Guest Column: Deep Pockets, Persistence Required to Start a Medical Cannabis Dispensary in Illinois

By Troy S. Radunsky

These are exciting times for medical marijuana in Illinois.

The state is about a year away from allowing patients to legally purchase and consume medical cannabis via a network of 60 dispensaries, with possibly up to 13 in Chicago and 11 in suburban Cook County.

As in any new market, prospective dispensary owners and investors have a host of questions. What specific criteria must be met to get a permit? What will it cost to open and operate a facility in Illinois? How competitive will it be to get a license?

Here are some answers to these questions, which will help you set expectations and ultimately determine if you want to open a dispensary.

Criteria

Illinois promised it would be the most heavily regulated medical marijuana state in the country, and it did not disappoint.

The proposed draft rules covering the industry are extremely extensive, detailed and rather intimidating, coming in at a whopping 71 pages. They address everything from application requirements for dispensaries to ongoing operational procedures covering records-keeping, security and many other areas.

These extensive dispensary regulations, if adopted, will likely have the intended effect the legislature had hoped – that is, to weed out the pretenders from the contenders while simultaneously protecting patients’ rights by giving them access to the best medicine.

From a business standpoint, these regulations will be onerous.

Applicants must be well financed and prepared to pay hefty fees (more on this below) just to throw their hat in the ring for a chance at a license. As part of the process, applicants – and even investors who have a significant financial interest in a dispensary – must undergo a thorough criminal background check conducted by the state.

This actually might be the easiest part of the application and registration process. Applicants have to submit a comprehensive business blueprint incorporating financial projections, operating plans, staffing expectations, a thorough explanation of their products and services, operations and marketing manuals, inventory and records-keeping plans, etc.

The challenges escalate from there.

If you’re fortunate enough to land one of the 60 dispensary licenses, expect that your business will be subjected to the strictest regulatory control since Prohibition.

Some examples of the types of rules you’ll face:

– The building a dispensary operates out of must be of sufficient size, include parking, be well-lit, provide ADA access to and from the facility, contain restricted access areas for patients and products, and have proper power, ventilation and temperature controls.

– Medicine must be stored and properly, electronically inventoried in restricted, locked areas. Some areas of the facility will also require the installation of bullet-proof glass. The regulations require the installation of a rather sophisticated alarm and video monitoring system throughout the interior and exterior of the premises. That security system must also be fully operational at all times even in the event of a power outage.

– Dispensary owners must furnish detailed information concerning their personal and professional backgrounds, including demonstrating knowledge of the various product strains or varieties to be sold. The applicant’s principal officers must also demonstrate experience in business management, the medical industry or the cannabis sector.

Costs

Make no mistake about it: starting a medical marijuana dispensary in Illinois won’t be cheap. The state will operate one of the most heavily regulated MMJ programs in the country, and complying with those rules will be challenging and expensive.

The two-stage application process includes a $5,000 non-refundable application fee and proof of $400,000 in liquid assets, so you must have access to a substantial amount of cash just to even have a chance. And the costs associated with drafting and preparing all the required documents just to submit an application will be substantial.

Applicants that actually win a license will have to fork over $30,000 initially and $25,000 to renew it each year. One entity can receive licenses in up to five districts, but they’ll have to pay separate licensing fees for each operation. There are also nominal fees for operator and employee identification cards.

Aside from application and licensing fees, entrepreneurs will pay tens of thousands for legal and consulting services, security systems, real estate and staffing, among other large expenses. There are also all sorts of other unique costs baked into the proposed regulations. If an owner intends to build his own dispensary, for example, the state may require a $50,000 surety bond or escrow as evidence of the business’s financial stability.

These are only just a few of the anticipated operating and overhead expenses prospective investors can expect before they even hire staff or open their doors for business.

When it’s all said and done, it will likely cost around $750,000 to $1 million to get up and running initially – and that’s a conservative estimate.

Competition

Despite the high costs and rigorous regulations, Illinois still expects the application process to be extremely competitive. Sophisticated investors will likely clamor to get involved and secure a license in the country’s fifth-largest state by population, as this could be a once-in-a-lifetime opportunity.

Those with deep pockets and extensive business backgrounds will likely look to partner with those who have experience in the cannabis realm, creating powerful teams. You also can expect some higher-profile individuals to apply, like we’ve seen in Nevada.

With such heated competition, even the most qualified, serious players might lose out on a license, despite spending a good deal of time and money trying to get one.

So you’d be forgiven for pausing after weighing the complexities and costs of applying and then maintaining full-time compliance with these regulations.

Despite what might appear at first blush to be intimidating costs to get into the dispensary business, however, the opportunities to make a substantial profit – if you’re patient and the business is carefully organized – are limitless.

While it will take careful strategic planning and a solid team of professionals to draft an application, the financial future of the dispensary industry in Illinois looks bright and highly lucrative – so long as you you have plenty of capital and patience.

Troy S. Radunsky is a partner at the Chicago-based law firm Busse, Busse & Grasse.

10 comments on “Guest Column: Deep Pockets, Persistence Required to Start a Medical Cannabis Dispensary in Illinois
  1. Michael Mayes on

    Troy,

    Great overview. You are spot on with many points.

