South Dakota Tribe Halts Work on Marijuana Resort

South Dakota Tribe

On Saturday, Nov. 7, the Flandreau Santee Sioux Tribe burned its first marijuana crop, reportedly worth millions of dollars, and stopped development of a first-ever marijuana resort to be constructed on the reservation.

It is a setback for the tribe, which had projected revenues up to $2 million a month. It is not good news for Monarch America (OTCQB: BTFL), which had consulted with the tribe about growing and selling. But it may not create much of a precedent for other tribes eyeing the revenue potential of marijuana resorts in states where recreational marijuana sales are legal.

The 10,000 sq. ft. marijuana grow facility was to have supplied a 15,000 sq. ft. on-site retail recreational marijuana consumption lounge, entertainment and gaming center, outdoor patio, and music venue on sovereign trust land adjacent to the Royal River Casino and Hotel. The tribe had hoped to use the revenues generated by the facility for community services including a senior living community, clinic and community center offering after school programs, as well as providing a monthly income to tribal members.

So far, everyone has put on a brave face. Seth C. Pearman, attorney for Flandreau Santee Sioux Tribe issued the following statement:

After government-to-government consultation with the United States, the Flandreau Santee Sioux Tribe is temporarily suspending its marijuana cultivation and distribution facilities, and is destroying its existing crop. This suspension is pivotal to the continued success of the marijuana venture, and Tribal leadership is confident that after seeking clarification from the United States Department of Justice, it will be better suited to succeed. The Tribe will continue to consult with the federal and state governments, and hopes to be granted parity with states that have legalized marijuana. The Tribe intends to successfully participate in the marijuana industry, and Tribal leadership is undaunted by this brief sidestep.

The tribe was reportedly concerned about the potential for federal enforcement action within the next few weeks. In addition to destroying the crop, a raid might have caused damage to the grow facility. The legal issues in question appear to have been the tribe’s ability to sell marijuana to non-tribal members and origin of the seeds used for its crop.

Central to the controversy is the fact that, although the Flandreau Santee Sioux legalized the possession, consumption, cultivation and distribution of marijuana in June, South Dakota remains a prohibition state. South Dakota Attorney General Marty Jackley had long insisted that changes in tribal law affected only tribal members; therefore, non-tribal members ingesting marijuana on the reservation and returning to state land risked prosecution under state law.

Monarch America CEO Eric Hagen was similarly stoic, claiming that the company was not concerned about the marijuana suspension and noting that Monarch consults in other states.

However, in documents filed with the with the Securities and Exchange Commission earlier this year its auditor has raised “substantial doubt” over Monarch’s its ability to continue as a going concern. As of Nov. 10, stock in the publicly-traded company was flirting with its 52-week low of $0.0054 per share.

A resort on Indian land in a prohibitionist state may just have been a bridge too far. For tribes considering marijuana resorts in states where recreational sales and use are legal, the barrier may be a matter of restrictions on public consumption rather than the overall legality. So far, however, the tribes are cautious and none have yet taken the plunge.

Anne Wallace is a New York lawyer who writes extensively on legal and business issues. She also teaches law and business writing at the college and professional level. Anne graduated from Fordham Law School and Wellesley College.

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