18
Education and continuing education hours. I, I guess I'll, I'll listen to the committee and see where, if that is a unanimous decision or support on the continuing education piece of it. I, I We're trying to
correct the bill at the end of the table and if it was the only the one word that, that would be fine, but there again, uh, we, we heard of the from a couple of witnesses on the continuing education hours and people made the comment that that they agreed with that. I just think that
we're going to get into a uh uh uh hornet's nest trying to do it on, on verbal amendments here and uh
Senator Missy Irvin
Unverified
31:57
then I'll pull the bill down because I don't agree with changing the continuing education. We, we
Senator Jimmy Hickey, Jr
Unverified
32:04
could We could talk about this just the approval part, and again, I'm not, I don't know where I'm gonna be on
the bill, so I don't want to mislead. But to me, it's more than that with the, with the legislative audit part also,
I see that we had this language up here on, on page 2 under 67, and 8.
That I think is a whole lot better as far as it relates to the way they audit is because it just says a receipt of fair funding under this is, uh, subject, subject to audit by leg audit. So if we do wind up with an amendment, I understand the approval part, but I, I want to go back to that because I, I just want
to make 100% sure that, uh, There's never any, any thought or ideal that they do not have full authority to do that. So, OK, well, on lines 18
Senator Missy Irvin
Unverified
32:52
and 19, it says that they submit the following items each fiscal year to the department and Arkansas Legislative audit.
Senator Jimmy Hickey, Jr
Unverified
32:59
I know it just kind of, it contradicts itself down there whenever we put, put the before in the other line. That's, it just, it, it's just somewhat contradictory, the way that the draft wrote it. I, I'm sure they just were in a hurry there a little bit. OK. You're gonna pull the bill
Senator Missy Irvin
Unverified
33:16
down. Are they, are there any, while
we're here, is there anything else that anybody would like to
Senator Jamie Scott
Unverified
33:22
request. Senator Scott, you have a question. I do have a question because someone is watching from my area and text me a question, so I'm just trying to make sure I understand. So he's saying. No one is saying that they can't offer continuing education credit, it just says it's not required. Can somebody clarify that for me because I'm confused. What is, what
is that that would be, uh, she's closing the bill, no one else is coming to the table. If I can continue to close for
Senator Missy Irvin
Unverified
33:52
the bill, I think. Yeah, I can address
Speaker 44
33:57
that's what I said. If you want to address it, you can, but I'm not
Senator Missy Irvin
Unverified
34:01
bringing anybody else to the table. No, no, I understand. Um, so again, it's just saying that the funding can't be utilized for that. It's not saying that. They can still go and get continuing education. We're not changing that. We're just saying that the funding that they receive from the state of Arkansas can't be utilized for that. But they can still go and get continuing education that can
still function. We're not wiping away or doing away with the fair Managers Association or anything like that. They can continue to go do that with their own funds. So if they raise funds privately, then they can utilize those funds to go and do that. And we're totally fine with that. But I, I would hope that it's, it's, you know, more meaningful than some of the messages that I've received. Again, the people that were supposed to be here to support the bill can't, and they're sending me messages and support your choice. Would you
Speaker 33
34:54
like to have a vote. And Honestly, I would
Senator Missy Irvin
Unverified
34:58
like to make a verbal amendment to approve, uh, to remove the word and approval, um, And then, uh, And then have a vote. If, if I get a first, I mean, if I get a emotion. I'm not sure if you can do that
or not. You don't have the votes here to suspend
the rules. Oh, I see. So I'm, I'm trying to ask you to take 6 votes to suspend the rules. I'm not going to vote tosuspend the rules. OK.
Speaker 105
35:38
Then I'll, I'll pull it down. Thank you. Senor Bryant.
Speaker 169
35:58
For that I need that one. with the chain, but I just I. Right you're here. Senate Bill
455 if you would identify yourself for the, uh, record. Thank you, Mr. Chair, Joshua Bryant.
Senator Joshua Bryant
Unverified
36:16
Senate District 32. you present your bill. Committee, I'd just like to start with the
direction I'm coming from this bill, which is, is different than the direction
of the General Assembly is has taken in the past and is a continuing to take in the future. In the beginning of 2023, uh, the largest part of the conversation around the General Assembly was that there's a product that is available on the shelf to our children that contains THC. It's marketed for, it's got a pot leaf on it, and there's, there's no barrier of age restrictions or, um, Marketing to children or the safety of the product. There's a lot of stuff that is wrong with
this. And so the obvious question is, well, what, what's prompted this? And it was the, the farm bill at the federal level. So what the farm bill did was authorized hemp up to 0.3% of THC to be cropped and sold and marketed, so whether that the intention of the federal government was to create innovation in the market, or they just gave it. An oversight, we don't know and they have yet to correct that. What we do know is innovators are going to innovate. So they began.
Producing and marketing their products across the states and states have attempted to take action to shut them down and none have succeeded. And so what I thought the General Assembly might be willing to do is in the event that we cannot ban it. We cannot get it off our shelves because of the preemption of the federal law is, why don't we just go ahead and restrict it and treat it like everything else that has issues, um, that we want to keep away from our children, keep it
in childproof bags that you can't market to the children, you pull it behind the shelf and sell it to 21 and older unless you're a military veteran, which their own rules about what can be in their system. Uh, we ensure that the the products are, are safe, that they have been tested by a You know, ISO certified manufacturing facility that there's punishments if, if they're sold to children, there's punishments and manufacturers if they're doing anything inappropriate.
So while maybe an attempts to, um, Make it to where it, it seems legitimized the tent is not to legitimize the industry or legitimize the product. The federal government has done that. They've given the authority to the FDA to do something about it, but they have failed to act. When you ask our federal delegation, are we going to do something about this? The answer is we don't know, because it's just like everywhere, it's, it's the politics of the situation. So in light of them not being able or unwilling to act at the federal
level in light of the, the folks that innovated. and put money into their products on a legal scheme to have states attempting to shut them down only to be, only to have the states fail and continue to go through lawsuit after lawsuit across multiple states across multiple um circuits. What this bill would do is pending the outcome of the state of Arkansas, the Section 16, the very, I think the last page of the bill. Contingency effective data based upon litigation. That says at the end of our run
on Act 629. And the federal court system, if the state loses, that we have 120 days to for our those folks selling this product currently targeting our children, selling it to our children, no punishment after the fact. Even though that some people would say questionably they should be punished because there are other laws that's currently not enforceable in the state of Arkansas. This would say take it off, take it from the counter, put it behind the counter, so it's 21
and older. Um, you can't market it child childproof packaging, manufacturing standards that way there's some sort of regulatory control of this product until the federal government acts. On their own to ban ban the product or the state comes up with a better way to that, to ban it and not getting sued. Because what I, what I do know is they'll continue to sue as long as they find a way to sue and we will continue to have this product on our shelf. So with that, I'll be, I'll be glad to take any questions members, Senator Gilmore.
Senator Ben Gilmore
Unverified
40:42
Thank you. Thank you, Senator Bryant. I, and I. I appreciate your goal in protecting minors, children. I think
we've done a lot of work down here to do that. Um, uh, especially, especially as it relates to fentanyl and other, um, super, super drugs as we, u call them here. So on page 4 of your bill, where it defines hemp. Um, and I'm asking because I, I don't know. I don't know much about this, this world, um, other than I, uh, see the flashing lights all over, uh, my district, um, we've got several
stores that have popped up almost overnight and cross it and they flash the, you know, different signs that you've indicated. So, In online, uh, 30 of page 4 where it says contains Delta 9, I is that already? Is that already on the list now as, as a as a scheduled drug. In the state of Arkansas is Delta 89 already on the list. It possibly is
Senator Joshua Bryant
Unverified
41:45
possibly could be. I, I do not know. I know this, this language came out of what the, the federal government has said is part of their process that is whether there's again, seeking innovation
or not. It's part of the process and it's, it's what's there if it's illegal now, then we should enforce its that being
Senator Ben Gilmore
Unverified
42:03
illegal. That's what I'm sort of getting at is, is the enforcement side of what is already, I think, illegal, right? And then on line 31 of that same definition, um, 0.3%. What, what is the normal, um,
Concentration of THC in, let's say cannabis for medicinal use. Do you know? I do not know.
Senator Joshua Bryant
Unverified
42:22
I do know a provision of the of the bill would limits. The serving size contained no
more than 50 mg aggregate of the, of the hint derived. That's another important process of this bill right now. You can do synthetics. This bill would regulate it to where the state would not allow synthetics on the market. It has to be derived from a plant. Yeah, well, and I
Senator Ben Gilmore
Unverified
42:41
may have some more questions, but I'll, I'll defer to others, Senator Gilmore, if you would, Senator Hickey. But
Senator Jimmy Hickey, Jr
Unverified
42:50
Thank you. Turns back off. Thank you, Senator, uh, I'm 100% for what you're trying to do. I just, I want to make sure because we've had some discussion
on this and wanted, wanted to get this amendment down here. And here's the thing, I've had that, I don't think that as far as us as legislators that people are ever going to understand what we're doing here because I have people that are saying, we don't want to regulate hemp, but I don't think they under they understand the court case that we're in, and that, uh, uh, it's
wide open at this point. So it's just one of those things that we're doing what's, what is in the best interest of State of Arkansas, and that's the way I'm going to look at
this. My question though is, as this amendment, and I think it's right, but I just want to go through this. So, All right, so this act's gonna be effective for 120 days after final judgment in the case that we're in. And if they don't uphold the legality of our old law. If they don't uphold that, Then this is going to go into
place. But if they do uphold it, let's just, let's really operate with 23, 24 and 5. If the final judgment in the case referenced in subsection A of this section does does uphold the legality of our current law that we have this act shall be repealed in its entirety. And remove By the cold revisor. Here's, here's my only question. I assume you in the bill drafter or, or maybe the AGF talked about this or someone. Since we're actually repealing, since we've got the repeal in
here. Yeah How does that, how does that work with our code because we're going to repeal this code.
That we currently have in place. But if they do uphold it, then we've got to
repeal of this entire act which Includes the repeal. That is correct. There's a section
Senator Joshua Bryant
Unverified
44:44
in here that because that there's a section that confused me other than that section of the code that
basically says, if this happens, repeal it if that happens, everything that's not already there gets repealed. So it just reverts back to the old language. I see, I, that was my concern as well in the bill drafter. I was trying to strike some language in one of
the sections that that she had put in there, but she said it's got to be in there because the if then that scenario. So we have, we have talked and
Senator Jimmy Hickey, Jr
Unverified
45:13
addressed that. So although we're, we've got a repeal of the act in here, and when this act It's going to go in place.
Or when, or whenever it goes and put in place. repeals the statute. It's, yeah, we've
Senator Joshua Bryant
Unverified
45:29
stricken the old language. If this act passes, but once, if, if the law is upheld, then that that language is stricken is now unstricken. And the language that is new is now removed. OK. I know that's odd, but that's what, that's what
Senator Jimmy Hickey, Jr
Unverified
45:41
we were after. It's just, uh, it's it's a little bit hard to follow. So, but, but you all have talked and addressed that and feel comfortable with it. All right, I appreciate you. Thank you, sir. And just me.
Senator Jonathan Dismang
Unverified
45:56
So a couple of questions, um. Senator Gilmore, I'm not real
excited about these operations that are around the state right now. Um, I think it's very clear what they've turned into, um, you know, my position on the Chinese vape and the problems and whippets and all the other wild things that were essentially poisoning people with uh Mm So my questioning, the testing, where,
who pays for the testing? Where does the testing come
Senator Joshua Bryant
Unverified
46:27
from? That, that is the that is off the industry. So if you want to sell a product on your packaging has to be the testing from a laboratory that has proved that's global accreditation incorporated recognized or equivalent or the current ISO 17025. So that'll be stamped. It's a part of their standard is to stamp that on the package of what's being sold. All right, and on
Senator Jonathan Dismang
Unverified
46:47
41, and I'm, I don't know that I understand, but there's a repeal. Of The tobacco control board
creation definition, what, what am I looking at right there? I'm sure, I'm assuming that's in some other code section or something. What is that? But it's striking that tobacco control board. I
think unless that's some other tobacco control board I don't know about. So when we, when
Senator Joshua Bryant
Unverified
47:17
we moved to place in a penalty in the, in the new subchapter of the bill. That was the bill drafters. Crossover to ensure that it's compliance. This is the bill, the bill
drafters intent to ensure that if the subchapter is violated, $1000 penalty can be levied in accordance
with the, the, the new subchapter. So that creation of the tobacco
Senator Jonathan Dismang
Unverified
47:44
control board is in the Delta 8 old language. I just don't understand how you strike that. Section that creates the tobacco control board and doesn't have an implication on anything else except for what you're doing here. What am I? I don't know. What I'm missing. OK
Senator Joshua Bryant
Unverified
48:04
And it may be a, maybe a BLR legal question. The intent was, if you violate section chapter 500 series. Um You therefore are going to be lowly defined and this was a BLR ad to ensure that that is captured. Now if it, if it goes beyond that and affects other products that are regulated, that is not the intent, and we'll be sure to address that. What it strikes the tobacco control board. Ex I'm pretty sure it does. I'm,
Senator Jonathan Dismang
Unverified
48:35
I'm misunderstanding something. All right, and I'll get off that and so synthetic. We do believe that we could, without having to worry about court cases, banning synthetics. OK, so that could be a standalone bill on its own, because I'm assuming most of those are coming from overseas and Probably chipped in in these. The lobs are selling them on their shelves to kids at this point. Um, all right. And then as far as tax rate, what would these products be taxed at?
