State and Tribes consider tax agreement for sharing marijuana revenue

Several state representatives, including Lt. Gov. Kristen Juras, were in Polson last Wednesday for a public hearing on a proposed agreement between the Tribes and State of Montana regarding marijuana taxation. Only one member of the public attended.

The hearing, held at KwaTaqNuq Resort, sought public input on the first-of-its-kind agreement between a Montana tribe and the state over the regulation and taxation of marijuana within reservation boundaries.

Under the agreement, the Tribes will adopt an ordinance imposing taxes equal to those imposed by the state. The Department of Revenue will continue to collect those taxes and will remit a portion to the Tribes each quarter.

Currently the state assesses 20% on sales of adult-use cannabis and 4% on sales of medical marijuana. Lake County’s 3% local option tax would not be affected by the agreement.

Since recreational marijuana sales began in January 2022, estimated sales are at $381 million, which has generated around $58.3 million in tax revenue. In March alone, cannabis sales in Lake County were estimated at $538,782.

The Tribes’ portion of the revenue collected by the state would be based on a formula that multiplies the state’s per capita marijuana tax by the number of enrolled CSKT tribal members living on the reservation (less a 1% administration fee).

According to Nick Gochis, an attorney for the Department of Revenue, the agreement aims to stave off “legal controversy and potential litigation over the regulation and taxation of marijuana within the boundaries of the Flathead Reservation.”

It also helps ensure that people licensed under Montana’s marijuana taxation act “are subject to the same regulations,” regardless of whether they reside on or off the reservation.

The agreement also circumvents the possibility of dual taxation by the state and Tribes, makes sure that taxes are consistent both on and off the reservation, and provides an equitable way to share and distribute tax revenues.

The state will continue to license and regulate the cultivation, manufacture, production, distribution, transportation, testing and sale of marijuana and marijuana products.

According to Juras, several Montana tribes, including the CSKT, have reached out to the state since it legalized recreational use of marijuana about entering into a cooperative agreement. Such agreements were authorized by the Legislature and have been used to collect and disperse revenue from other excise taxes such as those collected on sales of alcohol, tobacco and fuel.

She said that Flathead and Fort Peck are the only two reservations where marijuana sales and production are currently permitted, since it’s a county by county decision.

“This is the first state-tribal cooperative agreement relating to cannabis taxation,” she said. “We worked hard to make it an appropriate model should any other tribal community want to have discussions about entering into a similar agreement.”

A moratorium on new licensees is currently in effect and may be continued by the Legislature through 2025.

Tribal attorney Michael Wheeler, who helped draft the agreement, said the Tribal Council and elders historically have not favored the legalization of marijuana “as a medicinal substance.” However, when the state authorized the sale of recreational marijuana and decriminalized possession of small amounts, the Tribes found themselves facing unequal penalties for misdemeanor possession between tribal members and non-members.

“The Tribes realized that we didn’t have a lot we could do to stop recreational marijuana from impacting the community, so we wanted to make enforcement and laws especially fair,” he said.

At the same time, the Tribes wanted to take advantage of the opportunities that came from the sale of recreational marijuana, “especially the tax agreement we’re talking about today.”

He believes the Tribal Council, regardless of their individual views of recreational marijuana use, has taken “a pragmatic view of the situation.”

“It was either push back against the hurricane or see what we could do to help our economic activities and make sure we’re getting fair and equal treatment in terms of penalties for tribal members,” he said.

Tribal Chair Tom McDonald also voiced his support for the agreement. “I think it’s a step forward to help us provide some much-needed services,” he said. “I’m very hopeful the revenue will be a solid revenue stream for us.”

Questions of public comment on the agreement may be directed to Todd.Olson@mt.gov. Once approved, the final agreement must be signed by the governor, the tribal chairman, the director of the Department of Revenue, and the attorney general.