On the Tribal Cannabis Question

by Dominic Corva, Executive Director

*A day after publishing this, Indian Country Today Media Network announced a February 27 conference about this issue, sponsored in part by Harris Moure PLLC and Odawi Law PLLC. Click the link for details.

By now most people should be aware that in December, the U.S. Department of Justice released a memo dated October 28, 2014, that effectively extends Federal toleration of legal cannabis regulation to all Native American lands. The three page document clarifies that the August 2013 Cole memo doesn’t just apply to states, but to tribal territories.  Within days of the LA Times article that brought the memo to national attention, a Mendocino County tribe announced that they had closed a deal with investors to begin production using locally existing medical cannabis regulatory frameworks. This post addresses what I have learned about what’s going on in the last month.

The first thing to note is that although all state legal regulatory frameworks are expected to comply with the Cole Memo’s eight area’s of concern, each state is free to experiment with different ways to do so. In Washington State, policymakers have chosen an extremely conservative approach that limits the flexibility and viability of the state system. This approach satisfies political requirements that strangle the viability of the legal system and therefore limits tax revenues considerably.

By contrast, Native American interests are likely to be much more focused on the maximization of public and private revenue. This means, among other things, lower taxes and a more liberal approach to locating production, processing and revenue. As a result, tribal cannabis prices are likely to undercut State I 502 prices considerably, once production begins. Once tribal production matures, it poses an existential threat to public and private revenues under I 502.

Given that state authorities will have little leverage in the matter, it is highly likely that I 502 will have to change to level the playing field and maintain a state tax revenue flow. How much it will have to change will depend upon what regulatory model tribes adopt.

I was recently contacted by the representative of a large national investment group that had become stuck on this question, and wanted our assistance in communicating options to tribal authorities. The appointed time came for my input, but no one called and the matter was left unresolved. I was left wondering to what extent the investors were overreaching, given their stated intent to monopolize national tribal cannabis production.

Over the last several weeks, since the initial contact, information has been coming and going about other investment groups and different iterations of nationally and locally coordinated tribal interests. Not much is clear, but at this point I can say a few general things about the direction this may be going.

First, tribes are going to have to pick a regulatory model that addresses the Cole memo, and they may be coordinating this process through national tribal casino interests in combination with possibly competing venture capital interests of enormous magnitude. they don’t have to: local tribes could strike out on their own, but it seems that given the availability of massive investment capital it is likely that this process will be coordinated with Big Money interests.

Second, “tribal interests” are likely to mean tribal casino interests. This may pose some issues for other tribal interests that may get steamrolled by outside money. This, folks, is best characterized by the term “colonialism,” whereby tribes are exploited by a combination of outside forces collaborating with inside elites. The potential for exploitation is simply enormous, given that this particular memo seems to have been dropped in their laps. Endogenous indigenous cannabis experts are few and far between, and it’s going to be fairly easy for folks who understand cannabis markets to set the tone for and content of emergent Native American cannabis industries. That said, there’s also lots of room for folks to build genuinely productive relationships with Native American tribes to develop healthy and viable cannabis markets.

Third, and I can’t emphasize this enough, enormous investment groups are likely to want to monopolize indigenous cannabis industries and may be competing with each other to do so. This may manifest itself in the centralization of production and processing, which will concentrate market share and value in a few hands. This would destroy existing efforts to preserve space for a democratic cannabis economy.

Fourth, this will take a while — but not that long. Within the year we could see the first wave of tribal production, and by year two it could be significant enough to cause lawmakers to revisit and repair legal regulatory frameworks that are, right now, being revisited and repaired in legislative session. Policymakers who are thinking in terms of state experiments have to revise their thinking — we are now moving from what is formally one scalar relationship (state and federal) to three (tribal-federal, state-federal, and state-tribal-federal). Informally, of course, in Washington State we realize that “state” isn’t a homogeneous territorial field but one that is constituted of multiple local-state relationships: county-state, city-state, city-county, ad infinitum.

And maybe this is the only certain thing that can be said right now: absent Federal descheduling, the landscape of legalization has been marching towards a confusing and irrational patchwork of economic and political interests that make it very difficult indeed to evaluate for public and private interests alike.