The Inside Story Of The First (Legal) Native American Distillery

Washington state’s Chehalis tribe lobbied hard to overturn a racist 180-year-old law barring them from producing their own alcohol. Now they finally have their shot.

^I

n spite of the pandemic, this summer the Chehalis tribe of western Washington opened a historic new enterprise—new not just for their 5,420-acre reservation 75 miles south of Seattle, but for all tribes nationwide. The business, situated in a 35,000 square foot complex about 8 miles from the tribe’s Lucky Eagle casino, is called Talking Cedar and consists of a combination restaurant, brewery and liquor distillery. The tribe invested $25 million into the facility, which once complete a month from now will be among the biggest in Washington, set to produce 1.8 million gallons per year 80-proof spirits, including bourbon, vodka and gin. (By comparison, there’s 31 million new gallons of Jack Daniel’s Tennessee Whiskey each year.)

Covid-19 has thrown a wrench into grand opening plans, as travel restrictions have delayed a crew of Italian craftsmen who were set to install the dozen gleaming copper distillation tanks now sitting in the space. “We’ll do it with our own workers,” shrugs David Burnett, CEO of Chehalis Tribal Enterprises (CTE), unconcerned that neither the Chehalis, nor any other Native American tribe has ever built a legal distillery before. The restaurant and brewery opened in late June, operating at 75% capacity. 

Talking Cedar, named after ancient trees on tribal lands at the confluence of the Chehalis and Black rivers, will become a cornerstone of the tribe’s integrated business strategy, says Burnett, 56, who over the decades has helped grow the tribe’s interests from a single tobacco shop selling contraband cigarettes to an estimated $150 million (revenues) portfolio including the casino, three gas stations, a golf course, a 170-room hotel and the $170 million Great Wolf Lodge family resort in Grand Mound, Washington. “We don’t want to be known as just a gaming tribe,” says Burnett. “We want to be an economic development tribe.” 

Many Chehalis leaders saw the spirits business as a no-brainer, considering that they already sell liquor at their casino, hotels and stores. Making their own alcohol would enable the tribe to capture both the manufacturing and distribution margins, as well as a 6% tribal sales tax. “But there was a big stigma attached,” says Chris Richardson, managing director at CTE. Tribe members were wary of potential detrimental impacts of easily available alcohol on the reservation. “The first convenience store on the reservation didn’t sell beer for five years after it opened,” says Richardson. And there were more basic hurdles: “We didn’t even know how to make beer.”

So the Chehalis teamed up with Heritage Distilling, owned by Jason Stiefel, an attorney who says he distilled his first batch at age seven and has been hooked on making spirits ever since. Since its founding in 2012, Heritage has grown from its start in Gig Harbor (near Tacoma) into a sizable regional distillery, selling about $12 million (or roughly 100,000 cases) of gin, vodka, rye and bourbon last year with locations in Washington, Oregon and Alaska. Its most popular release is the sweet-tasting Brown Sugar Bourbon. Stiefel was eager to expand his reach by working with the tribe, which agreed to license his brands and spirits know-how. 

By 2017, the Chehalis had selected their site, designed the facility, and submitted plans to the Bureau of Indian Affairs in Washington, D.C. That’s when they received a dumbfounding notification from the BIA that their plan was illegal under an arcane 1834 law that banned distilleries on tribal land. If they built it, the BIA could levy a $1,000 fine—and send agents to go smash up the stills, Eliot Ness-style. 

The Chehalis couldn’t believe it.

As it turned out, reservations were the only place in America where distilling liquor is illegal — by order of an Indian Trade And Intercourse Act,  signed by President Andrew Jackson, not long after he issued the Indian Removal Act of 1830, which forcibly relocated tribes along what was known as the Trail of Tears. 

The displaced and demoralized tribes were pushed into barren lands and soon became prone to alcohol abuse. So Jackson signed a law banning liquor on reservations. Such laws are now not only considered unnecessary, but also based on racist stereotypes. Researchers at the University of Arizona have shown the incidence of problem drinking among Native Americans to be very similar to whites.

Having no idea the law even existed until the BIA notified them, the Chehalis—proud of their sovereignty—saw the barrier as yet another outrage. “Self-determination is a big deal for us,” says Burnett. “If someone wants to tell us we can’t do that, it just spurs us on.”

That unrelenting nature was similarly on display in 1855 when the Chehalis chief walked out of treaty talks with the governor of the Oregon Territories over his proposal to relocate the tribe away from their inland home on the Chehalis River, to unfamiliar lands by the Pacific. “We are river Indians not ocean Indians,” says Burnett. Rewarded for their stubbornness, the tribal lands were later entrusted to the tribe via executive order.

Over the past four decades, the 1,000-member tribe has had to fight for nearly every venture they’ve pursued. In the 1970s, the Chehalis’ biggest moneymaker, and rite of passage, was smuggling contraband cigarettes from other reservations, or states where the taxes are lower (the current Washington tobacco tax is $3 per pack, versus 57 cents in neighboring Idaho).

“Whoever was the next man up, it was your turn,” recalls Burnett. They used rental cars, vans, horse trailers, and carried a contingency on the books for the shipments confiscated by state troopers each year. Burnett eventually decided this was no way to do business. He entered into negotiations with the state to put an end to the cat-and-mouse game. His leverage? If the state wouldn’t make a deal, the tribe would get around taxes by building its own cigarette factory on the reservation. Washington eventually came to terms with the tribe.

