Meskwaki Inc. hopes to hit jackpot with vape liquid, distribution business

Tribe pursuing new revenue stream apart from gaming

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MESKWAKI SETTLEMENT — The Meskwaki Inc. warehouse in Tama County is a tight fit.

At just 3,000-square-feet, the storage space on the Meskwaki Settlement west of Tama is packed with products the company plans to sell: barbecue sauce, blankets made by Meskwaki tribe members, wild rice, Lakota popcorn, chairs, tobacco products and bottles of liquid used in electronic cigarettes.

More is on its way.

“Literally, we would not be able to put everything into this warehouse that we have on order today,” said Mark Hubble, the CEO of Meskwaki Inc.

To relieve the pressure and expand, the tribal-owned company has invested about $3 million to construct a new 30,000-square-foot warehouse and manufacturing space just steps away.

When complete, the new warehouse will mark a key development as Meskwaki Inc. works to up its revenues and provide an alternative to gaming revenue for the Meskwaki tribe. The warehouse also will let the company take a stab at the multibillion-dollar industry that supplies e-juice, the e-cigarette liquid.

“There are a number of tribal members who we would like to get back in the area,” Hubble said. “In order to do that, we have to provide opportunities that fit what they want to do. Meskwaki Inc. was primarily designed to do that.”

Fully-owned by the Sac and Fox Tribe of the Mississippi in Iowa, Meskwaki Inc. began in 2009, but was largely dormant until 2012, Hubble said.

The company has or plans to have at least 12 subsidiaries, including a construction company, a real estate holding business, a fuel blender, the Meskwaki Travel Plaza and distributor Big River Trading Co. The Meskwaki Bingo Casino Hotel is not run by Meskwaki Inc.

“Prior to Meskwaki Inc., if you were a tribal member and you wanted to stay in the area, you really had two choices: either tribal government ... or gaming,” Hubble said.

Meskwaki Inc. has about 75 employees and revenue of about $15 million, Hubble said. In the next three years, he said the company expects to have annual revenue of about $30 million with growth driven by Big River, the distribution company.

The tribe is a small community, with between 1,300 and 1,400 people. The small population, Hubble said, means the company will eventually have to look outside to fill open jobs.

Still, he said Meskwaki Inc. wants to bring and keep higher-quality jobs — those that pay $50,000 or more a year — close to home. The company could have sales people all over the country and among other tribes, but Meskwaki’s corporate presence will be based on the settlement.

The company expects to open the warehouse by the end of the year.

A MEANS OF SUPPORT

The Meskwaki tribe is not the first to start a wholly-owned company outside of gaming.

Native American tribes have turned to the businesses as a way to grow local opportunities, said Mike Mabin, a board member of the Indian Business Alliance of North Dakota.

“Business development becomes a means of support and growing economies among tribal nations,” he said.

Mabin pointed to Ho-Chunk Inc., a company formed in 1994 by the Winnebago Tribe of Nebraska, as one example. Ho-Chunk Inc.’s subsidiaries include construction, government contracting, a real estate investment company, a manufacturer and distributor, an auto dealership and the Pony Express convenience store chain. The company has said it contributed $53 million to the Winnebago tribe between 2000 and 2014.

The Three Affiliated Tribes in North Dakota created Mandaree Enterprises, which has a health care claims processing business, and a construction and business services company, among others.

Companies owned by tribes can find advantages over competitors by serving other tribes, Mabin said.

“Tribes can reach out to other tribes and tribal members for markets to serve because they have a good understanding of tribal needs,” he said.

They may also have an advantage when competing for government contracts due to programs that put a preference on businesses owned by minorities, women or Native Americans.

“As opposed to competing with ... hundreds of potential contractors, they may be competing with a handful,” Mabin said. “It kind of levels the playing field for their opportunities to do contracting.”

Government contracting is an area Hubble said Meskwaki Inc. plan to pursue once the distribution business is established.

“If you look at the largest tribal companies in the United States that are not gaming, the largest ones are government contracting companies,” said Hubble, who previously worked at Ho-Chunk Inc.

While not exclusive to them, Native American-companies can run into problems building a customer base and accessing capital.

“Many reservations don’t even have basic banking or a credit union or lending services, they need to go outside of their own borders to even access the most basic of financial services and that sometimes limits their ability to start and grow businesses,” Mabin said.

Hubble said Meskwaki Inc.’s biggest hurdle has been growing its customer base.

INVESTING IN E-JUICE

With the warehouse, Hubble sees an opportunity to take advantage of a relatively new market.

E-cigarettes that use e-juice have become more common in recent years as consumers view the electronic devices as a healthier alternative to traditional smoking, despite warnings from the U.S. surgeon general that e-cigarettes pose health risks, especially for young people.

Liquids used in e-cigarettes, also known as vaporizers, are available in different flavors, an aspect that has driven demand. Market research company BIS Research expects the e-liquid market in the United States to grow to more than $4.8 billion by 2025.

The Centers for Disease Control and Prevention reported 3.7 percent of U.S. adults regularly used e-cigarettes in 2014. The highest use was among those ages 18 to 24 or those who were non-Hispanic, American Indian or Alaskan Native adults.

The Meskwaki warehouse will include at least two automated production lines for e-juice that Hubble said can fill 10, 30-milliliter bottles a minute.

“Particularly in the e-juice market, it’s a nascent part of the industry. The early movers on that will become very large companies,” Hubble said.

Federal Drug Administration rules can mean vape shops that mix their own e-juice are regulated as manufacturers, a step Hubble said many retailers may not want to make.

One benefit Hubble said Meskwaki has over its competition are tax advantages for products it makes.

Few states currently tax e-cigarette sales, but when they do, it can dramatically increase the price. Minnesota, for instance, has a 95 percent excise tax on wholesale prices, according to the Centers for Disease Control and Prevention. Kansas taxes 20 cents per milliliter of consumable material.

“It will not be long before states will start taxing it. ... Where they are tribally manufactured and they are sold through other tribes, that excise tax does not exist,” Hubble said.

Iowa does not have a tax on e-cigarette sales.

AN ALTERNATIVE TO Gaming

Meskwaki Inc.’s expansion comes when there are concerns about stagnation or saturation in Iowa’s gaming industry. These worries have arisen often as Cedar Rapids vies for its own casino.

“The general concern with the advent of any additional casinos is you’re just going to take an existing market and make it smaller,” Hubble said.

A potential decline in gaming revenue, Hubble said, is one reason the tribe has invested in Meskwaki Inc.

The Meskwaki casino is not required to report its financials to the Iowa Racing and Gaming Commission. Recently released market studies about a proposed Cedar Rapids casino do provide some insight into how one might affect the Meskwaki casino.

The market studies found that a Cedar Rapids casino would increase local participation in gambling, but also pull from operations in surrounding communities, namely Riverside Casino & Golf Resort, Isle Casino and Hotel at Waterloo and Meskwaki Bingo Casino.

A study by White Sand gaming estimates the Meskwaki casino has about $85 million in annual revenue. Should a new casino come to Cedar Rapids, Meskwaki Bingo Casino could lose between 6 and 10 percent of its revenue, White Sand estimated.

Marquette Advisors estimated in its own study the Meskwaki casino would lose $4.5 million in revenue.

l Comments: (319) 398-8366; matthew.patane@thegazette.com

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