SAULT STE. MARIE — Lume Cannabis Co. has figured out a way to open retail marijuana dispensaries within communities that have blocked businesses that participate in Michigan’s adult-use market.
For the vertically integrated marijuana company, the strategy lies in leveraging the benefits of tribal sovereignty, while simultaneously operating within the state’s regulatory scheme for the industry.
Last month, Troy-based Lume opened retail dispensaries in Bear Lake Township near Petoskey and in Mackinaw City, its ninth and tenth stores in the state, and announced plans for a dispensary in Sault Ste. Marie in the eastern Upper Peninsula after receiving license approval from the state’s Marijuana Regulatory Agency.
Each of the municipalities surrounding the company’s stores opted out of the state’s recreational marijuana market, as allowed under the 2018 law passed by voters that legalized the drug. However, local and state restrictions do not apply to lands in those communities that are held in trust for federally recognized American Indian tribes, which are sovereign nations under federal law.
“We govern our lands that are often located within other municipalities,” said Joel Schultz, executive director of Sault Tribe Economic Development, the non-gaming arm of the Sault Ste. Marie Tribe of Chippewa Indians that is leasing trust land to Lume in Sault Ste. Marie.
“The other municipalities may choose not to participate, and we may, which gives market opportunities in certain areas that wouldn’t exist without our participation,” Schultz said. “We do have a couple of advantages.”
‘A different situation’
In announcing the Sault Ste. Marie location, Lume said that it had committed to opening an additional five dispensaries on the Sault Tribe’s trust lands throughout its seven-county service area, which goes as far west as Marquette and Delta counties in the central Upper Peninsula. That’s in addition to the two northern Lower Peninsula locations the company opened in July on lands held in trust for the Little Traverse Bay Bands of Odawa Indians, representatives of which did not respond to requests for comment.
More deals with Michigan-based tribes are also in the works.
“Yes, we are actively in development with other tribes at this time,” said Doug Hellyar, president and COO of Lume Cannabis Co. “As you can imagine, the word spreads and they get curious.”
The same tribal sovereignty the company is leveraging to skirt local ordinances prohibiting marijuana businesses within their boundaries also applies to state law, including the Michigan Regulation and Taxation of Marihuana Act (MRTMA) voters passed in 2018 that established the adult-use market. As such, the state Marijuana Regulatory Agency lacks jurisdiction over tribal lands, yet Lume and the tribes opted to go through the state’s licensing process for the locations.
The state-licensed stores on tribal lands also will collect excise and sales taxes on the products sold from the stores.
Industry sources told MiBiz the company’s decision to go through the Marijuana Regulatory Agency likely was necessary to ensure the legal status of its existing licensed supply chain.
David Harns, the interim director of communications for the Michigan Department of Licensing and Regulatory Affairs, the body that oversees the Marijuana Regulatory Agency, acknowledged that a company seeking state licensure for business activity on tribal lands “is definitely a different situation.”
“The MRA will issue a license to an applicant in a municipality as long as there is not a prohibitive ordinance in place,” Harns said. “Under MRTMA, you had to take action, you had to put a prohibitive ordinance in place, and there are many townships and villages that did. These tribal nations did not put a prohibitive ordinance in place.”
The regulatory agency took the novel approach of recognizing the sovereign tribal nations in the same manner as any other municipality in approving Lume’s licenses.
“They had to have a helluva lobbyist,” said Ben Wrigley, Jr., partner at Grand Rapids-based Cannalex Law. “I think it is fantastic. You know what it is? It’s innovation, it’s imagination, it’s utilizing the brains that we’re given. … I applaud the people who thought this up and researched it.”
Even so, Wrigley remains unsure how the MRA can grant a license to a company to operate within a sovereign nation where it has no jurisdiction.
“I’m really intrigued in how it is they were able to convince the agency to allow this to occur,” he said of Lume.
A careful approach
While marijuana remains listed as a Schedule 1 controlled substance and is illegal under federal law, the Department of Justice in 2014 issued a policy statement noting that it would treat marijuana legalization in Indian Country the same as it does in states like Michigan that have legalized medical and recreational uses of the drug.
Under what’s known as the Cole Memorandum, the DOJ said it reserves the right to prosecute violations of federal marijuana laws in those states, but only if the activity jeopardized the federal government’s prevention-focused priorities in eight key areas, including sales to minors, drug cartels, violence, trafficking, drugged driving and the use of federal lands.
While then-Attorney General Jefferson Sessions rescinded the Cole Memorandum in 2018, legal experts say little has changed from a federal enforcement standpoint regarding marijuana, which has been fully legalized for recreational purposes in 11 states plus the District of Columbia.
The Sault Tribe, Michigan’s largest federally recognized American Indian tribe with about 40,000 enrolled members, voted in 2019 to legalize the adult use of marijuana on its reservation, mirroring state law.
