“If they don’t have to play by the same rules or compete in the same market, that disrupts the entire market.”
By Peter Callaghan, MinnPost
People within the leisure hashish market who are usually not Gov. Tim Walz (DFL) or leaders of the state’s tribal nations have been asking when, the place and the way they will current their views on imminent state-tribal hashish compacts.
The reply is: They can’t. The pending compacts that at the moment are anticipated to permit the state’s tribal nations to enter the authorized hashish enterprise outdoors of their reservations won’t be made public till they’re signed by Walz and the tribes. Once signed, they might be the primary state-tribal hashish compacts within the U.S. to permit tribal enterprises to function outdoors of reservation lands, and so they can’t be amended with out mutual settlement.
That leaves lawmakers, native governments and potential hashish enterprise folks to boost points publicly with little expectation that they are going to be thought-about by state negotiators. Walz endorsed the essential tenets of the deal—that the tribes would get a big chunk of the off-reservation market and be allowed to open their shops nicely earlier than non-tribal shops can open.
“They’re great partners in this. They know how to do this,” Walz mentioned. “Many of them are ahead, obviously enough to set up for them and their sovereignty, to be cultivating. So I think we’re in good shape, and I think they’ll be executed in the near future. And I think that’s the first step in a broader market that is going to be big, and it’ll shake itself out over time.”
He mentioned having tribal shops open first “lets us get out there.”
“I think we’re in a good spot. I feel confident with them,” the governor mentioned.
While the 2023 leisure hashish regulation arrange nation-to-nation talks between Walz and tribal leaders, the negotiations seem like led by Eric Taubel, who had been the chief counsel for the Office of Cannabis Management and is now the appearing director, in addition to outdoors authorized counsel Mark Levitan. Levitan is a California-based legal professional with experience in tribal regulation and hashish regulation. The existence of compact talks was first reported by MinnPost in May 2024.
While each the state and tribes concerned within the closed-door talks say a leaked copy of a compact isn’t remaining, it seems from feedback proven within the doc that it’s on the enhancing stage, not the negotiating stage.
Tribal growth
And a number of tribes are shifting forward with plans for off-reservation companies that shall be approved by the agreements. A hashish firm related to the White Earth Band of Chippewa has announced a retailer in Moorhead with plans to increase in Mankato and Rochester. And the Prairie Island Indian Community this week introduced a hashish rising and manufacturing mission it mentioned would offer hashish merchandise for its existing on-reservation store “and eventually to the wider Minnesota market.”
At a latest listening to the place Taubel gave an replace on the implementation of the authorized market, he was requested in regards to the compact talks and a doable settlement with the tribes.
Sen. Zach Duckworth (R-Lakeville) mentioned cities in his district are involved in regards to the proposed deal that exempt tribal shops from native hashish ordinances and enforcement, akin to necessities to register and be topic to native inspections. He was additionally involved that the tribal shops won’t should cost gross sales taxes and the ten p.c hashish tax that different shops should acquire.
“Will the public be surprised by the compact when it is signed, or will it be made public to all of us beforehand and maybe be presented to the Legislature for feedback or questions?” Duckworth requested. “At the end of the day, our cities and counties don’t like surprises.”
In response, Taubel mentioned, “The compacts themselves by operation of statute will be public upon signature and posted on a public website as the law states.”
The compact negotiations had been required by the 2023 leisure hashish regulation and are between the state and the tribes, much like the playing compacts struck after passage of the federal Indian Gaming Regulatory Act in 1988. Nothing within the regulation requires the state to barter off-reservation gross sales and, if signed, they might be the primary state-tribal compacts within the nation to take action.
The hashish compacts are usually not topic to legislative approval or public remark. Negotiations have been in personal, and the content material of doable offers had been secret till a draft of 1 compact was leaked earlier this month.