Senator Joshua Bryant
Unverified
49:05
Uh, I, I believe the regular sales tax
Senator Jonathan Dismang
Unverified
49:08
rate, because everything else that's in this world is taxed at a
higher rate. I mean, so they would have a preferential tax treatment as opposed to, you know, medical marijuana, even for that matter, um, alcohol, other, you know, type, type sales. So, um, OK, thanks. What they're,
Senator Joshua Bryant
Unverified
49:24
what they're sold at currently, I did not address any type of additional penalties. It was important
this is we're going why would we take
Senator Jonathan Dismang
Unverified
49:36
The penalty from 5000 to 1000. violation. Take it 2. Yeah, I think you struck 5000 and took the penalty to 1000. And that was on page. Again, I, I think that's
Senator Joshua Bryant
Unverified
49:47
a, that's a a bill drafters intent with my language, not knowing where it's crossed over. I'm, I'm, I'd be more than encouraged to address that if that's the case because that's not the intent. If they struck 5 because that's levied against the ATC, which are levied by the ATC against maybe a tobacco group, you know, tobacco groups
probably love that, um, but that's not the intent, so I would definitely, I want to
Senator Jonathan Dismang
Unverified
50:11
address that for you, that's on page 41 too. All right, thank
you. I've got. Anyone, uh, from any of the agencies here that could answer about the tobacco control board that that's a real
Speaker 211
50:28
sticking point for me. Yeah. Thank you, David Potter, uh, Arkansas regulatory division enforcement director to answer Senator Dema's question, uh, yes,
Speaker 212
50:33
that would have impacts on all tobacco products that would stop the board's ability to go
from 5000 to 1000. That's my understanding of it
Speaker 214
50:42
as our staff attorneys advising the room, OK, that's fine. I,
I want him to hear that because he asked about it, but sticking point for me to Gilmore, so since you're here and
Senator Ben Gilmore
Unverified
50:54
I, I think, um, I think I just heard Senator Hickey ask a question I was about to ask. So I'm gonna go ahead and ask it. So does it strike all of the board? Uh, that's
Speaker 214
51:04
not my understanding that I've got our ATC attorney back here that could perhaps flesh
that out a little bit, come to the table, please. I
sit in Senator Leding's chair, he's not here. Turn the mike on and introduce yourself, please, for the record. Yes, sir.
Speaker 217
51:27
Cameron, just pull the base close to you, sir. Cameron for the Arkansas Tobacco Control. So I, I
Senator Ben Gilmore
Unverified
51:31
guess my question to you is a couple of things. First, does it strike all of the boards? Because I mean, when I look through all the strike language, I mean, I
see a lot here related to the duties of the board. So I guess what I'm asking is this language is stricken, is it ported elsewhere? Um, does it keep intact the duties of the tobacco control board, uh, What, by your interpretation, what is it doing? Yes, uh, Senator Gilmore, um, my reading of that
Speaker 220
51:57
is, um, because that was my concern as well when I saw that, but I feel
Speaker 217
52:02
like that language is imported back to page 40 and 41. I don't know the drafters intention on that, but that is the way I understand it, that it doesn't strike the
tobacco control board, um, our concern, however, is the lowering of the penalty, uh, for violations from the maximum of 5000 down to 1000, that would. affect all violations, including regular tobacco violations. OK, so when you say that it's ported back to what was
Senator Ben Gilmore
Unverified
52:28
page what now? 3 to 41, yes, sir, 40 to 41. Where is it? I'm sorry, I may just be
ignorant here. Tell me, tell me where it, where it's ported because we've
got page after page after page of stricken language.
Speaker 217
52:53
Yes. 41. I see where um It was stricken before Senator, uh, again, my reading of it is that Um This section starting section 10, starting on page 40 and 41, um. Replaces the stricken language, is my understanding of that. OK. Well.
Senator Jimmy Hickey, Jr
Unverified
53:36
It's a you want to interject? Turn your mic on I, I was assuming that was just as it related to the other, and we put that back in. Now this
thing about the 5 and the 1 is, is something that Yeah, that we would have to be correct. That
was a good, good catch there, so. Well, I've, I've got a problem with preferential tax rate in addition
Senator Jimmy Hickey, Jr
Unverified
53:58
to that also. Is that addressed in in here? There's nothing about the tax rate addressed in here. I
guess that would just ask you a question, is it basically it's tax, it's standard sales tax
rate and uh other uh items of this type have a higher tax rate,
Speaker 83
54:11
including medical marijuana, why we taxing medical marijuana at a higher rate while we're taxing it. Personal opinion
Senator Jimmy Hickey, Jr
Unverified
54:17
is. I'm not for sure that we wouldn't need to do another
bill to come before Reverend Tas because I don't know that that, I don't know if that would be Germaine. To this, of course, since we thought we had it banned since we thought we had it banned, we didn't have to have the tax rate on there, so I'm pretty sure
that that may be a bill that we need to try to get introduced or something to make them consistent or whatever we think, uh. Uh, you know, that,
that's up to you to you all there, but I think, I think that would be the reason. It's a, it
is a good thought. It's just that I don't know that we could address the tax situation through this particular bill
through a I'm again, your bill, we'll take the vote, uh, 5 people here today, 1 vote against you. It's not going to pass, uh, uh, would, would you like to pull it down and address these legal questions
and, and come back even if I have to have a special meeting for you, I would do that. This is pretty. In depth and that's why I don't want to rush through this because of the uh impact it'll have on, on the state and, and the industries. My, my question up to you. Yeah, I would definitely want to
Senator Joshua Bryant
Unverified
55:25
make sure because that was, again, not, not my intention, nor was it the direction and then that's what
happens when other people read the bill and they see how it affects them or or their industry and and again our accommodate you any way I can
to, to, but, but those three items that just came up are pretty significant, but now. If there is a, if there
Senator Joshua Bryant
Unverified
55:45
is a a will of the committee. What I'd like to do is recommend or ask that y'all hear the testimony from the different departments. That way if there's other items captured since we're coming against the window. That's fair enough. We'll do that. No one
has signed up to speak for this. I've got uh 2 or 3 departments signed up to speak against it. We will hear their testimony. OK? Thank you. Senator Gilmore, you have
Speaker 99
56:05
a question? Yeah, and, and I, I would like to hear from other
Senator Ben Gilmore
Unverified
56:10
departments, especially as it relates to the, the question I initially asked on,
Speaker 26
56:14
on the schedules of 8 and 9 products. I think we've got somebody that can answer that for you, Senator Scott.
Senator Jamie Scott
Unverified
56:20
Yes, um, if you can just point me to the direction where these two questions that I
have are so what measures are included to ensure that the hemp products meet safety and quality standards. That is. He.
Senator Joshua Bryant
Unverified
56:41
Page 6, beginning line 5 testing and safety. And it
it really rolls down through line 18, then on the next page of manufacturing just to manufacture is
Senator Jamie Scott
Unverified
56:54
good practices that page? I Follow up here. OK. And how are these regulatory changes affect
Speaker 240
56:59
like the hemp farmers, the processors, the retailers, when they're when
Senator Joshua Bryant
Unverified
57:03
they're in engaging in this type of activity, they are. It'll It'll it'll it'll cover them, yes.
Thank you. That's all your Thank you. That's all stepped out your questions pretty relevant, uh, Senator Brian
has asked for the agencies that are here to go ahead and present their testimony in case any other error or concern arises, and he's gonna pull this down. I told him I would hold a special meeting for him if that was necessary, but I would give him time to bring this back and, and present it. Yes, sir. The only thing I would ask if there are some of
Senator Jonathan Dismang
Unverified
57:35
these retailers that are here today, they're planning on speaking against the bill. I would love for them to have the
opportunity. I mean, I'm sorry, for the bill to set at the end of the table today. No, no
one signed up for it's unfortunate. OK. OK. All right, uh, with that said, Uh, Dorle
Speaker 247
58:08
Chandler. Dorley Chandler with the Attorney General's office. We greatly appreciate the
Attorney General, greatly appreciates all the efforts that have been put forth to try and keep these products out of the hands of miners. It is one of his primary goals, which is why we are fighting diligently to uphold the legislation that you all passed in 2023, and while we appreciate the efforts of the center, we differ on the approach. We think it's very vital that we continue to litigate and push forward on. That previous Legislation that was approved,
we currently, it is before the 8th Circuit, that case has been argued. It was argued in September. We hoped that we would have a result in February. It has not come yet. We are continuing to hope that that and believe that that we may have that result before the end of this session. We are confident in the that the ban will be upheld since litigating that in oral arguments, we have sent 3 letters to the 8th Circuit supplementing where other
jurisdictions are trying to be more stringent than the farm bill, and those decisions have been upheld. So there is a trend moving towards forward as what you're trying to do and did do in 2023. The concerns here is we think that there's a belief that everyone has a belief that these products are currently legal. Even with the band in litigation, there are, the Delta products are contained on the, uh, controlled substance list,
they were, they were on the controlled substance list, there before the 2023 ban and this bill does strike them from the controlled substance list, which is a concern for the Attorney General's office, because as it stands now, what the what the 2023 bill did that was passed into And became an act was to clarify the existing law because the language in the controlled substance Act contained the scientific language. It was very
difficult for attorneys, prosecutors, law enforcement to determine when a package said Delta 8. Was that the substance that was on the control ban. And so it was a clarification. Of what was already existing in law. It was to assist. And clarifying that terminology so the prosecutions go forward. What is occurring right now is there's a hold on the 2023 ban. We have in place, you all had
trigger language in place if the court rules against the 2023 ban, which we don't believe they will, but if they do, there is regulatory language that you all adopted in 2023. That you approved and is in place. And so what is on hold now is that 2023 band, there are ongoing prosecutions in Washita County right now for violations of the Controlled Substance Act. And so for those reasons, the Attorney General is against this bill as it stands.
Senator Jimmy Hickey, Jr
Unverified
1:01:20
Oh. So, I, and I apologize, I walked out for, I had to walk out for just a second, so I think I
just heard this. No, you're not. How about now? OK. Sorry I had to walk out. Just walked back in. Now, this is the thing I
had asked that you all be contacted. To try to make sure that this language we were going to get. was not going to harm you in any way. So that was my understanding is that you all
had already looked at that and had basically approved what that language is gonna be. So you're sitting here telling me that's not, not the way it was. Was that language sent to you all? Because I, because this is the thing, I've been contacted multiple times on this. I've, I've been contacted multiple times. And I said, I don't want, I do not want to vote for this unless the AG is there. I said, if we don't have regulation on it because it's on hold.
I want them to be able to draft language that's not going to affect their case. And for us to be able to regulate these products that I'm, that I'm being told that, uh, children and others are able to just freely walk in and get. So if I understand you correctly, that has not transpired. I
Speaker 247
1:02:41
can't speak as to whether or not Alexin had received the language at what time she received that language. Uh, we have seen the bill. We have reviewed the bill as it has
been filed, uh, our concern is striking of that language regarding the, um, controlled substance list, do you think that makes us go backwards, not forward, because these products are synthetic, and they are. Already prohibited by state law, uh, we do acknowledge that the language of this bill states that it will not go into effect unless the band is It shot down by the 8th Circuit,
by the federal court system, and, but we also want you all to be aware that you have the trigger language in the act that went through in 2023 that has a regulatory scheme, but is it on hold too? So it is on hold until they dissolve the preliminary injunction, and that is what we are waiting for and has been argued, was argued in September, um, this bill would not, I mean, My understanding is with the trigger language of this bill, it would not go into effect
either way, no regulation, additional regulation would occur with the bill as drafted until there's resolution of the 8th circuits continue? I wanna, I want to interject. Go ahead. Uh,
Speaker 257
1:04:03
thank you, Senator. So, so here's my
Senator Jimmy Hickey, Jr
Unverified
1:04:07
thing. I heard what you said a minute ago about the Delta 8,
and I believe me, I'm not familiar with any of this stuff, although I'm
like Senator Dimay, I don't, uh, I don't want it out there. So,
So the thing is, though, is, is, so you said it's on the controlled substance list. Are you aware, are there places in Arkansas then are selling something that's on the controlled substance list.
Speaker 247
1:04:35
Is that what we're saying? Well, and pursuant to the prosecutions that are currently in place in Wasto County. Yes, they have 4, I believe it's 3 or 4 cases down there currently that they are seeking convictions against individuals selling products that are labeled as delta 8 that are on the controlled substance list. OK.
Senator Jimmy Hickey, Jr
Unverified
1:04:54
So are any of these products not on the
Speaker 247
1:04:58
controlled substance list? There would be none of these synthetic products. Not on the controlled
Senator Jimmy Hickey, Jr
Unverified
1:05:03
substance list, so from y'all's opinion, we already have the authority then to keep this from happening. Correct. OK. Whose responsibility is that to get this enforcement, make sure that if, if you get a report or some, somebody gets a report that these things are available out there. How do we go shut that place down and, and, and do that? What are, what's our,
Speaker 263
1:05:31
it stands, without a ban and without a regulatory scheme, it would be through
Senator Jimmy Hickey, Jr
Unverified
1:05:37
the prosecuting attorneys. OK, so we don't have, so we don't have The authority then. To immediately, although with
what you've said respectfully, uh, because I wanted y'all involved. I thought you had been involved. So, So, we don't have an avenue that we can say, Tobacco control board or whoever
it might be, you go out there and shut these folks down. Take your enforcement unit and make it happen because, because of this court case. That's correctly confusing for law enforcement and determining what
Speaker 212
1:06:07
they're allowed to do and what they're not. I'm going to continue if that's OK, Mr.
Senator Jimmy Hickey, Jr
Unverified
1:06:11
Chair. Thank you, sir. And this is back to what I had asked,
and I thought it transpired. Is there anything that we can do? With what
has happened that will not affect your case.
That you all can give us language so that we, that we can make that transpire or any other type of legislation so that we can send someone out to shut these places down immediately. In, in your opinion, of course, but
Speaker 247
1:06:41
our concern is, and obviously without having crystal ball to see what the courts would do with it. Our concern is that if there is regulatory language put in place that goes into effect immediately that will moot out the litigation and reads, and we'll actually reset.
and we will have to start over with a new lawsuit. I apologize to
Senator Jimmy Hickey, Jr
Unverified
1:07:01
you. I'd been told that, uh, uh, that was not the case and that you were OK with it. So I'll take up that issue
somewhere else. Thank you. I have two Senator Di bank then we'll get it. Uh, if you lose it, a circuit, will you appeal to the
Speaker 247
1:07:18
Supreme Court? Our intent is to continue this fight so that we can get these products
off the other thing is uh, if this bill passes today,
will it, uh, supersede in, in, uh, negate the, uh, trigger language that you're talking about that's already on. Record? I believe when you look through
Speaker 247
1:07:37
this bill, that language is struck out and this is the regulatory scheme that goes in place. 70 days back. Did
you have a question? And and I guess, I mean, this is what
Senator Jonathan Dismang
Unverified
1:07:47
I don't understand. I mean, I'm, I'm even getting texts that the synthetics are illegal. So I, I don't, I don't understand what's happening, why there isn't a prosk. If something's illegal, it's legal.
