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The conventional wisdom might be that this is the worst time to launch a recreational marijuana operation from scratch.
But perhaps not in Illinois, the country’s newest rec market, where additional licensing is scheduled for May and July – provided it’s not delayed.
Illinois’ heavily regulated marijuana industry and the current status of cannabis in the state might be just the tonic needed to deal with the coronavirus crisis and a probable economic recession, according to industry officials.
- Statewide caps are in place that make each license more valuable.
- Illinois has declared that all marijuana businesses – medical and recreational – can remain open.
- Retail sales since adult-use sales launched on Jan. 1 (with existing medical cannabis operators) have been steady, ranging from $35 million to $40 million a month.
- Retail store applicants didn’t have to secure real estate in advance of their applications, allowing them more flexibility.
“As long as the state does things right and allows the industry to grow and replace the black market, it’s going to be a good market because of the limited licenses,” said Bob Wagener, vice president of business development at Colorado-based Canna Advisors, a consulting firm that helped clients with license applications in Illinois.
Illinois is scheduled to issue:
- 75 retail business licenses in May (47 within an hour’s drive of Chicago).
- 40 craft grower licenses in July.
- 40 infuser/processor licenses in July.
State officials didn’t respond to multiple queries from Marijuana Business Daily about whether those approvals would be delayed.
Craft grower, infuser and transporter license applications initially were due March 16, but that deadline has been extended twice, until April 30, because of the coronavirus.
Wagener said none of the potential applicants Canna Advisors worked with pulled out. He said that’s probably because they already were far into the process before the coronavirus became a serious issue in Illinois.
Donna More, partner with Fox Rothschild’s Chicago law office, reported a similar experience and cited some clear positives to the market: Marijuana was declared an essential business and retail sales have been strong.
There might be a good economic reason why interest in Illinois appears to remain high despite coronavirus uncertainties.
The updated Marijuana Business Factbook makes this point: The state’s license limits mean fewer recreational stores on a per-capita basis versus any other adult-use cannabis market in the country.
Before the COVID-19 crisis, MJBizDaily projected that the Illinois market could hit $2 billion-$2.5 billion a year in sales when it matures.
Financing operations could be a challenge
Looking ahead, newly licensed entrants will face the challenge of navigating a lingering coronavirus pandemic and economic downturn.
Investment funding, tight even before the COVID-19 outbreak, is shakier now. Small businesses and the state’s vaunted social equity program especially might feel the hurt.
License fees themselves are costly: $60,000 for a retailer license and $40,000 for a craft grower license.
On top of that, it requires hundreds of thousands if not millions of dollars to build out facilities and launch operations.
“I think the concern on the finance end is a fact of life now in every industry, not just cannabis,” More said. “Individual investors have the potential of backing out now because the market is so much different” because of the coronavirus.
That could especially be difficult for small operators relying on friends and family, she noted. “That’s a potential problem.”
Said Wagener: “As a whole, people are taking a deep breath and asking whether they should make an investment or not.”
One applicant’s take on the market
Seun Adedeji, founder and CEO of Elev8 Cannabis, submitted two retail store applications in Illinois, his home state, and five other applications with social equity partners.
His operation in other markets, though, is in limbo because of the COVID-19 crisis.
He was in the process of relocating a store in Eugene, Oregon, to be closer to the University of Oregon when the virus hit.
And Elev8 is sitting on three recreational store licenses in Massachusetts. But Gov. Charlie Baker declared retail stores in that state nonessential and ordered them closed until May 4.
In general, Adedeji predicts cannabis sales in the United States will decline, saying that when Americans are out of work for months and have no source of income, they’ll choose the most essential things, such as feeding their family and paying bills that can’t be deferred.
However, Adedeji views Illinois differently because of the limited licensing. And he predicts robust sales. “But a capital raise is going to be lot harder than it’s ever been,” he added.
Still, if he wins retail licenses in Illinois, Adedeji believes he’ll be able to raise enough money to launch operations. He noted that he has experience landing investors for his real estate business focused on retail properties on the East Coast.
“I feel confident,” he said, “because of my experience, and we have assets we can collateralize. I’ve raised money before and know the art of raising money.”
But Adedeji wouldn’t be surprised if a number of licensed cannabis companies don’t start operations until the latter half of 2021 or even until 2022.
He said the supply chain remains weak, and he predicts there will be a lingering shortage of product for the new stores.
More, the Chicago attorney, said Illinois faces many unanswered questions because of the coronavirus.
- Even if the COVID-19 curve is flattening, will the rollout of the next round of licensees be slower?
- When will things actually get back to normal?
She noted what many experts are saying.
“For better or worse,” More said, “until we have a vaccine, life will be different.”
Jeff Smith can be reached at [email protected]
For more of Marijuana Business Daily’s ongoing coverage of the coronavirus pandemic and its effects on the cannabis industry, click here.