Native American Tribes Eye Lucrative Marijuana Market
August 21, 2017 9:00 AM
An increasing number of Native American tribes are looking to the marijuana business to break the poverty on reservations, but they are treading quietly over uncertainties in federal policy, which could shift under President Donald Trump.
Cannabis is big business in states that have legalized its medical or recreational use. Arcview, a California cannabis investor network, says the U.S. marijuana market earned $6.7 billion in 2016.
Apart from its medical and euphoric properties, proponents of cannabis cite the industrial potential of hemp, which is derived from the male cannabis plant. It is used globally in more than 25,000 products, from fabrics to food to pharmaceuticals. Because of its association with marijuana, hemp cultivation is strictly controlled in the U.S., and manufacturers must import hemp fiber, seed and oil.
“Let’s just look at one small piece of what hemp can do,” said Leslie Bocskor, founder of Electrum Partners, which works with states and tribes looking to enter the cannabis industry. Hemp, Bocskor said, can be used to manufacture plastics that are more environmentally friendly than plastics made from oil and gas, which aren't biodegradable.
“When you put hemp plastic into landfill, it will break down into things that are not damaging, at worst, and, at best, it can be additive to the soil it’s put into,” he said. “It also causes far less pollution to produce hemp plastics.”
Tribes stand to realize even greater profits than states due to their tax advantage.
State cannabis producers and retailers can't deduct business expenses on their federal tax bills and end up paying a larger part of their gross earnings to the government.
But recognized tribes and tribal corporations don't pay federal income tax on earnings gained on reservations.
“This effectively creates a profit margin — versus non-tribally owned cannabis businesses — of what could be up to 85 percent,” said Bocskor.
So why aren’t tribes leaping at the opportunity?
The federal government regulates drugs through the 1970 Controlled Substances Act, which bans the use of marijuana.
“But states have been going ahead with legal marijuana programs ever since 1996, when California was the first to legalize a medical cannabis program,” said Vincent Sliwoski, a Portland attorney who represents cannabis companies. “States have been defying federal law for a long time, and there have been sporadic enforcement and non-enforcement periods.”
In 2013, the Department of Justice (DOJ) issued a guidance memo essentially giving states permission to grow and sell marijuana without fear of federal prosecution — with some restrictions: States may not allow it to grow on public land, for example, be sold to minors, distributed in states where it is illegal or channel profits into drug cartels. DOJ issued similar guidance to tribal governments a few months later.
“Now this is just paper; it isn’t a law,” said Sliwoski, who also teaches cannabis law. “It’s the attorney general telling states, ‘Don’t waste federal funds right now, but maybe our minds will change later.’”
Twenty-nine states and the District of Columbia have legalized some form of marijuana use. Several tribes have attempted to enter the market; most have been shut down by the government.
In July 2015, federal agents raided two reservations in northern California, alleging they were producing unlawful quantities of marijuana, which the tribes denied.Three months later, agents seized industrial hemp plants from Wisconsin’s Menominee Nation,charging that non-Natives with ties to the Colorado marijuana industry were managing the operation and that the plants contained higher levels of THC than permitted. The Menominee said they had invited the government to test the plants and had offered to destroy any plants that tested too high.
In the wake of these raids, South Dakota’s Flandreau Santee Sioux tribe burned its crop and shut down operations, fearing a similar crackdown.
But others, such as the Squaxin Island Tribe in Washington state, where marijuana is legal, have successful retail businesses. Still other tribes, including South Dakota’s Oglala Sioux, have banned marijuana altogether.
It's not clear why authorities have pressured tribal marijuana operations. Sliwoski said it's possible some police agencies are interpreting the DOJ memo incorrectly. "It’s also possible that certain local U.S. attorneys have been more zealous than their counterparts in other areas, and that enforcement has fallen disproportionately upon tribes for that reason," he said.
U.S. Attorney General Jeff Sessions openly opposes marijuana. And a presidential spokesman said Trump sees a big difference between medical and recreational marijuana. The president understands the use of medical marijuana to ease suffering, the spokesman said, and he suggested that crackdowns on recreational marijuana could be coming.
Bocskor continues to advise tribes and predicts the government will hold back from stricter marijuana enforcement.
“The federal government is in a very difficult position here,” he said, noting that Colorado has received more than $500 million in tax revenue from marijuana sales since it legalized the drug in 2014.
Taking that revenue away from states, he said, “would be a very, very unpopular” move.