“These things seem simple, but that's what we're learning: it's not all that simple.”
Illinois' cannabis market is booming and the state is making progress in diversifying new licensees, but independent industry research shows significant hurdles remain for companies hoping to tap into the expanding market. remains.
In recent months, celebratory news releases have chronicled several industry successes, with the state opening its 100th social equity cannabis dispensary and predicting cannabis sales will surpass $1 billion in 2024. Ta.
Gov. J.B. Pritzker (D) has repeatedly reiterated that social equity is at the core of Illinois' cannabis program since signing the Cannabis Regulation and Taxation Act in 2019. In July, he praised a newly commissioned independent diversity report on the industry, saying it identified progress and hurdles to set diversification targets.
An independent diversity study commissioned by the state at a cost of $2.5 million by Nereb Group, a Peoria-based consulting firm, found that the state grants more licenses to women and people of color than any other regulated market in the United States. While white people are still the most likely demographic to hold a cannabis license in Illinois, men are the most likely demographic.
However, the USDA's latest licensee operating status list shows that only about 30 percent of businesses with specialty cannabis licenses are operating. And for some social equity applicants, it has been difficult to make the license work as a business.
Many of the lofty goals set by the law remain unrealized for those who have lived in areas historically affected by the drug war or for social justice business owners who have been personally affected. . Of the approximately 50 dispensaries opened by social equity licensees through last summer, only 15 were owned by people of color, according to IDFPR's annual cannabis report last year.
State data shows that minority- or women-owned businesses hold most of the low-level specialty licenses, but more than three-quarters of cultivation licenses have been held in the industry since cannabis was legalized for medical purposes. It is owned by a company owned by white men who have dominated the world.
The report recommends several amendments proposed by licensees, including “expanding canopy space for craft growers, allowing injectors to apply for processing licenses, and increasing “Requires third-party oversight of adult-use pharmacy licensees and allows adult-use dispensing licensees to provide services under the medical program.”
Barriers to funding
The first cannabis dispensaries licensed through the state's Social Equity Lottery program will open by late 2022, nearly a decade after the first cannabis plants and businesses took root in Illinois amid medical legalization in 2013. I didn't.
As part of the 2019 legalization law, lawmakers created a “craft growth” license category aimed at giving more opportunities to Illinoisans who want to legally grow and sell marijuana. However, existing cultivation centers (many owned by large publicly traded companies) that have been growing cannabis for state medical programs since 2014 were approved to grow cannabis for adult-use dispensaries in late 2019. Ta.
A report commissioned by the state's Office of Cannabis Regulation and Oversight reveals a number of challenges facing craft cultivation businesses. First, marijuana remains federally illegal, making banks and lenders even more hesitant to invest in the industry.
Rhys-Xavier won her craft cultivation license through the state's Social Equity Lottery in 2021 after a highly detailed application process that took about three months to complete. Three years later, and despite receiving a loan through the Department of Commerce and Economic Opportunity, the company still doesn't have enough capital to build a brick-and-mortar store to grow cannabis plants.
Xavier said he is still “full steam ahead” but finding the funding needed to begin construction will be difficult. Setting up a cultivation center or dispensary costs millions of dollars, so it's probably the most common and notable hurdle faced by small cannabis businesses.
“The conventional wisdom, and I know it's a myth now, was that you didn't have to worry about money. 'If you get the license, the money will come to you.' he told Capitol News Illinois. “That's absolutely not true. That's one of the biggest challenges: access to capital.”
Last year, through the DCEO Social Capital Loan Program, the state provided approximately $20 million in forgivable loans to a total of 33 licensed craft producers, injectors, and transporters. Nearly all of the loaned carriers are still operational, but more than a year later, only 40% of the loaned ship cultivation and infusion operations are operational.
Last month, DCEO announced more than $5 million in loans to 17 companies that own 20 or more dispensaries in the state, most of which already sell to adults.
Erin Johnson, the state's top cannabis regulator, told Capitol News Illinois that even though state officials had to jump through federal hurdles, more loans for professional licensees will be available later this year. He said he would be able to accept it.
“Capital is a major challenge for our agency given the fact that cannabis remains federally illegal,” she said. “Applications will be opened by the end of this year to provide an additional $40 million in directly forgivable loans for all types of licenses.”
Be in the spotlight of big companies
Xavier has licenses to grow marijuana and manufacture products derived from it, such as vaporizer oils and tinctures, which it sells wholesale to dispensaries, which then sell the products retail to their customers. You can.
