John Pletz
This story was republished with permission from Crain’s Chicago and written by John Pletz.
With time running out on the licenses awarded to open new marijuana dispensaries, legislators are stepping in with a potential last-minute fix.
Legislation filed today as the General Assembly’s spring session is winding down would extend by one year the amount of time winners have to line up locations for their shops before they risk losing their licenses. The bill also would allow license winners to raise money from outside investors before they receive final approval to open stores.
Both provisions are seen as crucial to the fates of many of the winners of retail licenses that were issued last year. Diversity and social justice were key goals of the legalization of recreational marijuana, which passed four years ago. Because of bureaucratic, pandemic and legal delays, the social-equity goals haven’t been achieved. A little more than a dozen of the 192 newly licensed dispensaries have been opened.
Under the state law that authorized the three lotteries used to award the licenses, winners had 180 days to find a location but could request a 180-day extension. The first group of licensees will begin hitting that extended deadline July 22 unless the new legislation passes. The state House and Senate are expected to vote on the measure today.
Funding
The bigger issue is funding.
Under the new legislation, the state’s marijuana law would be updated to allow outsiders to lend to or invest in license winners before they receive a final license. Regulators have viewed an investment received by a licensee before a final license was issued as automatically triggering a change in ownership of a conditional license, which was expressly prohibited in the statute.
The Catch-22 created a stumbling block for licensees trying to raise money.
“That will help,” Ryan Holz, an attorney in law firm Greenspoon Marder’s cannabis practice, says of the funding provision in the proposed law. “It’s not perfect. The risk is limited. People will invest on this basis.
“Now the money can flow in, you don’t trigger that (ownership) provision just by investing, and you can become a principal officer later,” Holz said.
However, investors won’t be able to receive the equity in a license until it receives final approval. Those investors ultimately will have to be approved by state regulators.
The economics of weed have changed dramatically since the state announced the initial licensing process. The value of marijuana stocks has plummeted and capital has dried up. Numerous states, such as New York and New Jersey, have legalized recreational marijuana, adding to the competition for investment. Adding to the challenge is inflation, which has driven up construction costs.
“There’s so much that’s happened in the last four years that’s changed the industry for these businesses,” says Rep. La Shawn Ford, who led the Legislature’s cannabis working group.
The bill was introduced at the last minute after months of negotiations. The funding provision was a compromise that didn’t go as far as Ford had hoped. Social-equity applicants have been pushing hard for funding relief.
Edie Moore, a social-equity applicant who is part of group that won six dispensary licenses, called the proposed change on funding “good but not great.”
Some lawmakers and the Pritzker administration have been wary of allowing licenses to be flipped, which might reduce or negate the number of dispensaries owned by Black and Brown residents impacted by the war on drugs.
“The unrelenting rules and excessive red tape are killing us,” says Rickey Hendon, a former state senator who was part of a group that won a license for a dispensary that has received zoning approval in the South Loop. “We are fighting for our lives. Our savings are depleted, and time is running out.”
The House bill contains several other provisions, including one that would allow winners of “craft grow” licenses to immediately have up to 14,000 square feet of cultivation space. Current law allows them to start with 5,000 square feet and work up to 14,000 square feet. But license holders say the economics of a site less than 14,000 square feet don’t pencil out.
Another update to the law would pause for two years the issuance of new licenses for cannabis transporters, who have complained of too little demand and too much competition because of delays in new growers and retailers getting up and running.
The bill also would allow companies to deduct certain business expenses from their state taxes, which are not allowed under IRS rules because cannabis is federally illegal. New Jersey implemented a similar measure this year.
Another change would allow drive-through windows for dispensaries and make permanent a temporary provision for curbside delivery that was introduced during the pandemic.
