1. Place watermelon in a single layer on a baking sheet. Freeze 4 hours or until firm.
2. Coat rims of cocktail glasses with lime juice; dip in sugar.
3. Process frozen watermelon, tequila, and next 4 ingredients in a blender until slushy. Pour into glasses. Garnish, if desired.
*1/2 cup orange or apple juice may be substituted for tequila.