Team Pritzker Owes Would-be Cannabis Owners an Explanation

State rules are tangling cannabis entrepreneurs in a Catch-22.

This story was reprinted with permission from Crain’s Chicago and written by Crain’s Editorial Board.

Illinois’ legalization of recreational marijuana was designed in part to generate revenue by taxing the marijuana trade and in part to balance the scales of justice for minority communities that had been hit hard by heavy-handed pot prosecutions dating back to the “war on drugs” era.

There are troubling signs that Illinois’ legalization program, which went into effect in January 2020, is falling short on both fronts.

After a fast start, growth in overall sales and tax revenue is slowing, largely because Illinois has far fewer retail locations per capita than other states. Meanwhile, the effort to give Black and Brown entrepreneurs a fair shot at potentially lucrative retail licenses has also been hobbled by bureaucratic delays, not to mention a historic pandemic and—of course—litigation, all of which means that what was supposed to be a six-month process is now closing in on its third birthday.

Would-be owners of new weed shops, most of whom spent thousands on needlessly complicated applications only to have their fates determined by the luck of the draw, hung on to finally get their licenses this summer.

Now they’ve hit another snag: As Crain’s John Pletz reports, the state of Illinois says the applicants can’t take on investors until they have their shops built out, inspected and open for business. Yet to build out those shops, some applicants need capital. Most banks still aren’t willing to lend to marijuana businesses because weed is still illegal on a federal level. Those who do lend are reportedly charging 18% to 20% interest rates.

Many license winners had accumulated wealth or teamed up with investors before filing their applications, or they have since lined up capital. Others have not. One option is to let capitalism run its course and cull the weakest from the herd. But that’s not what legislators had in mind when they legalized weed in the spring of 2019.

Of course, the state has a justifiable interest in making sure that the 185 new weed-shop licenses are going to the type of owners—minority entrepreneurs whom regulators have vetted—that the Legislature was trying to help in the first place. Another laudable goal: preventing a bait-and-switch that brings in wealthy outsiders who are now sliding into the industry through an unguarded back door.

But the state also has a duty to help those same minority entrepreneurs realize the dream that was dangled before them three years ago when the law was first crafted under the banner of social equity. If there’s a reason the state won’t allow outside investment during this critical period, it needs to be clear and vocal about the rationale. Otherwise, Gov. J.B. Pritzker’s often-uttered words about Illinois having the “most equity-centric approach” to cannabis in the nation ring hollow.

And the slowdown in tax revenue is one more reason to help these licensees get their doors open.

Illinois’ path to weed legalization was unique in two key aspects. It was done by legislation rather than referendum. For good or for ill, legislators clearly stated that one of their motivations in legalizing sales of pot was to create opportunity for those hit hardest by poverty and violence associated with enforcement of the state’s old marijuana laws.

But now it’s the Department of Financial & Professional Regulation’s rules that are causing the heartburn. It’s time for the Pritzker administration to either clarify why it’s blocking the access to outside capital so many of these entrepreneurs need to get their operations off the ground—or get out of the way.

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