Black and Latinx owners are barely a blip on the cannabis revenue radar

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Patrons waiting outside of a south suburban dispensary is becoming a common sight.

Black and Latinx owners are barely a blip on the cannabis income radar.

Kara Wright followed the rules and  could be considered a winner, since the state awarded her and her applicant team the right to maybe get cannabis dispensary licenses in a yet to be conducted lottery. Yet after months of delays, the lottery hasn’t been conducted, and Wright, one few  Black  step away from legally selling cannabis in Illinois, still doesn’t have a license.

“We are almost at a billion dollars [of sales] here in Illinois,” said Wright. “Which means that no minority owner has been benefiting from the sales, while majority white owners continue to experience those benefits and continue to increase their brand loyalty. They continue to expand, while the industry continues to be corporatized.”

In the first legal year of recreational use, Illinois dispensaries sold $1.03 billion in cannabis products. It was a year of explosive growth for the few dozen companies that owned dispensaries in Illinois. State data, sealed from the public, but leaked in April 2020, showed that by March 2020, the average dispensary was selling about $500,000 of product a month and some as much as $4 million monthly. . Since that report sales across Illinois have doubled.

Today there are 89 dispensaries in Illinois, none minority-owned, since the law took effect on Jan. 1, 2020 Of 16 dispensaries in Chicago, only two are located in Black or brown communities.

One the first major policy initiatives of Gov. J.B. Pritzker, cannabis legalization was meant to be a signature achievement recognizing the failure of the “War on Drugs”, while providing entree to the burgeoning legal cannabis industry for those who had been prosecuted for past illicit participation.

The new cannabis laws, passed and signed in June 2019, came in two parts. The first, calling for cannabis decriminalization and expungement, has been an unqualified success. So far, almost 500,000 cannabis-related arrest records have been expunged and over 20,000 pardons granted for cannabis convictions.. 

The second piece of legislation passed, the Cannabis Regulation Tax Act of 2019 (CRTA), created a timetable for issuing hundreds of new cannabis licenses – most of which were supposed to provide a new kind of social equity, allowing victims of the War on Drugs, specifically  in communities of color, to get first priority for new licenses to cultivate and sell cannabis. The first applications were due on January 1, 2020, as thousands of Illinoisans excitedly lined up outside existing dispensaries to legally purchase recreational cannabis for the first time.

A year after legalization, there are still no Black or brown cannabis license holders. Depending on your perspective, the State of Illinois has either been beset by a series of unfortunate events, flawed legislation, or an ongoing conspiracy to protect the advantage of billion dollar cannabis companies ran by whites  who have never suffered from the impact of the War on Drugs.

“How are there political games and they still give it to their white friends? What we’re seeing taking place is racism. You got to realize: It played out. This should be the last thing in an age of social unrest to just blatantly pimp slap the Black community by ignoring them in this equation,” says Rev. Ira Acree, pastor of The Greater St. John Bible Church, a Black West Side church.

“We went to jail for cannabis first. But when it comes to legalizing it, we’re last.”

Legalizing cannabis has been tricky almost everywhere. . Missouri is wrestling with a lawsuit that could unravel its entire licensing regime. Ohio has a dispensary lawsuit that’s halting license expansion. But the effort in Illinois seems to have stumbled more than most.

When Illinois legalized recreational cannabis in 2019, it was hailed as a model for others, since it was the first state where the process took place through the legislature, not a voter referendum. So, too, , Illinois’ legislation included criminal record expungement and social equity requirements in licensing, two significant firsts.

But by time the system began in 2020, the luster of Illinois’ cannabis legislation quickly wore off through seven important events. Each pushed social equity applicants just a bit further back, giving advantage to existing license-holders so that the  new billion dollar industry stayed in their hands.

The broad plan laid out by the CRTA was for two sets of new licenses , both with a thumb on the scale for social equity applicants;Illinois residents who could prove they were from designated communities disproportionately affected by the War on Drugs, or they or a family member had been arrested on cannabis charges.

Applicants with the highest numbers would take part in a  lottery, where 75 dispensary licenses would be awarded, 40 craft grow licenses, 40 infuser licenses (the right to manufacture tinctures, gummies, and other food items), and an unlimited number of specialized secure cannabis transport licenses. The lottery announcements were to be made for dispensaries by April 30, and craft grow, infuser, and transport licenses on June 30. 