    However, I think your projections are very low. Many serious organizations will apply for multiple areas exponentially increasing the costs. Not to mention lobbying, legal and consulting costs. Serious players are investing $1 to $3 million to have a serious chance in Illinois for a single license in the most tightly regulated State to date.

    -Michael Mayes
    Quantum 9, Inc.

    Reply
  2. Chris on

    I feel that Troy was spot on actually. I think that before one spits out a rebuttal, he/she should be specific. Michael, are you referring to a CC or dispense?

    Reply
  3. matt m on

    I enjoyed this article but I agree with Michael…I think the start up costs cited in this article are very low indeed. More capitol and cash flow will be necessary to keep the doors open and to keep up with all the greedy politicians “dipping” into the business.

    Reply
  4. John Schwind on

    Troys projections aren’t artificially low. He mentions the costs “When it’s all said and done will cost $750k-$1M…and that’s a conservative estimate”.

    So if $750k – 1M is a conservative estimate by his standards, I don’t think anyone would be surprised with total cost being $1-3M as a more aggressive estimate-including the author.

    Reply
  5. Avis Bulbulyan on

    Without knowing specifics such as size and type of business (retail, cultivation etc.)no one can give an accurate projection, there are too many variables. Having said that, I think Troy may have been talking about a dispensary, because he gave a dispensary example just before his anticipated conservative projection. If so, he’s not that far off.

    Reply
  6. Avis Bulbulyan on

    Michael – Investing upwards of $3 million on an application to “have a serious chance in IL for a single license” is absolutely insane. I also don’t see how applying for multiple areas increases costs exponentially. Sure it costs more, but not exponentially more.

    Reply
  7. Michael Mayes on

    The costs for applying for a dispensary license in Illinois is per license, meaning its cost growth is exponential. Exponential growth occurs when the growth rate of the value of a mathematical function is proportional to the function’s current value. Every license an applicant applies for will incur exponential costs.

    I still stand by my current analysis of $1 to $3 million per dispensary license estimate. Zoning, Permits, Public Relations, Board Members, Lease/ Building Acquisition, Lobbying, Communications, Construction, Consulting, Web Development, Legal, Facility Design… the list goes on.

    If someone were to tell me that the cost is a “conservative” estimate and put the top end of their estimated costs at $1 million, I would be incredibly upset if the final cost were even a dollar over $1 million. When assigning a cost projection in a “conservative” manner I would expect that number to be extremely padded. An “aggressive estimate” I would expect to be on the lower end with the total costs potentially being much higher.

    The meaning of conservative is moderate or cautious.

    Reply
  8. Avis Bulbulyan on

    I strongly disagree. Costs for a license are per license, but that doesn’t mean the cost growth is exponential. Of all the sample expenses you mentioned, most are not even incurred during the application process such as zoning, permits and construction. The majority of the ones that are incurred during the application stage, the cost growth is still not exponential such as legal, consulting and most of the time, not even the lobbying. Because you’re a consultant I won’t use you as an example, instead I’ll use legal expenses. For the sake of argument, let’s say a lawyer charges 100k to provide legal services for an applicant. If the applicant decides to apply for a 2nd location, the legal expenses don’t double. Most of the work has already been done for the 1st location. When a 2nd or 3rd location come into play, the lawyer will probably charge a little more to fill out a second application but definitely not an equal amount for the 2nd or 3rd. Based on your argument, the lawyer in my example would have to charge an applicant 500k if said applicant decided to apply for 5 licenses which is absolutely insane. If you’re using the 400k in liquid assets per license that need to be shown as part of your build up to the 3 million, you’re still wrong because that’s money being shown not spent.

    The expenses that do multiply based on the number of licenses are expenses such as architectural renderings and property acquisition. Taken on a per location basis, those expenses are fairly insignificant. For example, per location, an applicant will probably pay somewhere in the neighborhood of 10-20k for an architect during the application stage and this is on the high end.

    The lobbying is probably the biggest expense that multiples based on the number of licenses. Even then, if all of your locations are within an area your lobbyist services, you don’t get charged per license. You will absolutely be charged more for multiple licenses, but not charged an equal amount per license.

    You can stand by your analysis of 1-3 million per application and I’ll stand by my position that it’s an insane estimate. If you wish to have a cordial discussion on this topic, I’ll oblige. If you feel the need to post pissant responses with googled definitions, I have better things to do and won’t respond. Consider it professional courtesy.

    Reply
  9. D.M.S on

    I would be in agreement with Mr. Bulbulyan, but there are far too many assumptions, and, frankly, mistakes, in arriving at such estimates. When discussing applicants who are considering 10k sq. ft. facilities, and there are, indeed, as we speak, those estimates may very well be reasonable, albeit unwise. The majority will not be such. The above does also clearly, and quite specifically address Dispensaries, not cultivation facilities. There are thousands of dispensaries nationwide. Aside from Harborside, I would welcome one to present one that has exceeded a $1MM budget, and would question line by line the costs that lead to the final figure.

    Reply

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