Sovereignty, Not Shortcuts: Debunking Myths About Tribal Economic Success

A persistent misunderstanding is that Native American tribes have unfair advantages in industries like gaming and cannabis. While some believe tribes exploit loopholes, enjoy tax breaks, or bypass regulations, tribes actually operate under a distinct legal framework rooted in treaties, federal law, and a government-to-government relationship with the United States that recognizes their inherent sovereignty.

This recognition was not freely granted but earned through decades of legal battles and advocacy following centuries of displacement. Today, sovereignty affirms a tribe’s right to govern its people, land, and economy. Economic development is essential to that sovereignty, providing the resources tribes need to enforce their laws and support their communities.^[1]

Gaming: The Foundation of Tribal Economic Independence.

One area of tribal economic development is gaming. Before the 1980s, many states attempted to regulate or shut down tribal gaming, arguing that tribes were subject to state gambling restrictions. As sovereign nations, tribes maintained that they had the right to operate gaming enterprises on tribal land.

In 1987, the U.S. Supreme Court ruled in California v. Cabazon Band of Mission Indians that if a state permitted any form of gambling, even in a limited capacity, it could not prevent tribes from offering similar gaming on their land. California allowed charitable bingo and card clubs, but tried to prohibit the Cabazon Band from operating high-stakes bingo and poker. The Court sided with the tribe, affirming that states could not impose gambling restrictions on tribal lands unless authorized by Congress.

This ruling led to the Indian Gaming Regulatory Act (IGRA) in 1988, which established a framework for tribal gaming:

• Class II gaming includes bingo and non-banked card games like poker, where players compete against each other, not the house. Tribes can operate Class II gaming without state approval.
• Class III gaming covers traditional casino games like slot machines, blackjack, and roulette. These require a state-tribal compact outlining licensing, operations, and revenue-sharing agreements.

Under the IGRA, gaming revenue must be used to support tribal government operations, economic development, and essential services like healthcare and education. While tribes can distribute profits to members, those funds must benefit the collective community rather than private investors. Unlike private casinos, where profits go to shareholders, tribal gaming revenues serve a broader purpose.

Comparing Cannabis and Gaming

Cannabis shares some parallels with casino gaming. However, tribes face several challenges entering the cannabis market. For example, tribes are largely prevented from interacting with state-licensed businesses unless they enter into a compact with the state. In addition, the IGRA prohibits using gaming revenue to fund businesses that remain illegal under federal law, including cannabis. To avoid regulatory scrutiny and protect their licenses, tribes keep gaming and cannabis operations financially separate.

Cannabis: The Next Frontier

While tribal gaming is governed by a well-established federal framework, cannabis remains a legal gray area. The Controlled Substances Act (CSA) still classifies cannabis as a Schedule I drug, making it federally illegal even in states where it’s fully regulated.
This inconsistency has led to legal uncertainty for tribes. In 2014, the Department of Justice released the “Wilkinson Memorandum,” which outlined how federal prosecutors should approach cannabis activity on tribal lands. The memo did not legalize cannabis but suggested that if tribes followed certain enforcement priorities—like keeping cannabis away from minors and preventing cross-border trafficking—then federal prosecutors could choose not to intervene.

Many tribes saw this as a green light. They believed the federal government would tolerate well-regulated cannabis businesses confined to tribal lands. The reality proved more complicated. Some early tribal ventures faced state pushback, regulatory confusion, and even federal raids.^[2]  Eventually, the Trump administration rescinded the memo in 2018 creating further regulatory ambiguity for tribal cannabis operations.^[3]

Case Study: Sovereignty in Action

Regulating a new industry takes time, and cannabis is no exception. Nevada legalized cannabis in 2017, but the state didn’t pass legislation allowing public consumption lounges until 2021. Even then, the first state-issued lounge license didn’t come until 2024.

Meanwhile, the Las Vegas Paiute Tribe didn’t have to wait. In 2019, five years before the state’s first lounge license, the tribe opened Nevada’s first cannabis consumption lounge on tribal land. Under its state-tribal cannabis compact, the Las Vegas Paiute tribe agreed to follow key state rules, such as testing standards and packaging and labeling requirements. But, as a sovereign nation, it didn’t need a state-issued license to open the lounge within its jurisdiction.

