Tribes Frustrated at Being Locked out of California Cannabis Market

Tribal leaders say the state is unfairly shutting them out of the nascent legal cannabis market. (Justin Sullivan/Getty Images)

This story was originally published by POLITICO California Pro on 7/17/2019

California's marijuana legalization was supposed to provide economic justice to communities most affected by drug laws in the past, but Native American tribes that have suffered say the state is unfairly shutting them out of its nascent cannabis trade.

Tribes want the state to establish compacts, similar to gaming deals, that would allow them to sell cannabis grown on tribal lands to the broader California market. Under such arrangements, tribes would agree to regulations similar to those established under Proposition 64 and provide tax revenue to the state for products sold off-reservation.

But tribal leaders say they've been ignored by Gov. Gavin Newsom's administration despite months of trying to get the state to engage on cannabis compacts. Their frustration spilled over last month at a state workshop in Los Angeles where the California Native American Cannabis Association gave an hour-long presentation criticizing the state that ended with Bureau of Cannabis Control Chief Lori Ajax visibly angry.

"Can't we bypass those years of going at each other over these issues and just come to the good agreement where the state recognizes the tribe's sovereignty for what they can do on the reservation and still have a productive, healthy market? Apparently not," said tribal attorney Mark Levitan during the presentation.

The stakes are high for some 35 tribes interested in starting cannabis businesses to get back to the negotiation table. Because Proposition 64, which voters approved in 2016, was silent on how the state would interact with tribes in the legal marketplace, they’ve had to watch from the sidelines as the multibillion-dollar cannabis market rapidly develops without them. Many of these tribes rank among the communities with the highest rates of unemployment and drug abuse in the state.

As sovereign nations, tribes are able to regulate, grow and sell cannabis on reservation lands. However, to sell products off reservation, they currently have to sign a partial waiver of sovereign immunity that would give state agencies like the Bureau of Cannabis Control and California Department of Food and Agriculture complete regulatory control on tribal lands.

So far, none of California’s tribes have agreed to that arrangement.

“There's already so much that has been taken and making that compromise and giving [sovereignty] up is what is deeply problematic for people who are marginalized,” said Ariel Clark, a cannabis businesses attorney who is half Native American.

Assemblyman Rob Bonta, D-Oakland, has carried legislation in each of the previous three years that would have allowed tribes to enter regulatory cannabis agreements negotiated by the governor and approved by the Legislature. The most recent bill, AB 924, gained the support of the cannabis industry after tribal leaders agreed to implement regulations and taxes mirroring the state's. But it subsequently fell apart after Gov. Jerry Brown's administration stood firm that tribes waive their sovereignty to allow for state oversight.

The barriers were significant enough that Bonta opted against pursuing another bill this year, according to his office.

The California Native American Cannabis Association, or C-NACA, thought it would have better luck going directly to Newsom because he championed Prop 64, and has tried to improve the state's relationship with tribes.

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Newsom made national news last month when he issued a formal apology to California tribes for the state’s history of violence against Native Americans.

But the group says the governor's office has not responded to multiple letters it sent asking for meetings to negotiate agreements. After Newsom's formal apology, C-NACA responded by saying that actions speak louder than words.

Dave Vialpando, executive director of C-NACA, said the apparent lack of interest in engaging with tribes on a potential economic opportunity seems hypocritical.

“When you have the governor making a statement about apologizing for all the grief or all the tragedy, our point is, OK, well, put your money where your mouth is,” he said.

Tribal leaders and advocates have pointed to neighboring states as examples of how California could create a successful regulatory partnership with tribes. Washington, Oregon and Nevada have all passed legislation that empowers them to sign individual compacts with each tribe that allow for sharing of regulatory responsibilities on reservations.

In Washington, tribes agree to impose regulations and tax levels that at a minimum mirror those of the state. Tribal and state regulators also collaborate on enforcement, while the state can run background checks on non-tribal investors and partners. In return, tribes have access to the general Washington market and tax revenue goes to reservation coffers.

“It is a unique relationship that you have with the tribes. They're not a traditional stakeholder, they are governments,” said Brett Cain, the tribal liaison for the Washington State Liquor and Cannabis Board. “They just happen to reside within Washington state and you have to treat it as a unique relationship and respect their sovereignty.”

From the perspective of California regulators and lawmakers, it’s unclear if the systems used by other states for negotiating tribal cannabis agreements can work here. That’s because the strict set of criteria laid out for legal business under Prop 64 — which covers everything from water usage to labor peace agreements — would offer little wiggle room in the negotiation process.

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C-NACA and its member tribes have started to look toward inter-reservation commerce as an alternative to entering the California market and as a tool to put pressure on the state.

Levitan said tribes would create healthy nation-to-nation markets where they will develop their own regulatory standards and open dispensaries that sell products to consumers who travel to reservations. None of the income, including from retail sales to California residents, would be subject to state taxes.

“If you keep telling the tribes we'll deal with you next year when we have time, we'll deal with you next year when we have more time, this is the inevitable result,” Levitan said.

For members of small tribes often located in California’s most rural areas, the promise made to voters that legalization would create social equity for individuals and communities impacted by drug prohibition laws would be broken if Native Americans are excluded from the picture. Reports show Native Americans have the highest rate of substance dependence or abuse among ethnic groups.

Richard Almaraz, a member of the Santa Rosa Band of Cahuilla Indians, a tribe of about 130 people located in the Riverside County mountains, said that cannabis cultivation offers the best opportunity for the tribe to support itself in the future. His tribe is one of almost 50 that doesn’t participate in gaming and struggles to make ends meet.

“You have a lot more third-world situations right here in California than you know, and it is in tribes,” he said. “Without the money from casinos, it would not be possible to live.”

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Copyright 2019 POLITICO LLC.

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