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Hendon: “Instead of making it easier for Blacks and Latinos, they’re making it harder”

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Illinois

Minority marijuana license holders are calling on the state to loosen ownership regulations in order to make it easier to create and build retail stores.

Many of them cite issues with the state’s cannabis social equity program.

The program was designed to offer disadvantaged people and communities of color disproportionately impacted by the War on Drugs an opportunity to benefit from the cannabis industry.

But instead, license holders say the process has been plagued by red tape.

* Crain’s…

“Three years in, and we still don’t have any Black-owned cannabis operators,” Douglas Kelly, head of the Cannabis Equity Illinois Coalition, said at a news conference today outside the State of Illinois Building in the Loop, a move aimed at increasing political pressure on Gov. J.B. Pritzker.

License holders say they’re being hampered by the state’s Department of Financial & Professional Regulation’s rules, which prevent them from making any changes to ownership reported on their initial applications until they receive a final state inspection to open a dispensary. But it can cost $500,000 to $1 million or more to get a dispensary ready to open, requiring many license holders to seek investors.

“The rule-making process is screwing it up. Instead of making it easier for Blacks and Latinos, they’re making it harder,” said Rickey Hendon, a former state senator who won a retail license and plans to open a location in the South Loop.

He said he has an agreement with investors, but the state rules make it hard to complete a deal that would allow him to raise additional money to build out a facility, which he estimates will take $1.5 million to $2 million.

* The Tribune…

But under guidance by the Illinois Department of Financial and Professional Regulation, license holders are prohibited from selling their preliminary “conditional” licenses until they are approved to begin retail sales.

“Which is ludicrous, because in the conditional phase is when you need to raise the most capital,” said Edie Moore, co-founder of Chicago NORML and a conditional license holder. “There’s no reason not to do it. It’s not disallowed in the law, and it hurts people.” […]

The conditional license holders can’t open for business until they pass background checks, get local site approval, pass an inspection, and pay the license fee.

The apparent intent of the policy against selling conditional licenses was to keep minorities and social equity license holders from selling out before even beginning operations. But owners say that keeps them from using their greatest asset, shares of ownership in the license, and they should have the same rights as business owners in other industries.

* Chicago NORML’s Executive Director Kiana Hughes and Deputy Governor Christian Mitchell spoke on Chicago Tonight…

Kiana Hughes: One of the things that we’re hearing is that on every level, licensees are hitting obstacles that are being put in place, or that are just kind of left in place, whether it’s by actual legislation, whether it’s by the rules, whether it’s by interpretations of the law. So for example, you might have there are some dispensary owners, that are all dispensary owners.

All you get when you get the license is a conditional license. Your license isn’t real until you’re actually able to open your doors. Well, as you can imagine a lot of social equity licensees are trying to raise capital to get to the point where they can actually open their doors.

One of the rules is being interpreted as saying that you cannot sell or exchange any portion of ownership or equity in your company in order to get investors for your business. So it’s making it very hard for them to raise capital.

Christian Mitchell: We’re hearing two different sides of this. On the one hand, you’ve got owners who are saying ‘hey, we want to change principal officers so we can raise capital right now because we need it.’ On the other hand, you have a pretty much an equal number of folks saying ‘hey, wait a second.’

We’ve got principal officers who have been holding this for a couple of years. They’re people of color, we want that growth in this industry. But we don’t want to some of these predatory folks who are coming in and saying, hey, I’ll give you some cash, but you’ve got to give me a majority stake in your business. Do we have to restore that license now? Is that true social equity is now a majority person has bought in has the sake and now is saying ‘I’m a social equity license because this person originally had the licenses conditional holder.’

These are all nuanced debates that we need to have. My office door is open as as the governor’s our phone lines are open there. Multiple members of the coalition have contact info for us. We got to sit down and have a nuanced conversation about this in the future social equity in the dispensary.

posted by Isabel Miller
Thursday, Sep 8, 22 @ 8:49 am

Comments

Christian Mitchell has a fundamental lack of understanding of how business actually works.

Who would put up a majority of the cash for a business and not have majority control?

Comment by Lucky Pierre Thursday, Sep 8, 22 @ 9:09 am
Look, a lot of people who got licenses don’t have the money, experience or skill to open and run a business. That is true in all businesses not just cannabis. The inequities that exist are embedded in society. It is difficult to impossible to address all those things without creating unintended consequences or more problems in the program. The state can’t just open businesses for people.

Comment by Molly Maguire Thursday, Sep 8, 22 @ 9:13 am
Really well written article.
Not sure what the reason is for prohibiting license holders from raising capital to open a business. This is how businesses grow in our economic system. Why continue to lock these licenses out of a system every other enterprise uses?
After three years of locking out Women, Blacks and Latinos it seems this whole poorly thought out and unnecessary regulatory approach by Team Pritzker is hurting more than helping.

