Tribal Marijuana Businesses May Hurt Existing Cannabis Companies, Help Others

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By Tony C. Dreibus

The possibility that Native American tribes will grow and sell marijuana has some entrepreneurs concerned and others cheering.

The Department of Justice said in a December memo that it would not enforce federal laws regulating marijuana production and sales on American Indian lands as long as tribes follow similar conditions set for states that have legalized cannabis.

The move could open up new markets in states that haven’t legalized medical or recreational cannabis and create opportunities for ancillary businesses to target a new crop of retail stores/dispensaries, cultivation sites and infused products companies.

But some industry insiders worry that Native American tribes would have a significant edge over existing cannabis businesses that must pay profit-slashing federal, state and local taxes.

Marijuana operations on tribal lands may not be subject to these huge tax burdens, meaning those that move forward in states that have already legalized some form of cannabis could offer prices below market rates and undercut their heavily regulated and taxed competitors.

“There’s likelihood they’ll have an enormous competitive advantage,”  said Leslie Bocskor, managing partner at the Las Vegas-based investment banking firm Electrum Partners and chairman of the Nevada Cannabis Industry Association.“Their prices could be 30% lower and they could make the same amount of money, so that’s a huge competitive advantage.”

Tribes Already Planning to Grow

About 566 tribes and 325 American Indian reservations are recognized by the U.S. government, according to the Census Bureau. So far, only a few tribes have expressed interest in growing and dispensing marijuana on their lands.

California’s Pinoleville Pomo Nation said earlier this month that it would construct a 2.5-acre indoor medical marijuana growing facility, making it the first tribe-sanctioned grow in California.

The group, which didn’t return calls seeking comment, is partnering with United Cannabis Corp. of Denver and FoxBarry Farms Inc. in Kansas City on the project to grow thousands of plants near the town of Ukiah.

The Fort Peck Tribes in Montana last week voted to legalize marijuana on their lands, giving leaders until June 1 to craft rules and regulations surrounding growth and distribution.

‘Screaming Bloody Murder’

The industry will start slow, but will gain momentum fast, Bocskor said. Tribes will likely follow the same path they took with their casinos, where they seemingly had a small one-room gaming floor one day and a $350 million resort the next, he said.

“That’s what I think will happen to this industry – it will lead to a substantial business,” he said.

While many non-tribal marijuana businesses probably don’t consider it an issue, years from now they may be undercut by Indian tribes selling marijuana, similar to what gambling companies faced when the first Native American casinos opened more than two decades ago. Prior to that, those hoping to play poker or shoot craps would legally have to travel to Las Vegas or Atlantic City.

Bocskor said he’s not overly concerned about the issue, yet, but it’s definitely something he will follow.

Even if Native American MJ operations are subject to some taxes, they’d likely have a lower overall burden than existing businesses.

“If I’m a business owner, I’m going to be screaming bloody murder,” Bocskor said.

Tribes Express Interest…and Concerns

Scott Giannotti, the founder of the New York-based Cannabis and Hemp Association, a non-profit group that raises awareness of cannabis issues, said he’s been contacted by tribes that have expressed interest in and are seeking investors for marijuana ventures.

Many are nervous about the social ramifications associated with marijuana use. But the money they could make – which they’d put toward the betterment of their tribes – is extremely attractive, he said.

It may take a while before a large number move into the cannabis industry. Younger generations, however, are seeing the value and want to move into the budding cannabis industry, Giannotti added.

Some may also add hemp to the stable of products they offer.

“We believe Native Americans can become sustainable by integrating hemp into their culture,” he said. “They have a massive amount of land, where they can develop large quantities of hemp, or they have small amounts of land, but very high quality land, where they can develop high quality medicine to help get out in front. It could provide jobs as the industry opens up.”

Ancillary Business May Benefit

While movement into the cannabis industry may be bad for growers, retailers and dispensaries, it could be good news for consultants and companies that sell support products such as software and point-of-sale equipment.

Case in point: The Association of Commercial Cannabis Laboratories, which helps establish best practices and quality standards for marijuana companies, said today it will work to provide testing services and quality assurance to Native American MJ operations. The group plans to do so via a partnership with a company that offers planning, design, public relations and marketing services to tribes.

“For ancillary businesses, it’s good no matter” who is growing and selling cannabis, said Brandy Keen, the vice president of sales at Boulder, Colorado-based Surna, which provides technology solutions such as climate control systems, to marijuana companies. “Any legalization is good for us.”

Still, she said, not all of the tribes are going to jump on the cannabis bandwagon, so there will likely be little impact on existing companies. Investors also may shy away from tribal marijuana projects because the DOJ memo was a policy shift rather than a change in the law.

Even if more tribes do begin growing and selling marijuana, it may actually benefit the industry in the long run because people who go to reservations where it’s sold will realize the world isn’t crashing down around them because cannabis has been legalized, Keen said.

“Regulated cannabis is preferable to unregulated cannabis,” she said. “The same thing happened in Colorado and Washington – they rolled out medicinal and people realized the sky wasn’t falling and they weren’t harming the children, so they realized that recreational adult-use isn’t a bad thing.”

Tony Dreibus can be reached at