(This is the first in a series of stories from Marijuana Business Daily examining social equity regulations and business opportunities in key U.S. markets.)
Illinois’ social equity provisions for cannabis companies are considered among the most forward-thinking in the country, yet some advocates and business insiders say the rules don’t go far enough to promote minority participation in the industry.
These same industry officials fear the program could be ripe for abuse.
Just exactly how well the social equity initiatives will work remains unclear. The COVID-19 pandemic has slowed the program’s rollout and could make it harder for social equity applicants to establish themselves.
Illinois marijuana regulators and industry officials looked to other state programs when drafting the social equity regulations, taking from other markets what they deemed worked and developing their own rules to foster diversity in cannabis business ownership.
The three main components of the state’s social equity provisions are:
- The applicant originates from an under-resourced area or one disproportionately impacted by the war on drugs.
- The applicant or a family member of the applicant was directly impacted by police enforcing anti-marijuana laws.
- The applicant hires 51% of employees from a distressed neighborhood negatively affected by the war on drugs.
From a 40,000-foot view, the social equity provisions look great, said Shawnee Williams, co-owner of Illinois Equity Staffing, a Chicago-based organization focused on establishing social equity in the state’s cannabis industry.
“As far as everything being written in for social equity and social justice, I’m super proud to say I’m from Illinois,” she added.
Slowed by COVID-19
But a closer examination reveals it’s more difficult to determine if the social equity provisions in the law will be successful.
The coronavirus pandemic has delayed the issuance of two sets of licenses:
- The first round of new retail store licenses was expected to be issued May 1.
- The initial round of new licenses for craft cultivators and infusers was slated for July 1.
None of those permits has been issued, though it’s expected the majority of the license winners will have scored highly on the social equity component of the application, which accounts for 25% of the total score.
Some people expect the retail store licenses to be issued by the end of July, with the other licenses to follow.
In the meantime, the recreational cannabis market is strictly in the hands of the medical marijuana companies that got the first crack at adult-use sales in January of this year.
Industry watchers worry this will give those companies an even bigger head start.
“But, in general, it’s set up to be pretty fair,” said James Gordon, owner of Chi High Tours, a cannabis tourism service based in Chicago. “Once we’re allowed to straighten out the sheets and get everything organized, I really feel optimistic.”
Flaws in the design
Even if the program was designed with the best of intentions, it’s not perfect, according to some industry advocates.
“Because of the limitations of how we’re able to structure the program, we can’t be 100% certain that the social equity program will bring the racial diversity that we want,” said Akele Parnell, a Chicago-based attorney and board member of Chicago NORML.
Mark Peysakhovich, a Chicago-based cannabis consultant and senior policy adviser for the Illinois Cannabis Trade Association, noted the state’s new social equity law couldn’t say a certain number of licenses would go to people based on race.
He added that was done to sidestep the lawsuits that have bogged down social equity programs in other states.
However, Peysakhovich argued, the move created flaws in the application process, where some of his Black clients don’t qualify for social equity because they’ve never been arrested and don’t live in distressed neighborhoods.
One major hurdle to success for social equity applicants in the cannabis industry is a lack of access to capital.
And without capital, Gordon pointed out, those businesses that were hoping to get in on the early round of licenses are burning through cash because of the coronavirus-caused delays.
When Illinois legalized recreational marijuana, the state created the Restore, Reinvest and Renew Program, which allocates 25% of cannabis tax revenue to fund grants for violence prevention, economic development and other efforts in parts of the state that are “found to be acutely suffering from the horrors of violence” and related problems.
Roughly $31.5 million in restorative-justice grants are available to businesses in economically distressed areas.
Applicants have until July 20 to apply.
Social equity applicants can also apply for a low-interest loan to assist with the expenses of starting and operating a marijuana business as part of the Social Equity Cannabis Business Development Fund.
Kiana Hughes, owner and CEO of Elevated Education, a Park Forest-based consultancy that focuses on marijuana, doesn’t believe either the grant or funding programs will do enough in a competitive market where the new businesses are already behind.
“A lot of the minority candidates are going to need a lot more money than that,” she said.
Although it seems Illinois has the best interests in mind of social equity applicants seeking plant-touching business licenses, Hughes and Williams said more should be done for the people of color who want to own ancillary cannabis companies.
Another criticism: Applicants can score points for hiring 51% of the company’s employees from a disproportionately impacted area, which could easily be misused if the workers aren’t paid well or given prominent positions in the company.
A good start
Parnell said that because Illinois has a limited-license market, social equity applicants who do win permits should be able to succeed financially. He added that the market won’t likely be oversaturated for some time.
That, in turn, should help these businesses raise money from investors.
“Criticisms aside, it’s hard to come up with a better approach,” he added.
Peysakhovich worked as a lobbyist to help write the legislation for the social equity rules.
He said the conversation from the outset was about how to achieve social equity when the recreational cannabis program was created, rather than create the program and try to “shoehorn” it in later, as other states have done.
“We came much closer to the bull’s-eye than the people (in other states) who are blindly throwing darts,” he said.
Both Hughes and Peysakhovich said the industry did the best it could while developing the social equity rules.
Hughes, who sits on Chicago NORML’s executive board, helped decide what parts of other states’ social equity programs were working and what weren’t.
“This is the most comprehensive social equity program,” she said. “It’s a great draft and a great effort.”