By the time Ameya Pawar and his business partners secured licenses earlier this year to open two cannabis dispensaries, they were looking at a completely different market than when they applied more than two years ago.
“The waiting game is hard when you have incumbent players who had a monopoly on the market for several years,” said Pawar, a former Chicago alderman. That delay, combined with sharply higher interest rates, he said, have put a damper on new entrants to the market.
“I would bet you’d have dozens and dozens more stores open today [if they could open] when capital was cheaper,” Pawar said.
Pawar is one of more than two dozen operators who’ve won social equity dispensary licenses since November, according to the Illinois Department of Financial and Professional Regulation. The licenses, designed to carve out space in the industry for entrepreneurs from disadvantaged backgrounds, have stalled for two years amid a flurry of administrative foul-ups and lawsuits targeting the state’s licensing system.
But small dispensary owners and their advocates say state leaders have a long way to go to achieve the equity-focused vision they laid out for legalization in 2019.
Tight regulations on independent pot growers and truckers are causing bottlenecks for dispensary owners who depend on local product. Entrepreneurs with pot-related criminal histories still face legal barriers. And high interest rates and restrictions on fundraising are putting extra burdens on operators who were frozen in financial limbo for two years while larger, established dispensaries gobbled up market share.
Advocates say the problem is exacerbated by more than a dozen state departments that each own a corner of the regulatory regime, creating headaches for newer operators without political connections.
After stakeholders last month failed to reach consensus on a House bill that proposed a host of legislative fixes, advocates say the opportunities for diverse entrants to the industry will only continue to shrink if the problems are not addressed in the fall veto session.
“We have to live up to the words that our lawmakers spoke four years ago, to really invest in justice and equity,” said Peter Contos, deputy director of the nonprofit Cannabis Equity Illinois Coalition. “This is not rocket science. Advocates have been at the table for years now with solutions … and ultimately, they’re just not giving us the support we need.”
Legalization’s rocky rollout
Gov. JB Pritzker signed legislation in June 2019 to legalize the statewide sale of recreational pot with a proposal he called “the most equity-centric law in the nation” on cannabis. It was designed to funnel money and technical support to communities that had been harmed by the state’s decades-long war on drugs, including by reserving hundreds of dispensary licenses for so-called “social equity” owners who come from disadvantaged neighborhoods.
The licensing process was beset by issues almost immediately. State regulators were forced to run a do-over of a lottery to pick licensees after a 2020 drawing was bogged down by accusations of corruption and incompetence. Pritzker signed follow-up legislation in 2021 to authorize 185 more social equity licenses through two new lotteries, but the regulatory process ground to a halt when dispensary owners sued over the constitutionality of the licensing process.
It was not until Nov. 10, 2022 — more than a year after the do-over lotteries — that state officials were able to swat away the last of the legal challenges and begin awarding finalized social equity licenses.
As of Tuesday, 136 dispensaries had been licensed to operate across Illinois, according to state regulators.
Illinois bill to improve ‘social equity’ fails
Heading into the spring 2023 legislative session of the Illinois General Assembly, lawmakers agreed it was time to step in.
Rep. La Shawn Ford (D-Chicago) earlier this year worked with a group of cannabis industry representatives, social equity advocates, and legislators from both chambers and parties who agreed on more than a dozen provisions that Ford wrote into a 269-page amendment.
“It was a strong, pro-business, pro-social equity bill that, if passed, would have given the conditional license holders the resources they need to begin operating,” Ford said in an interview Monday.
The bill’s first provision would have expanded the amount of cultivation space that Illinois “craft grow” facilities may operate. These facilities represent the only way Illinois’ cannabis industry can increase its supply.
Because current law limits craft growers to 5,000 square feet of space, they have found it difficult to raise money from investors, said Jordan Meléndez, who is part of a group looking to open two grow sites in Chicago. The bill would have allowed craft growers to increase their space up to 14,000 square feet. (By comparison, the 21 established cultivation centers may each have up to 250,000 square feet of space.)
“True social equity is not the number of licenses that have been issued,” Meléndez said. “It’s market share … tell me how much canopy each cultivation center is operating on, and I can tell you how much market share they have.”
Other provisions of Ford’s bill included: a moratorium on applications for cannabis transport licenses until a backlog is resolved; rules allowing dispensaries to operate drive-thrus and curbside pickup; and standardization of the credentialing process so job candidates with criminal backgrounds are not rejected out of hand.
The bill would also allow operators to begin fundraising before they secure their final license from the state.
Ford’s legislation appeared on the fast track to a floor vote until leaders of the Cannabis Business Association of Illinois, a trade group representing many of the multi-state cannabis firms that already operate dispensaries, filed an objection over a synthetic ingredient called Delta-8 THC they want banned.
Jeremy Unruh, chair of the Cannabis Business Association of Illinois, said Ford’s proposal was “inadequate in its final form,” citing issues with transporter licenses, loan distribution rules and restrictions on craft grow licenses.
Negotiators salvaged some of the provisions, including a delay in the deadline for social equity licensees to get their shops up and running and a proposal letting cannabis operators write off business expenses in their tax returns.
The $50.4 billion budget signed into law by Pritzker this month also includes a $40 million appropriation to the state’s Cannabis Business Development Fund. However, instructions on how the money should be doled out did not make it into the law.
Next steps for Illinois cannabis legislation
Contos, Pawar and Meléndez agreed state lawmakers and regulators need to find more money to boost social equity applicants if they want to see a critical mass of diverse and independent pot purveyors.
Ford said he’ll push his colleagues to take a second look when the General Assembly reconvenes in October.
But until state leaders can rein in clout-heavy operators to agree on a spate of legislative and regulatory fixes, its efforts to bake social equity into the industry will remain “closer to a failure than a success,” Contos said.
“You have to ask questions about the relationships these lawmakers have, and why they keep making these decisions,” he said. “We’ve done our homework time and time again … but still, they’ll listen to the existing industry instead of the social equity folks. It’s very disappointing.”
Looking forward, cannabis operators and advocates have longer-term ambitions for Illinois’ cannabis laws.
Many want to legalize weed delivery and on-site consumption lounges that would operate like hookah bars. Advocates have also been clamoring for the state to consolidate pot regulation into a single agency.
“There are 17 different agencies that touch this plant,” Contos said. “It means no one is working together and there’s very little standardization, which is hugely problematic and needs to be addressed.”
Pawar’s third dispensary location is awaiting state approval to open in Evanston, he said. His two OKAY Cannabis dispensaries are up and running in suburban Wheeling and Chicago’s West Town neighborhood.
“It’s a fight every single day with incumbents who have had the market to themselves for a few years, but it’s a really exciting industry, and I think it’s got a lot of potential for growth,” Pawar said. “The question is: can we get capital to the people who have been impacted by the war on drugs so they can be in this industry?”