I don't know who the You know, enforcement agency is, I mean, is that, are we waiting on federal enforcement? Do we wait on I mean, I, I don't understand why nothing's happening. I'm driving down the road right now and see Delta 8 signs. I mean, it flaunting, attracting kids in. I mean, I've also, I mean, went down this rabbit hole with these vape shops and what some of them do, and the fact that, I mean, all the way to whippets, they're selling, we passed a law that's, that's cute people with nitrogen gas. We sell that nitrogen gas to kids on the shelves.
It's wild what is happening in these stores. Um Why is, I don't understand how no one can enforce something if I'm even being told that it's illegal today, then why not? I mean, it's confusing, OK, well, it wasn't confusing in Washington County. I'm proud that they're doing something. I wish they would come to my district and do something. Um, I mean, all these neon lights and everything meaning something else because of a new product that they have on the shelves that if you're in the know, you know what that means. This is a wild. Market
To me, I mean, it's almost hard to believe that it exists and it exists on almost every street in our districts. I mean, you don't have to go a mile without running into another group of neon lights advertising some other subset of illegal products, who should be enforcing is my question. I would say, Senator, that,
Speaker 211
1:09:26
uh, ATC is currently enjoying from enforcing any provisions of that law that, uh, the AG is speaking
about. And, uh, That that compasses a lot of Delta products. So it is our understanding that we are currently enjoyed from that. I, I, I, personally, I, I completely agree with you. Um, our agency is ready to, to come in and start removing these products from the shelf as soon as we're allowed to do so. I'm nitrogen gas. That's, I mean, that, that's an example
Senator Jonathan Dismang
Unverified
1:09:52
of how little care there is about the safety and well-being of the individuals that are purchasing these types of products. I'm not saying that Delta 8 has nitrogen. I don't know if it
does or not. Or with the canisters you use do or not. I have no idea, but that, that just to, I want to be clear, it's just a, that's just a commentary on this entire market in the individuals that are preying on not just children, but It's just unbelievable. Terry Gilmore. Thank you. So I'm gonna echo
Senator Ben Gilmore
Unverified
1:10:24
that a little bit because I started off this whole conversation with Senator Brian asking those questions because they're, they're all over my district and it is disturbing to
me. So I think it's really easy to sit here and, and offer the cop out of, well, it's just unclear, which I don't think it's that unclear when I look at it, we're, there's still a scheduled, they're still on the controlled substance list. Is that correct? Turn, turn, turn your mic on, please. I'm understanding that we are enjoined from enforcing any of the provisions of that law.
Speaker 211
1:10:50
Maybe the attorney who's giving you that understanding? Not only would you like to enter there. So the concern is that trying to
Speaker 247
1:11:06
distinguish to the federal judge with that that the difference of the controlled substance list, is very complicated as it has issued the order because all of the prosecutors are listed on that until we get the order lifting the pulmonary injunction, the concern is that the federal court will hold them in contempt of court for violation of that preliminary injunction, which is why there has been some delay
this Wata County court case is still active. I don't know the current status of whether they are pushing forward with a trial date at this time. OK, so
Senator Ben Gilmore
Unverified
1:11:47
I don't even know necessarily how to respond to that, because that, that is beyond confusing to me, and granted, I'm no lawyer and don't even play a good one on TV. So I'm not going to begin to try. Um, but that's very frustrating. I would say that we need to figure this out expeditiously because again, what we're faced with are products that are most, most often the case laced with
all sorts of things, we don't even have a clue what they're laced with. And so if we're going to sit here and talk about how we wanna, we wanna take these products off the shelf and everything else, and that We don't even understand or know, uh, how to do that based on some confusion that might exist with the judge. I, I, I just find that unbelievable.
Senator Jimmy Hickey, Jr
Unverified
1:12:29
Thank you. Senator, and I'm gonna, I'm gonna ask it again. You're the experts here and, and believe me, I, I appreciate what y'all do. I appreciate, uh, uh.
Tim Griffin. I mean, But Do you all, as far as legislation that can be developed. As we speak, they can be passed in this session with an emergency clause. That would allow us to enforce this in any way, shape, or passion or any way, shape, or fashion with what has transpired. With its ongoing proceedings. Is there anything that we can do that you all can come up with.
Speaker 247
1:13:09
Unfortunately, based upon the Act that was passed any legislation with an emergency act that goes into immediate effect will moot out that court case, and then we will be left litigating the new, new legislation of which we will set us back in the time frame, um, so it's our position that the unfortunately, while we want these products immediately off of the street for these children and to protect these children. We think it's going to do more harm by passing legislation with
an emergency act enacting it. Because of the delay and we will be back here in 2027 in the same position that we are in it now. I appreciate that type of
Senator Jimmy Hickey, Jr
Unverified
1:13:49
language. I can understand that. I don't like it in any way, shape, but, uh, If that's y'all's stance, then. Gimble Thanks,
Speaker 55
1:13:55
and I'm, I'm like the senator here. I, I don't necessarily
Senator Ben Gilmore
Unverified
1:14:01
like it, but I get that's where we're at. And again, I trust the lawyers, but, so prior to the bill that we passed in 23, it have to be real
careful, you're being recorded saying you trust lawyers, so, but go ahead. It's
Senator Ben Gilmore
Unverified
1:14:15
a fair, that's a fair point, Mr. Chairman. That's, that's, that's a fair point. Um, thank you for that. Uh, I, I guess I should offer that with a caveat, but, um, so before the 2023 law we passed, the Delta 9 ban. By Senator Des, I believe it was. Were we, were we enforcing Delta A9 products? Uh, we were starting to try to pull them off the shelves, and I
Speaker 212
1:14:37
think that was when define was starting to try to pull them off
the shelf identifying it. It was all rolling at that point. Uh, hemp, the way that it's defined, gives a vast number of different cannabinoids that
Speaker 211
1:14:50
can be intoxicating and developed out of that. So we were learning as well. As soon as Senator Deess passed that bill, ATC came into action to start trying to remove those products sending notices, and that's when the lawsuit became. OK. I hope that answered your question, we need to air
Senator Jonathan Dismang
Unverified
1:15:13
is the prohibits us from placing an extraordinary tax on illicit drugs being sold on shelves. I mean, if,
if we can't stop it in the meantime. I mean, you can
tax anything. Can we tax drugs that are being sold that are on the banned list. on shelves. And then it's not just, you know, Its collection by DFA. Something
needs to happen. I agree. I don't think opening up the floodgates, that's not for me. That's not my goal. Um But is that, is
that possible? Senator, that would be something that
Speaker 285
1:15:57
I would have to look into. That was not a question I was actually prepared for today, so, um, but we, we can get together and discuss that and further detail. I apologize for passing over to you a
Speaker 83
1:16:08
while ago. Um, I'm just trying to follow.
Senator Jamie Scott
Unverified
1:16:15
So kids will continue to go unprotected because our hands are tied legally and For a case that might take how long? It's difficult to estimate
Speaker 247
1:16:28
how long the court case will take. Like I said, we did do oral arguments in September, we anticipated a ruling at the end of February. That has not come. It could come down any day they used you those on Thursdays, and so we're, we're watching and monitoring, um, but we are
confident that based upon the additional districts and circuits that are moving towards upholding stricter regulations than what is set out in the, uh, bill and finding that there is no preemption. We feel strongly that the decision will come down in our favor, uh, but we cannot, I don't have the crystal ball, the ability to tell you exactly when that will, that will occur. Um, we're getting closer to the end of the time frame it normally takes for them to make decisions out of the 8th Circuit, but
OK, very good. Any other questions? If you could try to get Senator Diang an answer on that tax that they would get back to us. Yes, sir, we'll work with him. Thank you very much. I appreciate your
Senator Jimmy Hickey, Jr
Unverified
1:17:35
testimony, no, we're gonna air this out just so Senator Dimaying literally putting him looking at his phone and I asked him if he had any ideas, but anyway, the, about a higher tax. So the thing is though, whenever we put in the tax, I guess that when you all are successful. Then the sunset just also if you just reviewed, do we need to
have a sunset on that tax, uh, or something of that nature, just, just so that we make sure that we fully, uh, get this drafted the entire way. Yes, sir. We'll take a look at it. Thank you, ma'am. Thank you for
your testimony. OK, Laura Sue. Saint David. Yeah
I you. Good to see you again. Yep, if both of you would turn your mics on green
Speaker 295
1:18:40
light comes on. Thank you, Mr. Chair. I'm Laura Chu. I'm general counsel at the Department of Health, and I also have with me Shane David, and we are here on the behest of the governor's office to testify against this bill because we do have uh safety and health concerns. Um, if this bill passes, um, if the state loses the court case, worst case scenario, and this bill passes. So I wanted uh Shane to be here to testify about some of the technical aspects of the
chemical nature of some of the language that's being struck, just so that you all have a little bit more Insight about the um consequences of of this law if it passes. You would turn your mics on and introduce yourself for the record.
Yes, sir. Thank you. Uh, my name is uh Shane David.
Uh Shane
Unverified
1:19:18
I'm a pharmacist with the Arkansas Department of Health and I'm the branch chief for health systems licensing and certification. Uh, well, thank you for the opportunity to speak on this um the base of that mic close to you into the leisure so.
Uh, so as we look on page 2 in reference to 564215, which is relation to the controlled substance list. What we have are strike-throughs for language on, uh, items A, B, and C. For Delta 9, Delta 8. and Delta 68 10A tetrahydrocanabinol. Those items we have previous nomenclature on there that used a different nomenclature from a long time ago that was proposed, removing those names still
provides those substances of delta 8. Delta 6A 10A and Delta 9 is still synthetic because you're merely marking through the name that we put on there within the previous act to provide clarification for those synthetic substances. So we have Delta one also means delta 9. It's an old nomenclature, and we converted that other language in there to reflect the new nomenclature reference. Um, removing any of the synthetic.
Uh, the Delta 10 and then we go into um the acetate esters. These are synthetic products that are produced from typically when we deal with, uh, hemp, you're converting him or converting uh product from hemp called cannabidiol or CBD. You take that product and you convert it into Delta 8 or some other product. Well, one of the byproducts of this is THCO or tetrahydrocannainol acetate ester, and there's different
formulations of this. This is a very potent. Uh, tetrahydrocannainol product analog that has higher potency in the cannabinoid receptors. It also is a potentially dangerous and when consumed in vape as we have concerns over an acetate being vaped. That it converts into a specific type of gas that could be harmful to the lungs. Those products, um, again, we might be looking at something more related to a previous vape product. I think it was called Evali.
Um, that also had an acetate product that they had identified. Um, removing the language for those acetate esters also has DEA language where they had issued a letter. To a law firm identifying THCO as uh not something that is natural but synthetically produced and therefore would fall under the definition of uh of their code as a Schedule one. So the concerns would be that now you've got conflicting information there for these
acetate esters to be removed from the list. I don't know what the consequences are of, you know, try to be, we try to mirror the DEA with most of the language that we put in the list to prevent confusion. Although there are exceptions, we do have a specific schedule for, uh, marijuana and marijuana-based products in Schedule 6. The 2nd page on page 3, we have a product derived from hemp. That produced as a result of the
synthetic chemical process, uh, And industrial hemp and substances contained in the industrial hemp into these other delta 89 or 10, uh, products, including their acetate esters. That language in there allows for, if that is removed, it allows for these products and these byproducts and analogs of tetrahydrocannainol produced from CBD to become more prevalent. It's getting hard to keep up with them. So we have different variations of THC and that we have
tetrahydrocannainol PTHCB T H C O T H C H T H C JD, all of these other products are very limited in what we understand about their pharmacological activity. But in some of these, you take the molecule and you add extra carbons to it. On a side chain, you increase its potent availability and a potential increase activity on the CB1 receptors. So the concern would be if that was removed and then that language would further promote the proliferation of these substances. Now we also
have hexahydrocannainol, which is another byproduct potentially, or you could also have variations of that in HHCP HHCO, so it's just myriad of things that are being implemented. And then the language of any other psychoactive substance therein. That language was added to provide, um, what is assist us with authority to promulgate rules to identify some of these substances that are on the list that would, um, potentially be harmful to the public that we
might be able to add pursuant to our rule promulgation process, which thankfully, um, we do go through the rules process and promulgate our rules annually. Um, the other thing I would like to bring up, uh, on page number 4 when we talk about the definition of hemp. We indicate a delta 9 concentration of 0.3%. When we talk about 0.9 0.3% of Delta 9 in the original farm bill, there had been references made to what's called post decarboxylation.
And post decarboxylation means it starts out as an acid in the plant and degrades into THC. But THCA is the precursor to that. So when we take THCA. If it's not part of the Delta 9 THC conversation, you would then allow permit the sale of THCA and when combusted, converts directly into THC. So when you burn it, It gets in there.
So the concerns over the um hemp product. You would want to include some of those acidic precursors into the language in order to prevent this confusion on THC, but this THC is out there, so maybe that's not accounted for. And there's a formula and specific identifications that I think uh vary standards in the industry, at least for marijuana that may have a specific parameters related to that. So that would be something else for you to consider. Um When we talk about these hemp
products at specifically again identifies some of these these THC products like 10 and 8. Um, again, we have that in the language in the synthetic controlled substance list, but If we're going to mark through that, it would allow for the proliferation of those products. too when you inhale certain products, you bypass certain mechanisms in the body that allow those products to become, you know, quite potent, and, um, again, with limited Understanding of all of these,
uh, products, it's, we're just kind of rolling the dice. With some of them. Um, so if we maneuver onto, um, Specific products on, um, On testing Again, when you convert CBD using a solvent an acid, however you convert it. You're going to not just get Delta 8 if that's your intention. It's been traditionally there's going to be several byproducts. And I know that they're trying to add language to an accredited
lab. But if it's tested for, what do you do with the other isolates that are produced from this, Delta 8, ISO, THC comes up that some sort of byproduct. What do you do with all those other isolated products that could be masked depending on the type of test it's done. So a cannabinoid profile would be critical, um, in order to verify what those are, but it's also going to create further confusion as some of these other byproducts are in these products that you have that are being
sold, and now we have Delta 8, but it's Delta 8 along with some other things that were a result of that. I don't know. I don't, I don't speak, you know, again, for, I don't know the processes that some of these companies go through with their certificates of analysis, but without some specific guardrails that would be also another potential issue. And um These are just some of the, the Potential issues that, you know, pointed out, so I'd be happy to take any questions.
