Sky-High Local Fees the Future for MMJ Businesses?

By John Schroyer

The marijuana industry isn’t an easy business to break into anymore.

While the first medical marijuana states were largely unregulated – making it relatively simple to open a cannabis dispensary – most markets have created a web of rules and procedures on the industry. And with seemingly ever-increasing fees from state and local governments, it’s getting even more difficult and expensive.

Illinois is a perfect example. On Monday, the Chicago suburb of Des Plaines decided to levy a $15,000 annual fee on any medical marijuana dispensary that wants to set up shop within its borders.

The stated reason for the fee? To offset an expected increase in costs for local cops.

While local fees of a few thousand dollars a year are becoming common, Des Plaines now ranks as one of the first cities in the nation to formally approve a five-figure annual charge specifically to help pay for an expected increase in law enforcement costs, observers say. And it could be a sign of things to come for the industry in Illinois and elsewhere.

“I wouldn’t be surprised if in the next state (to legalize MMJ) it’s a lot higher” than $15,000, Avis Bulbulyan, a California-based consultant who works in cannabis markets all over the country, said of local fees for marijuana businesses.

Fees Add Up

Entrepreneurs interested in opening a dispensary in Illinois have to pay $5,000 to apply for a license with the state. If selected, they have to shell out $30,000 for the permit – plus another $25,000 annually in renewal fees.

That means dispensaries in Des Plaines must pay $40,000 in state and local fees each year. (The state charges more for cultivation centers: $200,000 for a business license, for example.)

“There’s nothing you can really do, aside from saying, ‘Screw you, I’m out.’ And I don’t think anyone in the business is going to say that,” said Mark Cannon, the CEO of Prime Wellness of Illinois, a dispensary hoping to snag a license to set up shop in Des Plaines.

In fact, Cannon is relieved the local fees aren’t higher.

In Schaumburg, another Chicago suburb just west of Des Plaines, officials were toying in November with the possibility of a $100,000 fee for the single MMJ dispensary permit that the state has allowed the town to award. That possibility is still very much alive, and is slated to be discussed at a town committee meeting on Dec. 9.

“When I heard $15,000, I thought, ‘I’m getting a break,’” Cannon said.

New Benchmark

Cannon added that he doesn’t think the town is trying to take advantage of him; he just thinks officials are being overly cautious.

But with multiple municipalities in Illinois establishing immense fees, it could set a new benchmark for cities in other states that may legalize MMJ in coming years.

“What you’re seeing out of this town is not at all unique. It’s really in line with what we’re seeing across the country,” said Kris Krane, the head of the Arizona-based cannabis consultancy 4Front Advisors.

Michael Mayes – chief executive officer of Quantum 9, a Chicago-based cannabis consulting and technology firm – said the fees are understandable to some degree.

“I don’t necessarily think it’s the local municipalities taking advantage of the situation, it’s just that they’re preparing for the worst-case scenario,” Mayes said. “Because (marijuana is) a Schedule I federal narcotic, people are taking precautions that you may never have taken previously.”

The irony of the Des Plaines fee for law enforcement, however, is that security requirements for medical marijuana companies are typically so strict that they actually wind up decreasing crime rates. So there might not really be an increase in law enforcement costs.

“The research on this is pretty clear: If dispensaries are done in a way that they’re well-regulated and there’s a requirement for a high level of security, then they’re very rarely targeted for robbery,” Krane said. “They get robbed far less often than banks or liquor stores.”

Cannon said he has “an elaborate security plan,” including surveillance cameras, shatter-proof glass for windows, and vaults inside the dispensary.

“The city of Des Plaines is fully aware of all of the security involved in our dispensary. That still did not matter to them,” Cannon said.

Industry to Blame?

The trend of increasing local fees in new markets may be the industry’s own fault, at least to some degree, observers say.

In states with tight caps on MMJ businesses and extremely competitive licensing processes, some dispensary applicants offer incentives to cities in the form of sizable donations to either the municipality itself or a civic-minded charity.

In return, these applicants hope to either get permission to do business in the city or at least a recommendation from local officials to the state that the dispensary be licensed.

This type of behavior opens the door for local governments that want more money to implement heavy fees, as officials feel that the businesses can afford it since they’re willing to fork over so much in donations, Bulbulyan said.

“They’re the ones offering these donations. Some are offering it to offset policing expenses,” Bulbulyan said. “The towns are starting to pick up on that.”

John Schroyer can be reached at [email protected]

5 comments on “Sky-High Local Fees the Future for MMJ Businesses?
  1. GreenBud Comfections on

    Well, so much for the American Way of starting a business, working hard and becoming successful in this industry. These fees are pricing the individual start up right out of the market. These kinds of fees make it impossible for anyone other than a mid- to large-size corporation to get anywhere in this brand new industry.

    Reply
  2. bcoh on

    AS A CANADIAN COMPANY LOOKING AT A JOINT VENTURE IN THE US…I AM NOT SUPRISED BY THE MONEY GRAB OF LOCAL GOVERMENTS..WHEN THEY SEE THE KIND OF PROFIT THAT THE PRODUCERS TAKE HOME..MAYBE IF PRODUCERS WERE LESS CONCERNED WITH THE QUICK DOLLAR. THE GOVERMENTS MAY TAKE A LESS JAUNDICED EYE AND REDUCE FEES ALLOWING PRODUCERS TO LOWER PRICES..SO THE PEOPLE WHO NEED MEDICINE CAN AFFORD IT…

    Reply
  3. MSA on

    To the Canadian Co. looking at joint venture, any interest in helping prepare for Virginia’s future opportunities? Looking for partner’s that have experience in industry of dispensary and grow ops and capital to push forward. Attempting to get prepared for what’s to eventually come; medical marijuana industry.

    Reply
  4. RMC on

    I am curious, do you REALLY think that the gov, the one that made Cannabis illegal, would do anything to make it easy for patients to get it? Or get it cheaply? With these laws Cannabis will be expensive if you buy from gov sources, so the black market will continue, so people , more people, will go to jail. That helps the prison industry, the police, the gov workers who will be hired and the people who do not like Cannabis to laugh in our faces.
    Big money will, again, win. The people will, again, lose. And so it goes in america. get used to it.

    Reply
  5. Tony on

    All of these states should look to the Oregon Medical Marijuana Program, instituted in 1998. With over 16 years of experience, this state has provided an improved environment for cannabis patients, their growers and caretakers. Medicine is taken seriously in this state. In 2014 the state enacted 2 big laws…one that allows growers to recover their costs in the prices they set, and the other, the state has approved its recreational mj laws and is currently constructing the revenue, tax and merchanting aspects through the Oregon Liquor Control Com. to rollout next year. Watch for developments here.

    Reply

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