The Cole Memorandum instructed U.S. Attorneys not to prosecute federal marijuana laws in states that “implemented strong and effective regulatory and enforcement systems.” With the follow-up policy statement to the Cole Memorandum, the department committed to the same handling of the drug where it was legalized in Indian Country.
In opting to have Lume go through state licensing, the Sault Tribe took a careful approach to bringing the marijuana industry onto tribal lands.
“We as a sovereign nation have not fully developed our codes,” said Schultz at Sault Tribe Economic Development. “If we were to go ahead and rush out and do something, we’d risk the federal level not viewing us as being prepared or having the same safety measures or not being at the point that’s allowing them to allow states to do it. But in this particular scenario, we’re following the state guidelines. It’s a state-licensed facility. We’re not actually participating in the operation of it. We’re just making our lands available for it.”
After Michigan voted to legalize marijuana, the Sault Tribe’s board tasked Schultz with finding ways the tribe could make money in the industry. Schultz said he fielded 25 proposals from companies or individuals regarding the marijauna industry before moving forward with Lume.
“There are some impressive, capable people within that organization that could assure us they were going to do it in a professional, classy manner and that we were going to be safe and we were going to provide our people and the community with a responsible, quality product,” Schultz said. “And it provided us with pretty good revenue on land that we didn’t necessarily have other options for at that point.”
Hellyar at Lume said the licensing process for the first sites on tribal land “absolutely” took extra time because of the special considerations the state regulators needed to take.
“Just like any location that we’ve opened in the state, the MRA has final say in whether or not we can operate a store or provisioning center, and we followed the exact same rules and regulations and guidelines and approvals (on tribal land) as we do for any other location,” he said. “There were no exceptions made.”
Executives at Lume initially connected with the tribes via a mutual acquaintance, with the aim of discussing possible business opportunities they could pursue together. Michigan tribes largely felt left out of the state’s rule-making process for the marketplace, which put them behind other entities seeking business opportunities, according to Schultz.
“The goal was to talk about is there a way the tribes can participate in the marketplace,” Hellyar said. “We were able to say, ‘If we can open on tribal land, then we’d be happy to open a store.’”
Under the current relationships, the Little Traverse Bay Bands and the Sault Tribe are operating purely as landlords for the company, with Lume leasing the land on which to build its stores, he said. The long-term leases provide revenue streams for the tribes, while the store locations also create job opportunities for tribal members in each of the communities.
Even with the economic benefits, Schultz acknowledged the marijuana industry remains a “tough topic” among members of the Sault Tribe, some of whom would have rather had the tribe start its own company or support a tribal member in getting into the business — or avoid the industry altogether.
“It’s something that I’d love to get all excited about and say it’s all great, but I know depending on who’s walking up to me, some want to punch me in the face, some want to say ‘way to go,’” he said. “It’s a politically charged topic.”
As well, nothing is preventing any of the 12 federally recognized tribes in Michigan from launching their own licensing schemes for marijuana businesses, which would allow them to capture additional revenues from taxes on the products sold on reservation land.
Legal sources contacted for this report noted the tribes are leaving significant revenue on the table by having the Lume stores go through the Marijuana Regulatory Agency, with the excise and sales taxes going to the state’s coffers instead. To that end, adult-use marijuana sales reached more than $191 million through the first half of 2020, according to the latest data from the Marijuana Regulatory Agency.
Schultz said in the future, the tribe may explore other options in the industry beyond leasing land to Lume for dispensaries.
“There’s nothing that says this is the only thing we do,” he said. “It’s just that the more that you look at the industry, the more you see it’s a big money, big player industry. … For us to introduce ourselves to the industry, it was ‘let’s do it with the professionals, the best of the best,’ and then let the future bring what it will bring.”
The stores on tribal lands form part of an aggressive growth strategy for Lume, which currently has 10 stores in Michigan, including West Michigan locations in Kalamazoo, Big Rapids and Evart, where the company also operates a 50,000-square-foot grow facility.
Hellyar said the company is working on “several locations” in Grand Rapids, which he called “a very important market,” but the first it plans to build in Kent County will begin construction this month in Lowell.
Lume also is in the process of tripling its cultivation capacity in Evart by the end of the year, with plans to expand the facility to 450,000 square feet by the end of 2024. That added capacity will come online as Lume targets having 100 stores in operation across the state in the same time frame.
The company typically invests between $750,000 to $1.25 million into a retail location, each of which is privately financed, and creates about 15 to 20 jobs per store, Hellyar said.
“What’s going to be really important is making sure that we have good distribution throughout all of the stores in the U.P.,” he said, noting targets for as many as 10 locations in the Upper Peninsula. “Since we opened, our store in Negaunee is one of our top-performing stores. It’s doing extremely well. We’re really excited about it.”