These battles with the state and federal government are nothing new for the  Chehalis. They had a similar issue with selling gasoline on their land. When the tribe set up its first gas stations in 2004, Washington insisted they collect the 28 cents per gallon state sales tax—even on sales to tribe members on their sovereign territory. They fought that law in court as well; today they collect an equivalent tax —now up to 49 cents on each of the roughly 1 million gallons they sell per month—but 75% of it goes to tribal coffers instead of the state of Washington.

Back in the 1990s, the tribe sued the state for the right to have slot machines at its Lucky Eagle casino, which was restricted to table games at the time (they won that battle as well and now boast 1,000 machines). Before the pandemic, the Chehalis ran an express bus service bringing more than 100 groups of gamblers to Lucky Eagle per month from Seattle, Yakima and beyond. Guests can stay at the tribe’s 170-room Eagles Landing hotel, or the 400-room family-friendly resort and waterpark called Great Wolf Lodge, which the tribe built 15 years ago for $170 million in partnership with the publicly traded company of the same name. Then in the 2000s they had to fight the county tax assessor to maintain the tax-free status of the Great Wolf Lodge—a case that went all the way to the U.S. 9th Circuit Court of Appeals, setting a precedent that commercial operations built on reservation land cannot be subject to county, state of federal taxation. 

That all prepared the Chehalis for their most recent legal saga — getting Congress to pass a bill giving them the right to make as much vodka, gin and whiskey as they please. Justin Stiefel of Heritage says his time working as chief of staff for Alaska Senator Lisa Murkowski came in handy in 2018 as he and Harry Pickernell Sr., chairman of the Confederated Tribes of the Chehalis, went “office to office” on Capitol Hill.

Easing their mission: “There was not a single meeting where someone in the House or Senate said that they thought the statute was still good policy,” says Stiefel. Even the Bureau of Indian Affairs was in favor of dropping the law. After nearly a year of lobbying and with the help of members of the Washington State delegation, including Senator Maria Cantwell, a bill was pushed through at the end of the 2018 session and signed by President Trump. And with that, all 574 Native American tribes finally gained the right to distill liquor on their lands. 

The tribe wasn’t alone in its distillation ambition. A Chippewa couple in 2016 set up the much smaller Copper Crow distillery in Wisconsin, but that venture was not burdened by the old law, being on land they own personally just outside the Red Cliff reservation on the banks of Lake Superior.

The Chehalis’ $25 million Talking Cedar investment, in contrast, is the first tribe-owned operation. It includes a $2 million water treatment plant and silos to hold grain. They have already contracted with hog and cattle farmers in the area to sell the highly nutritious grain “spoils” from the fermenting process as livestock feed.

And since the stills aren’t operational yet, the Chehalis decided to generate some revenue during the pandemic by blending thousands of gallons a day of Heritage-branded hand sanitizer, which wholesale for $10.75 per 750 ml. Stiefel will supervise construction of the copper stills (at least one expert from Italy will come check his work) and says that the first batch of legal vodka and gin should be ready late September. If all goes according to plan, the tribe could generate in the neighborhood of $6 million in sales from Talking Cedar next year—pandemic willing.

Burnett eagerly anticipates the added margins that the tribe will collect from selling its own liquor and beer at its resorts, casino, and especially at its convenience stores. He recalls talking to the manager of the Great Wolf Lodge back in 2007, when the resort was under construction. The manager had heard that the Chehalis intended to build its second gas station in the adjacent lot (at a cost of around $2 million) and questioned the move. “Is that really the best use for that land?” Burnett remembers being asked. His response: “The day this Great Wolf Lodge makes more cash for the tribe than a convenience-store, you can ask me that question again.” It’s no coincidence that across the street from Talking Cedar, the Chehalis have already built a gas station which someday will be fully stocked with take-home versions of its spirits. 

The tribe has plenty more projects ahead. Burnett cites a new venture with Pilot Flying J truck stops (39% owned by Berkshire Hathaway) to build a new location on I-5 near Grand Mound, Washington. Whereas the first three tribe-owned Shell-branded stations sell about 350,000 gallons each per month, he expects the Flying J to do at least twice that volume. “It’s all a tax play,” he says. Because the truck stop will be on reservation land, tribal coffers will collect the fuel taxes plus the tax proceeds from discount cigarettes and Heritage-branded beer and alcohol. Much of those taxes will flow into the tribal coffers rather than state and federal treasuries. The tribe will pay Flying J licensing and management fees and hopes to make upwards of $8 million a year once the truck stop opens in a year or so.

As for Heritage, Stiefel’s contract with the Chehalis will have him buying all the liquor the tribe can’t sell in their operations, to distribute regionally. His vision is to keep extending his brands by creating a Tribal Beverage Network, a kind of hub-and-spoke system in which they can deliver tankers of alcohol or beer to other tribes looking to establish their own spirits brands, as well as bottling and distribution operations. Stiefel is now in early talks with tribes in the Midwest interested in financing another big distillery. Meanwhile, a “Cask Club” is being planned at the Lucky Eagle casino, where high rollers can buy a 10-liter barrel of their favorite spirit with their name on it. Hopefully it’s recession proof, says Stiefel. “In good times you want a drink. In bad times you really want a drink.” 

Get Forbes’ daily top headlines straight to your inbox for news on the world’s most important entrepreneurs and superstars, expert career advice, and success secrets.