All right, members. All you scientists. Jump in. The chemist. All right, thank you very much, miss you. Thank
Speaker 4
1:28:08
you, members of the committee to you if you
Speaker 295
1:28:10
want to. There you go wanted to make sure that you all were aware that, um, the health department is the, the entity that has the authority to, uh, promulgate the rules dealing with controlled substances and, and as, uh,
Doctor David mentioned, we do promulgate the rules every year. It's mandated by law. And so our efforts were in conjunction with AG's office with Act 629 of, of 2023. And so they mirror the, the current law that's enjoined. OK Maybe, if you have any
questions? Seeing none, thank you for your testimony. David Potter
Speaker 211
1:28:56
Thank you, Mr. Chair. I'm familiar face. I'm back. One point I did want to, uh, attempt to make for the, for the committee is if you do go into a regulatory scheme. We do that now with our vape products, tobacco products, and everything else, uh, because of the proliferation of vape products in schools, we have an enhanced, uh, effort to we're about to break records at ATC for the amount of compliance checks that we do. We're going to be over 4000. We run between a 7 to 9% violation rate. Uh, so we're very, very active in this space. And so I would Just say for the committee's,
uh, consideration even as active as we are in a riff as we are with these vape products, Chinese, uh, disposables in schools, they still show up in schools. And so I would just say for the, for the consideration of the committee, if you do go into a regulatory scheme, you are, there is going to be these products still around. They're still going to find their way into children's hands. So, uh, that's why, you know, ATC prefers a ban on this.
Speaker 299
1:29:51
And so I just wanted to bring that to your attention. Betty, you might have a question.
No, thank you again for coming back. I had some to sign up to speak on the moral issue of it. We're not gonna hear that today. I've already spoken to them, uh, because of the technical issues that, that need to be addressed, uh, but I, I did want to acknowledge that in, in they're good with the fact that that I did not recognize because of time constraints. So right. Thank you committee. Thank you for allowing that testimony. It
Senator Joshua Bryant
Unverified
1:30:30
highlights a few things for me and I guess my, my initial thought is We're just going to be here again in 2 years. We are all the, I'm gonna call them the alphabet words. Um, there's no, there's no attempt to the by the executive group to Pull these back while they work on trying to find a way to thread the needle. Um, the goal was just to ban it and that will always be rebuffed by an industry that can afford to litigate it. Um, so
I, I would, I would kind of disagree with some of those, some of the content of the, of the testimony, um, the goal is to ban all synthetics, um, which I think we can legally do, and I think my bill covers that and does that. Can you get them all out because of all the different ways you can splice the law because obviously the testimony was. Very wordy, lots of Lots of chemical jargon and stuff like that, but I think the bill covers all of what's concerned.
But what it really does is pull it off the shelves and and keeps it to where our kids can't access it. Um, if we need to add a tax, um, until we can ban it forward if we need to, whatever we need to do, I think we can do it if they if they would present a bill that would attempt to ban it, but do this. Um, maybe they can litigate the ban while we're still protecting our kids, um, but that's not the goal. The goal is that the concern is it's too what I see is two sides if, if we try to regulate it, we may attempt to
legitimize it. So therefore, let's just always enforce a ban, and then you got the other side that's, I want that market share. And so with those two conflicting sides pushing against the legislature. All we're doing is leaving the problem out there for our kids to, to have access to, so. Um, with that, I'll Love to have lesson the committee discussion and I'll do the will of the
committee. You're Question from the committee. Yeah. closed.
Senator Jimmy Hickey, Jr
Unverified
1:32:40
Yeah, I, I have a question her statement. Yeah Again,
I, I appreciate, uh, what you're trying
to do here, but I'm, I'm afraid that the The the testimony from the AG is just uh It, it, it goes to the point
that I wouldn't be able to vote for the bill now. Although, again, I, I had been told, and maybe there's a little conflict, you know, within, you know, within, uh, some of the conversations
out there that that language would do what we needed and, and still allow what the lawsuit was. So, uh, that's, that's neither here nor there. I know this is a complicated subject, but I just don't know. With our attorney General's office sitting down here saying that they think that it would affect. where they're at. I just, I don't know how to proceed with this type of bill. Uh, again, I'm More than willing to look at anything else, you know, if we do, if we do have some uh
something that we can do from a legitimate standpoint as far as the tax and everything. I wouldn't, I wouldn't mind approaching it that way, but I just, I personally don't know how to proceed. Uh, Since, you know, I've had that conflicting statements, you know, in the last 2 or 3 days. But I do appreciate what you're trying to do. I know you're, your heart's in the right place with this, Senator Bryant. Everything else in Bryant. I, I don't know if the
Senator Joshua Bryant
Unverified
1:34:16
I'm trying to, I don't want to waste BLR's time. If there is no flavor to if the, if the testimony by the agencies was compelling enough to say I will remain in no regardless of if the bill met all the conditions because of the testimony. I don't know for me,
and I don't, I'm not trying to speak for anyone else is that if we pass a bill here, it negates their lawsuit and sets them behind. I'll never vote for a bill to that lawsuit's over. That's, that's my opinion. If that, if we could find a a path forward that did not interrupt
their. Uh litigation, I'd I'd be more than happy to, to move forward and I'm happy to address that with AGs.
Senator Joshua Bryant
Unverified
1:34:53
I thought it was taken care of. Several members were told outside of my advice to seek clarity. They reached out to them and were told it did satisfy that, but if the testimony today is that it doesn't. Obviously, you like a vote on your bill or you wanna pull it down?
Uh I will pull it. I will pull
Senator Joshua Bryant
Unverified
1:35:12
it down with maybe a little clarity where with the testimony given,
I don't, again, I don't want to make Bill or do a whole bunch of work if, if we fix the $1000 fine, we add taxes to it. Um, we clarify, work, work with the department if they'll even work with us to clarify some of the synthetic languages, um, I would be glad to do that work over the week and then bring it back, but I hate to say. Pull it, but But just uh pull it down, work
on it, get with those that uh uh
have concerns and then if you want to bring it back, let me know. We, we will leave it on the agenda. And uh uh so I'll be fair enough to you, uh, to leave it on the agenda, but it's, it's, it's got a lot of problems.
OK, thank you. OK. Representative Beck House Bill 1656.
Unknown speaker
1:36:20
yeah We have an amendment. We're getting that passed out. Let me do that, sir.
But Here I go. Tell you what, we've got members leaving, uh, let's take a 5-minute recess. I'm coming back. That's fine. We're gonna take, we're gonna take a 5-minute recess. We've been here for 2 hours. You're great.
Committee has come back to order. OK, Representative Beck, let's get, let's get uh Senator Davis, the chair. I'm sure ikes. Uh, please turn your mic on and introduce yourself for the record, and you are recognized. We're on House Bill 1656. Thank you,
Senator Breanne Davis
Unverified
1:45:30
Mr. Chair. Brianne Davis, state Senate District 25. Uh, the amendment that is in
front of you, uh, simply takes an oil and gas commission rule, and it puts it in code so that it's something that can't change it, it's referenced in the bill in the current version of the bill that you have, um, so just to ensure that it's in statute, it's nothing that can change over time, um, I think that was to sort of ease, um, some concerns that some members had. So that's the explanation. All right, have a question on the amendment? What's
the pleasure of the committee on the amendment uh do
pass by Senator Letting, uh, seconded by Senator Dismay, all in favor say aye, all opposed. Congratulations, you recognized to present your bill as amended. Thank
Senator Breanne Davis
Unverified
1:46:19
you, Mr. Chair. I'm going to turn it over to Representative Beck. I think he'll do a superior job explaining the bill and, and the purpose and reason behind it. Thank
Representative Rick Beck
Unverified
1:46:31
you. Um, Representative Beck House District 43. And I, I, I'll try to live up to Senator Davis's expectations.
By now you guys have heard a lot. About About this bill you've received a lot of emails, you, you've got a, you probably got a lot of text and all that. This, this bill is, is pretty simple. It, it does not change leases. It enforces leases. It, it, it, it says that honor the leases as they're written. And it promotes transparency. That's what this is all about. Now Mm
I'm gonna go briefly through some of the highlights of the bill so first of all, it, it really clarifies, uh, following industrial practices that are used in Texas, Oklahoma, and Louisiana. This is terms of like some of the clarification things that we've done and, and, and some of the other things in terms of lease, uh, what's honoring the leases, excuse me. It protects royalty owners' property rights, and it improves transparencies concerning
deductions and expenses. Um, the changes that are in this bill in this section, do not apply. They apply only to gas. They do not apply to oil or brine. And The amendments that you guys uh passed on the house floor, or excuse me, on the Senate floor yesterday, were actually the result. I've talked to, uh, uh, Representative Shepherd and Reative Shepherd wanted to make
sure that we were not including the South Arkansas group and, and so what we actually did is that on those amendments, we actually copied out of 3, the current language in 305 and we pulled it up into 325 and that's that language that says that this does not apply to liquid hydrocarbons or the wells and liaha so that's, that's what's truly pulling the oil leases out of South Arkansas. Now, the other thing that we did was we included an amendment in
there. During the House meeting, committee meeting, it came up that we were accidentally getting some of the good guys on this, and what that was was that the our coma people would be included in some of the reporting things in this lease. Well, those guys are doing things right out there and so that's what the, the statements about that was just incorporated in about the The nonconventional wells. That's what that actually covers, uh, the, the conventional, the
non-conventional wells are the Fayetteville Shell play with that. Now, HB 1656 is what I'd call a compromise bill. It was drafted by lawyers on both the production. And the royalty owner's side. They, they went back and forth, the direction, to be honest, that I gave them was simply this that the leases should be
followed the way they're written. And there should be transparency in the leases to make sure that a mineral interest owner, a royalty owner would know exactly what was being charged could understand what was being charged against her well, and then that could compare that to their actual lease and make sure that they're being treated fairly. That was the idea with the church, uh, putting the transparency in there. Uh, the bill also codifies Arkansas court decision between the Arkansas Oil and Gas
Commission and Flywell LLC concerning Integrated leases. In that decision, flow was instructed by the courts to recalculate the post. Production expenses all the way back to May. May of 2019. And then make those those rights, right? That court took approximately 5 years. The oil and gas commission had the
The lawyers to make sure that they, that the leases were followed as they're written. Now the May of 2019 has another, it's, it's interesting that it coincides exactly and you're gonna hear some testimony from royalty owners now, and you'll hear a lot of things like something happened and that something happened was the end of 2018, the beginning of 2019. That's what they're talking about something happened. It did change. And the court's decision to have
them go back to that day, pretty much verifies that, but the court's decision only applied to integrated leases. It didn't imply to the leases that were what I would call the private leases, the individual leases, the, you'll see them in the thing called executed leases. It didn't apply to them. It would just applied to the integrated leases. The lease is that the oil and gas commission had negotiated for lack of a better term. Now, the oil and gas commission has a lot of lawyers that they can use and
this was a 5 year court battle that was taken up from the plasy courts to the appeals courts. They try to take it all the way to the Supreme Court and the Supreme Court pushed it back down to the lower court to saying thereby upholding the, the decision that I, I just mentioned. So there's no doubt about this that um It did change what was the Flayetteville Shell leasing and there is something that happened now.
HB 1656 clarifies all of this. It basically does two things. It takes the court's decision. And codifies it. It puts it right in the statute. The language that's in that first section actually is exactly as close as you can, the court is a little bit long, but actually puts in there that in the case of the integrated leases that there's taxes and assessments should be taken out, all right? And then true third
party. Expenses. That's what the the current court leases set the court said, excuse me. Now the private leases said are in the bill actually say taxes and assessment. Now the assessment, I didn't know what that was the assessment is actually like an environmental type assessment thing that goes against the walls, uh, so that was the assessment part of that. And then it says, The expenses that are listed in
the lease they have to be listed in the lease and you can take those expenses. If they're not listed in the least, then you can't take those expenses. That's, that's the simple thing that this does. The association of counties, judges, and the counties has, has endorsed this. The Association of County Judges have endorsed this. And I want to thank The royalty owners of the Fatteville Shell Group, uh, they invited me to come and visit and and speak at their organizational meetings. Now this is a group, I think it's,
there's, uh, they've got some of the, the county judges, some royalty owners are getting together and they're putting all the people, the royalty owners together to form an organization. So I, I thanked them for inviting me. We had, they had, excuse me, they held meetings in Claiborne County, Conway County, Van Buren County, White counties. There were people from other counties including Faulkner County, uh, and, and some of the other lesser in the Fabo shelf. So it was a great way for me to connect with, I'm gonna say
there's about 16 to 1800 royalty owners. And I, and I went to all the meetings, all 5 of the meetings, and went to all 5 of the meetings, but quite honestly, I could have stopped after the first meeting because it was clear that the every meeting that it was clear I left those meetings saying all these people want is to have their leases paid the way they're written. And they want transparency so they can verify that they're being treated that way. Now, I want you to imagine.
It, you know, we all have mortgages, but that might not be so hard to imagine because so we all have mortgage. So you went to, you went, you went and you excuse me, you went and had a, uh, a mortgage. Now, as a lot of mortgages in my mortgage, it was sold off to another lender. I, I, you know, you get that thing where you send a check to a different person. Now I've done that. All right? Uh, but imagine that happened to you and you had $1000 mortgage payment, and they suddenly told you, your mortgage payments is gonna be $1300 because really
the new company decided that The other company just didn't do it right like it should have been done. And so now you're gonna pay an extra $300. Now, no court told them they could do that. No, no law told them they could do that, to be honest with you, and every other bank, every other lender that does this hasn't changed it. Only one, on the, on the person that happened to end up with, with your mortgage is the one that charged additional charges. Now, Obviously, what would happen in
that case, you would run to the bank that, that you originally did your mortgage with and you would say, hey, I had a, I'm just gonna use a number here. I had a 6% mortgage and now I'm being charged 8 or 9 or whatever. But and that's what you do, but these royalty owners, this is what happened to them. All of a sudden, the game changed. Alright, it changed the end of 2018, the beginning of 2019. Coincides with when exactly when the flywheel corporation. Bought in
To the Fayetteville Shell. They bought out the Swin Company, which held at that time the majority of the leases in there. They bought these leases, they bought them as they were written. All right? And then they said the law, they interpret the law differently. Right? So they interpreted the law differently and said we No longer have to honor the leases as are written. The law tells us we don't have to do that. They actually told some of the, the royalty owners that.
