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Uproar over dispensary licensing system

Wednesday, Sep 9, 2020

* Tribune

Two unsuccessful marijuana dispensary applicants are suing the state, hoping to hit the pause button on its plans to hand out 75 marijuana licenses.

Awarding of the licenses is more than four months behind schedule and last week, the state announced that only 21 of 700 applicants would proceed to a lottery for the 75 licenses.

Some lawmakers and unsuccessful applicants are decrying the state’s process, saying it defeats the stated goals of diversifying the largely white-owned industry. The lawsuit, filed Friday in Chicago federal court, is at least the second formal attempt to pause the process. The Illinois Legislative Black and Latino caucuses are calling on the Pritzker administration to suspend the lottery until the public can learn more about how and why the 21 groups were selected.

Southshore Restore and Heartland Greens, two applicants that will not proceed to the lottery, allege in the suit that the 21 groups are “politically-connected insider companies,” and seek to have the lottery delayed until they can challenge why they didn’t make the cut.

* Sun-Times

A pair of state lawmakers joined a group of losing pot shop applicants Tuesday to call on Gov. J.B. Pritzker to halt an upcoming lottery to determine the winners of the 75 long-delayed licenses and review the application grading process, which they claim was tainted and benefitted clouted firms.

“We are under the weather from this oppressive system, this rigged system, in which the state representatives and the state senators were lied to,” Rickey Hendon, a former Democratic state senator from Chicago, said during a news conference, noting that the “legislative intent” of the legalization law was to increase minority and local participation in the booming weed industry.

State law offers additional points on applications to groups and individuals deemed social equity applicants for living in an area disproportionately impacted by drug enforcement, having a past cannabis offense or meeting other criteria.

More than 700 groups applied for the next round dispensary licenses but only 21 applicants moved onto the lottery last week after receiving perfect scores on their applications, which were graded by the global accounting firm KPMG. All of the applicants in the lottery are considered social equity candidates, who were given a leg-up in the process in an effort to bolster minority participation in the overwhelmingly white pot industry.

* As of 2019, KPMG had 219,281 employees, so I take this with a big grain of salt

An employee of the global accounting firm that was awarded a no-bid contract to grade applications for the state’s next round of pot shop licenses is also a partner in one of the 21 groups that secured a spot in the upcoming lottery to determine the winners.

Hamd Kamal works as a risk management consultant for KPMG, which is getting nearly $4.2 million through a no-bid contract with the Illinois Department of Financial and Professional Regulation, the agency that oversees dispensaries. All told, more than 700 candidates submitted 1,667 total applications seeking upwards of 4,000 dispensary licenses. […]

KPMG spokesman James McGann said Kamal “is an employee but he was not part of the engagement team that scored the applications.”

He added: “The scoring process was objective, following the state’s criteria, with a blind scoring methodology. The team scoring the applications would have no knowledge of the names or affiliations of applicants. A separate team scored certain aspects of the application, such as social equity.”

* CBS 2

Facing calls from Black and Latino lawmakers to suspend the lottery for 75 new marijuana dispensary licenses, Gov. JB Pritzker said he’s open to minor tweaks to the program, but he said the process needs to move forward before considering sweeping changes. […]

“When we’re done with this process, we will have the largest percentage ownership by people of color anywhere in the nation,” he said.

Hutchinson noted applicants were able to seek up to 10 licenses each, so overall there were more than 4,500 applications for the 75 new dispensary licenses, so “there was bound to be a lot of disappointment for this first round.”

“We knew that this was going to create a thunderstorm,” she said.

Asked if he will consider suspending the lottery for the 75 licenses, Pritzker said that’s not allowed under the current state law governing the program.

The courts might suspend the lottery for him.

* High Times

Part of the frustration stems from the fact that, while more than 700 different groups applied for licenses this time around, only 21 social equity groups are advancing to the lottery round to be considered for business licenses. According to the accounting firm KPMG, those are the groups that received perfect scores on their applications. Thus, many applicants are suspicious about what happened and what was wrong with their application.

