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Tribe approves $64 million for cannabis enterprise

Tribe approves $64 million for cannabis enterprise

F Following more than an hour of discussion capping off months of debate, the Cherokee Tribal Council voted April 6 to fully fund its cannabis enterprise’s eight-figure startup funding request.

“We cannot go borrow the money from a bank,” said Qualla Enterprise General Manager Forrest Parker. “It’s federally illegal. That’s why nobody can provide anybody a cookie-cutter letter from NIGC [National Indian Gaming Commission] that says, ‘Hey, everybody’s good to go. Don’t worry about it’. That’s why we have this opportunity, is because of that. If it was just cookie-cutter easy, then everybody would be [doing it].”

Preparing to launch

The Eastern Band of Cherokee Indians has been talking about various forms of legalized cannabis use since 2015, when Tribal Council approved a resolution funding a feasibility study for marijuana legalization on tribal lands. Then-Principal Chief Patrick Lambert vetoed the resolution, but Tribal Council approved another, similar resolution in 2018, and Principal Chief Richard Sneed signed it. In 2021, the tribe legalized medical marijuana and decriminalized possession of small amounts of the drug.

That same year, the tribe created an LLC to sell and produce medical marijuana products and an advisory commission to recommend a regulatory framework for a medical cannabis program. The LLC, now called Qualla Enterprise , has so far received $31 million from Tribal Council to launch the business but told the body it needed an additional $64 million to get off the ground.

“What matters is number one, how many customers can legally walk into that store and purchase. Number two, how much product do we have to sell them?” Parker said. “That’s the only two things that drive revenue here. And I don’t have the product without the infrastructure.”

There is little resistance around the horseshoe to supporting the tribe’s burgeoning medical cannabis industry, with most Council members enthusiastically in favor. Parker expects the enterprise to be extremely lucrative, supporting 400-500 local jobs while getting the tribe well ahead of the curve in an industry that — for the moment — is still illegal in North Carolina outside the Qualla Boundary. However, for months Tribal Council has hedged on giving Qualla Enterprise its full start-up funding request for fear of running into trouble with the NIGC, which oversees the tribe’s fattest cash cow — Harrah’s Cherokee Casinos.  

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Revenues from the casinos in Cherokee and Murphy fund about half the tribe’s budget  and give each tribal member roughly $15,000 in direct payments each year.

In December, when Qualla Enterprises asked for $63 million to prepare for its first year of retail sales, Tribal Council appropriated $10 million from the funding sources it could identify that were not tied to gambling proceeds but said the LLC would need to find a loan for the rest, with the tribe serving as guarantor. Due to cannabis’ continued designation as illegal under federal law, securing a loan proved impossible, causing Parker to return month after month to continue the conversation with Tribal Council.

“If we were to say that we’re going to use gaming revenues to fund this, then what we put at risk is being shut down at our gaming operation by NIGC for being out of compliance with federal law,” Principal Chief Richard Sneed told Council during the December discussion.

That concern led Council to amend the December 2022 resolution to stipulate that funding above the $10 million available from non-gaming revenues should come from a loan.

Defining dollars

Qualla Enterprise came back in January to report that the loan avenue was not successful and to renew its request for funding, but Tribal Council tabled the request, and it remained tabled until the April 6 session.

By this time, the $53 million request had grown to $64 million. According to Carolyn West, chair of the Qualla Enterprise board, this was to cover operational expenses incurred since the original December 2022 request. The need for funding had also become more urgent as deadlines loomed for contracts and other commitments to move the business forward. Council members worried that if they didn’t find the money now, they’d lose the $31 million they’d already invested.

“The hesitancy here I see is going to cost us $31 million,” said Big Cove Rep. Teresa McCoy. “I do not understand it.”

Qualla Enterprise made its case for why Tribal Council could appropriate the $64 million without endangering its casino enterprise. Attorney Darian Stanford of Sovereign Solutions Carolina gave a recap of all the allocations Tribal Council had previously made to Qualla Enterprise, pointing out $14 million — nearly half — was initially appropriated to Kituwah LLC from the tribe’s investment accounts before being transferred to the medical cannabis enterprise. The rest came from various non-gaming revenues.

“We’re not trying to reinvent the wheel here,” Stanford said. “We’re simply using the language that this Council and the principal chief’s office has approved in the past and applying it just the same as it had been in the past to the future.”

