By: Ryan M. Holz, Partner and Douglas R. Sargent, Partner
Thursday July 15, 2021 was a big day for adult-use cannabis in Illinois. After more than a year of delays, Governor Pritzker signed HB 1443 (authorizing the issuance of 110 new dispensary licenses), the State announced the dates for the dispensary license lotteries (for the new 110 and the original 75), and the State notified 40 craft grow, 32 infuser, and 141 transportation applicants that they would be receiving licenses. A summary of these events is below, followed by our thoughts on what happens next.
For background, HB 1443 was born from the problems with the original dispensary license rollout. After an arduous application process concluding in January 2020, the State announced that 21 applicants (out of many hundreds) had perfect scores and would be eligible for the original 75 licenses. This immediately generated outrage and lawsuits about the alleged insider connections of many of the 21 “winners,” the demonstrable inconsistencies in application scoring, and the fact that the State was giving veteran-owned groups a monopoly on new licenses. In the face of these lawsuits, the State initiated a deficiency process that allowed applicants to correct problems with their applications and the State General Assembly passed HB 1443. HB 1443 creates three lotteries: (1) for the original 75 licenses to include the original 21 “winners” plus any other applicants who received a perfect score through the deficiency process; (2) for 55 new licenses to include any applicant who received over 85% of the available points; and (3) for 55 new licenses to include any applicant who received 85% of the points and was a “social equity applicant” by means other than hiring 10 qualified employees.
Not only did Governor Pritzker sign HB 1443 on Thursday, but the State also announced the timing of the lotteries that HB 1443 created. On July 29, the State will hold the first lottery for those applicants with over 85% of the points. On August 5, the State will hold the second lottery for those applicants with over 85% of the points and the preferred social equity qualifications. And on August 19, the State will hold the lottery for the original 75 licenses. Accordingly, in about a month, the State will go from 55 dispensary licensees (many with two locations) to as many as 240 licensees.
Finally, to complete the trifecta of developments, the State Department of Agriculture announced the initial winners of the craft grow (40), infuser (32), and transportation (141) licenses. These licenses—like the dispensary licenses—had been long delayed. The Department of Agriculture also announced that it plans to issue 60 additional craft grow and 60 additional infuser licenses before the end of the year to those who have already submitted applications, meaning it would not consider new applicants.
We are definitely excited to see the State make some progress; it has certainly been a long time coming. But there are also going to be significant challenges ahead. We are confident that the dispensary licenses will be awarded as scheduled, but it is going to be very difficult for many of the winners to make up ground that has been lost over the past year. While applicants waited, existing operators were able to scoop up many of the prime locations, establish brands, and establish customer relations. The winners are going to have to find a way to compete with those entities. We hope the State is prepared to provide the necessary assistance and incentives when needed. We also suspect the infuser and transportation licenses will be awarded, and the winners will be able to begin establishing themselves in the industry because there are currently no existing infuser or transportation operators (existing cultivators can infuse and transport without a separate license). Our big concern lies on the craft grow side. Initial returns suggest that, like the original dispensary winners, the 40 craft grow winners are all veteran-owned groups. This means that hundreds of qualified social equity applicants that were not (or perhaps could not be) veteran-owned will not receive a license based solely on that characteristic. While it appears the State has hoped to mitigate the harm to those entities by promising to award 60 new craft grow licenses before year end, we suspect that this issue will be litigated.
All in all, it was good day for the Illinois cannabis market, but much remains to be done. Understanding and navigating this environment without a lawyer can be difficult, so please feel free to reach out to us if you have any questions or concerns. You can also follow further Illinois—and other cannabis-related—developments on our blog.
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