Caught in a Catch-22, recreational marijuana dispensary license holders are asking Illinois to change its policy and allow them to sell shares of ownership to raise funding to get their businesses started.
Some 200 recreational license owners have signed a Chicago NORML petition asking for permission to sell equity in their companies.
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But under guidance by the Illinois Department of Financial and Professional Regulation, license holders are prohibited from selling their preliminary “conditional” licenses until they are approved to begin retail sales.
“Which is ludicrous, because in the conditional phase is when you need to raise the most capital,” said Edie Moore, co-founder of Chicago NORML and a conditional license holder. “There’s no reason not to do it. It’s not disallowed in the law, and it hurts people.”
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The state law legalizing marijuana effective in 2020 was intended to promote greater minority participation in an industry which reported only one African American, four Hispanics, and 12 Asians with ownership interests as of 2021, compared with 209 white owners.
This summer, the state issued 182 conditional dispensary licenses, all to social equity applicants, generally defined as those with past minor cannabis convictions or from areas or high poverty or cannabis arrests.
The conditional license holders can’t open for business until they pass background checks, get local site approval, pass an inspection, and pay the license fee.
The apparent intent of the policy against selling conditional licenses was to keep minorities and social equity license holders from selling out before even beginning operations. But owners say that keeps them from using their greatest asset, shares of ownership in the license, and they should have the same rights as business owners in other industries.
The law says nothing explicitly prohibiting the sale of conditional licenses.
But Christopher Slaby, spokesman for the agency that regulates dispensaries, issued the following statement: “When reviewing the (state legalization law) in its totality, the (law) does not does not authorize any changes to conditional licenses, including its ownership through the sale of the conditional license, because a conditional license is not a dispensing organization.”
Sparky Rose, co-founder and managing partner of Supercritical cannabis consultants in Chicago, said the state’s policy is hurting people who have licenses likely worth $5 million, but have no money to start their business.
“Why are they doing this?” he asked. “It’s maddening and insane. We need to stop doing everything in our power to ensure social equity applicants fail.”
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Rep. La Shawn Ford, a Chicago Democrat who led legislation to increase the number of licenses, said he believes that state regulators have the power to change that policy.
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If they don’t, he said, lawmakers could change the law in the fall session. The General Assembly may also consider changes such as expanding the maximum size for new craft cannabis growers, and providing for business tax deductions, which aren’t allowed under federal law due to the federal prohibition on cannabis.
“We have to follow the lead of the business community,” Ford said. “This is what they say they need to be successful. If we can help them by tweaking the law, we should.”
License holders have also complained that the state won’t allow them to enter Management Service Agreements, to have another entity with greater resources run the business for them.
In response to license holders’ requests, the Department of Financial and Professional Regulations on Wednesday changed its policy to allow management services under certain conditions.
A contracted manager may handle daily operations, hiring subcontractors or other managerial functions, the agency decreed, but ownership and decision making must remain with the conditional license holder.
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Any such arrangement is subject to approval by regulators. It can be implemented only during the conditional license period, and must end once the store gets its final license to open for business. License holders again said that policy prevents them from using their equity to start their businesses, and only protects existing large cannabis companies.