When the tribe’s general fund balance exceeds 50% of the annual budget, the excess goes into its investment accounts, so those accounts contain some funds that originate from non-gaming revenues like the tribal levy. Yellowhill Rep. T.W. Saunooke said investment accounts are also a valid source of non-gaming revenue due to their function as interest-earning accounts.

“Every dime that we take and we got from gaming that’s in Endowment II or Sovereign Wealth Fund, wherever it is, it’s not just sitting in the bank,” Saunooke said. “For the most part, it’s invested into the stock market. Anything that is earned is earned off that other business. Anything that is left available of interest earned is no longer a gaming dollar.”

Other Council members argued against the idea of having to categorize its funds as gaming or non-gaming dollars at all.

“I want to make it very clear to everybody here and the viewing public and whoever else is watching — we’re not asking Harrah’s Casino for any money,” said Vice Chair Albert Rose. “When that money leaves that casino up there and comes over to the tribe, the identity is lost. Now this fear mongering of ‘it’s still gaming money sitting in our bank account’ — it’s not. It’s tribal money.”

The road ahead

During his comments on the floor, Parker pledged that Qualla Enterprise would view the $64 million as a loan rather than an appropriation, eventually paying the tribe back.

“If the tribe goes and gets a loan, a line of credit or anything, however y’all want to give it to us, we will pay it back,” Parker said. “We will sign on that dotted line right now.”

The resolution Tribal Council voted on was a substitute for the document attached to the agenda, and the substitute was not available as of press time. But based on West’s summary to Council of changes from the original, language treating the appropriation as a loan does not appear to be in the document Tribal Council voted on. No amendments were made during the discussion.  

Wolfetown resident Susan Toineeta questioned the $64 million figure, asking whether the money would go solely toward launching the medical cannabis business or if some of it would fund infrastructure in preparation for recreational legalization in the future. Any decision to legalize recreational marijuana, she said, should be made by referendum vote.

“I understand how in a business practice it would be wise on the front end to try to get the broader picture and get prepared for that,” she said, “but whereas our people have not spoken by referendum on whether or not they want adult use or recreational, again if you were to pass this, my concern is that has already been bypassed.”

Parker replied that the requested funding would go toward infrastructure for medical cannabis production only. The bulk of the ask, $35 million, is for an indoor grow facility, which will boost the quantity and quality of the plants. In phase two of the business — North Carolina’s anticipated legalization of medical cannabis — he expects revenue potential to skyrocket.

“We have to somewhat be prepared for that,” he said. “We’re not overbuilding. We are not building for adult use. We’re building for a medical cannabis dispensary. But we’re the only people that can grow for it. We’re the only people that can make product for it. And we’re the only facility within 350 miles.”

Recreational use, Rose said, would be a matter for the people to decide by referendum.

“We’d never not let the people vote [on that],” he said.

Sneed, who has been a longtime supporter of the cannabis enterprise effort but a vocal opponent of ignoring NIGC guidance about funding cannabis operations, was not in the Council chambers when Tribal Council discussed the resolution April 6. Should he decide to veto the legislation, Tribal Council would need a two-thirds weighted vote to override that decision. The weighted vote April 6 came out 63-31 in favor of passage, with Snowbird/Cherokee County Rep. Adam Wachacha’s six votes absent, so any veto override attempt would have little margin for error.

Following the discussion, Tribal Council first voted on a move to table the resolution, with Yellowhill Rep. David Wolfe, Wolfetown Rep. Mike Parker and Painttown Reps. Dike Sneed and Michael Stamper voting in favor and the remaining members against. The move failed, and Council then voted on a motion to pass the resolution, which broke down along the same lines as the move to table. Chairman Richard French, Vice Chair Albert Rose, Wolfetown Rep. Andrew Oocumma, Yellowhill Rep. T.W. Saunooke, Snowbird/Cherokee County Rep. Bucky Brown, Birdtown Rep. Boyd Owle and Big Cove Rep. Teresa McCoy voted in favor.

These decisions come at a critical time not just for Qualla Enterprise but for the future of cannabis in North Carolina. A bill  seeking to legalize cannabis for medical use has passed the N.C. Senate 36-10 and is now being considered by the House of Representatives. A handful of other cannabis bills have been filed as well but have yet to make it out of committee.

“I want to show the state of North Carolina and the United States of America,” said Big Cove Rep. Teresa McCoy, “that the Eastern Band of Cherokee Indians can conduct a business that brings benefits to its people.”

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