Minnesota’s plan to let tribes open off-reservation pot stores first draws fairness complaints

Minnesota could soon allow tribal nations to open off-reservation cannabis dispensaries before the broader marijuana market launches, drawing fairness complaints from aspiring business owners who’ve waited almost two years to get a license.

The compacts being negotiated in private by the Walz administration and tribal nations would give tribes more than just an early foothold in Minnesota’s marijuana market. Under a draft compact obtained by the Minnesota Star Tribune last month, tribal cannabis businesses operating outside reservations would be exempted from local cannabis ordinances, be able to negotiate taxation with the state and be allowed to grow, manufacture and sell — advantages not afforded to most state-licensed businesses.

“I think Minnesota is setting a little different path here,” Gov. Tim Walz told reporters at a recent news conference. “They have the right to do it or not — some tribes will, some tribes won’t.”

Ten of Minnesota’s 11 tribal nations are negotiating compacts with the state. Each tribe would be allowed to open up to five retail cannabis dispensaries and grow up to 30,000 square feet of plants outside their reservations, according to the draft compact.

(Sign up for Nuggets, our free weekly email newsletter about legal cannabis in Minnesota.)

The pending compacts have been met with backlash from some business owners, advocates and state lawmakers. They’re frustrated the state has taken nearly two years to issue cannabis business licenses to Minnesotans, and concerned the compacts could give tribes long-term market advantages.

“I just don’t really understand the decision by the Walz administration to go so far in providing kind of a red carpet for the tribes,” said Kurtis Hanna, a longtime Minnesota cannabis lobbyist.

Minnesota will not start issuing most cannabis business licenses to the broader public until later this year. The state’s Office of Cannabis Management is expected to hold its first license lotteries in May or June, but it could take weeks or even months after those lotteries for most state-licensed businesses to open.

Eric Taubel, interim director of the Office of Cannabis Management, said last month that the first tribal compacts could be signed as early as March or April. He said there will be plenty of room for everyone in the market.

“Every other market has launched with such a substantial cannabis infrastructure relative to Minnesota, that maybe there is some concern that there’s only a little bit of room left. ... ”We look so different, in terms of available space for applicants and businesses, that no one group is gonna get a head start,” Taubel said.

Taubel estimates Minnesota will require 1.5 million to 2 million square feet of cannabis cultivation to supply its market. Neither the tribes nor the state’s existing medical cannabis companies will be able to meet that demand on their own.

“Everyone is going to get a shot,” Taubel said.

Nearly 200 cannabis microbusinesses that will be allowed to grow, process and sell marijuana products on a relatively small scale — akin to a craft brewery for beer — could also open before the midyear lotteries. With no statutory cap on microbusiness licenses, they’re queued up after qualifying for an earlier licensing round that was canceled late last year.

State officials hope the tribes and microbusinesses can help supply the market early on, since most state-licensed cultivators will not be able to start planting until after the midyear lotteries.

“The way that our licensing is now currently structured, for better or for worse, it’s not a system where a bunch of people are going to get a license. It’s going to be a trickle,” said Carol Moss, an Edina-based cannabis attorney. “If we don’t have that supply coming from the tribes … we wouldn’t have supply for the industry."

Shaun Tetreault of Watertown is a social equity applicant who sought a cultivator license through the canceled lottery. That lottery was designed to give social equity applicants — which include veterans, residents of high-poverty areas and people negatively affected by cannabis prohibition — a head start in the new industry. It was canceled after lawsuits were filed by applicants who said their applications were unfairly denied.

Tetreault said he’s frustrated the state abandoned that initial goal and is now giving tribes an early advantage.

“All of this has made it so you are disadvantaged for being a social equity applicant,” Tetreault said. “The whole point was to get the first-mover advantage, to have that head start over everybody else.”

Grant Johnson, president of the Prairie Island Indian Community’s tribal council, said the state-tribal compacts do not conflict with Minnesota’s social equity goals.

“Throughout the Nation, statistics show that Native Americans face devastating health and socio-economic circumstances due to past and ongoing realities unique to our people,” Johnson said in a statement. “The purpose of our cannabis business, like our other economic efforts, is to support our members and our Tribal government which provides essential services such as healthcare and education.”

“We look forward to completing the compacts and helping further develop a well-regulated, prosperous cannabis industry for Minnesota and our Tribe,” Johnson said.

Nathan Young, cannabis policy lead for the Minnesota Black Chamber of Commerce, commended the tribes for using their influence to negotiate compacts that have “no precedent in any other market.” He wishes Minnesota advocates could have such a dialogue with state decisionmakers.

“Operators and advocates have been seeking this type of dialogue with the state for years and we’ve been rebuffed,” said Young, CEO of Minneapolis-based No Coast Wellness, which operates the Hemp House chain of retail stores. “We don’t have the same access as the tribes to sit in a room and have a back and forth and be like, ‘this is what we feel like is fair.’”

Tribal nations are major players at the Minnesota Capitol, with the 10 tribes that are currently negotiating compacts spending nearly $2 million in 2024 to lobby state government on a range of issues, including cannabis, according to state records. Two tribes, the Prairie Island Indian Community and Shakopee Mdewakanton Sioux Community, gave $768,000 to statewide party committees alone last year, favoring Democrats over Republicans by a 4-to-1 margin.

Young said he understands why the state would give tribal nations some advantages, especially since they’re positioned to help meet some demand early on. But he said he’s concerned by the draft compact’s ambiguity on taxation.

The draft compact would defer questions about taxation and potential revenue-sharing agreements to future negotiations between the tribes and the state. State-licensed businesses, meanwhile, will have to charge state and local sales taxes as well as a 10% cannabis tax.

That could help tribal dispensaries offer lower prices than state-licensed retailers. So could their ability to vertically integrate; tribal cannabis businesses would be allowed to grow, manufacture and sell marijuana under the draft compact, while state-licensed businesses are barred from controlling all aspects of the supply chain at a large scale.

“There was a very clear intent by the Legislature to not [allow] vertical integration” for most state-licensed businesses, Hanna said.

Zach Wilson, CEO of Waabigwan Mashkiki, the White Earth Band of Chippewa’s cannabis business, said he isn’t concerned about the criticism of the pending tribal compacts. His team is focused on preparing to serve the market, he said, with plans to open dispensaries in Moorhead and St. Cloud.

Wilson said the tribe wants to help supply nontribal retailers once they open.

“I think we’re going to be able to plug quite a few holes and help strategically supply different areas of the state so there can be a supply for folks that need it and want it,” he said.

He’s optimistic that White Earth’s compact with the state could soon be finalized.

“We feel pretty confident that we’re at the finish line, but as all things government-related, they don’t necessarily go as fast as you hope,” Wilson said.