One of them raws contacted me, told me, uh, this is several years ago told me, he said, they told me that you changed the law that we changed the law. I said, we didn't change any law, but they said, well, there's a new law that says they can't pay me according to my leases. So that's what's going on out there. Now, HB 1656 is simple. It, I'm not gonna go into the details and I, I'll take any questions on the details of it, but, but it clarifies that it does all it
says is you will pay the leases as they're written and show the royalty owner, how you're being, how they're being charged, and that, that's basically what it does. So with that, uh, I would be happy to try to answer any questions.
Speaker 324
1:57:57
Question Hickey just, just a couple and
Senator Jimmy Hickey, Jr
Unverified
1:58:00
probably have more. I just want to make sure that I think I understand it, make sure, so whenever you talk about
integrated, non-integrated. So just maybe everybody here understands that. So the integrated The
The integrated are within, I assume, a section, 640 acres or whatever, that's the ones who are within, within that, that have not actually done a contract or any type of a lease agreement. Is that correct? That is correct. OK. And then the non-integrated, of course, are the ones that went out and separately negotiated their own, their own contracts. The incorrect, right, right. The integrated owners. That
our, yeah, the integrated owners, the ones that never negotiated, of course, they're getting paid. Are they getting paid? How are they getting paid? Are they getting paid? based on the best contract that was awarded by the non non-integrated or how,
Representative Rick Beck
Unverified
1:59:02
how is that done now? Do you know? The integrated leases were leases that were negotiated by the Oil and gas commission. All right. And they were the leases, they, they set up the terms of how those individuals
would be compensated for the minerals. Uh, if, if I might just elaborate just a little bit before you can pull gas or minerals out of a section, all the mineral interests have to be accommodated for. And after you get the majority of the, of the leases at that point, then the, the oil and gas commission, uh, would, would come in and negotiate for the other people that more
or integrate. Some people call it forced integration, but it's not force integration, it's just integration. OK, but aren't
Senator Jimmy Hickey, Jr
Unverified
1:59:47
they, don't they look at the contracts or the leases of the, uh, non-integrated owners and, uh, And somehow come up with
with what what was best out there, and then that's how they, they're
Representative Rick Beck
Unverified
1:59:58
paid or that it is true that the, the oil and gas commission when they were integrating like say you had mineral interest in, in one section. They would look at the other leases that were out there and then negotiate, uh, probably similar leases to that. OK.
Senator Jimmy Hickey, Jr
Unverified
2:00:12
Uh, and I'm gonna just barely touch on your bank example here
because, uh, that just sparked my attention. Uh, I, I understand what you're trying to say, but I guess I'm I don't want to know what the current statute. has to say as it as it relates to that, because from my standpoint, And believe me, I've been involved in buying and selling mortgages and things of that nature, but, you know, if one, if one bank has a, has a contract that was done out there and it says, well, you know, we can charge you a $100 late fee. We can, we can charge you a $100 late fee. But
They decide not to do that. Mhm But then they sell that mortgage and the contract allows it. Then that next, that
next person could charge that as long as what's in the contract. So I'm gonna be very interested not only with what the contract says, but what the current statute says that was governing this whenever these leases were done. So as we go through this, I think that that's going to be very important for me to, to fully understand that.
Representative Rick Beck
Unverified
2:01:19
Yes, I could, do you, do you join a wait for that. I assume
Senator Jimmy Hickey, Jr
Unverified
2:01:24
there's gonna be some testimony on that, and I just want to make sure that I fully understand because I'm, I don't have
any preconceived notions of what I'm gonna do or not going to do here and I'm gonna try to hash it out as, as we're sitting at
Representative Rick Beck
Unverified
2:01:36
this table. Yeah, so that might be and we'll, you'll hear several people discuss that. So
Senator Jonathan Dismang
Unverified
2:01:43
just to Boil it down. Through all of that, I mean, I, I think what you're saying is that the information needed to
reconcile the statement that's received for the royalty. From Flywheel for this Purpose Isn't sufficient enough to reconcile against the contract. There's not enough information provided on the statement to reconcile back to the contract to make sure that everything's being met. That's what you, yes, and that's, that's one of the things that I continuously
Representative Rick Beck
Unverified
2:02:12
heard from the, the 1600, 1800 royalty owners that I, I've met with and this bill goes no farther than
Senator Jonathan Dismang
Unverified
2:02:20
ensuring that there's enough information to then be able to reconcile back to the contract. Yes. Thank you. And through that period of life. got a lot of people signed up, uh,
Speaker 339
2:02:58
and again and I've got them. be done. Uh Yes. To. I The only thing. last week Thank you, Mr. Chairman. My name
Michael Callan
Unverified
2:03:29
is Michael Callan. Uh, I work for Steven's Production Company.
Speaker 343
2:03:33
Um, I'm from Franklin County and, uh, uh, I'm here to, to speak against, uh, the bill, um. You
Michael Callan
Unverified
2:03:43
know, essentially, What happened in that 2000. 18 2019, 2020 time period is, is pretty simple. Gas prices dropped, and
Speaker 343
2:03:53
if you look at the severance tax revenues from that time period.
We started out in 2003 with severance taxes of around $465,000 a year on natural gas. That peaked at 78 million in 15, then started a steady decline and then precipitously dropped from 19 to 20, uh, from, uh, around $39 million to 14 million. Now, since that time, we, we did get one spike in, uh, in a couple of years spike in severance taxes due to the Ukraine invasion and its impact on energy. Uh, that was in
20, uh, excuse me, 22 and 23, but now we're back down to 24 of $16 million. So what, what we have in, in Arkansas is aging assets that are declining in production, and they are at the mercy of the commodities market, uh, and that's what we saw happen in that 2019 time period is we saw natural gas prices drop and where there hasn't been any drilling in Arkansas in about 7 years, uh, new, new, new gas well. Uh, one of the things is, it's kind of a housekeeping matter is
that before I get, get started on this to try to clarify some of our points is the Arkansas Bar Association, uh, Kristen Pollack, the president of that, has asked me to deliver a letter addressed to you, Senator Caldwell, uh, opposing this bill on behalf of the Arkansas Bar Association, uh, and Mr. Randy Cook at the Arkansas State Chamber has asked me to, to communicate, uh, for brevity at the state chamber opposes this bill. Also, um, The biggest benefit to the state of Arkansas with natural gas.
severance taxes. Now, there obviously are a lot of other ancillary taxes that come along with that. The severance taxes, uh, that's where the impact of the natural gas play, and that's why we want to attract businesses here to drill these assets and produce them. I'm from the Arcomo Basin. We sold Back in 21, we sold all of our producing wells in Arkansas. We, we retained royalty interests, so we are a royalty interest owner, uh, in Arkansas, both in,
uh, the Arcoma Basin and, and in the Fayetteville shale. Uh, we want to see. Commodity prices increase, obviously that's good for the royalty owners. That's good for the working interest owners and the operators. Consumers may push back a little bit on that, but, you know, that's, that's, uh, that's where our focus is, is, is to make sure that, uh, we've got plenty of production. Uh, and that we get plenty of people interested in drilling the state of Arkansas. Um, The only way to get severance taxes is to drill more wells. There's the only way to increase
it of anything that you can control is to drill more wells. My concern with this House bill, and with its amendment. Let me start with the amendment. The amendment was intended, if I understood the presentation correctly to basically isolate the Fayetteville hall. From the oil play in southwest Arkansas. And the Arcoma Basin in western Arkansas. Well, it doesn't do that. It, it uses definition from the oil and gas commission of conventional and unconventional wells. So what
you're now gonna have is you have conventional wells in the Fayetteville shale, and you have unconventional wells in the Arcoma Basin. So you're gonna have two sets of rules going on within the same section, sometimes. wells that have been pulled together. It's gonna be a nightmare to try to ferret that out as to how the producers, both the Arcoma Basin producers and the Fayetteville Shell producers can do that, uh, you know, if
The Fayetteville Shell was 100% conventional wells or unconventional wells, and the Arcama was 100%, uh, conventional. It wouldn't be as big issue, but that's not the case in the state of Arkansas and the oil and gas commission can confirm that. Um, Representative Beck and, and, and Senator, uh, Davis, you know, I, I always am reluctant to, to testify against the bill because I know legislators have the best of intentions, but it's the unintention unintended
consequences that concern me here. Is that this bill will impact The contracts because all the leases in the, for the vast majority of the leases in the Fayetteville were taken after the enactment of the 1985 law that created the 1/8 royalty that the blended royalty, which was a nightmare when it was implemented, but the producers work, finally got it. Going and now all the leases taken subsequent to that. They
have incorporated within them either by by specific provision or by effective law. They are incorporated that, that law is incorporated into those leases. So to change this now does in fact change the contracts. And if you go back to Representative Beck's example on the mortgage if, if, if I had a mortgage on my house and all of a sudden, uh, the holder of that mortgage increased my percentage interest rate from 4 to 6. I wouldn't be at the legislature. I would be talking to that bank and finding out why they are
breaching the contract that we entered into in good faith. And what we have here is an attempt to try to clarify contracts or whatever you call it, but it will, in fact, this legislation will, in fact, uh, impact the specific provisions, um, of those at leases that were taken subsequent to the enactment, I believe it was Act 272 in 1985. Uh, I've been in, uh, I've worked for Steven Production Company for 11 years. I've been in the, in the energy
business in Arkansas since 1984. And I've watched this transpire and, uh, you know, the one thing that state of Arkansas does, and seems to do well, both from the governor's standpoint and the legislatures. He said we're open for business. Well, you know, we want people to come here. But to create uncertainty in contracts will be a, an impediment to business development in the state. And, uh, with that, I will, I will be happy to answer any questions. I will, uh, give you one warning, I will defer on the
legal aspects of it, uh, uh, to Alan Perkins, who's the lawyer here and everything. I, I'm a lawyer by education, but I gave up practicing black art about 15 years ago, so, with that, I, I, I, you mentioned that that you would be,
uh, if you trying to, you'd go to the bank and, and talk to them, not to the legislature, but, uh, actually, haven't they been the to Group to this matter has been this matter was litigated in federal court and, and it was
Speaker 346
2:10:46
found, as my understanding and Mr. Perkins can
Speaker 343
2:10:48
certainly clarify this, uh, that, uh, that flywheel, which
Speaker 347
2:10:52
is the the the subject of this, uh, was in fact following, uh, the terms of the law and the yes, sir. All
right, Dima. Yeah, I mean, and so
Senator Jonathan Dismang
Unverified
2:11:03
I'm sympathetic. I mean, we went through DFA used to give notices to taxpayers without any reconciliation of how they came to the penalties interest calculation, and sometimes even what the penalties were on.
And so we passed a law that they are now circumventing again, but that essentially said you have to disclose why these penalties exist, how you arrived at them, and then the calculation behind them. And, and it What I want to know is what this does more than that, because I do think that is a right and I, this isn't the first time that Stephen's in Or production in a different part of the world doing things completely different than maybe some other ways that other folks are doing things have had to be at the end of the table for problems they haven't created.
Um, and so I'm, I'm sympathetic to why you're here. I think your statement looks very much different than the one that is being produced by a flywheel. I mean, I guess what I'm asking for, what, what is, if it's going that much more beyond because I think at the end of the day, everybody just wants to know how the calculation is being done. So they can tie it back to their leases to make sure that they're being paid appropriately and right now there is not enough information to do that, and you're not able to obtain the information to do that, and that's why they're here. Um, so what would be the solution then if there if we
can't require more or you know, you're saying that it would be an impediment to require more to be
Speaker 343
2:12:29
on the, the statements. Yeah. Thank you, Senator. You know, my, my comments on, uh, the, the particular provisions of this House bill are really focused more on the first part of, of, of the bill, which talks about, you know, gross versus net proceeds and things of that nature. With respect to the deductions that are taken, um, you know, I think certainly, uh, with any company can improve it's, it's
ability to report what the deduction is and how it impacts the price. And, and it also may be incumbent on the industry itself to do a little more educating and say, hey, look, you know, natural gas prices just went from $9 to $2. Uh, your royalty check's gonna be impacted by that, and there is a time lag in that is, as, as most of us are aware, uh, it doesn't happen that same month, uh, but, uh, I, I think there's always room for companies to improve as far as is communicating with their customers and in this case,
they're royalty owners, uh, but again, my focus was more on the first part of the, of the bill. And I'm, I'm certainly open on the second part.
Senator Jimmy Hickey, Jr
Unverified
2:13:35
Hickey. Thank you, sir. Again, as I said beginning, my, my deal is I want to understand what the current law says, and I heard
you brought it up, you bring it up. So you said in 1985, there was a statute, and I have not looked at this, but there was a statute that
was enacted by the legislature. OK. What, what exactly did that say?
Speaker 350
2:13:56
as far as far as the, the part that is substantial to what we're talking about
Speaker 343
2:14:04
today. It's my understanding from, from that legislation, that the problem that it was trying to solve was that back then, you know, there would be multiple Less oars, uh, we're going out and leasing, uh, and So you could have Production company XYZ and ABC. OK. Some months XYZ might sell its
gas. For a different price than what company ABC would. Some months company ABC might leave its gas in the ground. So you had the problem of royalty owners in the same drilling unit. Some receiving checks in a month. And some not. And you can imagine what that's like at the local coffee shop. You know, when people get to compare and say, well, why didn't I get a check? So what the legislature did oversimplified is it came in and said the 1st 1/8.
For the gas produced is all going to be blended together. Then the operator is going to be responsible. For paying a specific percentage based on the royalty interest of each royalty interest owners to those royalty interest owners. So every royalty interest owner got some money each month. Now for royalty interest owner had a 3/16, that other one, that additional 1/16 was paid, uh, Via the pursuant to the, to the lease. OK, so whenever you say
Senator Jimmy Hickey, Jr
Unverified
2:15:31
each, you're talking about both integrated and non-integrated. That's my understanding, yes.
OK. And then one other thing since you, since the lawsuit was brought up, I want to ask this. So understand it went through the
federal court and everything were the So I guess the integrated owners, excuse me, The integrated owners, they were represented there.
