A group of cannabis advocates led by Chicago NORML demonstrated outside the offices of the Illinois Department of Financial and Professional Regulation on September 7. The protesters criticized the state government’s handling of its social equity program, arguing that it’s failing to fulfill its promise to create minority business ownership in the adult-use cannabis market.
“For Governor Pritzker and Illinois legislators, our cannabis social equity program is on the verge of collapse,” said Ambrose Jackson, CEO of the 1937 Group during the presser, as reported by ABC 7 Chicago. “And who’s being hurt? It’s us, the very people who this program was meant to help.”
Among the issues at hand, would-be dispensary owners are asking the state to allow them to sell equity in their businesses to investors to raise money. But the state won’t let them do this until their dispensaries are inspected—and owners are saying that the costs to reach that stage are too high without outside funding.
In 2019, Illinois became the first state to legalize cannabis through its legislature (rather than by popular vote, through a ballot initiative). Legal sales launched in January 2020. The legalization bill committed the state to creating “equity” in the industry, by making it easier for disadvantaged applicants to obtain licenses. Among the eligibility criteria are living in a “disproportionately impacted area” that’s had high marijuana arrest rates, or having suffered (either personally or through a family member), certain arrests or penalties for marijuana use.
To date, not a single dispensary owned by a social equity applicant is open for business.
But the law’s Adult-Use Cannabis Social Equity Program also allowed big cannabis corporations to qualify as equity applicants simply by hiring a workforce of equity applicants, which critics blasted as a “slave master clause.”
The introduction of the law resulted in a pool of 900 social equity applicants, with only 21 chosen in 2020 to enter a lottery for 75 new retail licenses statewide. And to date, not a single dispensary owned by a social equity applicant is open for business.
Advocates and their allies in the legislature moved to address these failings. In July 2021, Governor Pritzker agreed to sign HB 1443. It expanded social equity eligibility, required equity applicants to actually own their business, and made available 110 new retail licenses.
The process was delayed even further as businesses sued the state against the changes, resulting in a judge pausing the licensing process in August 2021 to allow more time to resolve the conflicts. Only in May 2022 did courts allow the state to proceed. So between July and August 2022, Illinois issued 182 adult-use dispensary licenses, then three more on August 19, bringing the total to 185 (the 110 licenses added by HB 1443, plus the 75 the state was initially slated to award). The recipients were selected by lottery in 2021, and all are qualified social equity applicants. But all of these are conditional, temporary licenses.
Of this group, 41 percent of businesses are majority Black-owned. Another 7 percent are white-owned, and 4 percent Latinx-owned, while 38 percent did not disclose. “The release of these remaining licenses means ownership of cannabis dispensaries in Illinois is now more inclusive and diverse than ever before,” said Mario Treto, Jr., Secretary of the Illinois Department of Financial and Professional Regulation in a press release.
The successful applicants were given 180 days to buy or rent a storefront; they then have to be approved for a final license before they can start selling cannabis products.
The 1937 Group is one company that’s received conditional licenses from the state. It hopes to run separate cannabis cultivation, transportation and dispensary operations. Its CEO, Ambrose Jackson, is a social equity applicant. The company, based in Chicago, has been involved in the social equity licensing process since 2019.
“Little did we know we all got hoodwinked.”
“So they rolled out this social equity program and that’s what allowed the [pre-existing medical marijuana companies] to start selling in January 2020,” Jackson told Filter. “Little did we know we all got hoodwinked, since then they’ve all made $3 billion in sales. And there are still no minority owners in the industry here in Illinois.”
Jackson explained that receiving the conditional license was an important step, but that many more steps lie ahead before his planned dispensary can open. His company has to buy or rent a storefront location; make sure it’s more than 1,500 feet away from a school and specially zoned from the city; commission a survey; meet with community members and inform them of the business; obtain a special use permit; secure a final license from the state; then begin construction on the store itself.
Obviously, this is a complicated and expensive process. Some steps can take several months. But like all applicants, the 1937 Group has to pay rent on a location immediately before moving through the other steps. Rents in Chicago for a dispensary can range between $12,000-30,000 a month. If a site is not zoned properly, that can add another $50,000 in costs to get it re-zoned. All together, Jackson estimated his business could spend up to $1.5 million before it opens its doors.
Jackson explained why it’s difficult for owners like himself to raise financing to pay for all this. “I have a conditional license,” he said. “That gives me the opportunity to build out my dispensary which will cost me $1 million. But I have to do it without being able to sell any equity in my company to any investors.”
This is a difficult issue for the state rulemakers, even if well-intentioned, to navigate. Historically, large cannabis corporations have tried to take advantage of small, social equity license holders by offering them cash in exchange for partial or complete ownership. Whatever solution Illinois tries has to avoid making social equity licenses a commodity that corporations will exploit to consolidate their control over the state’s market. Nationwide, cannabis equity advocates have been raising the alarm on this issue for years.
The state is offering low-interest loans to some businesses, and expects to complete the first round of loan agreements soon, with more to follow. It’s also partnering with several schools to offer free support for business owners to learn about the licensing process and rules. But Jackson is skeptical.
“The low interest loan program was a nice promise that was never delivered on,” he said. “There was supposedly $3 million that were set aside in 2020 for social equity license winners to held them stand up their business. We received our craft growers license and applied for this loan in August 2021, and nobody has gotten a single dollar yet.”