Tracy Gallegos – Cannabis Industry

In June 2022, the Nevada Cannabis Compliance Board (CCB) approved regulations pertaining to the licensing and operation of cannabis consumption lounges in accordance with its authority under Assembly Bill 341 (2021). Following the CCB’s implementation of the regulations, the license application window was opened from October 14 – October 27, 2022. During the application period, the CCB received ninety-nine applications, and on November 30, 2022, the CCB identified forty applicants who would be prospective holders of consumption lounge licenses. Of the total forty applicants identified, twenty were applicants that already held cannabis retail licenses in Nevada and intended to operate consumption lounges attached to their retail dispensaries, ten were social equity applicants that intended to operate standalone consumption lounges, and ten were non-social equity applicants that intended to operate standalone consumption lounges.

While cannabis consumption lounges seemed to be moving in the right direction in Nevada, prospective operators have experienced hurdles that have delayed the opening of consumption lounges, including changes to the regulations. Now, those prospective operators are faced with more challenges, including concerns regarding indoor air quality at consumption lounges. Specifically, the regulations include stringent air quality standards that require, among other things, that air be circulated every two minutes – a requirement that is even more stringent than those imposed on cigar bars, taverns and hookah lounges. Installing ventilation systems that meet the requirements set forth in the regulations would be a costly undertaking for an operator, with some industry experts estimating that a compliant HVAC system would cost nearly half a million dollars to install. Moreover, monthly utility bills are expected to be in the thousands of dollars. With cannabis operators already experiencing difficulties accessing capital due to the status of cannabis under federal law, and the volatility in the economic market as a whole further exacerbating capital constraints, some prospective operators simply do not have the capital required to build out a consumption lounge that complies with the strict regulations.

Some operators who are already in the build-out phase have been forced to pause construction while they attempt to raise the funds required to address the air quality requirements. Other operators have elected to halt construction until a final version of the regulations has been adopted, in order to avoid having to revise their build-out plans if the regulations are further revised.

When the CCB first approved the regulations, many predicted that consumption lounges would be open in Las Vegas as early as the end of 2022. That time line was subsequently pushed back to the second quarter of 2023, with many hoping that consumption lounges would open by 4/20 and, if not, by early summer in time for the tourists flocking to Sin City for their summer vacations. As prospective operators struggle to complete their build-outs, industry insiders have again revised the time line to sometime in the third or fourth quarter of 2023.

For now, the only consumption lounge where tourists can legally consume cannabis products is NuWu Cannabis Marketplace, which also includes a retail dispensary. Because it is located on tribal land, it is not required to obtain a consumption lounge license from the state.

Tribal leaders of federally-recognized tribes that have legalized cannabis, either medicinally or for adult use, may soon be able to breathe a sigh of relief. The Fiscal Year 2023 appropriations bill for the Department of the Interior (the “2023 Appropriations Bill”), awaiting Senate approval after having passed the House, includes a provision prohibiting the use of any Interior funds to enforce federal laws that otherwise criminalize cannabis on Indian lands where tribal law authorizes its use, distribution, possession, or cultivation. There are, however, two important caveats.

First, if the tribe is subject to state law that is contrary to tribal law, or the tribal land is located in a state where cannabis is illegal, the non-enforcement provision does not apply. Some tribes are still subject to Public Law 280, a relic from the 1950s, which gives certain states criminal jurisdiction over tribal members on tribal land. For those tribes, state criminal law would control and cannabis use, distribution, possession, or cultivation would remain illegal on tribal land.

Second, tribes must take reasonable steps to ensure tribal laws regarding cannabis are compatible with certain federal policy objectives, such as prohibiting cannabis use for minors and ensuring cannabis is not diverted to states or tribes where it is illegal, used to support organized crime or other illicit drugs, or brought onto federal public lands.

These policy objectives mirror ones that had been included in the “Wilkinson Memo,” a 2014 Obama-era statement of policy emphasizing the Department of Justice’s non-enforcement policy against tribes for legal cannabis businesses (both medicinal and adult-use). That memo gave tribes and tribal members some comfort that legalization efforts would not subject them to prosecution, or prevent federal funds from continuing to support their communities. When Attorney General Sessions rescinded that policy statement in 2017, tribal legalization was left in political limbo. The Biden administration has remained silent on the issue of tribal legalization, despite President Biden’s pardon announcement earlier this month.

If the Senate approves the 2023 Appropriations Bill, it will give tribes that have already legalized cannabis some much-needed clarity on where the federal government stands on enforcement of the federal Controlled Substances Act. During the Obama administration, tribes in states like Washington and Nevada found success in compacting with the state to create a uniform system of distribution. Tribes in California do not have that option as the state has prevented any such partnership, despite the state and tribes separately legalizing adult-use. More recently, some tribes located in New York went ahead without state partnership while state adult-use licenses linger in the approval process. Indeed, more than 100 dispensaries have opened in New York on Native land.

For tribes in states where cannabis remains prohibited in some or all forms, or the state has criminal jurisdiction over tribal members, the 2023 Appropriations Bill is a reminder that the complex system of federal and state law governing tribal affairs continues to create issues affecting tribal sovereignty.

Author: Tracy Gallegos

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