Uh We the non-integrated uh owners, were they in the room or how did
all that work? How, whenever we did the lawsuit, We the non-integrated and the integrated owners both included at that time, or how, or what's the
thing there? It's my understanding, yes, but I'm gonna have to defer to Mr. Perkins. Well, so that, that'll be something else I
want to know is with that lawsuit, who was, uh, who was in the room and, uh, You know, how, how all that was decided
and make sure that if the federal judge was taking both sides into account. So that'll be important to me. Yes. Thank you, sir. Understood. Any other questions?
no, Miss Callan, appreciate it very much. Thank you. I made
a statement a few minutes ago and my mic was not on. I want to restate that so that everybody hears it. Uh, we've got quite a few people signed up to speak for and against. I'm gonna take uh the first one was against, and I'll take the 4, next, we'll do it in alternating, uh, fashion, and if we have enough time, I'll try to let everyone speak as long as we don't repeat yourself when we get through with the uh debate that we have to one session at
1:30 and so we can't be in a committee meeting when we go on session. I do want to give the, uh dinner's time to close for the bill. So that's the, that's the game plan. Dale James.
Speaker 357
2:17:24
Thank you, Dale James. I'm the Van Buren County Judge. I have some of my constituents back behind me. And I appreciate and thank you for letting me get to talk to you today because we're, we're the same.
We We answer to our people back home. Yeah Our people are telling me. And showing me proof that their original lease is not being honored. It took me a long time to wrap my arms around what was actually happening because surely there had to be laws that would protect the common everyday hardworking man. Against the things that have been happening back in our counties.
If, if you signed a lease, you negotiated a lease for a 20% gross mineral lease. Why is that not being honored today? There are deductions being held out of those gross leases. Uh, that had to be a violation of contract law. And then we hear in testimony that it all comes back to this 18 that's mentioned in law. It's that one ambiguity that was never an ambiguity, never
acknowledged until one producer came into the play. Now we have one producer who owns the entire Fayetteville Shale. We've, we've worked with XTO they honored the leases. We worked with, uh, To The BHP, BH Pilloin, uh, a host of different Uh, producers that all honored those leases. Now, like it's been said, something changed.
And our people have no recourse for that. It gets kicked. It goes all the way to federal court and then it's like, well, we're not gonna hear this, we're going to send it back, because it's based on one ambiguity in law. And it It ends up being a very complex issue, but it's so simple. Because What our people signed and agreed to isn't what's being honored. We have people and Taking deductions from a no
deduction lease, that has nothing to do with gas price. That's nothing to do with production. We, we're not stupid people in the Fayetteville Shale were hardworking people just like you. We just want that original lease honored. Don't charge us for things you shouldn't be charging, and then don't be so egregious that you're going to take deductions that you're not even gonna tell us what those deductions are. Some people are outside saying
that they have lines on their, uh, statements for advertising lines that say other, those should never be accepted. Flywheel owns the entirety of the Fayetteville Shell. They just bought Merritt, which was the last bit of ownership. So when things are charged back against the owner, even on a net lease. They can charge for gathering, they can charge for compression, dehydrating fuel. They own every last bit of that. They were the parent company.
So they get to scoop up profits all along the way and our people are the ones who are paying that price. And it's so, it's a very simple and, and, and there's a lot of creative lawyering that's been taken. And, and I admire their creative lawyering. They're doing their job very well, but our people shouldn't have to pay for this. Do you have any questions? Yes, sir, I do,
Senator Jimmy Hickey, Jr
Unverified
2:21:08
and I appreciate your thing being elected official, sometimes though, we, we have to just, uh, Wade through this and figure it
out so that's what I'm trying to do so. First of all, you're, you're talking about the people in these, in these leases. So, Is everybody, are they after 1985, some of them before 1985. What are we talking about as far as these leases? Not one soul in Van
Speaker 360
2:21:33
Buren County knew what the Fayetteville Shale was in 1985. So, so as far as
Senator Jimmy Hickey, Jr
Unverified
2:21:38
we know, I'm not gonna hold you to every one. But so every one of these basically are done were done
after 1985. OK. I'm gonna go back to this again because I had, I've heard just the High-level thing. The legislature put in a law and said that the 1st 1/8 of the gas. Would be, would be paid by who? Did it, did it, do you know the, do you know the law? Did it say that it would be paid by the property owner, the mineral owner, I mean, that right there
Speaker 363
2:22:11
that you're referring back to is that ambiguity that we're trying to fix with this
Senator Jimmy Hickey, Jr
Unverified
2:22:15
law. So there was nothing, and again, maybe
somebody's gonna have to show me that line so I can look at it myself before this is over. The one other thing I want to do, something you brought up. So are, are you alluding, and I'm not putting words in your mouth, but so don't think. You, you went to talking about advertising and, and things to that, like a breakout that's on the sheets. Are you saying that those exceeded the 1/8. Or, or you just, if that's, I guess that's what I want to know. I hear what you're saying that you're trying to, you're, you're, you're saying, well, they're putting this and it's
that is do those, have you seen where those are exceeding 18 or
those still within the 18 and I can appreciate your question because
Speaker 357
2:22:56
that's a question I don't think a soul in this room besides flywheel can answer because we don't get the transparency to know exactly how the math's being mathed. OK, well, that, that I guess would be important.
Senator Jimmy Hickey, Jr
Unverified
2:23:08
I mean, I don't care if it's, if, if somebody decides they want to break it out. I mean, as long as that's allowed or not disallowed somewhere. But if you're, but if we are
saying that there's being more collected than the 1/8, and I think that becomes an issue. So I just wanted to make sure what you were saying.
Thank you, sir. Thank you. Other questions? I think,
Senator Jonathan Dismang
Unverified
2:23:31
yeah, because we talked about the ambiguity, but we never really talked about the ambiguity, and I think that's the 1/8 in what it means to be net proceeds, correct? Net proceeds is what. We thought it was a well defined term. Maybe it wasn't. Maybe it's defined for some operators who have been here for a really long time, but not for the new ones that's come in. Is that OK?
Speaker 360
2:23:50
And, and had things not, everything was honored up until one point and it was one producer. And
Speaker 357
2:23:55
it's not that they couldn't pay more, they just won't, and they're using that law to say they can't. And it's creative lawyering at its finest. Yeah of course. Thank you. I appreciate you, I appreciate your
appreciate your service. like you. Uh Next we have Rob Reynolds, uh, Bush Reynolds, could I ask a
favor? or are you testify as an attorney or as a on the oil company. OK, let me, uh, we've had some legal questions here that uh Mr. Perkins could answer, could I move him ahead of you? You, you will still have your opportunity to speak, but that would allow, I think,
allow us to have some clarity before we have additional testimony.
Mr. Perkin, you would identify yourself for
Speaker 372
2:24:56
the record, please. Thank you, Mr. Chairman. My name is Alan Perkins. I'm an attorney at PPGMR
Speaker 373
2:25:01
Law here in Little Rock. Uh, we also have an office in El Dorado and in Stuttgart, uh, I am the outside. Counsel for the Arkansas Independent Producers and Reuters' royalty Owners Association or APR. Um, and I also represent flywheel, uh, as well as a number of other natural gas producers in the Arcoma Basin
and oil producers in South Arkansas. I have taught uh oil and gas laws and adjunct professor at the University of Arkansas Little Rock Law School for several years, um, as an adjunct. I'm, I'm no longer doing that, uh, as of today, but I'm here to um speak against the bill, and I will definitely address some of the questions that have been raised, um, here about it. Um, you know, Mr. Beck started out saying we just We just want our leases to be
honored. And, uh, you know, as a lawyer, I wish it was that simple. But 40 years ago, this legislature passed Act 272 of 1985. That was codified at Arkansas code annotated 1572305. It's a very complicated system of royalty payment for all natural gas units in the state of Arkansas. And it, uh, Mr. Callan spoke a
little bit about it, so there were, um, issues because you had different uh working interest donors, we call them, and then there's one operator who actually operates the wells in the unit, but there may be several companies that own leases, um, that they entered into with various royalty owners. What this law requires is each one of those working interest owners who's entitled to sell their proportionate share of the gas coming from. that unit even though they're not operating the well.
It requires each one of them to pay over to the operator, the 1st 1/8 portion of the gas that they sell on a net proceeds basis. That's what the statute says. That's what the statute requires, and it says, and if you do that, you don't have any further liability. That is part of the law today. That was, it's been part of the law for 40 years. It was every single lease in the Fayetteville.
was executed after that. The very first test well that was super secret was drilled in 2003. There was a little bit of leasing in 2003, didn't take off until later, but, uh, nearly 20 years after that law came into effect. In, in Arkansas. As in virtually every state in the country, probably every state, a state statute that exists becomes a part of each
contract that that is part of that subject matter. I'm going to read you quotes from two cases. They're like a sentence, don't worry, uh, from the, from the Arkansas Supreme Court says the law in effect at the time a contract is made forms a part of the contract as if it had been expressed in the contract. And the court of appeals says a statutory provision relating to the subject matter of a contract by operation of laws enters into and becomes part of the contract.
So every Fayetteville shale oil and gas lease entered into has imprinted upon it the requirements of Arkansas code annotated 1572305. And that statute requires that the 1st 1/8 be aggregated and so and then paid out on a blended basis. So Company A might sell their gas for $3. Company B might sell their gas for $2. Uh, and, and all other prices, but It all goes into one bucket. The
operator blends that together and pays out every royalty owner in that unit is required to under the law, their proportionate share of that blended amount that's to be calculated according to the statute on a net proceeds basis. That in, in another place in the same statutory section for those working interest donors who are paying into it. It even stipulates that they are entitled to take all lawful deductions, uh, from that
amount. Now, you've heard about the lawsuit in state court. That, let me tell you how that happened. The, the Arkansas Oil and Gas Commission staff. Said with regard to our regulatory oil and gas leases that we created. Where we forced integrated owners to take that lease, um, in an administrative proceeding. There was no negotiation. The oil and gas commission doesn't negotiate with anyone. Um, they set the royalty, they set the
bonus, uh, based on other leases taken in that unit, but the lease form is one that's been formally approved by the commission, and that's the least form that they get when they are an integrated owner. The oil and gas commission said our we never intended on our lease form for any deductions to be taken, and this is a different process. It's a regulatory process. They, um, they heard that, they decided
that at the commission, flywheel appealed that administrative order and it was upheld at the Court of Appeals. That only applies to those integrated regulatory lease forms created by the Oil and Gas commission. On the flip side for privately negotiated leases, there have been 6 different lawsuits that went through the federal court system. The first was in 2016 before, uh, flywheel even came,
came there, and they have included not just flywheel as has been suggested to you here, but also, uh, ExxonMobil, XTO, Merit Energy, BHP Billiton Petroleum, MMGJ Arkansas upstream and river. been to oil and gas. Every one of those 6 cases, 4 of them which were uh class action cases have been decided by federal courts in favor of the the interpretation of the
statute that flywheel applies in its leases and all of these other companies do as well. That net proceeds means net proceeds, that the federal courts have reviewed the Arkansas case that involved the oil and gas commission, and they said that the judge there said, Those don't apply here. That's a different situation. That's an administrative order of a regulatory commission, and they don't apply. So the The obligations of those contracts are created at least
in part by that statute, and you can't by subsequent legislation constitutionally change the obligations of those contracts. So both the US Constitution and the Arkansas Constitution. Include what we call the contracts clause. I'm sure you're all familiar with it or you've heard of it, uh, many times, uh, the US Constitution Article 1 Section 10 says no state shall pass any law impairing the obligation of contracts and the Arkansas Constitution Article 2 Section
17 says no law impairing the obligation of contracts shall ever be passed, and for those reasons, the Arkansas Bar Association reviewed this bill and agreed, and they voted. to formally oppose HB 1656. Now, the amendments that that have been recently put on this bill once before the Senate and one here today, which I agree was simply a a they, they changed a reference to the regulation, to what the
regulation says, so that it didn't, uh, wasn't tied to the language of a regulation that could change, um, Those, those weren't really intended to improve the bill. They were just intended to try to mollify, uh, factions that they believed would otherwise oppose the bill. But in fact, it raises another unconstitutional issue for this bill now. So now, it would also qualify as a local law or special legislation.
Anytime that you pass an act that affects only some specified geographic. area or specified group of people to the exclusion of others, um, Arkansas Constitution Amendment number 14 prescribes that. It says the General Assembly shall not pass any local or special act. And here's what the Supreme Court says that means. Local legislation is legislation that arbitrarily applied to one geographic area of the state while special legislation arbitrarily separates from the
operation of an act, some person, place, or thing from another. So today we have this 1572305 that applies to every single natural gas production unit in the state of Arkansas. They want to change that, but only with respect to the Fayetteville Shale. That's her intent. I agree with Mr. Callan. They didn't really do that very successfully because we have both unconventional and conventional wells in both
areas. In fact, uh, I don't know, Senator Di may be familiar, there are two wells in the Fayetteville Shale called the
Speaker 375
2:34:59
Dismay wells. They're both conventional wells, not, not unconventional wells.
