Smoke Signals: Washington State And Suquamish Tribe Ink First Ever Marijuana Compact

The Suquamish Tribe and the State of Washington recently signed and entered into the nation’s first marijuana compact to allow a Native American Tribe to cultivate, process, and sell marijuana within a state’s highly regulated marijuana system.  I previously blogged about how Washington was the first state to adopt a compacting system for tribes and regulated marijuana, but this signed compact reveals more about what tribes can expect when they “partner” with Washington State on cannabis. Other states are also looking at enacting their own compact system and will no doubt be closely watching Washington’s marijuana tribal experiment.

The Washington State Liquor and Cannabis Board negotiated the compact with the Suquamish Tribe on behalf of the state. In the compact, the state gives its own interpretation of the Wilkinson statement, writing “[t]hat memo effectively treats tribal governments the same as state governments in the decision to legalize marijuana.” The compact also describes the existing state of cannabis on Suquamish land:

After serious deliberation, the Tribe, as a sovereign nation, has also determined that present day circumstances make a complete ban of marijuana within Indian Country ineffective and unrealistic and has decriminalized its sale and possession in certain circumstances. At the same time, consistent with the federal priorities, the need still exists for strict regulation and control over the production, processing, delivery, distribution, sale, and use of marijuana in Indian Country.

The state and the Tribe signed the compact “to strengthen their ability to … provide a framework for cooperation to ensure a robust tribal and state regulatory and enforcement system sufficient to meet the federal priorities.”

Here are some highlights from the compact:

• For now, the Suquamish will have one retail outlet located at 15915 State Highway 305 NE, Poulsbo, Washington, 98370, operated by the Suquamish Evergreen Corporation (SEC), a wholly owned subsidiary of Port Madison Enterprises (PME), an agency of the Tribe. PME describes itself as follows:

PME’s operations are aimed at developing community resources while promoting the economic and social welfare of the Suquamish Tribe through commercial activities. What began as a modest retail endeavor has grown exponentially over the last quarter century. PME now encompasses several businesses including Suquamish Clearwater Casino Resort, the historic Kiana Lodge, three retail outlets, White Horse Golf Course and a property management division.

• If the Tribe wants to expand beyond its one retail store, it need only notify the Liquor and Cannabis Board of its plans to do so. The compact also does not limit the Tribe to three retail storefronts, as is the case for its non-tribal competitors in Washington State.

• The compact allows the Tribe (through SEC) to process and produce marijuana even though WAC 314-55 and RCW 69.50 et seq. prohibit state licensees from this sort of vertical integration. According to the compact, the Tribe’s first production and processing facility will be at the same Poulsbo address as its retail outlet.

• The Tribe is not limited to one production facility even though Washington State licensed producers may not have a direct or indirect financial interest in more than one production facility.

• To open a new retail, processor, or production location, the Tribe must give notice to surrounding jurisdictions, but the compact is silent as to what the Liquor and Cannabis Board might do if those jurisdictions call for preventing such an opening.

• Any marijuana business that wants to locate its operations on Suquamish land must first obtain the express written consent of the Tribe, along with whatever additional licensing is required under the Suquamish Tribal Code.

• The Tribe is free to buy and sell marijuana products to state licensed marijuana businesses and state licensed businesses may do the same with the Tribe.

• No state taxes will apply to tribal marijuana sales activity. However, the compact requires the Tribe charge a Tribal Tax equal to “100%” of the current state marijuana excise tax (37% excise tax at retail) and state and local sales and use taxes on all sales of marijuana products in Indian Country unless (1) the sale is to the Tribe, Tribal enterprise, Tribal member business, or an enrolled member of the Tribe; (2) the marijuana product was grown, produced, or processed in Indian Country; (3) the transaction is otherwise exempt from state marijuana taxation under state law or federal law; or (4) the transaction involves medical marijuana products used in the course of medical treatments by a clinic, hospital, or similar facility owned and operated by the Tribe within Indian Country.

• The Tribe keeps the Tribal Tax but must use those proceeds for “Essential Government Services” (as defined in the compact) within the Tribe.

• The compact sets up several mechanisms (mandatory product traceability compliance, random inspections, etc.) by which the Liquor and Cannabis Board will monitor the Tribe’s marijuana activity and its compliance with the compact and with state and Tribal-marijuana regulations.

• The compact is good for 10 years.

• If federal law reschedules marijuana, the state and the Tribe must renegotiate the terms of the compact.

This compact will give the Suquamish Tribe some competitive advantages over state marijuana licensees. For instance, if the Tribe opts to produce, process, and retail all of its own marijuana, the 37% excise tax will not apply unless the Tribe opts to impose its own taxation on the transactions. The Tribe will also be able to sell medical cannabis in concert with medical treatment on Suquamish land without the 37% excise tax. We expect that the Suquamish (and subsequent tribes that legalize) will set up health spas and retreats that incorporate medical marijuana treatments and products at consumer-friendly tax rates.

The Liquor and Cannabis Board will almost certainly use this compact as a model for future compacts with other Washington State tribes. This begs the question as to whether the other Washington tribes will choose to sign compacts with the state or look to go outside of the Washington compact system. We see most Tribes choosing to sign such a compact because it will be tough to get the federal Department of Justice to sign off on a Tribe creating its own stand-alone marijuana system when Washington State already has a robustly regulated, turnkey state system under which they can operate. Nonetheless, if a Washington tribe develops its own robust regulations in line with the Cole Memo, such a system could pass muster with the Department of Justice without a state compact. The practical catch would be that those tribes would not be able to conduct any business within the state’s regulated marijuana system.

The big question though is whether tribal marijuana will look like tribal gaming or like something altogether different. If compacting is the way to go, tribal marijuana is more likely to resemble tribal gaming than anything else. Nonetheless, I am sure some tribes will set up their own regulatory schemes outside a state’s compact system. Time will tell.

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Hilary Bricken is an attorney at Harris Moure, PLLC in Seattle and she chairs the firm’s Canna Law Group. Her practice consists of representing marijuana businesses of all sizes in multiple states on matters relating to licensing, corporate formation and contracts, commercial litigation, and intellectual property. Named one of the 100 most influential people in the cannabis industry in 2014, Hilary is also lead editor of the Canna Law Blog. You can reach her by email at [email protected].