The entire market is disrupted if they do not have to follow the same rules and compete on the exact same market.
By Peter Callaghan, MinnPost
But there are others who may be interested. Tim Walz (DFL), or tribal nation leaders, have repeatedly asked how and when they can express their opinion on imminent state/tribal cannabis agreements.
Answer: No. These pending agreements, which are expected to permit tribal nations in the state to operate a legal cannabis business beyond their reservation boundaries, will not become public until Walz and these tribes sign them. They would become the first U.S. state-tribal cannabis agreements that allow tribal businesses to operate off reservation land. Once they are signed, the compacts cannot be changed without both parties’ consent.
It is up to lawmakers, local government officials and people who want to start cannabis businesses in their communities. They can voice concerns without much expectation of them being taken into account by the state’s negotiators. Walz endorsed the basic tenets of the deal—that the tribes would get a large chunk of the off-reservation market and be allowed to open their stores well before non-tribal stores can open.
They’re excellent partners. Walz added, “They know how to achieve this.” Many of them have already started, and they are clearly enough ahead to cultivate their own sovereignty. Then I believe we are in good condition, and that these plans will be carried out in the next few months. “I think this is the beginning of a much larger market, which will shake out in time.”
He claimed that having the tribes’ stores open “let us go out”
“I believe we’re on a solid footing.” The governor stated, “I am confident about them.”
Mark Levitan, an outside lawyer, is also involved in the negotiation. While Walz’s recreational cannabis legislation of 2023 set up talks with tribal leaders and nation-tonation, negotiations seem to be being lead by Eric Taubel. Taubel had previously been chief counsel at the Office of Cannabis Management. Levitan has a California law degree and is an attorney with experience in both tribal law as well as cannabis law. MinnPost first revealed the existence of compact discussions in May 2024.
Although both state officials and tribal representatives involved in closed-door discussions claim that a leak of the final compact document isn’t true, the comments included in it suggest it may be at an editing stage rather than the negotiation stage.
Tribal expansion
Several tribes have begun to plan for businesses outside of reservations that are authorized under the agreements. The White Earth Band of Chippewa, a cannabis company affiliated with them, has opened a shop in Moorhead and plans to open more in Mankato or Rochester. The Prairie Island Indian Community announced this week a project to grow and manufacture cannabis for their existing store on the reservation, “and ultimately the larger Minnesota market”.
Taubel was recently asked at a hearing to give an update about the implementation of a legal market if he had any information on compact discussions and possible agreements with tribes.
Zach Duckworth (R, Lakeville) says that the cities of his district are worried about a proposed agreement which exempts tribal stores from local laws and regulations governing cannabis. This includes local requirements for registration and inspections. He is also worried that tribal stores will not be subject to the same 10 percent Cannabis tax or sales tax as other stores.
Will the public be shocked when the compact is signed or will we all be informed beforehand? And maybe even be asked to provide feedback or ask questions by the Legislature?” Duckworth asked. At the end of it all, cities and counties do not like surprises.
Taubel replied, “The compacts are public by statute and will be posted publicly on the website, as per law.”
Negotiations for the compact were mandated by the recreational cannabis law of 2023 and took place between the state, the tribes and similar agreements reached after 1988 when the Indian Gaming Regulatory Act was passed. There is no requirement in the law that the state negotiates off-reservation purchases. These would be first-ever state-tribal contracts in the United States if they were signed.
Legislative approval and public commentary are not required for cannabis compacts. The negotiations have taken place in secret, with the contents of any possible deals being kept secret up until an early draft of a compact leaked.
Under the draft compact language, obtained by MinnPost, tribes that create regulatory agencies—essentially tribal versions of OCM—can then approve what are called tribal enterprises that can operate retail stores, grow cannabis and manufacture cannabis products. Although each tribe can approve more than one tribe enterprise, they are limited to five off-reservation stores each and a canopy of up to 30,000 feet.
The amount that non-tribal licensed operators can purchase of this product is not limited.
Tribal enterprises that are approved by the compacts must have at least a 51 percent ownership. They cannot operate on reservations and compete with tribal government-owned cannabis retailers. Non-tribal licensees that qualify as social equity applicants—a status that was to give them advantages in licensing and grant eligibility—must own at least 65 percent of businesses.
Cannabis aspects in tribal businesses would not be regulated by state OCM, but rather by tribal regulatory bodies created by tribe governments.
A compact draft would also allow 10 tribal entities (the Upper Sioux Community is the only tribe that does not participate) to conduct business with each other and non-tribal licensed businesses. This means that cannabis grown or manufactured by tribal entities or tribal businesses could be sold in non-tribal retailers, microbusinesses and mezzo business.
The compacts do make references to the agreement that most of the limitations and controls placed on tribal business would be the same as those set by OCM. It also includes the following language: “Tribal Enterprises that operate outside Tribally Regulated Land will not be exempted from State laws or regulations other than those related to cannabis by this Compact.”
Tribal casinos in Minnesota and elsewhere cannot be forced to pay taxes on their sales, nor can they be required to do so. The draft compacts envision taxation in tribal stores that operate off-reservation.
The Tribe and State have agreed to a tax arrangement, which is authorized by Cannabis Act Art. 2, Sec. 2, subd. In the future, the Minnesota Department of Revenue may negotiate with the Tribe for a six-year agreement on the distribution of the gross receipts taxes and sales taxes collected by any Tribally Owned Cannabis Business that is located off the Reservation. The word “may”, however, means that it’s allowed but not mandatory.
