Illinois May Be Poised To Set A Standard For Diversity In The Cannabis Industry

Wanda James was on a mission when she opened her medical cannabis dispensary Simply Pure in Denver in 2009. The former naval officer was outraged so many Black and brown men she knew were languishing in jail for using a substance she considered harmless, even beneficial. She wanted to prove the production and sale of cannabis could foster legitimate businesses and create jobs within minority communities rather than ensnare young people in the criminal justice system. 

“My brother was locked up when he was 17 years old for possessing 4 ounces of cannabis,” she said.

The Black teenager originally received probation, but it was quickly revoked after a failed drug test. He spent four years in prison.

“He ended up picking 100 pounds of cotton a day in a private prison in Texas to purchase his freedom,” she said. “It was a massive failure of the American system.”

Now CEO of Denver-based Simply Pure, James started selling and growing her own recreational cannabis after Colorado legalized it in 2014. Her brother works at the company as a cannabis grower, and James became an evangelist for legalization in other states, including Illinois, which began allowing recreational cannabis sales in January.

But her advocacy is now about more than legalization. James noticed she and her husband, Simply Pure Chief Operating Officer and Master Cannabis Chef Scott Durrah, were the only Black owners of a Colorado cannabis business. Her new mission became to push states to include social equity provisions in their cannabis legislation, programs that would foster minority-owned businesses in the new industry and get money flowing back to communities heavily impacted by the nation’s long-running war on drugs.

Although other states tried to achieve social equity, they made little progress. A 2017 survey by Marijuana Business Daily found nationwide only 4.3% of cannabis business owners were Black, and 5.7% were Hispanic.

But Illinois could be the first state to achieve a breakthrough, James said. Unlike the others, instead of simply setting aside a number of licenses for social equity applicants, Illinois also reserves a big chunk of the tax revenue generated by cannabis sales to fund social equity dispensaries and growing operations. And although success is not assured, it could set an example for the states likely to legalize cannabis later this year, such as New Jersey.  

“Illinois is the best chance we have for someone getting it right,” James said.

In the run-up to its 2019 vote, she lobbied legislators like former state Sen. Toi Hutchinson, now Gov. J.B. Pritzker’s senior cannabis adviser, and bill co-sponsors Sen. Heather Steans and Rep. Kelly Cassidy. James explained how nationwide, under-capitalized minority business owners were going under or watching their ownership percentage decline.

“Social equity got watered down in many states, but Illinois actually sat down with us and listened,” she said.

“We want people who have been left out and left behind to have real opportunity to not only benefit from this new industry but to create new millionaires,” Pritzker said in December.

The state will grant 75 social equity licenses this first round, spreading them out across the city, suburbs and downstate. The licenses were originally set to be granted in May, but the pandemic forced a delay, and officials have not given a new date.   

Hutchinson did not immediately return calls seeking comment.

“I’ve heard from pretty reliable sources that they will be issued in September,” said Akele Parnell, program counsel for the Chicago Lawyers Committee for Civil Rights, which will monitor the program.

White and Black Americans use cannabis at similar rates, according to a 2020 report from the American Civil Liberties Union, but don’t suffer the same consequences. Law enforcement made more than 6 million arrests for marijuana over the eight years ending in 2018, the organization found. Nearly 90% were for simple possession, and Black people were 3.64 times more likely than white people to be arrested, a disparity that did not decline even as legalization rolled forward in many states.  

“The U.S. has waged a failed, devastating, decades-long war on drugs, including marijuana, in specific communities,” the ACLU said. “Rounding up hundreds of thousands of people every year — millions every decade — for marijuana offenses, this racist campaign has caused profound and far-reaching harm on the people arrested, convicted and/or incarcerated for marijuana offenses.” 

But the legal cannabis business is booming, and fortunes have been made.

In 2012, Colorado and Washington became the first states to legalize recreational cannabis for everyday sale and use. It’s now legal in 11 states, allowing the industry to sink roots across the U.S.

Colorado sales rose to a record $1.7B in 2019, according to state revenue officials, and the ongoing pandemic hasn’t slowed down business. Last month, recreational consumers set a new Illinois record with more than $60M in sales, and other states also set records. California sales in July rose to $348M, the most of any month since it legalized recreational cannabis use in 2018, according to Headset, a Seattle-based firm that tracks marijuana sales.

And to build up capital and expand market share, the sector’s multistate operators have launched a spate of mergers and acquisitions. Curaleaf was the latest cannabis bigfoot to go this route, closing its $700M acquisition of Chicago-based Grassroots in July. The new combination has operations in 23 states, with about 135 dispensary licenses, 88 retail stores, 22 cultivation sites and more than 30 processing facilities, Curaleaf officials said.  

The good times have also touched the commercial real estate industry. Cannabis providers established retail dispensaries, distribution buildings and growing facilities and hired brokers, developers and contractors to make it all happen.

The legalization of recreational cannabis only heightened the sense of injustice felt by James and others hurt by cannabis prohibition.