Existing licensees capture the market

Legislative brokering of the law included a condition  that the 55 existing medical license holders would gain the right to sell recreational cannabis out of their existing dispensaries and could also open a second recreational-only dispensary anywhere they chose.

New dispensary licenses wouldn’t be awarded until May 1, and then it would likely take license winners several  months to obtain zoning approval and build out their store, thus giving existing license winners a head start. Recognizing this, Chicago Ald. Jason Ervin, leader of the City Council Black Caucus, threatened to block any recreational cannabis sales until new licensees could set up shop.

“The gravy train is set in Chicago for 11 dispensaries. That is not a gravy train for the vast representation of our city,” he told the Chicago Sun-Times in December 2019.

But Ervin’s challenge was blocked by allies of Mayor Lori Lightfoot, and existing dispensary operators’ efforts went unfettered.

The veterans bonus points

Unlike other states, the state  legislature outlined a specific application process and point system for the licenses. This guaranteed that the administration would follow the legislature’s wishes. .It also created a seemingly  iron-clad process that could only be modified by new laws, rather than relying upon a more flexible administration run process.

But the iron-clad guidelines almost immediately began to unwind. . Despite the point system meant to benefit social equity applicants, a reportedly last minute amendment to the bill added bonus points to applicant teams majority-owned by military veterans. It was a poison pill initially unnoticed by most observers.

Then in November 2019, shortly before dispensary applications were due, state cannabis regulators announced that applications would be graded on a “full-point” basis: For each of the graded sections, applicants would either get full points, or no points – no partial scores. This raised the likelihood of many more perfect scores.

Suddenly, teams with a perfect score, but without the military veteran bonus points, saw their chance of winning a license plummet. Social equity was no longer a de facto priority – military experience was.

The not-really social equity

The rules for cannabis applications were initially designed with qualifications about who gets social equity points,  and without them  the chance of obtaining a license was unlikely. 

But the legislation added a new to obtain social equity points: If an applicant team hired six people from disproportionately affected communities, and kept them on payroll throughout the application process, the team would receive social equity status.

The law  also said existing medical license holders needed to contribute to promoting social equity.

But few of the medical license social equity programs ended up benefiting the intended social equity applicants. Deborah Dillon, a cannabis license applicant, who claims the mantle of being Chicago’s first African American woman-owned union electrical contractor, says conspiratorially, “You know this is by design.”

“The new and medical cannabis stores are required to either pay $100,000 annually into a social equity loan fund or its equivalent in social equity support. So, to avoid the fee, many incumbents chose to provide license application assistance in the form of incubators. And these highly experienced [companies] who have successfully completed applications all across the country like Cresco [Labs], GTI, Revolution, and Justice Grown, trained a few hundred applicants. And none of their social equity teams made the final 21 that were eligible for the lottery. Why would that be?”

Indeed, every large cannabis company confirmed: None of their incubator participants advanced to winning a dispensary license.

Pandemic delays

Through no fault of its own, by late March, a month before cannabis applications were due, the Illinois government was overwhelmed by the work of the Coronavirus pandemic response. On April 30, Gov. Pritzker issued an executive order indefinitely delaying the award of dispensary licenses. Then, on June 29, he issued another executive order indefinitely delaying the award of craft grow, infuser, and cannabis transportation licenses.

Meanwhile, the 55 existing medical cannabis license holders, who were busy opening up their second locations, were selling into a market that in January was worth $63 million a month, but by July had grown to $94 million a month. Some Chicago-based companies like Cresco, Grassroots Cannabis, Green Thumb Industries, and PharmaCann, fueled by hundreds of millions of dollars of investor capital, started buying up increasingly valuable independent companies, creating chains of 8 or ten dispensaries. By December 2020, one pair of independent dispensary licenses sold for more than $25 million.

“There really, truly has been a lack of information and follow up with really communicating where we are in the process,” said Natascha Neptune, president of the Social Equity Empowerment Network (SEEN), an organization claiming hundreds of cannabis social applicants as members. “Nobody’s reached out to our organization in terms of like, ‘Okay, this is where we’re at.’”

