As Illinois marches toward legalizing recreational marijuana under Gov. J.B. Pritzker, market pioneers who shelled out big money to gain an early foothold in the state’s medical cannabis program are trying to keep the much larger recreational, or adult-use, business to themselves.
Companies that won Illinois’ 21 medical marijuana licenses in 2015 are lobbying for a clause in a forthcoming legalization bill—which many believe will pass this spring—that would deny new cultivation licenses. Such a provision would box out new competitors just as marijuana blossoms into a full-fledged consumer market.
“There’s a necessity for a slow rollout to see how adult-use market demand is able to be met,” says Mark de Souza, CEO of Revolution Enterprises, which won two medical cultivation licenses and owns downstate greenhouses. The former futures trader and self-described “free-market finance guy” insists constraints are necessary as the industry finds its footing. He argues no new licenses should be issued for 12 to 18 months after the recreational law takes effect, which would likely mean a moratorium through at least part of 2021.
Others see little more than an attempt to monopolize what is estimated to be a $1.6 billion Illinois recreational market. They say lawmakers who appease these companies in order to pass legislation quickly and begin collecting tax revenue are shortsighted. […]
“I’m not certain there’s going to be any need for additional cultivation licenses,” says state Sen. Heather Steans, who is crafting the recreational bill along with state Rep. Kelly Cassidy, a fellow Chicago Democrat. “We definitely don’t want an oversupply because we don’t want to encourage diversion” of marijuana across state lines to places where it remains illegal. Steans plans to commission a supply-and-demand study to determine how many licenses are needed.
* Joe Cahill pounced…
Funny how businesses generally decry government interference—unless it helps their business.
Consider Illinois marijuana producers’ campaign for government aid. As my colleague Brigid Sweeney reported in this week’s issue of Crain’s, companies holding 21 licenses to produce medicinal marijuana want legislation legalizing recreational use to include a moratorium on new state licenses for commercial-scale production.
In other words, they want a government-mandated oligopoly on a recreational-use market worth an estimated $1.6 billion annually. The moratorium likely would last a year or more, plenty of time for incumbents to build the brand recognition, commercial relationships and scale economies to ward off new competitors.
They’ve apparently found a sympathetic ear among lawmakers crafting recreational-use legislation that Gov. J.B. Pritzker is expected to sign. Worried about “oversupply,” State Sen. Heather Steans plans to commission a study to determine how many commercial licenses Illinois needs.
That’s a question for markets to decide, not government. Restricting market access to a predetermined number of companies smacks of Soviet-style central planning. Imagine the reaction if state legislators presumed to decide how many soybean or corn farms Illinois needs.
There are legitimate concerns about market oversupply, so the red-baiting is way over the top here. The state government isn’t going to be purchasing excess supply, as the federal government does with dairy products, for instance. So, limits are reasonable. The same concept goes for casino licenses.
However, allowing the “market pioneers” to lock down a monopoly would not be a good thing. At all. They need to back the heck off.
* I asked Rep. Kelly Cassidy (D-Chicago), one of the legalization sponsors, to respond to the initial article…
This article is maddening. We both [she and Sen. Steans] believe that we need the study to help us determine whether there will be need. The cultivators have significant capacity and can build plenty more to meet demand, but that’s not the same as whether we need more growers to help meet demand. Many of them are insisting on no more growers, but without clear data defining the demand, it’s impossible to say.
* Also, from the governor’s transition committee report…
Because black and brown communities can lack access to capital — especially for cannabis-related businesses — the state could offer financing and technical training to help under-represented communities participate more fully in the legal cannabis industry, potentially through community-based incubators. This administration should lead the development of these incubators and ensure the technical support and capital participation of existing medical growers and dispensaries as a condition for expanded recreational licensing.