More than 18 months ago, the Cannabis Regulation and Tax Act was passed in Illinois, both legalizing recreational cannabis and creating a new licensing process that was hailed as the national bench mark for creating diversity in the booming cannabis industry.
The new law mandated that the first social equity licenses be issued by April 30, 2020. Now eight months later, despite 21 social equity applicants earning perfect qualifying scores, we are at a standstill.
Not one social equity license has been issued and there’s still not one licensed cannabis business in the state with a majority owner who is a person of color.
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Instead, the original medical cannabis companies, many of which have grown into multibillion dollar, predominantly white owned, multistate cannabis businesses are the big winners. They are exclusively reaping the benefits of Illinois’ record-breaking pot sales. Each day the licensing delays continue, the social equity opportunity becomes less valuable as the large, established companies continue to expand their monopolistic stranglehold on the Illinois cannabis industry, creating a growing competitive advantage.
(Illinois law laid out social equity rules, which awarded extra points on the scored applications to companies that were majority owned by a person who has a marijuana-related arrest on their record, lives in an area affected by the war on drugs or meets another qualification. Companies could also employ at least 10 people that meet those qualifications to be considered a social equity applicant.
To get a perfect score on the dispensary applications, the applicant had to achieve social equity status and veteran status, meaning at least 51% of the organization must be owned by a veteran or group of veterans.)
Something that is often lost is that about two-thirds of the 21 applicants selected as finalists for the lottery are majority-owned by people of color and several are 100% minority-owned. People such as David Scott, a Black entrepreneur who grew up in Maywood and built a successful small business despite being paralyzed after being shot in an attempted carjacking. Scott’s group does not have the resources to ride this out much longer, and others have already invested their life savings. It is groups like these that the delays hurt most.
This is why Gov. J.B. Pritzker must move forward immediately in two phases. As others have suggested, the first lottery, “1A”, should be held in January for the 21 applicants who received perfect application scores in September. The General Assembly should work simultaneously to pass legislation creating a “1B” supplemental lottery for applicants who didn’t earn perfect scores, but had strong applications that meet specific standards for licenses. This approach addresses concerns regarding the application process and likely puts an end to active litigation against the state.
The delay in issuing the initial social equity licenses has given the existing cannabis companies a huge windfall and significant advantage in building brand recognition and securing prime locations for their new dispensaries, leaving social equity licensees with whatever is left.
Most municipalities limit the number of dispensaries in their areas. For example, Naperville and Rosemont have already issued the maximum number of adult use dispensary licenses allowed in their jurisdiction thus barring any social equity dispensaries from locating there.
The booming recreational pot business in Illinois has also triggered a “green” rush to our state. Several large, non-Illinois-based cannabis businesses and international public companies worth billions of dollars have bought their way into the Illinois cannabis market by buying up licenses for huge sums of money from the existing companies. Companies such as Acreage, AWH and Red, White and Bloom will continue to gain market share while social equity applicants are forced to wait.
All 21 social equity finalists have signed labor peace agreements demonstrating their commitment to providing good paying jobs, benefits and working conditions for employees. None of the existing companies have done so. Why allow the existing companies to expand their labor forces with nonunion labor and hold back social equity licensees, all of whom are open to being organized?
Another casualty of delay is the disparity study enshrined in the law. The law requires the Pritzker administration to conduct a disparity study, due March 1, 2021, to help identify discrimination and barriers to entry into the cannabis market. Disparity studies are used by government to justify remedies for groups that have been discriminated against. With the new round of licensing frozen, it is difficult to see how the study can be completed by its due date, much less be used as a tool to remediate discrimination.
If the governor and the General Assembly take decisive action now, they can make the true intent of this historic legislation a reality in 2021. Next year at this time, we can celebrate a new and more diverse group of cannabis entrepreneurs and even greater tax revenue for the state. Illinois can be an example for the nation, but time is running out. Immediate action is needed or social equity applicants will continue to be left out and left behind while the predominantly white-owned multistate cannabis companies will continue to dominate.
Ross Morreale is a cannabis entrepreneur, attorney and consultant. He was co-founder and chief compliance office of Ataraxia (now Verano) from 2014-2018; co-founder and chairman of the Medical Cannabis Alliance of Illinois from 2015-2018 (and a director until 2019).
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