“It’s like a slap in the face,” Ambrose Jackson said. He was arrested at 17 for cannabis possession in Yorkville, a western suburb of Chicago. A plea deal helped him avoid jail, but it left a mark on his record, a stark contrast to how the mostly white business owners in the new cannabis industry were faring.

“I know so many people who are in jail for the same thing,” he said. “Then I saw all these white guys on social media, smiling and laughing, holding up bags of cannabis and bragging about how much money they’re making.”

“People are realizing more and more how all of these systems are negatively impacting people of color,” he added.

Now 38, the hospital administrator is also president and CEO of Chicago-based Parkway Dispensary, which early this year applied for 20 adult-use dispensary applications, a craft grower application and a cannabis transporter application, Jackson said.

Jackson was originally concerned that Illinois’ legalization would follow the path of other states and shut out minority-owned businesses. The first recreational licenses were restricted to the operators of the state’s 55 existing medical dispensaries, all white-owned.

The medical outlets first opened in 2014, and the capital needed to establish such dispensaries was considerable.

“You essentially had to have $500K in the bank and at your fingertips,” Jackson said.

That’s a tough proposition for those from low-to-moderate income areas. The federal prohibition on weed closes off access to typical capital sources, including banks and the Small Business Administration. That leaves cannabis entrepreneurs with few options, and many tap wealthy family members or business networks to secure seed money.

“That’s why you see a complete lack of diversity in the cannabis space,” Jackson said.

But James said kicking off Illinois’ cannabis program with the medical marijuana providers was probably unavoidable. Cannabis operations are governed by a 600-page piece of legislation, and the robust security requirements, as well as simply knowing how to grow product that meets strict quality-control rules, make it unlike any other retail business.

“They have already gotten through the learning curves and past the growing pains, so medical providers were the most qualified,” she said.

What will hopefully set Illinois’ social equity program apart from other states is its decision to create a development fund for applicants, funded by marijuana tax revenues and licensing fees.

“That’s going to be the key piece here,” James said. 

In Illinois, cannabis operations paid the state about $66M in taxes through the end of July, according to state officials.

In other states, she has seen undercapitalized minority owners struggle to secure funds for new lighting systems for growing operations, among other needed updates. Some are forced to sell portions of their ownership stakes to one of the multistate operators.   

“Mom and dad sometimes don’t have $200K, and your friends who you grew up with in the ‘hood don’t have $200K either,” James said. “So you end up going to some white guy who wants a percentage, and after three years of working hard and making things happen, you own just 3% of your company.”

Illinois also didn’t require social equity applicants to lock down a dispensary location to win a license, according to Parnell. That cut down the amount of capital they would have to put in upfront.

“I think Illinois has learned from the mistakes made in a lot of states,” he said.

Social equity applicants can qualify in three ways. They must either be controlled by individuals who have lived five of the past 10 years in communities disproportionately impacted by the war on drugs, which includes much of Chicago’s South and West Sides and other high-poverty areas; have at least 10 employees with the majority from the same neighborhoods; or be majority owned by someone, such as Jackson, arrested or convicted of a minor cannabis offense.

“One pound of weed doesn’t count, it has to be a small amount,” Parnell said.

“I’m happy to see Illinois is trying to do something different to break that cycle,” Jackson said.

Some multistate operators, including Chicago-based Cresco Labs and Chicago-based Green Thumb Industries, launched incubator programs to help rookie owners learn how to run cannabis outfits.

“When people are arrested and imprisoned for cannabis, it can impact a family for generations,” WBS Equities CEO Wendy Berger said. She is also a board member of GTI, which cultivates marijuana and operates cannabis dispensaries nationwide.

“Personally, I am now sitting in a position where I can make money from cannabis, and it bothers me that, if I didn’t look the way I look, it would have been difficult, so I feel a responsibility to do something about the injustice,” added Berger, who is white. “It is incumbent upon all of us in the business to do everything in our power to help the social equity applicants succeed.”

Businessman Cory Croft is a social equity applicant who went through GTI’s training program and said social equity businesses can bring the money and jobs generated by legal cannabis into neighborhoods suffering from disinvestment. Mayor Lori Lightfoot’s administration put in place rules designed to disperse dispensaries throughout the city, but so far, providers have battled hardest to secure spots in the most lucrative retail districts.

Croft said it’s time to put more focus on the city’s South and West Sides, including high-poverty areas such as North Lawndale.

“A lot of the big players try to go downtown and on the North Side, and that’s fine, but I want to be able to offer people in the community jobs and maybe inspire them to get even more involved in the cannabis industry.”

James cautions that even though Illinois did a good job building a framework to boost minority ownership, having that framework does not mean success. Nothing in the law mandates minority ownership, and she still worries multistate operators could gain control of the new ventures.

“Let’s not kid ourselves: There will be issues,” she said.

“I would love to see a majority of these businesses go on to great success and for none of them to fail due to a lack of capital or training.”