What Happened in Illinois Part II

Last month we talked about what happened with Illinois dispensaries and the difficulties that were encountered when applying special scoring rules for both social equity applicants (SEAs) and veterans. Since the original intent in Illinois was to award the initial 75 licenses to the highest scoring applications, every point was important and those that could find a veteran who also qualified for social equity got a bonus. The result was that so called social equity veterans (SEVs)  were the only group that could amass the highest point totals, perfect scores as turned out, for 21 application groups controlling about 300 of the more than 4000 applications. Lawsuits resulted, so did legislation attempting to fix things. Another 110 licenses were added to the available pool and veterans, while  welcome, did not control the outcome in the latter group.  Three separate lotteries were conducted in different qualifying categories, including the original group of SEVs.  Guess what … more lawsuits,  To this day not a single dispensary license has been issued in Illinois under the social equity provisions of the Cannabis Regulation and Tax Act (CRTA) a law that was supposed to be the model for social equity engagement for the industry.  For more details see the post on this blog dated March15, 2022. 

But the CRTA did lots of things beyond authorizing new dispensary licenses.  Forty craft grow licenses, forty infuser licenses and an unlimited number of transporter licenses were also authorized and these were managed by a different state agency, the Illinois Department of Agriculture.  The first  craft grow, infuser and transporter licenses were supposed to be issued in June 2020.  As a result of Covid-19 and the same kinds of scoring difficulties that were encountered by dispensaries, the process was delayed until August 2021. As with dispensaries, highest scores received licenses.  Unlike dispensaries, a person is only eligible to own 3 licenses, not 10, and the licenses could be located anywhere in the state, not in the specific region where the applicant applied.  Confused?  Me too. 

A few more wrinkles, veteran applicants received points on  the same basis as they did for dispensaries, and as with dispensaries, both veterans and SEAs needed to own and control  51% or more of the applicant enterprise. SEAs got 200 points, veterans got 20, so the preference was clear for SEAs.  That is unless the SEA was also a veteran and thus an SEV obtaining 51% ownership and control  in both the social equity and the veteran categories. By doing so SEVs earned 220 points; 20 points more than an SEA without a veteran.  As you can imagine the winners of the first forty craft grow licenses were all SEVs.  The Department of Agriculture quickly announced that it was prepared to issue another 60 craft grow licenses under its authority to do so under the CRTA.  First it needed to clean up some questions and so the Department issued “Fourth Round Deficiency Notices” to a group that the Department at first indicated were likely in the highest scoring category, a pronouncement quickly retracted.  After scoring the Fourth Round Deficiency Notices, the table seemed to be set for more craft grow licenses.  Not so fast.  The  Department also disqualified a group of applicants for not answering the Fourth Round Deficiency Noticers correctly.  Oops.  More lawsuits and this time one court stopped the Department from issuing any craft grow licenses until things got sorted out. 

The Illinois Supreme Court stepped in and consolidated four separate craft grow lawsuits into one, and the judge in that case found that the complaints of the disqualified applicants were valid. The Court ruled that the Department did not have the legal authority to demand all of the information that it wanted in the Fourth Round Deficiency Notices and ordered the Department of Agriculture to give the “disqualified” applicants a chance to answer their Fourth Round Deficiency Notices. The court also lifted the stay preventing the Department from issuing new  craft grow licenses which it can now do any day. 

So far so good,, but wait, there’s more.  A group of applicants outside Illinois objected in federal court to the Illinois residency requirement for any Illinois licenses claiming it violates the Interstate Commerce Clause of the US Constitution. We don’t know where that one is going yet but it could bring down the entirety of the CRTA, as could one of the dispensary lawsuits still pending.

Meanwhile Infusion licenses were also issued by the Department of Ag. Of the first group of forty, the Department issued 32; not sure why eight were omitted. Now in general there were many fewer craft grow and infuser license applicants than there were dispensary applicants, about 434 craft grows and about 238 infusers. To date 52 infuser licenses have issued and there has been little controversy over those licenses.  Owing  to the much smaller pool of applicants, SEAs were more likely to win without the extra points awarded to an SEV.  Regardless, the infuser licenses are moving along without the comparative controversies surrounding dispensaries and craft grows.

The CRTA was drafted as a well intentioned law intended to right the wrongs of the war on drugs. It was supposed to give victims of the war on drugs, a chance to benefit in the new legal cannabis business when so many were convicted and went  to jail for using, possessing or selling cannabis in the ast.  In its intention to award a special privilege to SEAs and veterans, applicants in Illinois responded with record numbers of applications and much enthusiasm.  But just like a defective part manufactured years earlier can affect equipment recalls, the opportunity for both veterans and SEAs to achieve extra points by each group owning 51% of an applicant set up a flawed scoring system.  The extra veteran points were crucial to obtaining highest scores meaning that SEAs were not as important as the much smaller group of SEVs.  Learning from its mistakes, Illinois has announced a reform to the complex and expensive application process.  Going forward Illinois will allow any party to apply for any form of license dispensary, craft grow, infuser or transporter, with a simple  application in each category and the payment of a $250 fee. Upon a minimal inquiry into qualifications, a lottery will ensue and there will be a ranking of all candidates. The top scoring group will then provide its plans and additional qualifications  and should they not qualify,  then those ranking next  in the lottery selection will be invited  to do the same vetting until all available licenses are filled with qualified candidates. 

The cannabis business in Illinois generates well over $1 billion in sales and yet not a single new license has been awarded to any person or entity  other than the first group and their successors, that were awarded licenses under the 2013 Compassionate Use Act.  The resulting oligopoly has run long enough.  It’s time to fix things in Illinois, once and for all.  A major rewrite of the CRTA is required. Better yet, let’s stop treating cannabis business licenses as a special privilege and make them available to anyone who qualifies with an assist for social equity applicants. 

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