Minnesota Governor In Negotiations To Let Tribes License Off-Reservation Marijuana Businesses

“I think Minnesota will look different than a lot of states in terms of the role tribal nations will play in our market.”

By Peter Callaghan, MinnPost

Pending compacts between Gov. Tim Walz (DFL) and 10 of the state’s 11 tribal nations would allow tribal governments to license businesses to become significant players in the cannabis market with off-reservation stores, cultivation and manufacturing.

The compact negotiations, directed by the 2023 law that legalized recreational cannabis in Minnesota, could give a large share of the new industry to tribal nations and businesses they license. These enterprises would be exempt from rules against vertical integration facing non-tribal businesses that prevent them from having retail, cultivation and manufacturing under one company.

The closed-door compact talks were first reported by MinnPost last May. MinnPost obtained a copy of the pending compact language on Tuesday, and the Office of Cannabis Management (OCM) acknowledged the overall aim of the negotiations.

Spokesperson Josh Collins said in a statement that the new law envisioned “a robust, diverse marketplace with room for social equity applicants, Tribal businesses, and general applicants.”

“As we near the execution of the first few compacts, we are also quickly approaching the anticipated adoption of rules, which would make it possible for OCM to begin issuing licenses to the 200 social equity applicants that qualified during the license preapproval round–including 193 microbusinesses that could be in position to open storefronts this spring as well,” the statement said.

During a hearing before the House Commerce Committee Tuesday, however, acting OCM director Eric Taubel acknowledged the ongoing talks when asked about the operations already set up by the Prairie Island Indian Community.

“I can’t go into specifics of the compacts but I think Minnesota will look different than a lot of states in terms of the role tribal nations will play in our market,” Taubel said. “Having partners like Prairie Island who are engaged in this work will help make us a more robust and successful market.”

At the same hearing, in response to complaints by some other lawmakers that the state’s market rollout trails other states, 2023 law author Rep. Zack Stephenson mentioned tribal involvement as one of the goals of the law.

“We wanted to prioritize small over large; we wanted to prioritize Minnesota entities over people from other states,” said the Coon Rapids DFLer. “If you end up with a model that gives a big advantage to tribal nations and microbusinesses, that pretty much fits right into what we were trying to do in the beginning.”

Tribes involved in the talks did not yet respond to a request for comment.

Leili Fatehi, a lawyer, lobbyist and legalization advocate who helped write the new law, did not comment directly on the draft compact language but said the slow rollout of the legalized market—especially for social equity applicants—is a bigger problem.

“If the licensing process were on track as promised, I don’t think we would be having this conversation, because Tribes and social equity applicants alike would be building their businesses and the early industry infrastructure at the same time,” she said.

“Instead, OCM’s failures have created a situation where Tribal Enterprises are advancing while state license applicants are stuck waiting. That’s not the Tribes’ fault and, unfortunately, now the question has become one of whether the Tribes “deserve” their market share rather than whether the state’s failure to move licensing forward is responsible for this imbalance.

“Let me be clear: The problem isn’t that Tribes are moving forward—it’s that OCM is falling behind,” Fatehi said.

The details of the pending compact come as the state continues to battle litigation to return to a schedule that would see the non-tribal market start by summer or fall. A lottery that would have begun issuing provisional licenses to social equity applicants was canceled when some applicants who weren’t allowed in the lottery sued. Now, the OCM is preparing to accept both general and social equity license applications later this month with hopes of holding a license lottery in May or June.

That lottery will issue 75 retail licenses to social equity applicants—those from communities that suffered from cannabis prohibition—and 75 retail licenses for general applicants. It will also issue 50 cultivator licenses, split evenly between social equity and general applicants. In addition, there will be 50 mezzolicenses in each group. Mezzo licensees are allowed to cultivate and sell in smaller quantities than cultivators.

It is difficult to assess how many retail stores will be tribal affiliated, since each tribe can license multiple “tribal enterprises” that would each have up to five stores and each have up to 30,000 square feet of plant canopy. That is the amount of cannabis cultivation that each holder of a non-tribal cultivation license would be permitted.

If each of the 10 tribes authorizes one tribal enterprise, that could include up to 50 off-reservation dispensaries. If one or more authorizes more than one tribal enterprise, each could add five stores to their inventory. The provision would also help smaller tribes or those with reservations in rural parts of the state without large markets because they could open stores in the metro area.

But not all tribes have been trying to enter the market, so it is unknown how many will sign compacts or start cannabis businesses.

The tribal enterprises approved under the compacts would have to have at least 51 percent tribal ownership and would be prevented from operating on-reservation and competing with cannabis retailers owned by tribal governments. The cannabis aspects of these enterprises would be regulated not by the state Office of Cannabis Management but by tribal regulatory agencies created by tribal governments.

It also would allow the 10 tribes involved in negotiations (the one tribe not taking part is the Upper Sioux Community) to do business with other tribes and with non-tribal businesses licensed by OCM. That means cannabis products grown and manufactured by a tribal entity or tribal business could be sold to non-tribal retail stores, micro businesses or mezzo businesses.

That said, the compacts make several references to agreements that many of the limits and other controls would match those adopted by OCM. And it includes 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 can be collected on sales on reservation, just as tribal casinos cannot be made to share revenue with the state and don’t in Minnesota. But the draft compacts do envision some tax collection in tribal stores operating 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.

While it is unclear how close the draft obtained by MinnPost is to a final agreement, those involved have been saying they expected to close a deal within weeks. The White Earth Band of Chippewa announced last week that it would be opening off-reservation stores in Moorhead next month and St. Cloud in the spring, pending approval of a state compact.

When the talks began last spring, the state was represented by staff from the Office of the Attorney General, the Office of Cannabis Management, the governor’s office and outside legal counsel Mark Levitan, hired to help with the negotiations. The state has not engaged in negotiations for new compacts with tribes for decades and wanted outside legal expertise on cannabis law and tribal relations, which Levitan has, the officials said.

Last May, a Walz administration official speaking on condition that they not be named, said “these are friendly parties with the goal of getting to yes and making sure the state’s needs and the tribes’ needs are both met by what the statute allows.”

The 2023 law that required Walz to negotiate compacts “in good faith” patterns the talks over the state–tribal compacts over casino gambling that resulted from the federal Indian Gaming Regulatory Act.

“The legislature finds that these agreements will facilitate and promote a cooperative and mutually beneficial relationship between the state and the Tribes regarding the legalization of cannabis,” the law states. “Such cooperative agreements will enhance public health and safety, ensure a lawful and well-regulated cannabis market, encourage economic development, and provide fiscal benefits to both Indian Tribes and the state.”

The law states that the governor cannot require any revenue sharing or right to tax tribally licensed cannabis sales, cannot require state licensing or oversight and cannot require tribes to permit state laws to be enforced on tribally regulated land. It also, at some length, assured that business interactions between tribal entities and state-regulated businesses—as well as interactions between non-tribal customers and tribal businesses—would be legal.

This story was first published by MinnPost.

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