Illinois Cannabis Activity Heating Up

While Illinois residents eagerly await the legal availability of cannabis for recreational use on January 1^st, industry participants and state government regulators are scrambling to ensure a smooth licensure process ahead of the commencement of retail sales.  While several incumbent medical cannabis cultivators and dispensaries have now received their “early approval” licenses and will be the primary suppliers of product on January 1^st, new applicants for one of the 75 statewide dispensary licenses that will be awarded on or before May 1, 2020 are diligently completing their applications that must be submitted by January 1^st. 

Once that process is complete, applications for the first round of potential new craft grower, processor and transporter licenses will be made available on January 7^th. There will initially be 40 craft grower and 40 processor licenses available to be awarded on or before July 1, 2020 along with an unlimited number of transporter licenses at the same time. 

Additional dispensary, craft grower and processor licenses will then be available for application in the following years.  New craft grower licensees can grow between 5,000 and 14,000 square feet of canopy space while incumbent cultivation center licensees can grow up to 210,000 square feet. Processor licensees will be allowed to infuse products like edibles with cannabis extract.  No new large scale cultivation center licenses will be issued until sometime after July 1, 2021 following a “disparity and market study” conducted by the state.

Potential cannabis applicants are currently assessing which local municipalities are “opting-out” of local cultivation, processing and dispensary activity.  While local cannabis consumption cannot be prohibited by local governments under the legalization bill, they are allowed to “opt-out” of permitting the location and operation of new cannabis businesses.  This has added another potential obstacle for aspiring cannabis entrepreneurs as they attempt to navigate a myriad of local “opt-outs” when attempting to locate their cannabis business. However, if a local government does decide to “opt-out”, they forgo any potential tax proceeds from the sale of cannabis for recreational use. Local governments can also establish social consumption spaces where cannabis can be consumed but not sold, similar to hookah lounges or cigar clubs.

One other notable feature of Illinois’ new adult-use cannabis law is the focus on social equity.  Bonus points in the application scoring process and various state assistance programs are available for individuals who have been disproportionately impacted by the enforcement of cannabis laws.  To qualify for social equity status in the licensure process an applicant has to document that their ownership group is comprised of at least 51% of individuals residing for at least 5 of the proceeding 10 years in a “Disproportionately Impacted Area” or who have been arrested for low level drug offenses or be related to those that have.

Other ways to qualify for social equity status include an applicant’s commitment to employ at least 10 full-time employees, 51% of whom currently reside in a “Disproportionately Impacted Area” or who have been arrested for low-level drug offenses.  The Illinois Department of Commerce and Economic Opportunity (DCEO) is charged with identifying these “Disproportionately Impacted Areas” which are largely areas of the state with high poverty, unemployment and drug related enforcement activity.

Most recently, the Illinois General Assembly passed “trailer bill” legislation during the recently completed Fall Veto Session to cleanup various aspects of the original Illinois Cannabis Regulation and Tax Act.  More specifically, Senate Bill 1557 corrected various drafting errors, clarified employer protection language in regards to their zero tolerance policies and established “revolving door” ethics provisions for state legislators and their families involved in the cannabis industry similar to those enforced under Illinois gaming laws. 

It also moved up to July 1, 2020 from September 1, 2020 local government’s ability to collect local sales taxes on cannabis and further clarified specifics on where local on-site consumption will be allowed.  Also included were provisions to allow 18 year olds to consume combustible cannabis products under the state’s medical cannabis program and language to clarify that possession of cannabis paraphernalia is no longer illegal under Illinois law.  Lastly, cleanup language was included dealing with state cannabis banking provisions, cannabis offense expungement procedures and industrial hemp programs.  The bill passed the General Assembly with overwhelming vote totals and Governor Pritzker is expected to sign it relatively soon. 

Looking ahead, the competition should be fierce for the limited number of new dispensary, craft cultivation and processor licenses.  Additional legislative activity is also to be expected in the upcoming Spring 2020 Session as lawmakers and regulators continue to iron out issues to ensure a successful recreational use cannabis program here in Illinois. While it is a very exciting time for the cannabis industry here in Illinois it will be imperative that participants stay abreast of the rapidly changing environment to ensure their business success.