Comment by Back to the Future Thursday, Sep 8, 22 @ 9:15 am
=Christian Mitchell has a fundamental lack of understanding of how business actually works.=

Or, maybe, you are refusing to understand the reasoning behind Mitchell’s statement.It really is pretty straight forward.

Comment by JS Mill Thursday, Sep 8, 22 @ 9:21 am
==Who would put up a majority of the cash for a business and not have majority control? ==

That’s not the issue, the issue is that if the holder of the conditional license sells control of the business, how do we know that the new person in charge fulfills the “social equity” requirements?

I’m not sure you’ve correctly identified who has a “fundamental lack of understanding” of the situation.

Comment by Arsenal Thursday, Sep 8, 22 @ 9:24 am
The entire point is the people who fulfill the social equity requirements are not wealthy but the state is creating barriers for those people to cash in on their wealth

Comment by Lucky Pierre Thursday, Sep 8, 22 @ 9:31 am
I think Molly Maguire gets the answer best. The inequities are embedded in society. They could keep the preference for locations in R3 communities as a social equity policy, but preference for who the owners are ends up undermining the sector instead.

Comment by Blake Thursday, Sep 8, 22 @ 9:33 am
==Not sure what the reason is for prohibiting license holders from raising capital to open a business.==

Mitchell explains it, tho I don’t think his statement was exactly crystal clear. What does a licensee have to give up in order to raise that capital? To the extent that it is control of the business, that could end up representing a material change to the terms of the license, especially in regards to social equity concerns.

I probably lean to the side of relaxing the rules and giving them more opportunities to raise capital. But the concern seems legit to me.

Comment by Arsenal Thursday, Sep 8, 22 @ 9:33 am
A fundamental flaw in many DBE eligibility standards is a failure to address venture and private equity investor situations. Venture and private equity capital are premier resources for providing businesses the cash and creditworthiness needed to operate and grow. Yet, the standards effectively cut off DBE access to these crucial and often company-saving resources.

Comment by Midwesterner Thursday, Sep 8, 22 @ 9:55 am
It would have been helpful if the state would have also offered a low-interest loan program to people who are awarded social equity licenses. This would provide them funding which they are clearly having a hard time getting otherwise.

It’s obvious that, while probably well-intentioned, the “social equity” portion of this legislation has been a major failure. Naturally, anyone who was adversely affected by prohibition laws is also probably not going to be someone with access to large amounts of capital.

Comment by Techie Thursday, Sep 8, 22 @ 9:56 am
Again … when are we going to treat marijuana like liquor? A liquor license is a license to hard work and toil in a fairly competitive market, almost the way Adam Smith drew up Perfect Competition (almost, Monopolistic Competition might be a better analogy). A marijuana license is a license to a government created oligopoly with formidable barriers to competitors from entering the market.

Comment by Anyone Remember Thursday, Sep 8, 22 @ 10:06 am
==The entire point is the people who fulfill the social equity requirements are not wealthy but the state is creating barriers for those people to cash in on their wealth ==

They can’t cash in on the wealth that they don’t have?

Again, I don’t think you’ve really wrapped your arms around the issue here.

Comment by Arsenal Thursday, Sep 8, 22 @ 10:49 am
==== Who would put up a majority of the cash for a business and not have majority control?====

Uhm, banks?

That being said It’s good that Christian’s phone line is finally open and he says he is willing to listen. This issue was brought up years ago while the legislation was being crafted and fell on deaf ears. Both with the sponsors and especially the administration. What a mess

Comment by Been There Thursday, Sep 8, 22 @ 11:01 am
@Kelly Cassidy…What’s up with home grow for all adults?

Comment by Dotnonymous Thursday, Sep 8, 22 @ 11:40 am
“A marijuana license is a license to a government created oligopoly with formidable barriers to competitors from entering the market.”

Sounds like a plan.

Comment by Dotnonymous Thursday, Sep 8, 22 @ 11:42 am
The untapped wealth is the license.

Umm do you know any lending officers who are willing to lend the the millions required to open a dispensary to people with no experience in business?

Comment by Lucky Pierre Thursday, Sep 8, 22 @ 11:47 am
Mitchell claims all these are concerns are new and the Governor’s Office is just hearing about it. That is not true, IDFPR has has a rule pending in front of JCAR for months that in part prohibits the sale of any equity in a conditional license. Various advocates have written and spoken openly about their opposition to that provision of the pending rule and JCAR has extended the notice period to give the parties time to work out the issue. The Gov’s Office pays very close attention to what happens at JCAR so it is not believable that this is the first they are hearing of the issue, especially given the the Governor’s Office has micromanaged (or more accurately micromismanaged) the cannabis license rollout.

Comment by Derek Smalls Thursday, Sep 8, 22 @ 1:38 pm