Update on Illinois Cannabis Social Equity Program

Update (August 12, 2022): Following almost a year of delays, the State of Illinois has resumed issuing social equity licenses, having issued 177 of the 185 licenses it was supposed to issue as of late July. On August 6, 2022, WTTW News reported that the Department of Financial and Professional Regulation has issued 177 “conditional” licenses of the 185 licenses that were awarded by the lottery last summer. Those that received a license now have 180 days to open their stores and get final approval from the State. Some will have to finalize financing, which can be challenging considering that cannabis companies are not eligible for traditional bank financing and investments in cannabis stocks have declined over the past year. Even though new licenses have been approved, many of the stores may not open until next year. However, most of the cannabis retail stores are expected to be in the Chicago metropolitan area and will more than double the current 110 medical and recreational shops. An additional 36 licenses are scheduled to be issued this month throughout the State.

The approval of the 177 licenses is the most prevalent update since the Chicago Tribune reported in May 2022 that a Cook County judge ended the court order preventing Illinois from issuing the 185 new social equity cannabis licenses. The Illinois Department of Financial and Professional Regulation stated that they’ll release detailed information about the next steps for applicants that are receiving a dispensary license. The State also issued 48 new craft grower licenses in addition to the 40 craft grower licenses that were awarded in 2021, for a total of 88 craft grower licenses.[1] Thus far, three of the original forty craft grower licenses have recently obtained permits to begin construction. The license delays have cost many business owners tens of thousands of dollars in lost rent or land acquisition costs. Yet, some of the applicants may qualify for low-interest loans through the Illinois Department of Commerce and Economic Opportunity.

Many of the dispensary licenses and about half of the 341 total adult use licenses have been distributed to majority Black-or-Latino owned companies. The Illinois Department of Financial and Professional Regulation reported that it is possible for further litigation to jeopardize the 185 licenses again depending upon those social equity applicants that applied for a license but did not receive one. The Department recently released a checklist of next steps for the conditional licenses winners that will help them transition into an Adult Use Licensee.[2]

In July 2022, the Department reported that the State earned $135.7 million in adult use cannabis sales for that month, including in-state and out-of-state resident sales. The Illinois Department of Revenue reported that the State had a total of $276.2 million in revenue through the Cannabis Regulation Fund at the end of FY2022 on June 30.

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Originally posted (April 1, 2022):  The Illinois Cannabis Social Equity Program was created as part of the 2019 Cannabis Regulation and Tax Act (CRTA), which legalized recreational adult use cannabis in Illinois. The program was intended to offer disadvantaged people and communities of color disproportionately impacted by the war on drugs an opportunity to benefit from the cannabis industry.

After many pandemic-related delays and litigation over the selection process, the State passed a follow-up law in July 2021 that was intended to fix the problems that had previously plagued the program and to allow for additional licenses. This blog post is in follow up to a previous post on the Cannabis Social Equity Program and will describe where the social equity program currently stands.

Status of the Illinois Cannabis Social Equity Program

Public Act 102-0098, the law passed in July 2021 that was intended to resolve issues with the original selection process and lottery, outlined a process with three lotteries that would distribute a total of 185 licenses to social equity applicants. Before the bill passed, the State planned to award 75 dispensary licenses;110 dispensary licenses were added by the new legislation and were intended to widen the pool of potential applicants. The lotteries, held during 2021, became mired in controversy, and several lawsuits have been filed in Cook and DuPage Counties. Because of the pending litigation, the 185 dispensary licenses are on hold and will not be formally issued, per a Cook County Circuit Court Judge’s order.

Although the dispensary licenses are on hold, the State has awarded some of the the other equity licenses created by the law. Forty new craft grower licenses, along with infuser and transporter licenses, were issued last summer. There were supposed to be at least 60 additional craft grower licenses issued by December 2021, but litigation delayed their issuance until last month, when a Sangamon County judge lifted an injunction and cleared the way for the State to issue the additional licenses. The judge restored 11 applicants who sued after they were disqualified. The State will reconsider them while preparing to issue the next 60 craft grower licenses.

Applicants for all of the various social equity licenses have emphasized that the significant delays have impacted them financially as they have had to maintain their property and investors while waiting for the State to issue the licenses. Some of the winners of dispensary lotteries have already moved forward with seeking zoning approvals from the City of Chicago for retail locations, despite the State being barred from issuing the licenses.

Cannabis Revenues in the State of Illinois

The State of Illinois has received a significant amount of cannabis revenue since recreational marijuana became legal on January 1, 2020. In January 2022, the Illinois Department of Financial and Professional Regulation (IDFPR) reported that the State’s recreational cannabis sales hit a new high of approximately $138 million in December 2021, or a 14% increase from November 2021. The Commission on Government Forecasting and Accountability (COGFA) reported in their January 2022 monthly briefing that the State accrued $669 million in adult use cannabis sales in FY2020. Total annual cannabis sales grew to $1.38 billion in 2021, which is a 106% increase over the 2020 figure. Sales were somewhat lower in January and February 2022, but still on par with average monthly sales in 2021.

Despite cannabis sales growing over the past two years, Illinois cannabis sales per capita were lower than the average of some other states such as Colorado, Washington, Oregon, Nevada and Michigan in the first year of legalization. According to COGFA, one of the major factors likely impacting sales in Illinois is the fact that there are fewer dispensaries here because of the delays described above. There are 110 dispensaries throughout the State, so there are approximately 115,000 people per dispensary in Illinois. Nevada has one dispensary per approximately 34,000 people and California has one dispensary per approximately 48,000 people. Michigan, which legalized recreational cannabis at about the same time as Illinois, has 23,000 people per dispensary.[3]

The State of Illinois’ taxes on cannabis by law are allocated to fund a number of community initiatives, expungement and contributions to the Rainy Day Fund, among other priorities. A major area of funding is the Restore, Reinvest, and Renew (R3) initiative, which funds programs in Illinois communities that have been harmed by violence, excessive incarceration and economic disinvestment caused by the war on drugs. About 25% of cannabis tax revenue after administrative costs is directed to programs through the R3 grants. Governor Pritzker’s proposed FY2023 budget included a $50 million increase for the R3 program to allow for additional grants to be awarded if adult-use cannabis revenues continue to grow.[4]

Proposed Changes to the State’s Cannabis Program

The delay in awarding the 185 social equity applicants a cannabis license has influenced some State legislators and the Pritzker Administration to reconsider how the State awards licenses. Last month the Illinois Department of Financial and Professional Regulation (IDFPR) proposed rules for a simplified cannabis dispensary license application process for 55 licenses to be awarded for dispensaries in 2022. The new process would require applicants to pay a $250 fee and prove they qualify for social equity status only after they are selected to receive a license in a lottery. Additionally, applicants would not be scored and ranked, but either qualify or not qualify by meeting certain criteria.

Legislation has also been introduced in the Illinois General Assembly to revamp the process, including a bill that would create a Cannabis Equity and Oversight Commission. The Commission would be intended to streamline oversight and regulation of the State’s cannabis industry and would be led by five members appointed by the Governor of Illinois. As of March 1, 2022, the bill was referred to House Rules Committee and its fate is uncertain with only a week left in the Spring Session.