On February 15, 2022, the Michigan House Committee on Regulatory Reform considered HB 5706. The Michigan Regulation and Taxation of Marihuana Act (“MRTMA”) does not address how Michigan’s Native American tribes participate in Michigan’s adult-use marijuana industry. HB 5706 creates a pathway for state-licensed and tribally licensed establishments to purchase from and sell to one another.
Federally recognized Native American tribes are considered independent sovereign nations, albeit subject to federal law. As sovereign nations, tribes can generally make their own rules for their business ventures and members on tribal lands, with state law potentially applicable only in sharply limited circumstances. Generally speaking, tribes regulate and operate their businesses free from state regulation. Thus, HB 5706 does not grant the power to tribes to start marijuana businesses. Tribes can already do so on their own lands regardless of state law. At least one tribe in Michigan has already started a marijuana business, Northern Light Cannabis Co, that it licenses and regulates on its own. HB 5706 would create a framework for tribally licensed establishments and state-licensed establishments to do business with each other.
HB 5706 would create a new business category in Michigan law of a “tribal marihuana business,” defined as a tribal-owned business that operates on that tribe’s Indian Land. In the current draft of the bill, “Indian Lands” references the federal definition of Indian Lands in the Indian Gaming Regulatory Act. This means that a tribal marihuana business would be generally limited to that tribe’s reservation and certain lands the United States owns for the benefit of that tribe. To do business with state licensees, the tribe that owns the tribal marihuana business would be required to enter into a compact agreement with the MRA, somewhat similar to the federal requirements for tribal casino gaming. Already, the states of Washington and Nevada have entered into compacts with tribes regarding marijuana, so compacting around marijuana is not a new practice. A compact likely would address jurisdictional issues and require a tribe to adhere to certain safety standards. The bill would also give MRA the corollary authority to enter into a compact agreement with a tribe. Under HB 5706, state-licensed establishments would need to confirm that a tribe has an executed compact before doing business with a tribal facility.
HB 5706 would also make changes to the excise tax provisions of MRTMA. The bill would amend MRTMA to make it more clear that MRTMA’s 10 percent excise tax is imposed on the consumer rather than the retailer. Although seemingly minor, case law demonstrates that this slight change gives the State of Michigan the ability to require tribal marihuana businesses to collect the tax and remit it to the State. Without this change, tribal companies would have no obligation to collect the excise tax. However, tribes would not have to pay this tax if a tribe imposed its own excise tax at the same rate as the State’s tax. These provisions will create some tax equity for tribal and state-licensed businesses, at least with respect to state taxes. Tribes may also still enjoy an advantage because they are not subject to Section 280E of the Internal Revenue Code—but that would be the case regardless of state law or compacting.
The bill also clarifies a unique tax issue impacting a few tribal-state partnerships in Michigan. Some tribes have leased tribal property to non-Native-owned state-licensed establishments. To date, MRA has issued state licenses to these establishments even if they are located in municipalities that have opted out of allowing marijuana businesses. Because MRTMA allocates a certain percentage of the state excise tax to municipalities that allow retail activity, MRA has not returned excise tax revenue to municipalities where retail establishments are on tribal land. HB 5706 would specify that tribes receive the funds if the MRTMA establishments are located on the tribe’s land.
In conclusion, HB 5706 creates a pathway for tribes to do business with state-licensed facilities. State-licensed facilities will have some tax parity with tribal businesses under the bill as it incentivizes tribes to assess their own excise tax. Businesses will also need to verify that tribes have entered into a compact with the MRA before doing business with them. Check back with Dykema’s Cannabis Law Blog for more updates.