CHICAGO — Facing court challenges and growing criticism from the lawmakers who wrote the state’s cannabis legalization bill, state regulators put off scheduling a lottery due to award billions of dollars worth of licenses to sell recreational marijuana.
Earlier this month, the Illinois Department of Financial and Professional Regulation announced 21 companies had received perfect scores on their applications for adult-use cannabis dispensary licenses. Department representatives initially said the Illinois Lottery would draw the winners of licenses in each of the state’s regions by the end of the month but have since declined to schedule a date.
“The final date for the lottery for adult-use cannabis licenses had not been set as of today,” IDFPR spokesperson Paul Isaacs told Patch in an email Thursday. “As we continue to review questions that have been raised, our goal is to provide time to ensure that the process is fair and equitable.”
It was the first round of applications the state has graded using criteria for who qualifies as “social equity applicants” established in last year’s Cannabis Regulation and Tax Act. Applications are graded on a scale of up to 250 points, with 2 points bonus for applicants with a “a plan to engage with its community.” Only applications with perfect scores qualified for the tiebreaking lottery.
The only way to receive a perfect score is for the applicant’s majority owner to be an Illinois resident, a qualifying social equity applicant and a veteran. Applicants are eligible for social equity applicant status if a majority of their ownership live in an area disproportionately impacted by cannabis prohibition or a majority have past cannabis arrests. Companies with 10 or more employees need only have a majority qualify via their home address or criminal record.
This means deep-pocketed applicants can get around the spirit of the state’s stated social equity goals by simply hiring employees at the start of 2020 to remain on the books through the end of the application process. Savvy applicants can also skirt the ownership requirement by cutting confidential side deals with people who meet the social equity criteria. Once licenses are awarded, there are no more social equity ownership requirements under the bill.
Secrecy provisions lawmakers inserted into the legalization bill means that the state can legally withhold all of the application materials and all records kept by state agencies administering the act. The only data eligible for release under the Illinois Freedom of Information Act are the name and address of cannabis businesses and the name and address of the entity that holds their license. And while IDFPR officials have provided some applicants with copies of their scored applications — several of which show plain errors, according to court filings — they have declined to release them to the public.
Ever since its Sept. 3 announcement listing the groups with perfect scores, the department has been hit with at least four lawsuits in state and federal court. The suits and several state lawmakers who question the application process say there were major errors in scoring and discrepancies in who was given an opportunity to correct deficiencies.
Southshore Restore and Heartland Greens were the first to sue, and last week 19 other unsuccessful applicants joint their suit as additional plaintiffs. They were followed by Avalon Smoke Shop owner Naomi Williams, who filed suit in federal court without an attorney a few days later.
The state agency and its administrator, Bret Bender, is also named as a defendant in separate lawsuits filed in Chicago and Springfield. The Cook County suit was brought by the Chicago-based limited liability companies Wah Group and Haaayy, while the plaintiff LLCs on the Sangamon County complaint are Hazehouse, BDMT, Premier Canna, Farmhouse IL, Jenny’s of Illinois I, Mint Ventures, The Flowershop Dispensary and LD Star.
Up to 75 new licenses were originally due to be issued ahead of May 1, but Gov. J.B. Pritzker issued an executive order eliminating the statutory deadline due to the coronavirus pandemic.
Illinois awarded then awarded the consulting firm KPMG a no-bid contract for $4.2 million to score the applications.
“The scoring process was objective, following the state’s criteria, with a blind scoring methodology,” KPMG spokesperson Russ Grote said in a statement. “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.”
The consultancy imposed aon its employees, but the contract required them to pick up applications in person. That, along with vastly more applications that anticipated, contributed to the delays.
“KPMG stands by our work to objectively score applications based on criteria set by the state,” Grote added. “We brought a diverse and experienced team together to do this work quickly and accurately, and are proud of our team’s performance.”
Some applicants were notified of deficiencies and given a chance to correct them, some were not, according to the legal challenges. Others had clear errors — like not counting Illinois residency or veteran status despite proof being provided — with no chance to appeal, unsuccessful applicants alleged.
Avis Bulbulyan, a cannabis consultant who worked with one of the losing social equity applicants, has participated in the dispensary and cultivation licensing process across the country. While the goal of rewarding applicants harmed by cannabis prohibition is admirable, he said, Illinois is likely to be an example of how not to go about the selection process.
“Any state when they come out with results you have winners and you have loses you cant really satisfy everybody and almost every state triggers some sort of a lawsuit. But I think what we’re going to see in Illinois is probably one of the worst ways to go about an announcement,” he said, predicting things were going to get messy.
“To have all 21 winning groups — all of them be a perfect score across the board — plus the extra bonus points — you just never see that across any jurisdiction,” he said. “When you look at it, a lot of things just don’t line up.”
Last month, Illinois marijuana dispensaries sold nearly $64 million worth of recreational marijuana, setting a new record for the fourth month in a row. Businesses who were licensed to operate medical marijuana prior to the legalization — all of which owned by white men, critics pointed out — are set to maintain their monopoly on the revenue until the new round of licenses can be issued.
In a letter to Pritzker Sunday, state representatives Kathleen Willis and La Shawn Ford offered a solution that they said would likely lead to an end to litigation seeking to halt the lottery: All applicants must get a chance to point out and challenge errors in KPMG’s scoring.
“If some applicants received notice and an opportunity to cure, then all applicants should have been provided that opportunity,” they said. “These licenses are worth millions of dollars and would be life-changing for applicants who earned them. Almost 700 social equity applicant teams invested so much of their time and hard-earned dollars on this process. Believing the promises from your office that the process would be equitable, they dared to dream that they could participate in this exciting new industry. They have a right to be treated fairly.”
Ford said Thursday the governor has not agreed to the proposal. In the initial federal case, a hearing before U.S. District Judge Jorge Alonso is scheduled for Tuesday on an emergency motion for a temporary restraining order blocking the state from holding the lottery.
Find a list below of all successful applicant — the number in the shaded area indicates the total number of available licenses set to be awarded in a particular region, while the numbers next to company names indicate the how many entries that entity will have in the region’s lottery.