Some are definitely disputing their scores

Another application group, Cultivarx, was stunned to find out that it received no points for social equity applicants, despite the fact that its majority owner, Bernard Cobbins, is Black and a lifelong resident of Chicago’s East Garfield Park neighborhood, a Disproportionately Impacted Area from the War on Drugs.

“We provided them with more than ample information, they had five years of Illinois state tax returns, and driver’s license, voter’s registration card, and a map showing he is in a disproportionate area,” said team member Nonna Knapp.

Despite the detailed information provided, Cultivarx received a discrepancy notice asking for additional information to prove Cobbins’ status. The team did so, and still did not receive points.

But as I told subscribers today, the perfect scores of those 21 applicants threw an unexpected wrench into the process because nobody expected it. So, several applicants didn’t do things like attract military veteran investors, which was only five points out of 250, but proved crucial in the end.

* Chicago Crusader

“It makes no sense that again, in 2020, Governor Pritzker, you have a Black lieutenant governor, you have a Black mayor of Chicago, you have a Black drug czar overseeing the marijuana industry here in Illinois, but you don’t have any Black-owned marijuana dispensaries?” said community activist Tio Hardiman.

According to the administration, of the 21 successful applicants, “13 are majority owned and controlled by people of color and 17 have at least one owner who is a person of color.”

* Decent points…


* The Cannabis Equity IL Coalition and the Social Equity Empowerment Network want to delay the tie-breaking lottery and offered up some suggested improvements…

1. The Coalition demands that the following be immediately provided to each applicant:

    1. Full Scorecard. Each applicant’s full scorecard with scoring broken down by exhibit.
    2. Disqualification Explanation. Any applicant who was disqualified from the process must be provided with a substantive explanation justifying their disqualification.

2. The Coalition demands that the following be immediately made available to the public:

    1. The full ownership structure of each “tied applicant” (as defined in 68 IAC 1290.10).
    2. KPMG Contract. The KPMG contract and an explanation of the following:
    i. Why were they chosen by the state?
    ii. Why was this a no-bid contract?
    iii. How much money was the contract worth?
    iv. How much additional compensation did KPMG receive for being months late?
    v. Did the State have an administrative review process for KPMG’s scoring?
    3. Scoring Rubric. The scoring rubric that KPMG used to grade the applications.

* Joe Cahill at Crain’s

A better approach would be to remove the cap on licenses while adopting a set of reasonable licensing standards meant to ensure the solvency and integrity of the industry. Anybody who meets those standards should get a license.

Opening up the market would ensure that supply rises to meet demand, spurring price competition, better service and innovation. Unfettered supply and demand allows a market to reach its full potential. Customers and business owners benefit. Fledgling enterprises serving minority communities would get to compete, without having to navigate a complex, costly application process and win a lottery.

Colorado offers a glimpse at the upside for states that don’t limit licenses. Nearly 3,000 marijuana licensees in that state rang up $1.7 billion in sales last year, generating more than $300 million in tax revenue, and employing more than 40,000 people. Imagine the potential in Illinois, with more twice Colorado’s population.

Lifting the cap on marijuana licenses is good economics, and good public policy for a state seeking to advance social equity.

Colorado is not exactly a great social equity example. In Denver, for example, Black residents comprise just 5.6 percent of ownership and 5.9 percent of industry employees.

- Posted by Rich Miller        

14 Comments »
  1. - Marijuana Consultant - Wednesday, Sep 9, 20 @ 12:00 pm:

    I wonder how many of these winning companies attended Van Pelt’s Weed workshops? #MissedTheBoat


  2. - Dotnonymous - Wednesday, Sep 9, 20 @ 12:09 pm:

    Who could have predicted this outcome?


