Nearly a year after the legalization of recreational marijuana in Illinois, the state has failed to meet its promised diversity goals for the businesses licensed to be part of what’s expected to be a billion-dollar industry.
Backers of the law, which took effect last Jan. 1, promised to take steps to bolster minority ownership in response to calls for the racial and ethnic groups most harmed by the federal government’s long war on drugs to be given a greater opportunity to be part of the expected cash cow.
But there’s not a single licensed marijuana business that counts a person of color as a majority owner. Legal weed in Illinois continues to be dominated by a small group of white-owned, financially well-backed corporations.
State Rep. La Shawn Ford, D-Chicago, says Illinois’ efforts to boost social equity in its weed industry so far have amounted to “an epic failure.”
He traces that to the state’s decision to give a head start to those already in the industry in Illinois: the owners of licensed medical cannabis businesses, who were allowed ahead to immediately grow and sell recreational marijuana.
“There is nothing for us to be proud of as it relates to the rollout of cannabis,” says Ford, who represents parts of the West Side in Springfield.
It’s “how capitalism works,” says attorney Akele Parnell of the Chicago Lawyers Committee for Civil Rights, who says the social equity applicants whose efforts he has worked for will “never have a fair share in the industry.”
“We’ve just seen the benefits accrued to the same old folks: people that are wealthy to begin with, well-connected,” Parnell says. “That’s not what we intended to accomplish with legalization. But it does seem like that’s where we’re going to end up, based on how we set up the program.”
For those already in the industry, business is booming amid the coronavirus pandemic. Dispensaries in Illinois have sold $580 million of recreational marijuana over the first 11 months of the year, according to state regulators, and more than $331 million of medical marijuana.
Alyssa Jank, the manager of consulting services of the Brightfield Group, a cannabis research firm in the Loop, expects total sales of legal marijuana in Illinois will hit $1 billion for the full year, surpassing predictions.
Ford is part of a legislative working group he says is trying to remedy problems with legalization. But he says he thinks the efforts to create social equity in the cannabis industry are a pipe dream and predicts that the current group of marijuana companies will “always dominate” the burgeoning business.
Those include the Loop-based legal weed giants Cresco Labs, PharmaCann and Green Thumb Industries, known as GTI, and other big companies that already are engaged in a cycle of consolidation.
Cresco, GTI and PharmaCann are among the growing number of legal weed businesses partnering with Innovative Industrial Properties, a publicly traded real estate investment trust known for short as IIP that’s become a key player in the industry even as it remains outside state regulators’ scope because it doesn’t have any ownership stake in the marijuana-producing and selling businesses.
Instead, the San Diego-based IIP buys cultivation centers, then leases them back to cultivators. Those arrangements have been vital for growers to be able to tap more capital while expanding their reach.
IIP has now bought six of Illinois’ 21 lucrative legal weed growhouses. The operators of those large-scale cultivation centers are allowed to hold only three state licenses. But the legalization law doesn’t apply to IIP because it doesn’t operate them.
The company is looking to keep growing, spokesman Ben Regan says: “If we feel there is an opportunity to expand our footprint in Illinois with a tenant-partner we like, we will pursue that opportunity.”
IIP now has properties in at least 16 states and a market capitalization of $3.4 billion. It most recently attracted backing from the so-called Big Three investment fund management firms — BlackRock, the Vanguard Group and State Street Corporation.
Their investments are perhaps the clearest indication yet of how big the potential of Illinois’ cannabis industry is seen to be. That they’re bullish on legal weed isn’t surprising, given that IIP’s stock value has skyrocketed by roughly 100% this year.
IIP’s returns are coming in large part from companies based or operating in Illinois. Cresco Labs, GTI and PharmaCann have a combined 13 leases with IIP, four of those in Illinois.
That’s according to a recent filing by IIP with the federal Securities and Exchange Commission that also says those three companies’ deals account for 34% of IIP’s rental revenue, its key source of income. Another 10% comes from Ascend Wellness Holdings, a Massachusetts company that leases a cultivation center in downstate Barry and two more in other states.
Ford calls IIP’s growing role in Illinois “very alarming.”
“I do believe the governor and the Legislature have a responsibility to regulate and to end any monopoly,” he says.
New companies wanting to get into the industry have been stymied in part by the pandemic and an ongoing licensing imbroglio. When COVID-19 hit, the issuance of new licenses to sell, grow, transport and infuse marijuana products in Illinois were put on hold indefinitely. The delay in issuing 75 recreational dispensary licenses was partly due to a travel ban instituted by KPMG, the accounting firm awarded $6.7 million in Illinois state contracts to grade the license applications.
When state officials announced in September that just 21 of the more than 900 applicant groups qualified for a lottery to determine who would get new recreational marijuana shop licenses, the list was packed with people with deep pockets, political connections and ties to the industry. A series of lawsuits challenging the choices followed. That prompted Gov. J.B. Pritzker to establish a supplementary grading period to give some of the jilted applicants a chance to revise their applications and challenge their scores.
But that supplementary process for the dispensary licenses still hasn’t begun.
And there’s no indication yet when delayed licenses for craft cultivation, infusion and transportation will be issued.
“What’s so bad about this is people were promised and sold that they would really have an opportunity to be involved in this industry,” says Ford, who, with other lawmakers, is working with social equity advocates and industry figures on ways to create more dispensary licenses amid the delays.
On the day the law took effect in January, state Sen. Heather Steans, D-Chicago, who was chief sponsor of the legislation along with state Rep. Kelly Cassidy, D-Chicago, said: “Moving forward, our top priorities for the cannabis industry are to ensure not only that it operates safely and in a way that generates much needed revenues for our state but that we harness the power of our state act to propel significant economic opportunity for every community and in a way that ensures diversification of the industry.”
Cassidy previously has said the license categories that are being added “will create space for more innovation and entrepreneurship in the industry but, more importantly, provide opportunity for more diversity in an industry with a pressing need for it.”
Now, Cassidy says, “It’s still too soon to measure overall success or failure.
“We knew going in that nobody had successfully done this in spite of lots of effort to get it right,” she says of the social equity push. “Trying to accomplish this in a pandemic is an added hurdle.”
Edie Moore, executive director of the influential Chicago chapter of NORML, the National Organization for the Reform of Marijuana Laws, is among those lobbying to create more licenses for legal weed shops. She’s also majority owner of two social equity groups that qualified for the long-delayed lottery.
“The doors need to be opened so that we can get on the playing field,” Moore says of herself and other social equity applicants.
Parnell expects that minorities will end up having ownership control of 10% to 20% of the state’s marijuana industry.
“It’s on regulators to sort of create a marketplace where we don’t end up with a duopoly,” says Parnell, describing a system in which, after consolidation, only a couple of operators dominate an industry. “We already have this sort of oligopoly or racial monopoly.”
Andy Seeger, a cannabis industry analyst, says corporate takeovers already have had an outsize influence on the industry.
“The small guy is just behind the ball consistently,” says Seeger, an independent consultant who previously worked for the Brightfield Group, MillerCoors and Constellation Brands, the Chicago company that owns some of the biggest beer and liquor brands. “We’ll get a ‘craft’ movement at some point. But, for now, there’s going to be four, five, six big players in the market that’ll eventually maybe whittle down to two or three, like in beer.”