Beyond early market entry, tribal sovereignty also enables vertical integration, which is seen as beneficial in the cannabis industry. While Nevada allows vertical integration, many states, including New York, prohibit businesses from controlling multiple stages of the cannabis supply chain to prevent monopolies. However, tribes are not bound by state restrictions on their land, allowing them to integrate cultivation, processing, and retail under one entity. This structure reduces costs, streamlines supply chains, and increases profitability. For example, the Oneida Indian Nation in New York has developed one of the state’s first fully seed-to-sale cannabis operations, despite New York’s ban on vertical integration. Given that tribal nations collectively own more than three million acres of agricultural land, exceeding the entire outdoor cannabis footprint of California, their potential role in the industry is substantial.^[4]

State-Tribal Compacts and Market Expansion

How much authority states recognize in tribal cannabis operations varies. In 2015, the Suquamish Tribe and the Washington State Liquor and Cannabis Board signed the nation’s first state-tribal marijuana compact.  The compact let the tribe license and regulate cannabis on its own land and became a template for future agreements.^[5] This was the first agreement of its kind and became a model for many others.

However, most compacts, including Washington’s, limit sales to within tribal boundaries. If a tribe wants to sell off-reservation, they must obtain a state license like any private operator.

Minnesota may soon break that mold. New legislation would allow tribal cannabis businesses to sell off-reservation under compact terms—something no other state has done. If enacted, it could set a national precedent for expanding tribal sovereignty in cannabis markets.

Taxes & Sovereignty: Clarifying Misconceptions

A common myth is that tribal businesses “don’t pay taxes.” In reality, many state-tribal cannabis compacts require tribes to apply taxes equal to the state’s rate, ensuring tribal businesses don’t undercut private cannabis operators.

The difference is where the money goes: while state taxes fund state programs, tribal taxes stay within the community, supporting services like healthcare, education, and housing.​^[6]

Federally, tribal governments are generally exempt from income taxes. But tribally owned businesses, especially those operating off-reservation, may still owe federal taxes like any other business. When it comes to federal excise taxes, tribes are not automatically exempt like states are. Instead, tribes only qualify if the activity is deemed an “essential governmental function,” such as running a clinic or school.^[7]

Why This Matters

Tribal involvement in gaming and cannabis isn’t about loopholes or special treatment. It’s about exercising legally recognized sovereignty. Just as states regulate their own industries, tribes govern their own lands and economies under a separate legal framework.

Gaming and cannabis have provided tribes with pathways to economic self-sufficiency, job creation, and reinvestment in their communities. While gaming operates under a well-defined federal structure, tribal cannabis businesses must navigate a complex mix of federal, state, and tribal regulations. Sovereignty allows tribes to innovate in ways that state-licensed businesses cannot, from opening cannabis lounges before state approval to vertically integrating operations where private companies face restrictions.

These industries are not loopholes, but vital tools for tribal economic development after generations of legal and economic barriers. They’re hard-won opportunities born of sovereignty, not favoritism.

References:

^[1] Paul Mooney, Making Marijuana Less Illegal: Challenges for Native American Tribes Entering the Marijuana Market, 67 S.D. L. REV. 482 (2022).

^[2] Florey, The Complicated Beginnings and Promising Future of Tribal Cannabis, 67 S.D. L. Rev. 443, 444 (2022)

^[3] Cowan, Taxing Cannabis on the Reservation, 57 Am. Bus. L.J. 867, 873 (2020)

^[4] Ryan B. Stoa, Tribal Cannabis Agriculture Law, 2023 ULR 1075, 1090 (2023).

^[5] Marijuana Compact Between the Suquamish Tribe and the State of Washington (Sept. 15, 2015), https://lcb.wa.gov/sites/default/files/publications/Marijuana/Suquamish_MJ_Compact.pdf.

^[6]  Paul Mooney, Making Marijuana Less Illegal: Challenges for Native American Tribes Entering the Marijuana Market, 67 S.D. L. Rev. 482, 495–96 (2022).

^[7] Mark J. Cowan, Taxing Cannabis on the Reservation, 57 AM. BUS. L.J. 867, 902 (2020).