Speaker 135
2:35:04
Where, where was yours? Uh, and that's just an example. There
Speaker 373
2:35:08
are several others. So for those reasons, and I can, I could. Speak, uh, when, when I was teaching at the law school, I would spend 2 hours explaining
how 1572305 works to law students, and you all don't want to hear that, but I'm more than happy to answer any questions, um, uh, I'm confident that the bill as it's drafted now is um is unconstitutional and even if you were to pass it, it wouldn't survive court challenge, but we would hope that this committee would take note of that and Vote no. So Yes sir. Um, so I wanna make sure I understood you correctly
Senator Jimmy Hickey, Jr
Unverified
2:35:54
though. So let me ask this, I thought I understood it. So the 1/8 portion on the net proceeds basis right now. After the lawsuit, Are the integrated owners, are they having to
Speaker 373
2:36:09
pay that or not pay that? Integrated, there are no deductions being taken except taxes, uh, fees, and true third party expenses, those were the dictates
Senator Jimmy Hickey, Jr
Unverified
2:36:16
of the commission order that the court approved of. So that's outside of the 8th, is that correct? That, so the, the
Speaker 373
2:36:25
18, let me make, make clear that you're, you're understanding me, Senator Hickey, um, everyone who has an oil and gas lease, they may, it may say your royalty is an 8 or it may say it's 20%, uh, for example, but the 1st 18, if, if you're more than, so in a 20% 1st 1/8 of 1%, is that what we're saying? We're saying 1st 18 royalty. So if you have a 20% royalty, 18, which is 12.5% goes over to the operator and the
operator pays out that. The other 7.5% would be paid by the party who entered into that lease. With the landowner. OK, so this is my
Senator Jimmy Hickey, Jr
Unverified
2:37:03
next question if I understood you. And I
understand you're representing one of the sides here, so we may get a conflict here, but so did I not understand you though to say that every owner within that unit, according to our statute, is supposed to be paying The 1/8. Every, every opera, every owner
Speaker 373
2:37:26
of leases has to pay their 1st 1/8 into the operator and then the operator as an administrative role, distributes
Senator Jimmy Hickey, Jr
Unverified
2:37:36
that to everyone. OK, so So that is, that is still happening, that is still
Speaker 373
2:37:42
happening integrated, non-integrated integrated, non-integrated, um, but the difference is pursuant to that, uh, the commission's decision and the and the court's approval for the integrated owners there are only certain specified expenses that can be deducted. OK, thank you.
Senator Jonathan Dismang
Unverified
2:37:58
Disma. So just to make sure that I'm following net proceeds was not defined in that original 1985 statute. Right. I mean, I
think I found one place that maybe
was alluded to definition. There's no formal definition of the 18 of the revenue you realize from
the sale of gas as provided in the section, so be she be fully discharge all obligations of the operator and working interest owners with respect to the payment of the 18th leasehold
royalty as a scribe, and then it goes on, uh, to say section D and if you look at that, I mean, I'm assuming that's the only
place that we reference it the best I can tell. I'm, I'm not looking at that
like you are, but I, I That sounds correct. OK, so, and so the problem has been there was what was to believe in the interpretation of what net proceeds were. Most everybody in the state operated with that new company comes in, they decide that net proceeds definitions not established, they, so they've now set legal precedents for what that means. Is that
Speaker 373
2:39:00
fair? I don't think it's fair, and let me tell you why. So we have a number of cases in the history of Arkansas and in oil and gas law in general, net proceeds is a very, very common, well-known has a well-known meaning within the oil and gas, uh, lease industry and the cases that come up through there. We have some old Arkansas Supreme Court cases that talk about post-production expenses that can be, um,
deducted when a lease royalty is to be calculated based on net proceeds at the well, so that's another term in the statute. That means that's the place of calculation, so if there are expenses after that, you're entitled to deduct those to get the price back to a at the well price. I know that's complicated. Uh, I'm trying to keep
Senator Jonathan Dismang
Unverified
2:39:50
it short. OK, but, but it's not defined by it's not defined in the statute itself. That is, I would agree with that. That's a fair and so
there's been another interpretation by a later court case, or are they relying solely on the old interpretations. The all 6
Speaker 373
2:40:10
federal court cases. construed, they, they interpreted the statute based on all of the court cases, what the statute itself says and all the resources that they have to interpret that language in, um, in 4 of the court cases, the, um, the federal judge actually
sent what we call a certified question to the Arkansas Supreme Court, and he said this is how if left up to me, I would interpret this. But, um, since you've never directly given us the answer. We want to give you the first opportunity in the Supreme Court, uh, declined to answer his question, so did they agree with his interpretation? Did they just not want to do it? I, I couldn't tell you. How do you think that this definition differs from what do you mean
Senator Jonathan Dismang
Unverified
2:41:01
this definition, the one that's being established by statute. That's why you're here. Yeah. Well, the, this definition is completely created by them to do what they
want to do differ from the court case determined, you know, reasonably used definition that's just
Speaker 373
2:41:21
proceeds mean most people would understand net to mean net of something, um, and so lawful deductions which the statute does say, would be those normal
deductions of expenses, what we call postproduction expenses, not the expense of drilling the well, but the expense of moving it from where the wellhead is located, for example, to the point of sale. That's a transportation cost, um, and then the, the cost of compressing the natural gas. the cost of treating the natural gas if it has too much carbon dioxide, all of those things come after the well head. So when you say net proceeds at the mouth of the well, which the statute does, then
Uh, those are what the law would say are allowable expenses. So what is
Senator Jonathan Dismang
Unverified
2:42:13
the difference between what they're trying to put in statute, the House members trying to put in statute and in what has been the reasonably understood by the courts to be the definition of Uh I mean, what we're here for, right? Net proceeds, because I don't think anyone's gonna argue about the bills needing to have more detail. No one's going to fight about that. I don't think y'all would either. Um.
What we're arguing about is net proceeds. So what's different in this than what the courts have determined it to mean
Speaker 373
2:42:48
in the past. Does that make sense? The courts have determined in the past that When it says net proceeds in the statute that applies to all private leases. What they're saying is if a lease doesn't already allow those deductions, then ignore the statute and follow the lease. That's, that's the difference. It's not a, it's not really a misunderstanding of
net proceeds. It's a, we no longer want our people to have to, um, be subject to this statute that allows deductions in this. ated blending process, which is a statutory royalty, not a lease royalty. OK. Yes, sir, but one of the
Senator Jimmy Hickey, Jr
Unverified
2:43:31
Previous witnesses, they, they mentioned something about on some of the bills that there was advertising and
other things that was on there and, and I
Speaker 373
2:43:41
wrote that down. I've looked at, I'm sorry. I've looked at thousands of royalty statements. I've never seen a charge for advertising or other, uh, if there is, I'd like to see it. OK, well, and I was wondering if you
Senator Jimmy Hickey, Jr
Unverified
2:43:51
had, and that's probably what you'd say, so I would say if somebody needs to bring that forth because what I understand then, based on what you just said. If there
was something on there that would have to be just a breakdown of the 18 because there's no way that that could be an allowable expense because it's not at the mouth of the well.
So if if those are out there that were testified to, I say we, somebody needs to bring those forward because I think at that point, we'd need to see if that's the 18, which I don't know that it would or not, but, uh, or why it would be on the bill, but again, I'm just trying to tie back in because I'd like to see, like to see those or somebody needs to see those. So, thank you. What else? Signal one Thank you, Mr. Chairman. Thank you.
Speaker 390
2:44:52
Mike Norman. OK. Mike, I Would it be OK if I Yeah. I'm sorry you somebody had explained
to me if he could. Uh, Nate
Speaker 390
2:45:09
Morgan. Would it be OK if, if I went before Mr. Norman since
Speaker 392
2:45:14
we're limiting the number of people and I think I can answer some questions I will allow.
He for Mr. Chairman, uh, Senate committee members, my name's Nathan Morgan, and I'm an attorney who practices in oil and gas in the Fayetteville Shale, um, private, uh, prior to private practice, I actually worked, worked for Chesapeake Energy in-house, uh, in, in, in the Fayetteville Shell and then,
and now I'm in private practice. I was one of the drafters of this bill. Um, I'm very familiar with this bill, obviously, as well as the case law, as Mr. Perkins pointed out, there has been, what we consider 5 federal court cases, uh, 3 of those were mine, and Mr. Perkins did what did win those cases. Um, so I had some handouts that I
Speaker 396
2:46:22
wanted to give the committee. And I, I believe. Oh,
Speaker 397
2:46:30
you guys stand out for you. We. Um, that I, that I would like to, I
Speaker 392
2:46:39
would like to address, address the handouts. There's actually 3 handouts, and one of them is an oil and gas lease, as well as two royalty statements so that the committee can see what it looks like in, in real life, and I'm gonna go through each of them, um. But I disagree with some of the interpretation of the case law.
And I, and I'd like to start by discussing that. So first off, um, A lot of these leases were taken in the Fayetteville Shell in 2005. Um, and so they had been in place for roughly 15 years. The leases were paid according or, or the royalty was paid according to the lease in 2019, when Flywheel purchased Southwestern Energy, they had a different interpretation of
1572, 305A3. And their interpretation was, as Mr. Perkins said, that no matter what your lease said, you could take deductions on the 1st 1/8. Essentially, they just disregarded the lease, um, and you could take deductions on the 1st 18. I think Mr. Perkins obviously testified that the Oil and Gas Commission said, whoa, whoa, whoa, that's never been the interpretation. That's not correct. So, The Arkansas Oil and Gas Commission in as Senator Disma
said, net proceeds is not actually defined in this statute. And so, The Arkansas Oil and Gas Commission brought a case against Flywheel, saying that 1572305 and the term net proceeds, it is only in the statute one time. And it only applies to gas, and it is 157230305A3. Only places net proceeds is in that statute. And the Arkansas Oil and Gas
Commission brought a case in Pulaski County Circuit Court saying that net proceeds, as it was defined in the statute is ambiguous. And Pulaski Pulaski County Circuit Court agreed with them. And they looked at the common course of conduct in the Fayetteville Shale play and interpreted that the common course of conduct in the Fayetteville Shell play was for integrated integrated leases,
uh, to be based, to be paid, uh, whatever the integrated royalty rate is, and then they could deduct, uh, Uh, taxes, assessments, and true third party costs. So the Pulaski County Circuit Court agreed with Argosol and Gas Commission. That case was appealed to the Arkansas Court of Appeals, and again, tell Oil and Gas Commission won. It was appealed by Flywheel to the Supreme Court. The Supreme Court decided not to take it.
So that, so that rectified the situation for all integrated owners because now Flywheel can't take these deductions. They can only take on the 1st 18, they can only take Uh, taxes, assessments, and true third party costs. So now we have the issue is, uh, for the non-integrated owners, the the, the owners who in good faith negotiated the lease with Flywell's predecessors and title. What are we gonna do about, about that? So we filed Some class actions.
In state court, Flywheel remove them to federal court. If I will flywheel did win those cases, um, the, the federal judge. Use the Erie doctrine. Um, and he said that he did not have to apply. The, although it is the highest state court ruling, the Arkansas Court of Appeals, that the statute's ambiguous. He said he could use the Erie doctrine to go above the Arkansas.
Court of Appeals to interpret. State law or or or a state ruling, but if he thinks the Supreme Court would rule differently. And he did certify that question to the Supreme Court. The Supreme Court again declined to take the issue. So now we have an issue that in federal court, the statute is being strictly construed and has been found unambiguous. But in state court, the statute has been held ambiguous.
And so that is why we are bringing this bill for the legislature to put a definition on NEP's proceeds. And that way, it will clarify. 1572305. Now, we did make amendments. We did, we did make amendments to the bill, and that was because there are a lot of good operators in Arkansas. There are a lot of operators who pay correctly. Um, the ones in the
Arcoma Basin basin, there's a lot of good operators out there, up there, and there's also in South Arkansas, um, and we did not want to affect them with this bill. And so that's why that was at the request of some House members to, to, to make sure that they were specifically included, and so that's what we did. Um, now, if we could, if we could go to, and I, I realize I'm, you know, we're on a time crunch here, so I'm not gonna go into just super detail with this, but if everybody would take a look at the Arkansas oil
and gas, the, the lease right here. So this is a lease and I have actually redacted it just for, just, just so that, you know, somebody's name won't be out there, but this is a lease, this is an active lease. Um, and is what I would point you to is we're gonna discuss the royalty clause in this lease. So if you will. Look at page 2 paragraph 2. This is a producer 88 lease form. So if you didn't, if you didn't negotiate a lease, this potentially is a lease that that
you could receive. Um, and so the lease form says leaseee shall pay less or 1/6 of the proceeds derived from the sale of gas, including substances contained in such gas produced, saved, and sold by lessee. Proceeds are defined as the actual amount received by the lessee for the sale of said gas. In calculating the proceeds derived from the sale of gas produced, saved or sold by Alessi, let's say, let's see she'll be entitled to deduct all reasonable gathering, transportation, treatment,
compression, processing, and marketing costs that are incurred by lessee in connection with the sale of such gas. So, what is that royalty clause says that essentially the royalty rate is 16 and they can take deductions for dehydration, marketing, things like that. There is no misinterpretation of that. But if we will look At
Speaker 404
2:53:34
page. 5 of the lease. There's an addendum on
Speaker 392
2:53:46
who said, I don't want that in my, in my lease. I don't want you to be able to take those deductions. So this is in good faith specific clauses that were negotiated for. And so I would, so if you look at Part B and of this, uh, OK, so Part B is what the actual royalty clauses in this lease because this, this, uh, addendum obviously supersedes, uh, to pay
less or for gas of whatsoever nature or kind with all of its constituents produced and sold or used off the lease premises are used in the manufacture of products therefrom. 20% of the gross proceeds received by Lesee for the gas sold used off the premises or in the manufacturing or production thereof, but no. event more than 20% of the actual amount received by the lessee said payments should be made monthly. And then we go to section D, and it says, Lesi shall not deduct any cost or
expenses from such gross proceeds except lessor's pro rata share of any severance taxes that may become payable I less our share of gross production. So that makes it pretty clear that the only, uh, if you will look at part, yeah, so, so they section B and D work together to make up the royalty clause in this lease. And so this, this lease is what we would call a gross
Speaker 405
2:55:11
proceeds lease. Essentially, the only thing that is, that, that per contract that is able to be
Speaker 392
2:55:21
deducted is, uh, severance and conservation tax, that there is no deductions for dehydration gathering, anything like that. OK. So And just so, just so you have it, if we look at, there's two royalty statements in front of you. Uh, one of them is 10 pages, and one of them is 3 pages. So this is a Van Buren County lease, the, the one that I showed you. And this is the actual royalty statement to this lease. Uh, sorry, the, the 10-page 1.
So does everybody see the 10-page lease? OK. So if we look at this 10-page lease, and I'm not gonna go in detail on this one, I'm gonna go in more detail on the other one because it's 3 pages, it's a lot easier. But This is a 20% lease, and so the royalty is broken out into 12.5% and 8.5%. So what says EXR, that is what Flywheel has designated as excess royalty. And so that is 7.5%, excuse me,
I said 12.5 and 8.5, uh, that math in math, it's actually 7.5, excuse me. So, The EXR is the 7.5 above the 18. The RI is the 1st 18. So the 1st 12.5%, OK? You, you guys read the lease, there was no, there's no Misinterpreting the lease, that it does not allow deductions. And so we also know flywheel does not disagree with the interpretation of the actual lease language, because if you look, Uh, in the, I guess it's the 3rd
heading where it says tax or or deduct code. So there's CBSV, CM, FL, GTSV, um, so CB is conservation. SV is severance. OK, so the only thing taken out of the excess royalty. The next 7.5% is conservation and severance. OK. When we look at the expenses taken out on the royalty interests, we have
Um We have gathering FL is fuel. We also have conservation. We have 7 severance. And we have compression. Three
Speaker 405
2:57:35
expenses that were specifically not allowed in the lease. So, uh, this, this landowner also has some land in White County.
