At 4:20 p.m. on Nov. 12, 2015, the Squaxin Island Tribe opened its retail marijuana store, Elevation. The shop is reportedly the first tribal recreational marijuana store to operate under a compact with Washington state.
Since late last year Native American tribes have eyed marijuana as a source of economic development, perhaps a “new casino boom,” but the reality for both the tribes and investors has been fraught with uncertainty. Whether legal marijuana can emerge as a situation with benefits for both remains to be seen.
In theory, federal law grants tribes sovereignty over reservation land. States have no authority over tribal governments unless expressly authorized by Congress. In practice, however, when it comes to law enforcement, gaming and now cannabis regulation, tribal sovereignty is regularly threatened by state action.
In December 2014 the Department of Justice announced that it would apply the principles of the Cole memorandum to Native American tribes in determining whether to pursue enforcement of federal drug laws. This seemed to open the door to legal marijuana commerce on reservation land even in prohibitionist states.
But the tribes, like states that chose to legalize, had to demonstrate that they had adopted “effective regulatory and enforcement systems” to prevent firearm violence, drugged driving, access by minors, diversion to the black market and the other priorities outlined by the Cole memo. What a sufficiently robust regulatory system would look like was left largely to the discretion of the U.S. Attorney for a given district. Some have been more reluctant to work with tribes than others.
In July 2015 Washington State legislators adopted H.B. 2000, which provides that tribes may enter into a compact with the state, agreeing to adopt Washington state standards in the operation of marijuana businesses. The law specifically mandates that, in lieu of state taxes, tribes are required to levy a tribal tax of no less than 100 percent of what would otherwise be due on transactions with non-tribe members. The Squaxin Island Tribe executed such a compact with Washington as a predicate to opening Elevation. The Suquamish have also signed a state-tribal compact for a marijuana store now under construction.
There are pros and cons to a state-tribal compact. On one hand, it appears to provide some insurance against federal raids, and the tax revenue collected by the tribe can be used for specific tribal purposes. On the other, having to adopt the state and local tax system deprives the tribe of much of the competitive advantage of operating on tribal land. Some have suggested that integrated operations or wholesale operations might find themselves in a better economic position than retail-only establishments such as Elevation.
Despite its initial promise, investors have had plenty of reason to be skittish about Native American marijuana ventures. Federal enforcement action has shut down operations on the Menominee Indian tribe’s Wisconsin reservation, the Pit River Tribe, the Alturas Indian Rancheria and Pinoleville Pomo Nation’s Rancheria in California. More recently, the South Dakota Flandreau Santee Sioux tribe suspended development of a marijuana resort and destroyed its million-dollar crop, rather than risk a federal enforcement action.
The tribal-state compact system may offer investors some comfort on enforcement issues, but less on the question of profitability. It will be worth watching to see how Elevation and other tribal marijuana stores get off of the ground in Washington.