Specialty marijuana businesses (a category added to state law when lawmakers legalized recreational marijuana) can license the cultivation, infusion and transportation of marijuana products. This means that these companies have fewer ways to make a profit compared to companies that own comprehensive cultivation centers.
This diagram shows how cannabis grown in Illinois travels from manufacturer to customer. (Illustration from Illinois Capitol News: Dilpreet Raju)
Nearly 20 major operators (including one nonprofit, Shelby County Community Services in Shelbyville) are licensed to operate cultivation centers in Illinois. There, marijuana flower can be grown, cured, packaged and sold to dispensaries, along with other products such as edible cannabis.
One challenge for craft growers is that canopy space for growing cannabis flower is limited to 5,000 square feet, which the report says does not allow for “securing financial backing. “We are not able to generate sufficient profits to achieve this goal.'' The 5,000-square-foot canopy requirement “limits the ability to produce enough cannabis to build brand loyalty across the Illinois market,” according to the report.
The Cannabis Regulation and Tax Act allows the Department of Agriculture to increase canopy space for craft growers by up to 14,000 square feet in 3,000-foot increments.
Cultivation centers, on the other hand, have up to 210,000 square feet (roughly the size of a city block) to grow cannabis. Some operators have multiple cultivation centers, which means they can produce 15 to 120 times more cannabis than individual craft cultivation companies.
This restriction on craft producers is contributing to slowing economic growth for craft licensees, according to a state-commissioned report.
According to the Department of Agriculture, of the 87 licenses granted to craft growing businesses, only 21 have been approved for construction, of which 16 are operational. Xavier's craft cannabis business, HT 23, is one of five businesses approved for construction but not yet operational.
A state-commissioned report found the Kraft Grow business complex for infusers to be flawed.
“The infuser requires a product known as cannabis distillate, which can only be supplied by commercial growers,” the report says. “Technically, craft producers could produce spirits and sell them to infusion companies, but many report that they are unlikely to do so due to limited canopy space.” I am.”
We identified other distillation options for infusers to be prohibitively expensive.
“Many injector participants stated that growers are charging far more than fair market value for distillate,” the report continues. “They also said that growers are inconsistent in pricing their distillates and that they need an existing relationship with the grower to get a fair deal.”
Xavier said he would like to have more direct conversations with Illinois lawmakers and regulators to help understand the challenges licensees face.
“These things seem easy, but that's what we're learning: It's not all that simple,” Xavier said, adding that the state will listen to social equity licensees. He said he would like to spend “more time and energy” on this issue.
A bill introduced during the spring session of the Illinois General Assembly was aimed at addressing small cannabis business issues, including requiring growers to set aside quantities of concentrate for injectors to purchase. However, many of them stagnated without sufficient support.
Other criticisms
A July report from the National Black Empowerment Action Fund, a national advocacy group that supports Black entrepreneurship, found that Pritzker has benefited big companies over aspiring Black business owners. They criticized the legal framework that they claim is acceptable.
The report claims that too few pharmacy licenses are awarded to businesses owned by people of color.
“Mr. Pritzker talked the talk but never walked the walk,” the NBEAF report said, “instead letting his white owners gobble up the most lucrative parts of the market.” states.
Johnson, the state's cannabis regulator, said minority ownership of the state's dispensaries opened since 2020 has increased from 20% to about 50%.
For employers who do not meet state social equity standards themselves, state law considers businesses to be social equity businesses if they employ a workforce that meets at least 50 percent of the standards of states affected by the war on drugs. are. But even Johnson isn't sure how many companies have such social equity based on the composition of their workforce, and state law allows licensees to keep that information confidential, Johnson said. said.
According to the NBEAF report, social equity dispensaries accounted for less than 4% of Illinois' cannabis industry's total sales of more than $1.5 billion in fiscal year 2023.
The Illinois Department of Financial and Professional Regulation's 2023 Annual Cannabis Report states that “we expect this number to continue to grow” as more social equity dispensaries open, but NBEAF states that licensees They claim it took too long to get a foothold.
Editor's note: This is the second in a two-part series about the state's marijuana industry. Watch the first part here.
Capitol News Illinois is a nonprofit, nonpartisan news service that distributes state government coverage to hundreds of news organizations across the state. Funded primarily by the Illinois Publishing Foundation and the Robert R. McCormick Foundation.
This article first appeared in Capitol News Illinois and is republished here under a Creative Commons license.
Illinois Supreme Court says police can't use smell of burnt marijuana to justify vehicle search
Photo by Mike Latimer.
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