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Thursday, February 2, 2023

Rough 2022 for Illinois marijuana industry leads to higher hopes for the new year

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In many ways, 2022 was a wild year for cannabis in Illinois — long-running court fights were resolved, hundreds of new licenses were issued, and hemp-derived derivatives like Delta-8 exploded in popularity.

Nationally, President Joe Biden pardoned federal marijuana possession convictions, and called for a review of how the drug is classified under federal law.

But newcomers trying to break into the industry in Illinois kept running into obstacles — mainly, a lack of funding. As a result, most Black and Latino entrepreneurs were shut out, prices for consumers remained among the highest in the nation, and the black market continued to thrive. Efforts to change the laws fizzled, and more concerns were raised about the connection between cannabis and psychosis.

But there are signs that a shift is coming in the new year, with potential changes including home delivery, more new stores and lower prices.

“I’m optimistic that 2023 is going to be much better than 2022,” said former state Sen. Rickey Hendon, who plans to open a dispensary in Chicago’s South Loop this spring. “It would be hard for it not to be. 2022 was rough.”

After two years of delay, cannabis advocates were optimistic when the state issued 342 new craft grower, infuser and transporter licenses and 192 dispensary licenses by mid-2022. The craft grower licenses are for small startups that aim to offer specialty strains and products, similar to craft brewers.

But only a handful of those businesses have gotten off the ground. Star Buds craft growers opened in Rockford this fall, along with a couple of infusers and just three new dispensaries: Ivy Hall and Green Rose in Chicago and Altius in Round Lake Beach.

Ivy Hall’s neighborhood boutique in Wicker Park is majority Black-owned, including co-founder Nigel Dandridge and his father, a former Chicago Public Schools teacher and military veteran. Unlike many new license holders, Dandridge has prior experience with the cannabis business in Illinois, Colorado and Michigan.

Ivy Hall is meant to be a cozier alternative to the more sterile dispensaries of the large multistate operators based in Chicago, like Cresco Labs, GTI, Pharmacann and Verano.

People converse inside majority Black-owned Ivy Hall dispensary on Nov. 14, 2022.  Ivy Hall is the state’s first operating social equity cannabis dispensary.

Dandridge said he’s focused on communities that lack dispensaries, and hopes to open more stores in the coming year, in an effort to succeed where others haven’t.

“Access to capital is a critical ingredient of success, but you also need discipline, patience and to look where the opportunities are, which can all be done without investment,” Dandridge told the Tribune in an email. “One can succeed without selling equity when you work directly with local officials and zoning boards to revitalize a retail site in a prime location that doesn’t need a ton of improvements.”

Other license holders say the capital market to fund cannabis has dried up. Cannabis stock values have plunged. The SAFE Act that would have legalized banking for cannabis companies again failed to pass in Congress.

Attorney Scott Redman, founder of Illinois Independent Craft Growers Association, compared 2022 to wading through a bog.

“Most craft growers are very disappointed about where they are,” Redman said. “Many of us are nowhere closer (to opening) than we were a year ago. Now, with limited capital, people are scaling back, to start small and generate some revenue.”

Redman’s company, Drecisco Farms, won a license as a craft grower, but dropped its expensive plans to build a facility near Woodstock, and instead is renovating an existing building in Marengo. He hopes to start producing edibles and extracts in the coming summer.

Scott Redman talks with attendees during the Illinois Independent Craft Growers Association first in-person meeting, at Dorian's in Wicker Park on Oct. 6 2021.

Regulators often make opening more difficult by demanding upgrades, he said, such as numerous additional security cameras, which require costly servers and storage. Such measures can be more strict than those for pharmacies that sell powerful narcotics.

Still, Redman said, customers should start seeing craft cannabis products on store shelves in the new year.

To address the lack of capital, state officials in November announced a new $9 million forgivable cannabis loan program. License holders had complained that the previous state loan process, which went through two private companies, was too slow and restrictive.