Frustrated that cannabis regulators have not issued them licenses, a group of craft grow applicants sued the state, arguing that executive orders don’t allow the Governor to ignore laws in perpetuity without explanation. Then, days before a judge seemed about to rule in favor of the craft growers, Gov. Pritzker issued a new, slightly more explanatory executive order, which satisfied the judge.

Since the lawsuit, “we have not heard anything from the state,” said Paul Magelli, president of the Illinois Craft Cannabis Association. “The conclusion our team came to is there is a firm basis for appeal. We will pursue that.”

An attempt to award licenses in the summer, dies

By late spring, it was clear to regulators in the Pritzker administration that changes were necessary. A bill was prepared for the end of the General Assembly’s Spring Session. Quickly, everyone with a cannabis interest larded on their concerns. The bill would free medical cannabis patients from registering with a specific dispensary, create rules allowing print and digital advertising, and establish a lottery system for breaking scoring ties for dispensary licenses. 

That last item was critical, since so many application scores were likely to be perfect, the state needed a system to break the ties. Emergency rules for a lottery created in 2019 had expired. By May 2020, legislative action was needed to ensure licenses could be awarded that summer.

But two other points also drew attention: A provision that allowed dispensaries to move if they were sited in a location that only allowed medical use sales, and sweeping new oversight powers for state agencies to ensure “a fair and competitive marketplace” for cultivator sales to dispensaries.

One major cannabis company, Green Thumb Industries (GTI), stood to lose if both of those provisions passed. The move item, because one of their biggest competitors, Cresco Labs, needed to move a store to a better location, and the oversight powers because numerous independent dispensary owners were complaining that GTI cultivators were holding back product.

Cannabis advocates and legislators claim that as the cannabis bill came up for consideration, a swarm of GTI-employed lobbyists hit Springfield, pushing legislators to kill the measure. After easily passing the Senate, the bill that would have allowed dispensary licenses to be awarded in summer 2020, died without consideration in the House.

License awards were delayed until September, at the earliest.

The KPMG scoring problems

In late summer, hundreds of dispensary license applicants began to receive strange deficiency notices in the mail.

As another social equity measure, cannabis license applicants would get a kind of “do-over” for their applications, in the form of deficiency notices that would inform them of unclear answers or application sections missing critical information. As deficiency notices began to arrive, some applicants received terse notices that they had failed to prove they were actually Illinois residents, did not show they lived in disproportionately affected areas, or did not prove they were veterans. 

For some, it was stunning news, since applicants said they had usually provided tax returns, property tax bills, or honorable discharge records in their original applications. Even more confusing, some applicants, who applied for multiple locations, said they might have received a deficiency notice for one section on one application, but not on another.

Later, it was revealed that KPMG, the national accounting firm hired to score licenses, was only obligated to hire recent college graduates to score the applications, and that the entire process had been run by a team based in Florida. To boot, KPMG had been awarded the scoring job through a pair of no-bid contracts worth $6.7 million.

Vaughn White, who owns a chain of Sir Chicken franchises, is a social equity applicant from Chicago’s Austin neighborhood and a Desert Storm veteran who served in the army After receiving no notice from the state, he pushed for answers, only to learn he was disqualified.

“We asked for an explanation. Still have not received anything to this day. We really thought we had a very well thought through process. It got dismantled by some bullshit,” said White. “Feels like our applications were thrown into a pile, and they were graded by a couple of interns. It leaves a bad impression. We did a lot of leg work, and the right things.”

The twenty-one

On September 3, Illinois cannabis regulators announced that of the 937 applicant teams, only 21 had the perfect score, plus veteran bonus points, to advance to the lottery round. Of those 21, about two thirds obtained their social equity status through hiring staff from disproportionately affected neighborhoods, rather than personally being applicants affected by the War on Drugs. 

Besieged by a political storm and angry applicants in the fall, state regulators decided to reveal final applicant scores. As a result, many social equity applicants discovered they didn’t receive appropriate points for living in disproportionately affected neighborhoods, or for being a veteran, or were outright disqualified without any explanation. By October, half a dozen lawsuits were filed against the state by social equity applicants, demanding a redo of the application process, thus freezing the state’s process of awarding any licenses at all.

As for Kara Wright and her application team? 

“We’ve not been communicated with by the state. We don’t know what’s going on.”

Mike Fourcher is co-founder of GrownIn.com, the cannabis industry newsletter.