Illinois has seen record sales for recreational marijuana, which hit $1.55 billion in 2022 alone. This figure reflects a 12% increase from the previous year.
Despite steady growth, Illinoisians are proceeding into 2023 with caution as there are several financial developments that already have or are likely to impact sales in Illinois. To date, there are 113 “adult-use” cannabis dispensaries in Illinois, including the first “social equity” dispensaries that opened in 2022. In tandem, there are only 21 licensed full-sized growing sites in Illinois. The discrepancy between the number of growers versus the number of dispensaries may not be adequate to keep up with the demand, as prices in Illinois are still the highest in the nation.
While prices and sales may continue to rise, there are still barriers to new growers and dispensaries entering the scene.
By mid-2022, Illinois issued 342 new craft grower, infuser, and transporter licenses, along with 192 dispensary licenses. These numbers, in theory, seemed to reflect an enthusiastic growth spurt in the market. However, only a small number of the applicants that were awarded a respective license have commenced operations. Indeed, many of the new license holders are new to the industry and have never held a license in another state. While the typical new obstacles to starting a business are at play, access to capital is impacting many license-holders’ success. There is a pervasive belief that capital markets to fund cannabis may have depleted, while the SAFE Act, which would legalize banking for cannabis companies, has again failed to pass in Congress.
In addition to funding, regulatory obligations have become increasingly more difficult to navigate. Notably, regulators have implemented the need for upgrades to many operators’ facilities, including items such as more advanced security systems, which can add additional costs, upkeep, and storage.
In November, Illinois state officials announced a new $8.75 million forgivable cannabis loan program. This is likely in response to the complaints that the preexisting state loan process, which utilized two private companies, was slow, restrictive, and difficult to navigate. A press release from Governor J.B. Pritzker noted the documentation, including loan applications, will be streamlined, and was described as a “simplified documentation process.” The same press release acknowledged The Cannabis Social Equity Loan Program, which launched in summer of 2021 and the difficulties experienced by program participants.
The goal of this new loan program will likely provide expedited relief for license-holders and create a more habitable environment for cannabis entrepreneurs. At large, the potential growth that these loans will hopefully provide, will serve as a catalyst for the cannabis industry in Illinois to expand alongside other states.
Despite this new loan program, the limitations on banks and credit unions engaging with cannabis-related borrowers does not go unnoticed. Due to the inconsistent nature of federal and state laws, banking institutions do not want to take the risk associated with this newly emerging market. This will place an even greater emphasis on the need for financing from the state’s new forgivable loan program. Businesses will likely want to consult both legal and business experts who can help interpret, and assist given the unchartered nature of this loan program. Counsel, such as Clark Hill, with a strongly cemented presence in the cannabis industry, will be a valued resource for those businesses taking advantage of Illinois’ newest cannabis opportunities.
The views and opinions expressed in the article represent the view of the authors and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is it intended to be a substitute for professional legal advice.