  3. - DuPage Saint - Wednesday, Sep 9, 20 @ 12:13 pm:

    I agree with Black Caucus. Do it over. It reeks of entitlement or clout. Do not allow multiple application Maybe it should be open for everyone that can but up some type of bond or something. There are real estate offices and convenience stores and lots of liquor stores out and here. Regulate tax it and let market pick winners and losers. But what happened seems a slap in face to unconnected


  4. - Chatham Resident - Wednesday, Sep 9, 20 @ 12:29 pm:

    The census tracts which include the Capitol Complex and surrounding neighborhoods (but interestingly not the actual downtown Springfield area between 3rd and 10th) are among those “disproportionately impacted” areas.

    https://www2.illinois.gov/dceo/CannabisEquity/Pages/default.aspx

    With this criteria, what’s to stop a well-connected entrepreneur to decide he would at least temporarily move to, say, the Inn at 835 (Tony Leone’s place), Lincoln Towers, Pasfield Inn, or other apartment buildings within blocks of the complex? And decide to apply for a cannibis sales license based on “social equity” standards.


  5. - Pelonski - Wednesday, Sep 9, 20 @ 12:30 pm:

    On the surface, it appears the program met its goal to include significant minority ownership, and the complaints about the process are the same types you always hear from losing bidders. Given the amount of outrage, though, it sounds like there is more to the story. It will be interesting to see what we learn with time.


  6. - Lester Holt’s Mustache - Wednesday, Sep 9, 20 @ 12:48 pm:

    The quickest way for JB to screw this up would be for him to start taking policy advice from Ricky Hendon and Tio Hardiman.

    == of the 21 successful applicants, “13 are majority owned and controlled by people of color and 17 have at least one owner who is a person of color.”==

    If even this type of result incurs the wrath of the Black caucus, then you may as well shut the whole thing down because nothing the state does in this area will ever be good enough.


  7. - Frank talks - Wednesday, Sep 9, 20 @ 1:34 pm:

    Did anyone read the bill before it passed? What were the expectations? That it would be a bunch of small time mom and pop shops that would win?
    Marijuana is a huge business with International corporations vying for a piece of the pie. To think it wouldn’t have folks with real money playing the game is ridiculous.
    How many folks did Ricky Hendon talk to and say I’m a former legislator I got this for you? The outrage is unnecessary another round is coming.
    BTW lets also not kid ourselves into thinking that once someone gets a license they won’t have offers to sell anyway and cash out.
    Isn’t that what’s happened in video gaming? Lots of small timers started now have been swallowed up?


  8. - harp5339 - Wednesday, Sep 9, 20 @ 2:22 pm:

    $4.2 million to KPMG to solve a state created problem. Countless number of liquor stores in this state, but for some reason we need a convoluted lottery system to open 75 dispensaries.

    Anyone with the means that meets state and local regulations should be allowed to open a “pot shop.” Joe Cahill has it exactly right.

    == Colorado is not exactly a great social equity example. ==

    Colorado has a much smaller percentage of Black population than Illinois, those ownership numbers don’t seem very egregious.


  9. - frisbee - Wednesday, Sep 9, 20 @ 2:29 pm:

    Locals should control how many licenses are in their jurisdiction not Illinois law allowing a very limited number and then in a year adding another batch that is no where near enough. If people want to open up a cannabis business they should be allowed to so long as they meet certain minimum requirements as others have noted.


  10. - Chicagonk - Wednesday, Sep 9, 20 @ 2:51 pm:

    To be fair to Colorado, both those percentages are higher than the percentage of black residents in the state.


  11. - Rich Miller - Wednesday, Sep 9, 20 @ 2:51 pm:

    ===black residents in the state===

    It’s Denver, not the state.


  12. - Frank talks - Wednesday, Sep 9, 20 @ 3:23 pm:

    Agree with Cahill let market decide how many marijuana shops there should be.
    Alcohol is a far worse product and all you need is a background check and a location that’s approved by the locals.


  13. - Mark Peysakhovich - Wednesday, Sep 9, 20 @ 3:42 pm:

    The license application process was highly detailed and intrusive. The administrative version of a colonoscopy. The state wanted full and complete disclosure. How about holding yourselves to the same standard. The Gov could end all this today by releasing all information. Nothing in the law to stop him. How about it, Gov?


  14. - MyTwoCents - Wednesday, Sep 9, 20 @ 5:39 pm:

    1) why on earth did they need KPMG to grade applications? That just seems like a waste of money.
    2) I find it odd that the criteria was a perfect score. They should have determined a cut off point and put all applications above that cut off point in the lottery.


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