Checking the boxes

In the weed game, licensure applications are key

Nev's Health Law

Neville M. Bilimoria

Neville M. Bilimoria is a partner in the health law practice group, in the Chicago office of Duane Morris.
NMBilimoria@duanemorris.com

March 2020

Even though legalization of cannabis started Jan. 1 in Illinois, many don’t understand the business of cannabis and the flurry of activity that has been going on behind the scenes.

In particular, our office filed dozens of new recreational cannabis use dispensary applications which were due to the Illinois Department of Financial and Professional Regulation on Jan. 2.

For those seeking to get their foot in the door of a cannabis business, the filing of these applications is not only necessary, but it is also an important first lesson for those seeking entry into the cannabis business world.

The competition is fierce with more than 4,000 dispensary licensure applications filed that day for the first round where the professional regulation department will issue 75 recreational dispensary licenses by May 1. What business owners do not realize is having just a mediocre application or previous “experience” in a cannabis business is simply not enough to obtain a license in Illinois.

Given the competition, applications need to be honed and tailored to meet the state’s detailed legal and regulatory requirements, while also hitting important social equity aspects at the same time.

Currently, none of the 55 medical dispensaries or 22 cultivation center licenses in Illinois are owned by minorities under the Illinois Medical Cannabis Program. But the new Illinois Cannabis Regulatory and Tax Act seeks to change that disparity by providing extra points in application scoring for cannabis dispensary licensure applicants who are “social equity applicants.” These applicants under the new act is defined as:

  1. The applicant is an Illinois resident and is at least 51% owned and controlled by one or more individuals who have resided for at least five of the preceding 10 years in a disproportionally impacted area;
  2. The applicant is an Illinois resident and is at least 51% owned and controlled by one or more individuals who have been arrested for, convicted of or adjudicated delinquent for any offense made eligible for expungement;
  3. The applicant is an Illinois resident and is at least 51% owned and controlled by one or more individuals who has had a parent, legal guardian, child, spouse, dependent or was a dependent of an individual prior to June 25, 2019, who was arrested for, convicted of or adjudicated delinquent for any offense made eligible for expungement;
  4. The applicant is an Illinois resident with a minimum of 10 full-time employees, at least 51% of whom currently reside in a disproportionately impacted area and have been arrested for, convicted of or adjudicated delinquent for any offense made eligible for expungement or have had a parent, legal guardian, child, spouse, dependent or was a dependent of an individual who prior to June 25, 2019, was arrested for, convicted of or adjudicated delinquent for any offense made eligible for expungement.

Applicants hoping to score high on their applications without meeting social equity status may find difficulty getting approved. Why? Because 20% of the total points awarded for dispensary applications can be awarded merely for meeting the social equity status. That’s a big boost that may be necessary given the stiff competition.

And what about that competition? On Jan. 6, the professional regulation department announced more than 700 applicants submitted applications for almost 4,000 licenses for the dispensary window that closed Jan. 2. That means there were 4,000 applications submitted for 75 licenses in this first round. Of the 700 applicants, 600 were social equity applicants.

Given the competition, a carefully tailored application is key. Furthermore, while social equity status may be important for application scoring, on the flip side, those social equity applicants hoping to obtain a license merely based on their socially disadvantaged status will be out of luck.

There are important parts of the detailed application (and a significant amount of points) requiring robust application writing showing, among other things, detailed information regarding a business plan, detailed security plan, environmental plan, inventory and record-keeping, consumer safety, labor and employment, cannabis experience and capital requirements.

These sections in the dispensary applications warrant significant knowledge and attention. Also, applications will be scored on whether applicants have sufficient capital to start their businesses in the dispensing marketplace.

The next round of cannabis applications due in Illinois are for craft growers, infusers and transportation licenses are scheduled to be submitted on March 16 with the Illinois Department of Agriculture. The agriculture department applications for these licenses are just as detailed, if not more, than the regulation department’s dispensary licensure applications.

But given the competition, social equity status again may be key to winning licenses. For those unsuccessful in obtaining the business licenses through either department in 2020, there is always next year, with a second round of application processing to give applicants a second chance to enter the cannabis business world.