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Everybody, calm down

Wednesday, Feb 13, 2019

* Crain’s

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.

- Posted by Rich Miller        

  1. - LoyalVirus - Wednesday, Feb 13, 19 @ 10:11 am:

    That article was maddening for sure- so many people have no clue how much work Sen Steans & Rep Cassidy (and others) have done w/regards to the bill. Personally, I’m a bit calmer now, though, that I can’t see that false-flag SAM advertisement in my feed anymore…

  2. - Collinsville Kevin - Wednesday, Feb 13, 19 @ 10:13 am:

    Why do I get the feeling that in the end legalization is going to take forever and any bill that’s passed will be a mess?

  3. - Chicagonk - Wednesday, Feb 13, 19 @ 10:14 am:

    It’s not red-baiting at all. Illinois loves guaranteeing profits for connected business owners in regulated industries. I don’t mind tough regulations, but this is quickly going down the wrong path.

  4. - Rich Miller - Wednesday, Feb 13, 19 @ 10:15 am:

    ===I’m a bit calmer now, though, that I can’t see that===

    Yeah, well, take a chill pill because more of them are coming.

  5. - hello kitty - Wednesday, Feb 13, 19 @ 10:22 am:

    i hope that the bill gets passed soon

  6. - Iggy - Wednesday, Feb 13, 19 @ 10:24 am:

    restricting licenses means a price monopoly, which means people will still buy the stuff the classic way. Hopefully a blended approach is used in the final decision. But then again that would be a reasonable thing to do. And it’s simply a lot more fun to watch the entire concept get derailed when a few people with money don’t get their way.

  7. - A guy - Wednesday, Feb 13, 19 @ 10:28 am:

    These companies will have a natural advantage in the sense they’re already operational. Frankly, the restrictive approach to legalizing Med Mar has made this a long game to begin with where it’s been costly to be an early pioneer. Growing takes “seasons”. They’ll enjoy at least a 3 or 4 season head start before there is crazy levels of competition. The regulation is no easy hurdle, so within a few years market forces should help keep pricing rational.

  8. - Been There - Wednesday, Feb 13, 19 @ 10:29 am:

    These existing companies already have a big edge. Like any other regulated industry the state historically hasn’t moved too quickly to grant licenses. You would have to guess that by the time any new licenses are granted that a year would already have passed. If they can’t grab market share with that much of a head start they don’t deserve it anyway.

  9. - Hieronymus - Wednesday, Feb 13, 19 @ 10:30 am:

    Why is it that so many otherwise free market types believe that they are entitled to a government-guaranteed profitable business model?

    The same goes for other “natural monopolies”, such as broadband internet in rural areas. The big providers won’t service them, but scream bloody murder if the county or municipality tries to build it for themselves.

    Same goes for

  10. - wordslinger - Wednesday, Feb 13, 19 @ 10:33 am:

    I think it’s reasonable that already vetted med mar licensees transition into recreational licensees.

    But I am concerned that the little guy gets locked out by government in favor of those who clearly are looking for a monopoly.

    The devil is in the details. Some sort of craft-brew type of license should be available for small-capital entreprenuers to get their feet in the door.

    You don’t want a market where there’s only the equivalent of mass-produced Miller Lite; there’s room for craft-grow. Let a thousand buds bloom.

  11. - A Jack - Wednesday, Feb 13, 19 @ 10:36 am:

    Monopolization will just allow the illegal market to stay in business. And there is a big market in Michigan and Canada if someone can get pot there without the feds interfering. They should be thinking of an export tax rather than worrying about our weed crossing state borders.

  12. - 47th Ward - Wednesday, Feb 13, 19 @ 10:48 am:

    Growing and dispensing are two separate pieces of this business, growing being the wholesale manufacture and dispensing, obviously, the retail sale to customer.

    Isn’t this a lot like how booze was regulated after prohibition? The brewers and distillers couldn’t be retailers, except in very limited ways (on-site tap rooms and wineries).

    I think we could find that we need relatively few growing operations and many more retail outlets to meet demand. If we are going to allow more growers to get in (in addition to the medical mj growers already operating), then we should auction off the growing licenses. There should still be plenty of opportunities for local, independent, small businesses to get into the retail side of this.

  13. - Rabid - Wednesday, Feb 13, 19 @ 11:07 am:

    Smart approachs to marijuana

  14. - wordslinger - Wednesday, Feb 13, 19 @ 11:15 am:

    –The brewers and distillers couldn’t be retailers, except in very limited ways (on-site tap rooms and wineries). –

    Very good, interesting point. That was an anti-trust dealio. Southport Lanes and Billiards is an old Schlitz tavern, for example (still has pin monkeys, too). Same thing happened to the movie studios, who controlled their own string of movie theaters.

    From that perspective, it’s perfectly reasonable that producers could not be off-site retailers. Could open a lot of avenues to entrepreneurs.

  15. - Thomas Paine - Wednesday, Feb 13, 19 @ 11:27 am:

    We are creating a monopoly market for marijuana distributors the same way we created a monopoly market for beer distributors, and while I have no doubt they will provide additional seats at the table for minority controlled interests, I expect those to be the same insiders who have benefitted all along.

    Imagine if you needed a license to grow grapes, and the state only allowed 21 companies to have a license.

