In late October 2014, the U.S. Justice Department issued the so-called “Wilkinson Memo,” which signaled that under the right circumstances, the Obama Justice Department would discourage prosecution by local United States Attorneys of tribal efforts to legalize and sell marijuana. This possible opening of the door to tribal cannabis enterprises came with a variety of strings and conditions attached; it was really more of a yellow light than a green one Following the issuance of the Wilkinson Memo, several tribes have tried to legalize cannabis on their reservations and launch cannabis enterprises in one form or another. Some tribes have met with success, others have not. This article explores the lessons learned in the last year and a half, in an effort to identify best practices for Tribes considering entering the cannabis space.
First a bit of background. The Wilkinson Memo extended prior Justice Department policy on the cannabis industry to Indian Country. Since the passage of the Controlled Substances Act passed in 1970, there has been a complete prohibition on cultivation, processing, distribution, and possession of cannabis under federal law. When Colorado and Washington State legalized cannabis for recreational use, the Obama administration was faced with an unprecedented disconnection between state law and federal law on a hot-button public policy issue. The administration addressed the conflict through a series of memoranda issued by the Justice Department clarifying how the federal government would approach enforcement and prosecution of federal marijuana crimes in instances where marijuana had been decriminalized or fully legalized at the state level.
The first memorandum (the “Cole Memo”) was issued in August, 2013 and took a cautious “hands off” approach to these state legalization experiments. Specifically, the Cole Memo indicated that while the Department continued to be committed to enforcing the Controlled Substance Act, it believed that it was prudent to invest investigatory and enforcement resources in a “effective, consistent, rational way” to address the most serious threats posed by marijuana. The administration’s forbearance is conditioned on the assumption that (1) the state in question implemented a “strong and effective” regulatory system and (2) certain federal law enforcement priorities (sales to minors, gang and cartel activity, interstate trafficking, use of marijuana sales as a cover for other illegal activity, violence and firearms use, impaired driving, use of public lands for marijuana cultivation and marijuana use on federal property) were not implicated by a state’s relaxation of marijuana prohibition.
The Wilkinson Memo essentially extends the Cole Memo criteria to Indian country, with the added condition that tribes consult with federal prosecutors as to their plans and intentions regarding cannabis regulation “on a government-to-government” basis.
It’s critical to recognize that the Cole and Wilkinson Memos are policy statements about how federal prosecutors should prioritize their law enforcement efforts; they are not changes in the law. Marijuana remains completely illegal under federal law. The Justice Department can change its mind about the policy pronouncements whenever it chooses. For example, a future president hostile to the industry can reverse the policy. Political trends seem to be moving in the direction of discarding cannabis prohibition; however, until the U.S. Congress amends the Controlled Substances Act, participating in the cannabis business means committing federal felonies, even if the government decides to look the other way. When consider whether to participate in the cannabis industry, Tribal governments need to take these risks into account.
We represent tribes in a number of states that are exploring the cannabis space. Here are some of the things we’ve learned.
Consultation and transparency are paramount. Tribes that have announced cannabis plans without prior consultation with both state and federal law enforcement officials have had universally bad outcomes. State and federal law enforcement do not want to be caught flat-footed when tribes publicly disclose plans for a cannabis operation. Additionally, prosecutors, being lawyers, move slowly and deliberately, and particularly so when they are considering issues in a novel space like the cannabis industry. So for a tribe, “consultation and transparency” means entering into a dialogue with both state and federal law enforcement officials before any public announcement of the launch of a marijuana enterprise. It also means soliciting and responding to state and federal concerns as a tribal government shapes the plans for its cannabis regulatory system.
Cannabis regulation is an exercise of tribal sovereignty. It’s tempting to think of tribal cannabis as a strictly business proposition. And while there is an excellent potential for cannabis to be an important source of revenue for a tribal government, the Wilkinson Memo conceptualizes the issue as a tribe’s exercise of governmental powers, to enact legislation governing the production, sale and use of marijuana on tribal land. As with gaming, tribes will want to provide for a strong and effective tribal licensing, regulatory and taxation regime to govern any potential growing, processing and sale of marijuana on tribal lands. The Wilkinson Memo requires a “robust” regulatory regime as a prerequisite for the possible prosecutorial forbearance. It is important for tribal officials to remember this mindset when talking to federal and state officials, since it sets the stage for the critical discussion of tribal sovereignty and preemption of state regulatory power.
