That principle could be profitable even in the states (four so far) that have legalized marijuana for general use. Reservations in Washington, for example, could open marijuana stores in parts of the state where they are scarce because of local bans. Recreational sales currently are prohibited
by 99 cities and 11 counties in Washington. Those jurisdictions include Yakima and Klickitat counties, where the Yakama Indian Reservation is located.
In addition to convenience, tribal marijuana outlets could offer lower prices, since their sales would be exempt from state taxes. “State taxes are generally inapplicable on tribal land,” Porter notes. In Washington, taxes represent nearly two-fifths of the retail price, so the savings could be substantial. “There is some potential for short-term arbitrage on the tax rates alone,” Porter says, “but I don’t think it’s the kind of thing that necessarily sustains itself in the long run.”
Marijuana taxes in Washington and Colorado are set as a percentage of the price. As the industry develops, prices can be expected to fall sharply, so the amount of money consumers can save by avoiding the tax on a given amount will fall as well. When a gram of marijuana sells for $15 or $20
, tax-free outlets are pretty attractive; when it sells for $2, not so much. Then again, revenue-hungry legislators may decide to tax marijuana by weight or THC content rather than price, in which case tax-free Indian pot stores could retain their appeal.
State restrictions on cannabis consumption present another opportunity. In Washington, Colorado, Oregon, and Alaska, consumption is banned inside marijuana outlets and in most other locations outside of private residences. Indian reservations could be the first jurisdictions in the U.S. to allow Amsterdam-style cannabis cafés that sell marijuana products along with food and beverages. Even if they are not prepared to go that far, tribes could make their casinos, hotels, and restaurants more attractive to cannabis consumers by letting customers use their own legally purchased marijuana there. “That would be the same as the analysis with cigarettes, where you can smoke in casinos,” Porter says. “They can set their own regulatory policies regarding consumption.”
Tribes that decide to allow marijuana cultivation also would enjoy an income tax advantage. While the tribes themselves are exempt from federal income tax, the IRS still takes a cut of money earned by tribe members. But there is an exception for farming, which means that Indians who grow marijuana on tribal land would not have to pay tax on the money it generates. “Natural resource development [on tribal land] is pretty well established as a tax-immune activity,” Porter says, so “individual Indians who earn income from their own tribal lands are tax immune.”
Not so non-Indians involved in such operations, who would still owe federal income tax. They also would risk prosecution under state law. “If you’re a non-Indian on tribal lands, the state retains its criminal jurisdiction over you,” Porter says. “I’ve been wondering why everybody who is looking to get into this business is called a ‘consultant,’ and I think it’s an effort to distinguish between being a manager, owner, or person in control and a person who is just giving advice.”
The biggest cannabusiness opportunity for tribes could be in states that ban marijuana but do not have criminal jurisdiction on reservations. If a tribe in southern Oklahoma, say, started growing marijuana and selling it in a cannabis café, it probably would get lots of business from Texas as well as Oklahoma. While anyone who left the reservation with marijuana would be subject to arrest for possession, the state would have no authority to shut down the cannabis café.
Lots of people crossing the border into Texas with pot might raise concerns at the Justice Department, which says preventing such diversion remains a priority. But that sort of thing already happens with out-of-state visitors to Colorado and Washington, and it has not triggered a federal crackdown. It seems more likely that Oklahoma and Texas officials would step up their enforcement efforts near the reservation.
Given all the legal risks, tribes may be inclined to move slowly, if at all, into the marijuana business. But these opportunities won’t be around forever. Continued prohibition in most of the country is what makes the business especially lucrative. As with legal gambling, what is now unusual will eventually be familiar.