Under the draft compact language, obtained by MinnPost, tribes that create regulatory companies—basically tribal variations of OCM—can then approve what are referred to as tribal enterprises that may function retail shops, develop hashish and manufacture hashish merchandise. While every tribe can authorize multiple tribal enterprise, every tribe is capped at 5 off-reservation retail shops and as much as 30,000 sq. toes of plant cover.
However, there aren’t any caps on the quantity of plant cover tribes can have on their reservation land and there doesn’t seem like limits on how a lot of that product might be bought to non-tribal licensees working off reservation.
The tribal enterprises authorised below the compacts must have a minimum of 51 p.c tribal possession and could be prevented from working on-reservation and competing with hashish retailers owned by tribal governments. Non-tribal licensees that qualify as social fairness candidates—a standing that was to provide them benefits in licensing and grant eligibility—should personal a minimum of 65 p.c of companies.
The hashish points of the tribal enterprises could be regulated not by the state OCM however by tribal regulatory companies created by tribal governments.
The compact draft additionally would enable the ten tribes concerned in negotiations (the one tribe not collaborating is the Upper Sioux Community) to do enterprise with different tribes and with non-tribal companies licensed by OCM. That means hashish merchandise grown and manufactured by a tribal entity or tribal enterprise could possibly be bought to non-tribal retail shops, microbusinesses or mezzo companies.
That mentioned, the compacts make a number of references to agreements that most of the limits and different controls on tribal companies would match these adopted by OCM. And it contains this language: “Tribal Enterprises operating outside of Tribally Regulated Land are not by this Compact made exempt from any generally applicable non-Cannabis related State law or regulation.”
No state taxes might be collected on gross sales on reservation, simply as tribal casinos can’t be made to share income with the state and don’t in Minnesota. But the draft compacts do envision some tax assortment in tribal shops working off reservation.
“The Tribe and State agree that a tax agreement, as authorized under Cannabis Act Art. 2, Sec. 2, subd. 6 for sharing of sales and gross receipts tax collected from any Tribally owned cannabis business that operates off-Reservation, may be negotiated between the Tribe and the Minnesota Department of Revenue in the future,” it states. But the phrase “may” means it’s allowed however not required.
The compact particulars which were out there, not by the state or the tribes however due to the leaked draft, have fearful some lawmakers, native authorities officers and individuals who have hopes to enter the authorized hashish market.
‘A bit unsettling’
One native authorities consultant, who requested to not be recognized for concern of angering the Walz administration or the tribes, famous that native governments needed to combat for any position in hashish regulation. They are allowed to cap the variety of shops based mostly on their inhabitants and might conduct primary well being, security and compliance inspections, together with sting operations to catch underage gross sales.
None of that will apply to tribal shops. The present regulation offers some cash from the hashish tax to assist cities and counties pay for that work, although Walz’s proposed finances would finish that program at a financial savings of $13 million within the subsequent two-year finances interval.
“Local governments already have had a significant amount of authority removed from them when it comes to the cannabis industry,” the official mentioned. “It’s a bit unsettling to many communities to think the state is further negotiating critical aspects of the industry without any updates or input from locals, particularly when the end result could impact our ability to register businesses, collect taxes and potentially even inspect to ensure compliance with age verification requirements and more.”
Rep. Nolan West (R-Blaine) is the House GOP lead on the difficulty of hashish and sports activities betting and is without doubt one of the solely Republicans to have voted sure on hashish legalization. But after studying in regards to the proposed compacts, he mentioned they’re so unfair to non-tribal hashish entrepreneurs that he’ll halt his work on legalizing sports activities betting.
“Yesterday, news broke that the Walz-Flanagan administration is giving the tribes a pseudo-monopoly on Minnesota’s cannabis market, jeopardizing hundreds of millions of dollars of investment into our state. If this is how the administration is going to function in negotiations, I am discontinuing my efforts to legalize sports betting in our state,” West mentioned in an announcement launched February 11.
This week, West mentioned he has a number of considerations in regards to the deal and has questions in regards to the lack of readability about taxation. Cannabis retailers should assess each state and native gross sales taxes but in addition add within the 10 p.c hashish tax.
