A federal judge has ruled Nebraska cannot dismiss a lawsuit filed by two Ho-Chunk, Inc. subsidiaries against state regulation of its tobacco manufacturing and distribution.
The Winnebago Tribe of Nebraska owns and operates the largest tribal cigarette and tobacco distributor in the United States: HCI Distribution, established in 1997. HCI’s business consists of purchasing and reselling tobacco goods exclusively in Indian country throughout the United States.
In 2014, the tribe began making its own brand of cigarettes: Fire Dance and Silver Cloud, under Rock River Manufacturing, a federally licensed cigarette manufacturer based on the Winnebago reservation. Rock River also makes the popular smokeless vape pen, e-cigarette and e-liquids through its Kohu brand of products launched in 2017. (Kohu stems from a word originated by the Maori in New Zealand meaning steam.)
The tribe can only sell its tobacco products on-reservations in Iowa, Nebraska and South Dakota. But Rock River products are legally sold in 26 other states through other distributors, and on the vast majority of reservations nationwide through HCI Distribution.
The Winnebago Tribe’s tobacco-related business provide critical jobs at the cigarette plant, and the tribe collects tobacco taxes that help to fund its health, education and infrastructure programs.
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When the State of Nebraska attempted to regulate the tribe’s on-reservation tobacco business, tribal business suffered. Nebraska’s intervention has lead to substantial revenue losses for the two Ho-Chunk, Inc. enterprises. HCI Distribution and Rock River Manufacturing experienced an estimated 80 percent cut in income in 2018 alone.
The two businesses filed a lawsuit claiming that state’s efforts to regulate tribal tobacco are unconstitutional.
Beyond impacting the Winnebago Tribe, the state’s intrusion has halted the distribution of Winnebago Reservation-manufactured tobacco brands to other tribal nations, hindering sales and revenues for multiple tribes.
On Wednesday, U.S. District Judge John Gerrard ruled that he would not dismiss a lawsuit challenging Nebraska’s attempt to regulate tobacco sales by HCI Distribution and Rock River Manufacturing, reported the Associated Press.
The two Winnebago subsidiaries filed the suit in April, alleging that tribal commercial activities are protected under federal law, and tribal operations do not fall under state regulatory authority.
Nebraska sought the dismissal, but the federal judge said this week that more evidence is necessary to settle issues raised in the case, so it will proceed.
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As the U.S. District Court for the District of Nebraska ruling dated December 19 and published by TurtleTalk states:
HCI sells to reservation-based wholesalers and retailers exclusively in Indian Country. All tobacco products HCI ships are affixed with tax stamps in accordance with Tribal law. HCI employs tribal members and allocates 20 percent of its net profits to support tribal welfare programs, which in 2017 allowed HCI to contribute $157,381 to the tribe.
Rock River is a federally licensed cigarette manufacturer with its facilities on the Tribe’s reservation. All Rock River’s products are manufactured on the reservation. Rock River’s products are distributed by HCI and other distributors, and are sold by such distributors to retailers nationwide. All Rock River’s tobacco products bear the tribal stamp for each jurisdiction where its products are sold.
…In 1998, Nebraska and 45 other states settled lawsuits with several tobacco manufacturers and trade organizations. The parties’ Master Settlement Agreement (MSA) required the tobacco manufacturers to place restrictions on tobacco product advertising and marketing, as well as make cash payments in perpetuity to the settling states.
Rock River did not sign the MSA. In 2011, the Nebraska Attorney General’s sought to devise model legislation aimed at regulating tribal tobacco manufacturing and distribution, requiring tribes to comply with Nebraska’s MSA laws.
The tribe continues to maintain that tribal sovereignty precludes the state authority to regulate on-reservation tobacco manufacturing and its distribution business.
