Big money and a big stumble mark first year of Illinois’ recreational weed law

Illinois’ coffers have enjoyed a boost in tax revenue approaching the amount generated by booze sales thanks to the year that recreational marijuana has been legal there. But that success is dampened by the fact that the program’s loftier goal of bringing social equity to an industry dominated by wealthy white men hasn’t been met.

Sales of highly taxed marijuana that have topped $1 billion are popular in a state with a $3.9 billion budget deficit. But other states are watching Illinois’ experiment that promised to ensure people of color could reap revenue in a rapidly growing, multi-billion dollar industry.”

That’s not happening.

In the first round of applications for one of the 75 licenses to sell recreational weed, not a single majority owner among the 21 entrants who made it to the license lottery is a person of color.

During the first round of licensing, each applicant could seek up to 10 of the 75 initial dispensary slots. The original plan was for all of those licenses to be allocated through a lottery.

But the state’s plan was thrown into disarray when only 21 applicants secured all the lottery slots and none of them were for minority-owned businesses. Now state officials are considering holding a second lottery, though that would need to be approved by the Legislature. A move to make that happen failed in the legislation that ended Jan. 13. Ultimately, the state could license as many as 500 dispensaries.

“Are we going to meet our diversity goals? Yes we are, but we’re going to have to fight for it every step of the way,” Toi Hutchinson, an architect of the Illinois law who now serves as an adviser to Gov. J.B. Pritzker, said in an interview. “This is an ongoing, amazingly big task. I know we’re going in the right direction because people are demanding it.”

It’s a failure that has sent state lawmakers scrambling to repair the application rules before the next licensing round. The state is considering adding a second lottery for those minority hopefuls who didn’t make the first round. And that’s led to another uproar — and legal fights.

Some social equity applicants who are angry about the first round scoring sued the state, stalling the lottery process — which in turn prompted lottery winners to file suit because the state wasn’t moving the process forward. Now most of the lawsuits are on hold while state officials try to figure out a solution.

Meanwhile, the state’s existing medical dispensaries, which have been around since 2015, have been selling recreational weed to anyone at least 21 years old since the start of 2020 — solidifying their dominance in the rapidly growing market.

Further complicating the rollout of Illinois’ cannabis law is the pandemic, which state officials say slowed down the application process and hindered oversight on scoring applications.

“It’s been incredibly frustrating,” said Democratic state Sen. Heather Steans, another architect of the law. She said state lawmakers are working to adjust the rules that unintentionally shut out minorities from the first round to get in the lottery. Allowing “just 21 applicants” is too few when there are 75 dispensaries at stake, she said.

A national model?

The drama is particularly striking because Illinois took unprecedented steps to ensure that people who were disproportionately affected by criminal enforcement of past drug laws are able to reap the benefits of legalization.

“There is particular national interest in Illinois from an equity perspective because it was the first to pass legalization through the legislative process rather than by referendum, which other states haven’t had,” said Shaleen Title, a former commissioner of the Massachusetts Cannabis Control Commission and a leading advocate for robust social equity programs.

Illinois has been more successful in implementing other social justice elements of its law. That includes plans to expunge more than 700,000 cannabis-related arrest records. The state already has wiped clean about 500,000 of those.

And last week, Illinois announced $31.5 million in grants generated from weed sales would be doled out to organizations in communities hit hardest by the war on drugs. The law requires that 25 percent of marijuana tax revenues go to those communities.

But the stumble to get to the first lottery is raising concerns about whether true social equity can really be achieved in the booming marijuana industry.

How the licensing works

During the first round of licensing, each applicant could seek up to 10 of the 75 initial dispensary slots. The original plan was for all of those licenses to be allocated through a lottery. But the state’s plan was thrown into disarray when only 21 applicants secured all the lottery slots and none of them were for minority-owned businesses. Now state officials are considering holding a second lottery, though that would need to be approved by the Legislature. Ultimately, the state could license as many as 500 dispensaries.

“The application process was extraordinarily exhaustive and one of the hardest applications in the country, which was antithetical to the kind of folks you say you want to let into the industry,” said Ron Holmes, a former aide to Sen. Dick Durbin (D-Ill.) and now a consultant to some of the social equity candidates.

Social equity applicants typically don’t have as much disposable income as big corporations, Holmes added. Companies already in the cannabis industry, whether in medical or adult-use, had a leg up on the competition to get in the lottery. They have the $2,500 for each application, money to secure property for a dispensary and cover the legal costs of making sure their applications were flawless.

The 21 candidates who made it to the lottery correctly filled all the boxes required by the state for social equity status. That meant meeting at least one of three criteria: 51 percent ownership by one or more individuals who have lived at least five of 10 years in an area disproportionately impacted by criminal marijuana enforcement; a past arrest for a drug offense that is now eligible for expungement; or 51 percent of employees live in disproportionately impacted areas. They also included a veteran, which some candidates didn’t realize was a criteria, costing them five points.

The rules didn’t require applicants to be minorities. Wealthy white candidates could still pull together a team that met all the criteria.

State officials are taking steps to boost the chances that subsequent lotteries will have more minority owners in the mix. The state is offering help to lower licensing fees and low-interest business loans to help promote diversity in the industry.

Some are skeptical that it’s enough to help small businesses get off the ground.

“There’s a small section of people who have cash and control of the money. When you have an industry and emerging market, and you can only join if you have cash, you’ve already eliminated Black people,” said Democratic state Rep. La Shawn Ford, a member of the state Legislative Black Caucus.

Eric Berlin, co-head of the Dentons law firm’s cannabis group, is among the skeptics who say it’s difficult to achieve true social equity in a capitalist society. Consumers, after all, typically care about finding the best products, service and price points — not necessarily who owns the shop.

Given the stumbles and subsequent lawsuits in Illinois and other states, Berlin said he wondered whether the competitive application process should be scrapped. Establishing minimum standards to qualify for license lotteries might work better.

“We have to ask ‘What do we want to accomplish in social equity?’” Berlin said. “It’s not to just enrich one person, but to try to take a step forward on equalizing the gross disparity that has negligibly affected certain communities along the way.

“It’s hard to make that right for all those people. So you try to make it right for communities.”

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