The leaked draft of the compact, released not by the State or Tribes, but due to the leakage, has worried many lawmakers, local governments officials and individuals who are hoping to enter into the legal cannabis industry.
‘A bit unsettling’
A local representative who did not want to be named for fear that he would anger the Walz Administration or tribes noted that the local governments were fighting for their role in the cannabis regulations. The local governments are allowed to limit the number of cannabis stores in their area based on population. They can also conduct health, safety, and compliance checks, as well as sting operations for underage sales.
No such restrictions would be applicable to stores operated by tribal groups. Walz’s budget proposal would eliminate the program that currently helps cities and counties with this work by using some of the money generated from cannabis taxes.
The official stated that “local governments have already had significant authority taken away from them in the cannabis industry.” It’s unsettling for many communities that the state continues to negotiate critical aspects of this industry, without updates or input by locals. This could have a negative impact on our ability to register business, collect taxes, and even inspect businesses to ensure they comply with age verification and other requirements.
Rep. Nolan West, R-Blaine is the House GOP leader on the cannabis and sports gambling issue. He is also one of only a few Republicans who voted in favor of legalizing cannabis. After reading the proposed compacts he stated that they were unfair to cannabis entrepreneurs who are not tribal. He will therefore stop his efforts on legalizing sport betting.
Yesterday, it was revealed that the Walz and Flanagan administration gave the Tribes a quasi-monopoly over Minnesota’s marijuana market. This could have put hundreds of millions in investment dollars into our state at risk. “If this is the way that administration will function during negotiations, then I’m going to stop my efforts to legalize sport betting in our State,” West stated in a February 11 statement.
West expressed concerns this week about the agreement and raised questions over the unclear taxation. Cannabis retailers have to assess state and local tax, as well as the 10% cannabis tax.
West added, “I am shocked that they are not paying the sales tax or 10 percent tax.” I would have thought that the Minnesotan negotiators would at least require this. However, tribal sales will continue to have a significant price advantage because only large tribal businesses will be permitted to produce and sell.
“On manufactured products—gummies, edibles, the beverages, the tinctures—I expect the tribal governments to have an outrageous price advantage,” West said.
West also questioned if campaign donations from tribal donors of Walz affected the governor’s decision to give tribes a competitive advantage in cannabis.
West stated, “Everyone knows they are sovereign nations and they operate from the reservation.” “I knew they’d be in front of the pack. The governor never made a deal with them to get off the reservation before anyone else. It is just beyond the pale.”
Unfair advantage?
Steven Rosenfeldt from Moorhead wrote a letter in the Fargo Forum describing how his plans to join the legal marijuana market were threatened by the White Earth Band tribal compact. Rosenfeldt is a pharmacist who has owned a hemp shop that he hoped to turn into a cannabis recreational store when licenses became available.
White Earth has bought a building on the other side of the road and announced that it will open a dispensary once the agreements are signed.
Rosenfeldt wrote, “I held fast to my belief that as soon as the State of Minnesota finished its regulatory framework for cannabis sales, I would be able to convert into a fully licensed cannabis dispensary.” “I adhered to the Moorhead City ordinance and Minnesota State Law, as well as worked for two (2) long years in order to run a small company within my community.”
“Now, after nearly 2 1⁄2 years and without ever having been contacted, the State of Minnesota is allowing the White Earth Nation to open a dispensary across the street from my business all but ensuring my business will close,” the letter says. The state’s first lottery for licenses will be held in June but the tribal store could open as early as March.
“They did not get a ‘head start,'” Rosenfeldt wrote. “They ran the first part of this race on their own.”
Nathan Young operates under the Hemp House brand five Twin Cities shops that sell low-potency THC. In Washington State, he was in the marijuana business when it became legalized in 2012. He moved to Minnesota by 2020. Young decided not to move forward with recreational cannabis after he saw the barriers that those who wanted cannabis licenses had to overcome.
Young still believes the compact provides tribes with an unfair advantage, both in timing and price. Nevada and Washington, for example, have tribal compacts which do not allow tribal businesses to access the legal off-reservation market. And being allowed to grow, manufacture and sell under one business entity—the type of vertical integration not permitted for non-tribal cannabis businesses—will allow tribal enterprises to undercut what non-tribal stores must charge. The draft compacts do not address taxation, which remains unclear.
Young explained that the pricing advantage resulting from vertical integration is almost impossible to match. If you include a tax benefit, then that is the entire ballgame.
The skin of my nose is not affected. Young declared, “I’m sticking with hemp.” But it’s disappointing and I believe a lot hearts will be broken. Many people who gave up their 401ks or their entire life savings to this project, and were promised by the government that there would be a level playing ground for them were duped. This will make it nearly impossible to compete. The maths I am looking at now doesn’t show it. I wish I was wrong.
Young added, “I’m not sure anyone will have a problem with the tribes producing cannabis to sell on markets regulated by state law.” It’s basically the position of the state that tribal laws extend to properties owned by tribal dispensaries outside tribal land. The problem is that. They disrupt the whole market if they do not have to follow the same rules and compete in the exact same markets.
The original publication of this story is MinnPost.
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Side Pocket Images. Image courtesy Chris Wallis.