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.)
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.
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 Johns@mjbizmedia.com