Update on Illinois Marijuana Adult Use

As of 6:00 a.m. CST on January 1, 2020, any person 21 years of age or older will be able to purchase marijuana in a licensed Illinois adult use dispensary.  In state residents will be able to purchase up to 30 grams of product while out of state customers will be limited to 7.5 grams.

By passing the legislation approving this program, Illinois became the first state to approve an adult use program by legislative vote as opposed to a referendum vote by citizens in the state.  It is also now the second most populous state in the country (after California) with an adult use program.

As the start of the new program nears, many persons and groups are busy completing applications for one of 75 adult use dispensary licenses that the state will be awarding in May, 2020 (a second round of applications for an additional 110 dispensary licenses will be released during the summer of 2021 to be awarded in December, 2021).  The state is anticipating a large number of applications to be submitted not withstanding the huge cost associated with preparing and submitting an application (total cost in excess of $150,000 per applicant), the competition from the some of the most successful multi-state operators in Illinois and from around the country and the long odds of success.  The opportunity to be a dispenser at the roll out of the program is just too good of an opportunity for the applicants to concern themselves with the high cost and long odds that they face.

Making things more interesting is the presence of a social equity component to the program that will not only provide for expungements for convictions of low-level marijuana, non-violent crimes for up to 800,000 people, but will also provide bonus points to applicants who qualify as a Social Equity Applicant (“SEA”).  In fact, out of a total possible 250 application points, 50 of the points are awarded to applicants who can prove that they qualify as a SEA.  That is a significant enough percentage of the total available points such that most applicants believe they won’t be successful without a qualified SEA partner to capture those bonus points. The problem is that the Illinois statute requires the SEA to own 51% or more of the company and to have control of the day-to-day operations of the entity.  This is a problem for many potential applicants who like the ideas of the 50 bonus points and working with a SEA, but who are also putting up most or all of the money for the venture and, therefore, are looking to maintain control of the company.

For its part, the State does not seem too concerned about this issue as there are no meaningful penalties in place for a person or entity who simply buys out their SEA partner after successfully applying for a dispensary license based on the SEA’s status.  In fact, the only real “penalty” is that if ownership in an SEA qualified entity exchanges hands within five (5) years of the awarding of the license, resulting in a loss of the SEA status, the new owners must pay the state the amount of savings recognized by the entity in paying a reduced application fee ($2,500 instead of $5,000) and that’s it.  Considering the amounts some will pay to their SEA partners to gain control of the company, a $2,500 “penalty” hardly seems like a deal-breaker.

While the social equity plan has its heart in the right place and seeks to provide a well-deserved benefit for those most adversely impacted by the long, unsuccessful and unfair War on Drugs, there is a real concern that many non-SEA’s will seek to manipulate this process for their own personal benefit and to the detriment, rather than for the benefit, of the SEA’s as intended by the statute.  Depending on how things play out, there could be some significant litigation on the back end of this process.

Several Chicago aldermen have called for a six-month delay

Some politicians are not waiting.  Several Chicago aldermen have called for a six-month delay to the start of the adult use program (until the beginning of July, 2020) to make sure that the dispensary licenses up for competition are awarded “fairly” and that those intended by the statute to be the beneficiaries of this program are in fact the ones who benefit.  While it is not expected that this proposal will gain support, it is indicative of the doubt that many Illinoisans have as to the ultimate “fairness” of the social equity program in operation.

Nevertheless, there is much anticipation and excitement for the new program’s launch that will almost surely result in the now familiar video footage of “lines around the block” at the first adult use dispensaries on January 1st, notwithstanding the almost certain cold weather and a full slate of college football bowl games scheduled for that day.

These are exciting times for marijuana users in Illinois and few will allow “politics as usual” to interfere with their introduction to and enjoyment of legal marijuana purchases.

But there is no time to rest.  Just a few days after the deadline for the adult use dispensary license applications, the state will provide applications for adult use craft grow (40 to be awarded), processing (40 to be awarded) and B-to-B transportation licenses which will be due in late spring with licenses awarded during the summer months.

by Larry Mishkin

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