Week in Review: Illinois a Launchpad for MJ Companies With Eye on National Expansion

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By John Schroyer

The cannabis industry has been abuzz since Illinois unexpectedly issued 70 business permits to medical marijuana companies earlier this week, allaying concerns that the licensing process would be delayed indefinitely.

“I’ve got phone calls coming in almost 24/7 now,” said Joseph Friedman, chief operations officer at PDI Medical, which was awarded a dispensary license. “It’s been a very exciting 48 to 72 hours since we got notice. I’m working day and night to make this thing happen.”

While Friedman and scores of other local entrepreneurs who won licenses are celebrating, so too are a handful of ambitious out-of-state dispensaries, recreational stores and cannabusiness management companies that are behind some of the groups that won permits.

The list includes California’s Harborside Health Center, one of the largest dispensaries in the country; Mindful, which has four cannabis shops in Colorado; and Kayvan Khalatbari, co-owner of the Colorado cannabis shop Denver Relief.

Illinois, it seems, is serving as a launchpad for marijuana businesses looking to expand outside their home states’ borders.

“Illinois is unique in a lot of ways because they allow for out-of-state owners, whereas the majority of places don’t allow that,” said Michael Mayes, CEO of the Chicago-based consulting firm Quantum 9. “Anyone that’s done well in other states, they obviously have the resources to enter into a new state, so expanding…is a business approach for anyone who’s doing this very successfully.”

The competition was fierce – nearly 370 applications were submitted for the 60 dispensary and 21 cultivation permits available. Several out-of-state companies were included on a shortlist of potential winners released by the previous governor – including California-based management company MedMen and the Denver rec shop Euflora – but did not make the cut under newly-elected Gov. Bruce Rauner.

Those that did have differing levels of involvement with the winning companies.

Khalatbari of Denver Relief – one of the oldest cannabis stores in Colorado – is listed as a top executive with Cresco Labs, which received three Illinois cultivation licenses.

But Harborside took a different path.

The dispensary signed a licensing deal with Illinois Grown Medicine (IGM), a Chicago-based company that won a permit. Under the deal, IGM will use the famous dispensary’s name, brand and best business practices, said Harborside co-founder Andrew DeAngelo. That allows Harborside to start branching out into other states after similar but unsuccessful attempts in Massachusetts and Nevada.

“These application processes are incredibly daunting for anyone, so just getting one is quite an achievement,” DeAngelo said. “We take a look at everything, in every state. Our mission is to serve as many patients as possible…Oregon would be a great place for the Harborside brand. Nevada would be a great place for the Harborside brand.”

As far as Illinois goes, DeAngelo said that Harborside wasn’t ready to commit as much time and resources as it would take to set up its own operation in the state without a partner. So establishing a licensing deal made more sense.

Though IGM holds the actual business license, the dispensary will likely bear Harborside’s name alongside IGM’s. DeAngelo’s California staff will also be working with IGM to hire and train dispensary employees, develop quality assurance controls, and more.

Aside from out-of-state companies getting involved in Illinois, some local companies that won licenses are already eyeing other states for possible expansion.

Pharmacann – which won a whopping five business licenses in Illinois and has already raised $20 million to bolster the company’s startup efforts – has worked in national expansion as a key part of its plan, said CEO Teddy Scott.

“We definitely have a national strategy that we’re thinking about as things continue to grow, and we see a pathway. We think we can be leaders in the industry,” Scott said.

Pharmacann’s leadership team initially pondered applying for business licenses in Massachusetts, but the timing wasn’t right, Scott said. So it waited for Illinois. And though Scott declined to name other states that Pharmacann is evaluating for new business opportunities, he said that’s a constant consideration.

PDI Medical also plans to keep an eye out for expansion options, said Friedman.

“Illinois is also surrounded by Wisconsin, Indiana, Kentucky’s not far, and these are all up-and-coming medical marijuana states. So if we can take our pharmacy model and successfully open up dispensaries in these other states when they come on board, that would be one of my goals,” Friedman said.

And if future MMJ states establish in-state residency requirements for company owners?

“Then we’ll be consultants,” Friedman said. “There are all kinds of new ways to approach this, and we’re going to be active and look at those options.”

John Schroyer can be reached at johns@mjbizmedia.com