“I would be shocked if they’re not paying sales tax and the 10 percent excise tax,” West mentioned. “I would think at minimum that would be a requirement of the negotiators who are supposed to represent the people of Minnesota.” But there’ll nonetheless be a value benefit for tribal gross sales as a result of solely tribal enterprises shall be allowed to develop, manufacture and promote at a big scale.
“On manufactured products—gummies, edibles, the beverages, the tinctures—I expect the tribal governments to have an outrageous price advantage,” West mentioned.
West additionally questioned whether or not marketing campaign contributions from tribal donors to Walz influenced the governor’s willingness to provide tribes a bonus within the hashish business.
“Everyone knew they’re sovereign nations, they can operate on the reservations,” West mentioned. “I understood that they would be ahead of everyone. But at no point did I think the governor would make a deal that they get to sell off-reservation before everyone else. That is beyond the pale.”
Unfair benefit?
In a letter to the Fargo Forum, Steven Rosenfeldt of Moorhead describes how his personal hopes to enter the authorized hashish market are threatened by the tribal compact with the White Earth Band. Rosenfeldt, a former pharmacist, has a hemp retailer that he had hoped to transform to a leisure hashish retailer as soon as licenses had been made out there.
But a White Earth entity has bought a constructing throughout the road and has introduced plans to open a hashish dispensary there as soon as the compacts are remaining.
“I held firm in my understanding that once the State of Minnesota completed a regulatory framework for the sale of cannabis, I would have the opportunity to transition into a full cannabis dispensary,” Rosenfeldt wrote. “I comported with Moorhead metropolis ordinance, Minnesota state regulation, and labored over two (2) years to function a small enterprise in my residence neighborhood.
“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. While the state’s first license lottery won’t be held till June, the tribal retailer can open as quickly as March, he mentioned.
“They did not get a ‘head start,’” Rosenfeldt wrote. “They got to run the first half of this race by themselves.”
Nathan Young additionally has a low-potency THC enterprise that operates 5 Twin Cities shops below the identify Hemp House. He was concerned within the hashish enterprise in Washington state when it was legalized in 2012 and moved to Minnesota in 2020. But after contemplating a transfer into leisure hashish, Young has determined to remain on the hemp aspect of the enterprise after seeing the hurdles positioned in entrance of these searching for hashish licenses.
Still, Young mentioned he thinks the compact offers tribes an unfair benefit not solely on timing however on value. Other states akin to Nevada and Washington have signed tribal compacts that don’t open the off-reservation authorized market to tribal enterprises. And being allowed to develop, manufacture and promote below one enterprise entity—the kind of vertical integration not permitted for non-tribal hashish companies—will enable tribal enterprises to undercut what non-tribal shops should cost. And that doesn’t account for taxation which is left unclear within the draft compacts.
“The pricing advantage from vertical integration alone is going to be nearly insurmountable for others to compete against,” Young mentioned. “If you add in a tax advantage as well, that’s the whole ballgame.”
“It’s no skin off of my nose. I’m staying in hemp,” Young mentioned. “But it’s disappointing, and I believe a variety of hearts are going to be damaged. I believe a variety of of us who cashed out their 401k or dumped their life financial savings into this and who had been assured by the state that they might have a degree taking part in discipline had been bought a invoice of products. It shall be practically unimaginable for them to compete. I hope I’m incorrect, however I simply don’t see it within the math I’m proper now.
“I don’t think anybody would really have any challenge with tribes being able to produce cannabis and sell it into state-regulated markets,” Young mentioned. “It’s essentially the state’s position that tribal law extends to tribal dispensary properties outside of tribal land. That is the big problem. Because if they don’t have to play by the same rules or compete in the same market, that disrupts the entire market.”
This story was first published by MinnPost.
Photo courtesy of Chris Wallis // Side Pocket Images.
Marijuana Moment is made doable with help from readers. If you depend on our hashish advocacy journalism to remain knowledgeable, please contemplate a month-to-month Patreon pledge.