Be prepared to marshal legal arguments supporting tribal sovereign powers. A tribe considering a cannabis enterprise must deal with both federal and state (and possibly local) law enforcement. The Wilkinson Memo provides the template for conversations with federal officials, but it does not answer questions about the scope of possible state jurisdiction and taxing authority over a tribal cannabis enterprise. To answer those questions, a tribe must carefully analyze the scope and of its sovereignty and be prepared to effectively rebut state arguments regarding possible state jurisdiction over on-reservation activities, in particular on-reservation activities by non-tribal members. Again, as with gaming prior to the enactment of the Indian Gaming Regulatory Act, this will involve analysis of relevant federal law, as well as a highly fact-specific balancing of relevant federal, tribal and state interests in the arguable applicability of any state laws. Which leads to the next point.
It’s critical to understand the relevant state regulatory regime. The political reality that tribes are likely to face is that most state governments will be very uncomfortable with a tribe getting out too far ahead of a state in terms of its level of regulatory permissiveness. Having a thorough understanding of the relevant state regulations is a must, since it will allow a tribe to convincingly assert that a proposed tribal marijuana regulatory regime addresses the same public policy concerns that the state regime does and diminishes the weight of any state arguments regarding applicability of state law.
There’s also a federal concern here. In our experience, local U.S. Attorneys are very interested in a state’s view of a proposed tribal cannabis enterprise. Now, there’s nothing in the Wilkinson memo saying “tribes, don’t get too far out in front of states.” But since U.S. Attorneys generally endeavor to preserve good relations with their state counterparts, federal officials may well be interested in, and sympathetic to, a state’s view of a tribe’s cannabis enterprise and regulatory regime.
Compacts both provide legal certainty, but also can create important business opportunities. Several tribes in Washington State have entered into compacts with the state permitting the tribes to participate in the Washington State regulated recreational marijuana system. These compacts provide the tribes with certainty that they won’t face prosecution or other legal action by state officials. States vary in the process for authorizing and implementing tribal-state compacts. Perhaps more importantly, state governments very dramatically in the quality of their relations with tribes. So, again an understanding of the legal and political terrain in your state is the starting point here.
In additional to the certainty, however, one big advantage that compacts offer is that they can allow a tribe to participate in the licensed state system, potentially buying marijuana from state licensed wholesalers or selling at wholesale to state licensed retailers. State marijuana regulatory systems universally require state licensees to only do business with other licensees. Consequently, a tribe entering the cannabis industry without any compact in place will need to construct a vertically-integrated, stand-alone cannabis enterprise. It will need to grow its own cannabis, since a state licensed cultivator would not have permission under the requirements of its license to sell to a tribal retail facility. Consequently, tribes with compacts can build more flexibility into their cannabis enterprises, which is always a good asset in a new business venture.
Vet your business partners carefully. Finally, as with any hot new industry, the marijuana business is drawing many players interested in the riches the industry promises. A lot of these people are eager to do business with tribes. Some of these people and their companies are first-rate, with great track records, deep technical and financial capability and a real history in the marijuana field. Others are looking for a fast buck, and there’s a lot of variability in between. So whether it’s a consultant or an existing grower and operator, it’s important to do homework on the people who want to do business with you. A lot of people make promises about the easy money the marijuana market offers. And while it is true that there is lot of money to be made, growing high quality marijuana and processing it into safe and consistent products is a harder job than one might think. Asking for references, examining resumes, talking to other clients, checking around on a company’s reputation in the press and on-line are the kinds of things that tribal officials need to be doing before signing up with a business partner.
Conclusion. The initial excitement about the potential for tribal cannabis operations has yielded to a more clear-eyed view of the path that a tribe must follow to successfully legalize marijuana and launch a tribal marijuana enterprise. While we believe that there is high potential for a tribe to enhance its sovereignty and to generate significant revenues to achieve its governmental objectives, achieving that result will require careful preparation and attention to critical legal and political details.