Speaker 392
2:57:46
It's a net lease in White County, um, but so all these Van Buren County wells, you can see all these expenses
that are being taken, that are not allowed to be taken. Anytime that you see on in a Van Buren County, well, it says, it says the well, it says county, it says Van Buren, any of the Van Buren County wells, anything that you say that you see FLGT CM, those are not allowed to be taken pursuant to the lease. So
Speaker 396
2:58:13
If we'll go over to the next royalty statement, this one's a lot simpler. OK,
we're about to run out of time. I want to get where we can have questions for
you and I want you to it again. I don't want you to delay uh repetition on the other lease. I understand. Hey,
Speaker 405
2:58:34
this one will be this one, this one will be very short. OK,
Speaker 392
2:58:38
so this one, this individual, it's a, it's a 3/16 lease. Uh, it's a gross lease, it's a no deductions lease. We can see that by what's taken from the Excess royalty compared to the, the EXR versus the RI. And so, the reason I wanted to show you this one is this is a 3/16, no deductions are allowed. And if
we look on page 3, this is what it looks like to owners in the Fayetteville Shell. So this check total was $1,263.34. They deducted. Incorrectly pursuant to the lease, $570.23. Uh, they deducted 2 $22.98 which is allowed conservation severance. So the owner net value is $670.13. So it's this
check, instead of being $1,263 was actually $670. And so that's what it looks like for a lot of owners in the Fayetteville Shell. And so I wanted, I wanted to, to bring these so that you could have a representation of what it looks like out there on the ground. And why these people are so frustrated. And I, I think the chairman asked me to take questions, so I'll be more than happy to do that. I'm sure
Speaker 405
2:59:50
we'll have some. I just, I don't want you to run out of time, but we're about to
run out of time. OK, I'm I'm, I, I, I can take questions, that's fine. I'm sure
Senator Jimmy Hickey, Jr
Unverified
3:00:07
somebody's got for me. OK, so first of all, I want to make sure I understand this lease right here, are you saying that the way this lease is written. That the 18th portion should not, not, should not be allowed to take, be taken? Is that what you're saying? Because it, it states in here that, uh, this will be the total. Is that, is that what
you're saying by, by presenting this to us? Because you went over this language, correct.
I marked it somewhere and it said that Uh That there will be no other deductions from this. Are you, are you trying to elude then that this contract would supersede our statute. I was the guy before you, he testified that Though
case law, whether or not we believe it or not, that, you know, if that it doesn't have to be stated that if the statutes on the books that That that's, that's
irrelevant whether or not it's put in the contract. So I wanna hear. I think, I think that the
Speaker 392
3:01:03
current interpretation of 1572, 305 is a, it violates the contracts clause. The, I, I, so yes, I do, I do, and I got 11
Senator Jimmy Hickey, Jr
Unverified
3:01:15
more. You, you, I heard about this eerie doctrine or whatever, and something you said is of great interest to me
that I have, have not heard. So, You said after the federal judge made this ruling. He said that, you know, that under this doctrine he was
allowed to supersede that, but that he sent that to our state Supreme Court. OK. What, what is their option? because I heard you say, I heard you say that they, they opted. After he did that to not take it up. So If they opted not to take it up, what if they had opted to take it up. Would they had the ability to Basically, I'm gonna say over I hate overrule is not the right word, but with, with their decision. then above what the federal
court would have been since he sent that to them. What, what is all
Speaker 392
3:02:11
that about me clarify and I might have misspoke. He, he asked that the Supreme Court look at it prior to him ruling. It was not after his ruling, it was prior to him ruling. And so if the Arkansas Oil and Gas Commission, which was, which flywheel appealed to the Supreme Court. If the Arkansas Supreme Court would have ruled on it, that would have been, that would have set precedent if um I believe if the Arkansas
Supreme Court would have Uh, take Judge Rudovsky's question, a fact which would have answered the question on 305 of whether it's ambiguous or not, that would resolve the issue. The issue is, is every time that people ask for the Supreme Court to hear it,
Speaker 415
3:02:50
they have not heard it. OK. I understood you to say, and,
Senator Jimmy Hickey, Jr
Unverified
3:02:54
and maybe that was, maybe that's the difference. It was prior to, it was prior to, to him making a decision. They decided, nope, we didn't want to. We're gonna let you make the decision. And then
he made that decision. But then what you said earlier is then he sent that back to the Supreme Court was my understanding,
Speaker 417
3:03:15
and maybe I misunderstan if I said that I misspoke, those cases are going
Senator Jimmy Hickey, Jr
Unverified
3:03:18
to no problem. So. At this, at this point, could our, our Supreme Court pick this up and hear it?
What, what, where are we at with that? Uh,
Speaker 411
3:03:28
they have given no indication of hearing and so I said, could they? Or, or, or are they because this supreme because this federal
Senator Jimmy Hickey, Jr
Unverified
3:03:38
court has now ruled, are, are they out of the picture completely. So there is
Speaker 392
3:03:42
some cases, including, including my cases that are going to go the 8th circuit. And so the 8th circuit could certify a question to the Supreme Court, but I, I mean, the Supreme Court's under no obligation to take it and, and so them not weighing in, uh, you know, that can be interpreted, however. somebody wants to. Thank you, sir. Is it possible to
Senator Jonathan Dismang
Unverified
3:04:02
get a copy of the statement on this lease when it was, I don't know if it's XTO
or who had it prior to. I, I would be curious to see how they treated the 1/8 in their. Payment schedule if that
Speaker 396
3:04:17
makes sense. Uh probably not today. I can't get it. I can't get
Senator Jonathan Dismang
Unverified
3:04:21
it today it would be helpful for the discussion that we're having. To know what Happened What the expectations are and then what changed. Does that make sense? That, that does, that does. I
Speaker 392
3:04:32
mean, and that, and, and what you're saying is essentially what the Arkansas Court of Appeals ruled that
prior, prior how the contract was treated under the statute sets precedent. Which
Senator Jonathan Dismang
Unverified
3:04:46
is typically how it goes in. Most instances, I mean, if you're I mean,
at some point, your actions become part of the contract too, or typically. That was my argument, but the federal judge did not agree
Speaker 415
3:04:58
with me. Just, just one more thing. I'm sorry, I
Senator Jimmy Hickey, Jr
Unverified
3:05:02
forgot this. We've, we've heard this testimony about, especially about this amendment that we had about this conventional, unconventional, uh, do you not see an issue with
Speaker 392
3:05:13
with that. I actually, I, I don't agree with Mr. Perkins, uh, interpretation. Obviously, he, he hasn't had as much time to, to look at it. So the, the net proceeds is not based on conventional versus unconventional. It applies to all gas under 157230583. The rest of the statute is only unconventional. Because 3 because this, this actually amends 305. And so,
The definition in 327 defines net proceeds in 305, and that's for all gas plays. Right, I was, of course,
Senator Jimmy Hickey, Jr
Unverified
3:05:52
he also brought up something which, I mean, you know, with us, Just trying to limit it to Certain shell, I, I
mean, I think that is, could possibly be an issue, but again, that's outside of, uh, what I'm going to do here. My, my, my, I was more interested in the conventional and unconventional because I could see if, if those were within the same unit. I, I could see that be a problem if
Speaker 392
3:06:15
they're not treated the same. Well, the, the, the definition of net proceeds, they would be treated the same. But the reporting requirements in the
Speaker 415
3:06:23
Arcoma Basin would be different. All right. Thank you, sir. There
is any other question? Seeing none, we have had the same number of people to speak for and against. We're up against a hard time. So I'm going to stop testimony and ask the Representative Beck, uh, Senator. Davis to uh come close for their bill.
Representative Rick Beck
Unverified
3:06:57
Ah Great questions. And I'm gonna try to take it down a notch. I'm not a lawyer. All right. The points that you should, I, I think the committee needs to hear is this. From you, you heard that these leases were signed in 2005, 2004, 2005, the, the ones that pertain to the Fayetteville
shale lease, right? Those leases are 2004, 2005 leases. Those leases were honored. All the way to 2019, 20 2018, 2019. At that point, there was a change. I, Senator Dismay, I, I liked your question concerning this. If you would have seen that lease before 2019, the flywheel lease that you're seeing right there, you would have saw that those deductions were not taken. They were not taken out of that.
That's what changed. That's what people are that's where all these people came down here to, to tell you their leases changed. All right, now, the leases didn't change the way they were interpreted changed and something else that you should know. You heard that the majority of the producers. Still honor the leases. Just like they have since 1985.
Going forward, they still honor the leases just like they were before. Who doesn't? The Fayetteville Shell, which is owned by Why will LLC that's what's going on here. Now During this discussion, did anybody get lost in the well, uh, and Uh, Nathan has knows all the XLL, well, that's the so and so deduction and then, then they'd have another abbreviation for
that. That's what we're talking about the other part of this lease. I don't know why I, I forget the letters. It was like an XLR. Well, that's an actual post-production something or this. He knew all those codes and everything, but I think it's unrealistic for, for us to ask the average person out there to know that there, here's a three-letter code and it just cost you $500 you know, what is that about? And now that we're limited on time, but if you could have heard some of these royalty owners, that they would have
told you that they have tried that, you know, flywell, which is out of of Oklahoma City. They have a number. You can try to call them up. And uh Find out something. Good luck. I wish you all the luck in the world because you're gonna need it because people do not respond. You can leave a message. They don't, you can call, they don't, they don't call you back and uh now, I do, I have a very small lease and I think I got something like $700 last year, the total year.
And so I got my end of the year thing and it said deductions. Deductions. That's what it said, deductions, and then it said those deductions were and I, I did the math. I never really paid much attention to it, but I did the math. It's 39%. What they were Who knows? I, I don't know, but that's what that's what happened. Uh This bill is simple. We're trying to make something
more the confusion factor here is all this, it's unconstitutional. It's going to cause all kinds of trouble. Well, the truth is, if you really think about it, back in 1985, We changed all this, right? In 1985, they talked about all the blending and all that stuff that went on and, and we got that all straightened out in 1985. Well, If it's unconstitutional to straighten it out now, how is the constitutional back then because it stood the test of time. And it's still in it's been
challenged in court, it's my understanding, and it stood, it was fine. Now I'm, I'm going off of my, my, some of the notes here. The other one was that, that we talked about Arkansas law versus the, the federal court cases and, and I'm not a lawyer, but the federal courts looked at Arkansas statute when they were making their decision. If you change this, then that'll be Arkansas statute. That'll give the Arkansas, the federal courts, the ability to take a look at what, what we, Arkansas,
how we want our landowners and our royalty owners, how we want them to be treated. I want to concentrate on one thing that you haven't heard. We've talked about what you've heard, you know what you did, hadn't heard? You hadn't heard one person come up here and say that flywheel didn't change it. You hadn't heard one person say that they cleverly say, well, you know, the, the price went down and so therefore different We've talked about what you've heard, you know what you did, hadn't heard? You hadn't heard
one person come up here and say that flywheel didn't change it. You hadn't heard one person say that they cleverly say, well, you know, the, the price went down and so therefore this they never said that they didn't change it. They did change it. That's exactly what happened. And that's why all these royalty owners are here. Now, with the passes, with passing of 1656. We define that proceeds. You heard it's not defined, right? We define net proceeds that'll clear this all up. And with that, I appreciate, I do pass. Thank you, and I'd
Senator Breanne Davis
Unverified
3:12:31
just like to say one thing if you don't mind, um, I just want to say, you know, committee members, please
don't take my lack of opening or closing for this bill as not caring about it and um not being passionate about an issue that my constituents care deeply about. I let Representative Beck do it because he's way more well versed and has been in the weeds on this for years, and so I thought it was most appropriate, but as you all know, our job down here is to represent people and help solve problems, and this is a problem that's been plaguing not just the people of Con County, but people across our state for years now, um, and it was important for me to sit here with Representative Beck as he
um helped fight for a lot of the people in this room and others that couldn't be here, um, and it's an issue that I know they would love to see fixed and in a situation they'd love to see righted, so thank you
Speaker 161
3:13:23
for that and we're closed for the bill. Will committee motion to
Speaker 426
3:13:28
pass. Too. Oh, good. That lack of a second. We
Agenda
Call to Order
SB400 Irvin TO AMEND THE FAIR-FUNDING PROGRAM.
SB455 J. Bryant TO ALLOW REGULATION OF HEMP PRODUCTS BY ARKANSAS TOBACCO CONTROL; AND TO AMEND THE UNIFORM CONTROLLED SUBSTANCES ACT TO REMOVE CERTAIN SUBSTANCES THAT ARE DEFINED AS HEMP PRODUCTS.
Recess
Reconvenes
HB1656 Beck TO AMEND THE LAW REGARDING OIL AND GAS PRODUCTION AND CONSERVATION.
SB464 A. Clark TO AMEND THE LAWS CONCERNING SALES OF RAW MILK; AND TO ALLOW SALES OF RAW MILK AND RAW MILK PRODUCTS AT LOCATIONS OTHER THAN THE FARM WHERE THE RAW MILK OR RAW MILK PRODUCT IS PRODUCED.
Adjourn
Documents
| Title | Type | Pages | Source |
|---|---|---|---|
| Agenda — AGRICULTURE, FORESTRY & ECONOMIC DEVELOPMENT - SENATE, Mar 20, 2025 | Agenda | 1 | Official source ↗ |
Speakers
Senator Ronald Caldwell Chair
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Senator Alan Clark
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Speaker 8
Speaker 26
Speaker 33
Senator Missy Irvin
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Senator Jimmy Hickey, Jr
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Senator Jonathan Dismang
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Senator Jamie Scott
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Senator Ben Gilmore
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Senator Joshua Bryant
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Uh Shane
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Senator Breanne Davis
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Representative Rick Beck
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Michael Callan
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