Half of eligible marijuana social equity retailers in Illinois at risk of losing licenses

Five years after establishing one of the first state-run social equity programs, only half of Illinois’ eligible marijuana retailers are operational, according to data analysis by MJBizDaily.

Dozens of licensees who have yet to open their businesses are facing the real possibility of losing their conditional licenses as expiration dates on those permits sunset this month and in August.

Despite that reality, the state last week touted SEquity Ventures, which operates as The Dispensary Champaign, as the 100th social equity retailer to open its doors in Illinois.

“One hundred dispensaries owned by social equity applicants is a testament to the hard work by the Administration, lawmakers, and stakeholders in ensuring we create a process that’s accessible to everyone, no matter their gender, race, or where in Illinois they call home,” Mario Treto Jr., secretary of the state’s Department of Financial and Professional Regulation (IDFPR), said in the announcement.

Meanwhile, recent state data and interviews with local social equity applicants and license holders paint a different picture.

Retail deadlines looming

According to IDFPR statistics through June 21, 103 conditional social equity retail licensees have received a so-called 15-36 permit, a state requirement to sell commercial or medical marijuana.

That leaves at least 96 licensees still awaiting final approval, the majority of whom already have seen their deadlines to open pass.

More than two-thirds of conditional licenses (63) were set to expire July 11, according to MJBizDaily research; another 14 are set to expire July 18.

However, it is likely that some lottery winners received an extension from the IDFPR, as public information from state data often lags internal updates.

Illinois lawmakers in late May failed to reach a compromise on a wide-ranging bill that would have extended th0se deadlines, and it appears regulators will not green light a blanket extension.

“Per the Cannabis Regulation Tax Act (410 ILCS 705/15-25(e), (15-35(c), and 15-35.10(c)), all conditional adult-use dispensing organization license holders will have up to 720 days from the date they received their conditional license to find a location or become operational,” IDFPR spokesperson Chris Slaby told MJBizDaily via email.

“The Department has communicated reminders to conditional licensees regarding their deadline.”

Transferring licenses

Investor concerns, build-out challenges and years of litigation that stymied retail rollouts across the state ultimately led Juan Aguirre and his partners at Illinois Kindness to seek an exit strategy before launching their retail concept.

Aguirre told MJBizDaily last week that regulators had approved the sale of the company’s retail license for more than $2.5 million to Consume Cannabis Co., a marijuana multistate operator with retail operations in Arizona, Illinois, Michigan and Ohio.

Due to Illinois’ social equity stipulations when Aguirre applied in 2019, he wasn’t eligible to qualify as a majority owner, so he had to seek other partners.

“That’s why I didn’t maintain control of this license,” he told MJBizDaily, which chronicled Aguirre’s frustrating journey as a novice in the industry nearly two years ago, along with other social equity licensees facing challenges nationwide.

“I really do blame Illinois for putting me in that situation with that license.”

Investors, he said, went with the safer bet.

“That was the only sure way that the investors were going to recoup the half-million (dollars) that they put up for payroll and application fees and all that,” Aguirre added.

Orchestrating an exit

In Illinois, retail licenses can be sold or transferred only after stores are operational, inspected and approved by state regulators.

Last year, Illinois Kindness entered a managed-service agreement with Consumed Cannabis to essentially take over construction and operations of the retail space – and retain revenue and profits.

In October, the MSO announced the grand opening of the store, its sixth in Illinois and 14^th in the United States.

The temporary location is in Antioch, less than a mile from the border of Wisconsin – one of a handful of states without regulated medical or adult-use cannabis.

Additionally, the store is located inside a shipping container, which reflects the difficulties marijuana operators face finding real estate zoned for cannabis businesses.

Aguirre considers the setbacks another lesson learned as he seeks out social equity licenses in other markets.

“I take it all as a big learning experience, even though I didn’t get to operate the facility in Illinois on my own,” said Aguirre, who is helping other social equity hopefuls as a board member of the Los Angeles-based National Diversity & Inclusion Cannabis Alliance as well as his own consultancy.

Industry experience

Social equity retail licensee Mahja Sulemanjee Bortocek has defied the odds.

After winning a prolonged court battle to gain entry into the third-round lottery, she won five conditional retail licenses in September 2022 in four of Illinois’ 17 designated cannabis business regions.

Her retail chain, High Haven Cannabis,  opened its first store in the Chicago suburb of Darien and another in the central Illinois town of Normal; a third outlet is slated to open next month in Elgin, a Chicago suburb.

The entrepreneur, who qualified as a social equity applicant because of a marijuana-related offense, credits her experience in the industry, deep community connections and investor ties for the ability to open quickly.

“If I didn’t have the rich history of doing this many, many other times, in multiple states for a large MSO, I don’t know if I would have been able to navigate the space as well as we have – and have these stores up and operational,” said Bortocek, who held various roles at Grassroots Cannabis before the Chicago-based company was sold in July 2020 to Curaleaf Holdings for an estimated $700 million.

During her tenure, she helped Grassroots open more than 40 stores and a few cultivation sites in 11 states.

Bortocek and her management team attracted investors and leveraged previous relationships in certain municipalities to find available real estate, sold equity in the business and accessed construction and convertible loans for build-out and funding operations.

High Haven, unlike many social equity retailers that are operational in Illinois and other markets, did not partner with an MSO.

“We were very strategic early on about how we wanted this to happen,” Bortocek said.

The company was granted a 180-day extension from the IDFPR for its two remaining conditional retail licenses in Carbondale and the St. Louis region, where it plans to sell or transfer the license to another operator.

Cannabis deserts

Zoning challenges in the city of Chicago, coupled with municipal opt-outs in the suburbs and in rural areas, have limited available real estate options throughout the state for cannabis social equity businesses, advocates told MJBizDaily.

“In communities of color, there’s not a lot of buildings this was zoned for,” said Doug Kelly, executive director of the Cannabis Equity Illinois Coalition (CEIC).

“So, you have to get a special-use permit or get it rezoned. The process can take six months.”

Some rural, more conservative areas of the state are still cannabis deserts more than four years after Illinois launched adult-use sales.

One region – Cape Girardeau, located alongside the Mississippi River on the Illinois-Missouri border – doesn’t have a single social equity cannabis retailer operating.

The Carbondale-Marion region, home to Southern Illinois University, and the Decatur region in central Illinois, each have one social equity retail store in operation.

“Some of those towns just don’t even want it,” CEIC Deputy Director Peter Contos added.

Turf wars

MSOs, which were granted first-to-market advantages to establish medical and adult-use retail in Illinois – as well as vertically integrated operations – have been criticized by independent operators and social equity advocates for cementing their leaderboard positions as funding shortages, real estate woes and opt-outs remain perennial challenges.

“People need to know that these big cannabis companies are like the cartels of the legal cannabis industry; they want to quash competition,” Aguirre said.

“That’s why we need tougher antitrust laws to be enforced.”

Chris Casacchia can be reached at chris.casacchia@mjbizdaily.com.