The cost of Illinois’ botched pot license rollout

"The delay in additional retail licenses in Illinois has depressed sales as many consumers opt to continue to turn to their legacy-market sources of cannabis instead of traveling a fair distance to a dispensary to procure product that remains more expensive," Chicago-based Brightfield, which forecasts recreational sales of $1.3 billion this year in Illinois, writes in a statement.

The licensing process, first delayed by pandemic disruptions, has since been stalled by legal challenges and a political outcry over problems with scoring applications. Fewer pot stores means lower sales, less tax revenue, fewer jobs and continued dominance of the industry by about two dozen companies that own the licenses issued under the medical-marijuana program that began six years ago.

There also are political ramifications. Social-equity applicants, who either lived in communities hit hardest by the war on drugs or had been arrested or jailed for low-level cannabis possession crimes, were at the center of the original law, championed by Gov. J.B. Pritzker, who is up for re-election next year.

"The rollout was not successful. Until we fix it and pass a law to get licenses out to Black and Brown people and women, it’s going to cost us," says state Rep. LaShawn Ford, a Democrat from the West Side. "By not implementing the cannabis law as intended, communities that have been hardest hit by the war on drugs and are supposed to see the benefits of creating jobs—that’s been delayed."

Pritzker’s office did not respond to a request for comment.

The licensing process in Illinois is being closely watched by other states that have voted to legalize recreational sales since Illinois passed its law two years ago.

"Illinois was seen as the gold standard for the social-equity piece in legalization policy, as the state who did it right," says Tim White, a lobbyist at River Crossing Strategy Group in New Jersey, where regulators are starting to craft licensing rules. "It looks like they’ve run into some delays."

Those delays mean that medical-marijuana license holders continue to have the recreational cannabis market to themselves. At $669 million in sales, the recreational market was nearly twice the size of the medical-marijuana business last year.

But the lack of new retail shops also has meant lower sales growth than anticipated for cultivators, many of which are owned by companies that also operate dispensaries that supply marijuana products to retailers.

Ford is among the members of the Illinois Legislative Black Caucus who are trying to get things back on track. They’ve proposed changes to the law aimed at fixing a licensing process that has failed to deliver on promises to diversify ownership of the cannabis industry.

The licenses are extremely valuable, especially in tightly regulated markets that limit the number of stores. Illinois has capped retail licenses at 500. It can cost $500,000 to $1 million to get a store up and running; successful dispensaries can do more than $1 million a month in sales and sell for $20 million.

Under a bill filed by Ford on April 20, the state would hold a lottery among applicants who achieved perfect scores to dole out the 75 new licenses that were supposed to be awarded last year. A second lottery would distribute 110 licenses to social-equity applicants who achieved at least 85 percent of the points allowed.

A second lottery would counteract a little-noticed provision that gave extra points to veterans, which left many social-equity applicants out of the running for the initial 75 licenses. Those licenses are being awarded through a tiebreaker lottery that’s limited to the highest-scoring applicants.

If the legislation passes, it would more than double the number of dispensaries. But it could take six months to a year for the winners to get stores open.

"We’re almost a year overdue," says Kianna Hughes, who owns a cannabis-training company called Elevated Education and is part of two applicant groups that received perfect scores. "We thought we would have had (a license) by now. But the beat goes on. If a bill is what we need to get this going, let’s do what we need to do."

via Crain’s Chicago Business

April 24, 2021 at 07:38AM

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