Governor Inslee signed HB 2000 into law earlier this month. We wrote about it before. In short, it authorizes the governor to enter into compacts with tribal governments regarding regulation of marijuana businesses, enforcement of law, taxation, dispute resolution, and a few other issues. Now that it has been signed, the big question is whether we will actually see tribes in Washington State enter into these agreements with the state.
A number of tribes in Washington are exploring the possibility of getting into the marijuana business. It appears that the Department of Justice will treat them a lot like they treat states — as long as the tribes regulate cannabis distribution and do not violate federal enforcement priorities, federal enforcement of marijuana prohibition is unlikely. None of those tribes are actively distributing marijuana under their own regulatory regime yet, but it is only a matter of time.
The relationship between tribes and the state is complicated, as tribes are sovereign, but they also are subject to continued attacks on their sovereignty. When it comes to law enforcement, gaming regulation, and their relationship with the federal government, tribal sovereignty is regularly threatened by state action. A lot of the same criticisms that we have made about the DEA apply to government agencies in general. Once you give authority to an institution, that institution seeks to maximize its authority and extend its reach. When its authority is challenged, the institution will work even harder to seek ways to further legitimize and expand its scope. This expansion, along with removing as many human elements as possible from the process, is the nature of bureaucracy.
So, we get why the state would want to enter into these compacts, but does it make sense for the tribes? There are real pros and cons. The tribal business would gain access to licensed Washington marijuana businesses. That means that they could potentially wholesale to licensed producers, processors, and retailers. This is an important consideration, as a lot of tribal land in Washington State is not located in or even near population centers, and those tribes may not be able to support their own retail operations. These tribes that are out in the middle of nowhere could do real business as wholesalers, but would struggle if they needed to generate a lot of foot traffic. Additionally, entering into compacts can be a political move. Tribes can also have gaming and cigarette compacts with the state, and a concession on marijuana may lead to gains in other tribal business ventures.
The biggest negative is that HB 2000 mandates that any tribe entering into a compact with the state must tax its marijuana sales at the same excise tax rate as the state imposes on licensed marijuana producers, processors, and retailers. Part of the reason tribes would want to involve themselves in the marijuana business is that they would be able to undercut the state system by implementing a lower tax rate. Though there is an exemption for sales to tribal members, tribes entering into the retail market would want to offer lower tax rates to non-tribal members as well, in an effort to encourage customers to go out of their way to purchase from the tribe. Tribes that directly operate retail businesses could maybe avoid the negative implications of this tax by deciding to sell product at a steep discount, as tribal marijuana business income and tribal tax revenue would both ultimately end up benefitting the tribal government. However, in existing cigarette tax compacts, there are rules that tax revenue not be used to subsidize cigarette retailers, and similar language would be likely in any marijuana compact.
Additionally, tribes wanting to maintain sovereignty are rightfully distrustful of entering into these agreements with the state, especially if the state tried to mandate that the Liquor and Cannabis Board (still getting used to that new name) enforcement officers be allowed to enter onto tribal land and inspect tribal businesses.
We do not yet know if the state is going to push for that type of enforcement authority, but the first negotiations will certainly be interesting. It is likely that Governor Inslee would delegate negotiating authority to the Liquor and Cannabis Board for any tribal compact. For now, we’ll wait and see which, if any, tribe in Washington decides to enter into negotiations.
On June 4, in Green Bay, Wisconsin, we will be putting on a Tribal Marijuana Workshop at which we will — on a very practical level — be discussing issues like this. This workshop is being put on by our group and by Robert Odawi Porter, one of the top tribal lawyers in the country. We worked with Robert on our last Tribal Cannabis event, at the Tulalip Resort and Casino and that event was a huge success, with more than 450 people attending. For more on our previous event (and a taste of our upcoming one), please check out the following news stories:
- Tribal Marijuana Conference: “A 10-Year Window for Tribes to Capitalize”
- Thoughts on the First Tribal Marijuana Conference
- From Casinos To Cannabis: Indian Tribes Eye Pot Profits
- Marijuana legalization debate draws 75 tribes to Washington state conference
- 75 Tribes Gather in Tulalip to Talk Marijuana