ILLINOIS CANNABIS: IS IT THE SPORT OF KINGS?

My dad was an off the boat immigrant from Ireland who had a friend named “Red” Dave Cahill, a successful building  contractor. Red Dave used his hard earned money to fund a hobby, greyhound racing. Like all his ventures, he made a great amount of money off this endeavor. When I asked my dad why he didn’t race horse, my dad said in his Irish brogue, “forget it, that is the sport of kings!”

Years later Illinois is legalizing cannabis and many people have inquired to me about entering the cannabis business.  Based on the Illinois medical cannabis program, I am tempted to provide the same answer my father gave years ago. However,  delivering the message without the soft sounding Irish brogue, but merely a common man’s Midwestern newscaster’s accent.

The present state of cannabis

Presently, Illinois has legalized cannabis for medical use. However, incoming Governor J.B. Pritzker made his intentions well known that he wants legalized adult recreational use cannabis. There is no doubt that legalized adult recreational use cannabis legislation will pass this year and be signed by the Governor.

But the big question is how will it differ from medical cannabis, and specifically how will it differ in terms of access to the industry?

Illinois’ barriers to entry

The present medical cannabis system presents a hard barrier to entry for small entrepreneurs. The fees are very high and unless you are very wealthy or have access to great amounts of capital, the market is shut off for you.

Let’s say you have dreams of opening a mom and pop medical cannabis retail store (known as a dispensary). The application fee is $5,000, the registration fee is $30,000 and the annual renewal fee is $25,000. http://www.ilga.gov/commission/jcar/admincode/068/068012900C00800R.html

And if these are not expensive enough, a dispensary needs to provide evidence that it has $400,000 of liquid assets before submitting an application. http://www.ilga.gov/commission/jcar/admincode/068/068012900C00500R.html

Now keep in mind that the cannabis business is expensive to get into in the first place. Since cannabis is an illegal drug federally, a cannabis business does not have access to bank funding and must rely on non-traditional and more expensive sources of funding.  Plus, the aforementioned  fees don’t account for the local fees that a dispensary will need to pay.

So in other words, nobody needs the government’s help in restricting access to the poor or middle class entrepreneurs.

But suppose you don’t want to bother selling to people and just want to grow cannabis and develop a business cultivating or farming the crop. Well unfortunately the answer is even worse.

The application fee is $25,000, the initial permit fee is $200,000, and the annual renewal permit is $100,000. http://www.ilga.gov/commission/jcar/admincode/008/008010000B01400R.html

And oh yes lest we forget, there is a $500,000 liquidity requirement  and $2,000,000 requirement for a surety bond. https://www2.illinois.gov/sites/agr/Plants/MCPP/Documents/mcppfaq.pdf; http://www.ilga.gov/commission/jcar/admincode/008/008010000A00400R.html

Comparison to another state

California along with medical cannabis, now has legalized adult recreational use cannabis.

Its licensing scheme is reasonable in fees and a licensee pays based on the type of business and the amount of cannabis the retailer predicts will be sold.

So if we look at it from the retail perspective, a small mom and pop dispensary can pay a $1,000 application fee and $4,000 license fee. https://www.bcc.ca.gov/law_regs/readopt_text_final.pdf

A small cultivator can pay an application fee of $135 and an annual license fee of $1,205. https://static.cdfa.ca.gov/MCCP/document/Annual%20Application%20with%20Instructions%20-%2020181101.pdf; https://static.cdfa.ca.gov/MCCP/document/2017%201228%20Licensing%20Workshop%20Presentation.pdf

A stark difference in contrast. California makes it somewhat affordable for a small business operation doesn’t it!

Comparing to other regulated industries in Illinois

Liquor is probably the most comparable legalized and readily available product to cannabis.

Since there are no licensed cultivators in the liquor space and since a manufacturer of liquor is not the same as a cultivator of cannabis, I am focusing on the one area that is closest in comparison, retailers.

In Illinois, the state fee for a retailer is $750 and if you renew the license on-line the fee is $600 dollars.

This small dollar amount allows a poor to middle class entrepreneur to open and sustain a thriving business.

Going forward what do we need?

To remove the barriers of entry in the legalized adult recreational use cannabis business, the state needs to reform the medical cannabis model and not use it as a template.

The main senate sponsor of cannabis legalization, Heather Steans, stated that she wants to encourage a preference for minority owned businesses. https://will.illinois.edu/news/story/what-happens-to-pot-convictions-if-illinois-legalizes

However, if the medical cannabis system is adopted in its present form, the poor and minority communities from Chicago, who often face the toughest barriers to entry, will be shut out of the cannabis business.

I have no doubt in Senator Steans’ sincerity, nevertheless, putting in minority preferences will not do much, if the system shuts them out anyway.

Will Cannabis be the sport of kings?

Illinois’ system for liquor licensing and to some extent California’s cannabis licensing system, allows middle class to poor entrepreneurs to become successful business people.

The present Illinois cannabis system keeps them on the outside looking in. Those that can afford the large fee requirement get a place at the table, which our government denies to those unfortunate others.

Plus, if Illinois or a large locality like Chicago puts a cap on licenses and at the same time let’s medical cannabis dispensaries to automatically obtain a recreational adult use license, then it especially closes this game to the economically privileged!

As cannabis starts exploding as an industry, unless the fee structure is changed, Illinois will shut off this opportunity to everyone except the very wealthy.

In the end, enjoy the flourishing market, and watch as the sport of kings may become commonplace in Illinois.

 

Caveat

I have not seen the legislation that is being developed as I write. This problem may be rectified. This post merely writes based on the barriers to entry for the laws that govern cannabis as of today, and does not take into account laws that were introduced and never passed, or laws that are being drafted but have yet to be introduced.

 

 

 

 

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