This month, state officials also announced plans to award 55 new dispensary licenses. The new online application eliminates the hundreds of pages of detailed plans required in previous applications. Instead, it asks for basic information, with winners required to show they qualify.

Such changes are meant to open up the industry to minority investors. The existing industry, which started with medical marijuana in 2015, required huge startup costs, and is almost completely owned by white males.

New licenses are targeted for “social equity” applicants, generally defined as people with low-level cannabis offenses, or from areas with high poverty or high arrest rates for cannabis.

The new rules do away with previous favoritism for veterans, and eliminate applicants qualifying by hiring people from such areas, as the politically connected GRI Holdings did in opening its Green Rose dispensary in River North.

People pass by the Green Rose Dispensary along the 600 block of North Wells Street in Chicago on Nov. 10, 2022.

Chris Slaby, a spokesman for the state’s dispensary licensing agency, said more stores are set to open. “Illinois’ adult use cannabis industry will continue strengthening as it becomes more inclusive and creates more opportunities for entrepreneurs, workers, and consumers,” he said.

Three years after recreational marijuana was legalized in Illinois, recreational sales of $1.4 billion were 13% higher through November this year than in 2021, but have flattened recently.

Sellers blame that in part on taxes, which can run as high as 41%, as well as competition from hemp. Federal lawmakers legalized hemp in 2018 as a non-psychoactive version of cannabis to make products like CBD, but new derivatives such as Delta-8 THC and THC-O now can get users high.

Pam Althoff, acting executive director of the Cannabis Business Alliance of Illinois and a McHenry County Board member, said the U.S. Food and Drug Administration needs to regulate hemp more actively.

Federal lawmakers have criticized the agency for failing to act for years. Agency officials have responded that they need greater direction or authority from Congress.

In Illinois, Althoff said one solution would be to create a single regulatory agency for cannabis, similar to liquor and gambling, rather than splitting responsibilities among a half-dozen different agencies.

Among the 21 states that have legalized recreational cannabis, she said, “We’re one of the few states that doesn’t have a commission for cannabis.”

Another topic that has come up in other states is a push to limit the potency of pot, which can reach 80% or higher. Critics of cannabis commercialization, such as Smart Approaches to Marijuana, have warned of studies linking long-term and high-potency cannabis use to schizophrenia, depression and suicide, and called for limits on THC.

Advocates have pushed back against limits, arguing that legal cannabis is safer than people buying from the black market.

Still, the new year may bring other changes that have been discussed for some time.

The biggest difference consumers would notice may be allowing home delivery. Gov. J.B. Pritzker voiced support for the concept recently, as long as buyers prove they’re over 21, as they must at stores.

Delivery could provide a market for transportation license holders, who now have little to do since cannabis companies have their own vehicles to supply products from producers to retailers. Multiple apparently illicit delivery services have sprung up in the meantime.

Advocates also are pushing for increasing the size limit of craft growers from 5,000 square feet to 14,000 or more, still a fraction of the 210,000 square feet that existing growers are allowed.

Most importantly, conditional dispensary license holders say they need to be able to sell shares of ownership, to either cash out or raise capital.

While the law does not explicitly prohibit such sales, the Illinois attorney general and the Department of Financial and Professional Regulation have taken the position that such sales are forbidden until a business gets its final license to open. The fear is that wealthy white conglomerates will buy out minority investors, further consolidating the industry.

Ultimately, that issue may be decided in court. A lawsuit challenging the policy is being fought in Cook County.

The lack of transparency and shifting interpretations in zoning and regulation also have driven away some investors, argued Edie Moore, co-founder of Chicago NORML and holder of licenses for several cannabis businesses that have yet to open.

She said the status quo only benefits existing businesses, and emphasized the need for a single agency to provide clarity and consistency. She called for allowing craft growers to share locations, to reduce the costs of real estate, infrastructure and security.

“The changes we’re asking for are small but mighty,” she said. “Make it make sense.”

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