Illinois Tees Up New Rules for Cannabis Retail Licenses

Previous rounds suffered delays and challenges to the process.

This story was republished with approval from Crain’s Chicago Business and written by John Pletz

Illinois will accept applications later this month for 55 new retail recreational marijuana licenses.

The process will look very different from the one that governed the first round of 192 licenses, which began three years ago and was bogged down by the pandemic as well as bureaucratic complications and litigation.

The state now has resigned itself to a lottery process from the outset, which means applicants will submit a simplified application. Gone is the requirement to file at the outset lengthy applications that could easily run thousands of pages and cost tens of thousands of dollars to compile.

The original licensing program, based largely on the state’s medical-marijuana program, anticipated a limited number of applicants who would be issued licenses according to their scores. But because of a glut of perfect scores – and a loophole that allowed applicants to apply for as many licenses as were available – there were far more successful applicants than there were licenses.

The result was that a lottery procedure originally envisioned as a tiebreaker was instead used to issue all the licenses. The process undermined the intent of the law, designed to favor “social-equity” applicants who either had been arrested for minor marijuana possession or who lived in disproportionately impacted areas or those neighborhoods hit hard by poverty and violence associated with the war on drugs.

The premise of bringing more Black and Brown owners into what has been an overwhelmingly white- and male-dominated industry rang hollow for some, as applicants associated with established marijuana companies operating in other states, as well as politically connected or wealthy white applicants or those who had previously received marijuana licenses in Illinois, won licenses.

The state only began issuing the long-awaited licenses late last summer, and few successful applicants have managed to get stores open so far.

In the meantime, the fortunes in the marijuana industry have shifted: Marijuana sales have slowed in Illinois and other states, as customers felt the impact of double-digit inflation. The cost of building new stores has risen with inflation, just as the availability of capital has shriveled amid rising interest rates and a massive decline in investor interest in marijuana stocks. Hopes of federal banking legislation, which would have increased capital available to new operators and improved the appetite for investment in the cannabis industry, were dashed in the waning days of 2022.

Individual licenses for established retail stores once fetched $20 million. But amid a larger pool of licenses and weakening industry economics, the value of individual licenses is falling. Industry experts have suggested one-third or more of the initial licensees will not open stores.

Under the revised rules, the state is still focused on social equity. But it has tweaked the criteria, eliminating Illinois residency provisions and bonus points for military veterans – both of which unexpectedly proved problematic in the initial round of licensing.

Applicants must be majority-owned by someone who lived in a disproportionately impacted area or had an arrest or conviction for marijuana possession or delivery that no longer is illegal—or whose family member meets the criteria. Eligibility also was extended to shooting victims.

The price of an application dropped significantly, to $250, from $2,500 under the previous rules.

The new rules eliminate a provision, derided by critics as the “slave master clause,” which allowed applicants to achieve social-equity status by hiring at least 10 employees who lived in disproportionately impacted areas or who had arrests or convictions for low-level marijuana possession.

Other potential qualifications under the new rules include an applicant agreeing to:

  • operate a dispensary in a disproportionately impacted area for two years;
  • purchase at least 25% of inventory from social-equity growers and infusers for two years;
  • sourcing at least 30% of all contracts from approved minority, women or disabled vendors for two years; and
  • providing a $250,000 grant to cannabis-training programs at community colleges or to a social-equity applicant; or paying $500,000 to the state’s cannabis business development fund that provides funding to social-equity applicants.

Another key change will allow applicants to apply for only one license. In the initial round of licensing, some applicants won as many as seven licenses, while others received none.

“We agree the application process should have been changed and made less onerous,” said Pam Althoff, executive director of the Cannabis Business Association of Illinois, a statewide trade group, though she criticized the state for not issuing industrywide diversity and disparity studies of ownership and employment that were called for in the statute. “The desire by the state was to ensure easier access by social-equity applicants. They were responding to frustrations they heard from social-equity applicants.”

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