  16. - xonxoff - Wednesday, Feb 13, 19 @ 11:35 am:

    - Yeah, well, take a chill pill because more of them are coming. -

    When I read the bullet points on the SAM banner ad, all I hear in my head is John Kay and Steppenwolf. Anyone else?

    “Well it’s evil, wicked, mean and nasty
    (Don’t step on the grass, Sam)

    And it will ruin our fair country
    (Don’t be such an ass, Sam)

    Well, it will hook your Sue and Johnny
    (You’re so full of bull, Sam)

    All will pay that disagree with me
    (Please give up you already lost the fight, alright)”


    Too bad cartels and street dealers don’t have logos SAM could add to their groups opposing legalization and probably some alcohol brands, too.

  17. - Chicagonk - Wednesday, Feb 13, 19 @ 11:43 am:

    @ThomasPaine - And if you live in the Quad Cities, your beer distributor is your marijuana distributor (Stern Beverage).

  18. - LoyalVirus - Wednesday, Feb 13, 19 @ 11:51 am:

    Cool cool cool. Looking forward to their ads citing ’science’ that shows marijuana is a gateway drug, makes one go “schizo” (HT, Animal House) and leads to blindness. Oh wait, that’s the other thing that starts with an ‘m’. Nevermind.

  19. - Grandson of Man - Wednesday, Feb 13, 19 @ 11:53 am:

    With the five plant per household limit, people can bypass the commercial avenue to some degree, hard as it is to grow at home. People can alternate the different stages of plant growth to have harvests without a big time gap. Three plants will yield a lot, and that could help tide people over while the next two plants are put in flowering mode, and so on.

  20. - Cadillac - Wednesday, Feb 13, 19 @ 12:24 pm:

    === Grandson of Man - Wednesday, Feb 13, 19 @ 11:53 am:

    hard as it is to grow at home. ===

    It’s not hard to grow at home.

  21. - Illinois Resident - Wednesday, Feb 13, 19 @ 12:46 pm:

    Home grow getting passed or not will tell us all something. Either special interests are running the show or this is being done by the people, for the people. Also, more licenses should be given to folks that were most harmed by prohibition in the first place. Time will tell.

  22. - vole - Wednesday, Feb 13, 19 @ 1:12 pm:

    Hand shake deals.

  23. - vole - Wednesday, Feb 13, 19 @ 1:14 pm:

    Whatever, just make sure the 25% THC matches the label.

  24. - Kentucky Bluegrass x Featherbed Bent x Northern California Sinsemilla - Wednesday, Feb 13, 19 @ 2:11 pm:

    Studying an illegal market demand is not going to be easy.

    Just about everywhere that has adult use laws has had issues with shortages of supply when they launched the new laws.

    Hopefully the Cassiday/Steans bill gets filed soon so everyone can see it and put to rest some of these maddening claims.

  25. - A 400lb. Guy on a bed - Wednesday, Feb 13, 19 @ 3:16 pm:

    “Let’s light up and just move along.”

  26. - Lester Holt’s Mustache - Wednesday, Feb 13, 19 @ 3:23 pm:

    ==It’s not hard to grow at home.==

    Unless you have a sealed grow room, it is. Those things stink to high heaven when they bud. Anyone who grew up with a wood stove as their main source of heating can tell you that strong smells cling to everything in the house. Cigarette smoke does the same thing. Unless you’re employed by central Illinois-based Head West Subs (fabulously delicious, btw), going to work in marijuana-scented clothing is probably not the best idea.

  27. - AgentOrange - Wednesday, Feb 13, 19 @ 11:38 pm:

    Existing licensees have done wonders. They took a program scripted out in concept, and on paper by lawmakers and made it real. They figured out how to grow plants without instruction from the EPA on pesticides. They figured out how to plug into a seed-to-sale tracking system that hadn’t event been fully built yet. They figured out how to truly care for the 78 year-old with Parkinson’s. Four years ago, social equity wasn’t a primary driver; the vocal patient/constituent was. Now things have changed, we’re contemplating adult use. A market study is critical. How many liquor stores are there? Starbucks? Pharmacies? There is plenty of room for diversity and inclusion in an Illinois adult use market. Existing licensees are not the enemy; they’re the infrastructure on-ramp to adult use in Illinois. Incubators, preferential scoring, community impact plans worth bonus points. Bolstering the existing licensees, while creating opportunity for new, diverse interests in this emerging market are NOT incompatible.

  28. - {Sigh} - Thursday, Feb 14, 19 @ 3:20 am:

    The adult use program needs to be constitutional.

  29. - vole - Thursday, Feb 14, 19 @ 5:41 am:

    “without instruction from the EPA on pesticides”

    Please clarify. Because I assume there are no pesticides labeled for Cannabis. So, of course, they would not be looking at EPA registered pesticide labels for instruction. So, please tell me, if this is what you intended, are they growing Cannabis WITHOUT pesticides? And if they are using pesticides, tell me which ones and whether they have conducted all of the toxicological research that EPA might require to one day register these product uses on weed. And will they inform customers of any pesticide use and put specific residue testing info on their product labels? And let their customers know it is buyer beware? You are your own lab rat?

  30. - Rabid - Thursday, Feb 14, 19 @ 8:42 am:

    To be constitutional should it be wrote on hemp

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