With Confusing State Ruling, Nobody Knows Anymore Where Cannabis Dispensaries Can Go

The rollout of legal recreational cannabis in Illinois slowed to a crawl when Gov. J.B. Pritzker issued a stay-at-home order in mid-March, but just after the shutdown, state officials issued a ruling that caused confusion about the regulations governing the approval of new cannabis dispensaries.

Chicago’s Zoning Board of Appeals had approved on March 6 the application of Cresco Labs to open one of its Sunnyside-brand cannabis stores at 436 North Clark St. in the River North neighborhood and MOCA-Modern Cannabis’ proposal for an outlet at 214 West Ohio St., then forwarded the applications to state officials.

The Illinois Department of Financial and Professional Regulation granted both licenses on April 5, even though the pair would be within 1,500 feet of one another, which state law prohibits.

IDFPR officials won’t respond to questions on the topic and instead point to an April 6 press release explaining that since the two proposed dispensaries did not yet exist, approving both on the same day didn’t violate the 1,500-foot rule.

“That is the only comment IDFPR will be providing on the matter,” a spokesperson wrote in an email to Bisnow.

Experts say any confusion on the rules could dissuade some potential providers from launching new outlets, especially companies without much capital, including minority business owners, known as equity applicants. The upfront expenses can be considerable. Applicants need to secure retail spaces that meet stringent requirements, and that means signing leases, paying rent and completing gut renovations, which can total hundreds of thousands of dollars.

Easing the way for cannabis shops may become more important in the pandemic era as other retailers succumb to shutdowns and the collapse in demand due to mass unemployment. Recreational sales began Jan. 1, and April sales totaled more than $37M, according to state data. It was a slight boost over the March numbers, even though many shops were restricted to curbside pickup and had to enforce social distancing rules.

“Cannabis is weathering the devastating storm that so many other retailers won’t survive,” said SVN Chicago Commercial Vice President Deena Zimmerman, who began representing cannabis clients in 2013. “I think many more landlords are going to jump on these opportunities because, let’s face it, some of their retailers are going to be handing their keys back, and what’s a quick solution?”  

But the lack of clarity about the zoning rules doesn’t sit well with some local stakeholders. There are at least two other pairs of proposed dispensaries on Chicago’s Near North Side that are within 1,500 feet of one another, including Cresco’s plan to open another at 29 West Division St. in the Gold Coast neighborhood and PharmaCann nearby at 12 West Maple St. Both lie within Alderman Brian Hopkins’ 2nd Ward, and he warns state officials not to try approving both.     

“Disregarding proximity requirements in order to issue multiple licenses within 1,500 feet of each other is contrary to legislative intent, and I anticipate a legal challenge,” he said.

“They certainly finessed the issue, and it’s causing us concern,” Gold Coast Neighbors Association President Vern Broders said. “These are brand-new rules, and nothing has been adjudicated in court, but I believe a reasonably sensible judge would overrule a decision to allow two dispensaries to open within 1,500 feet.”

Broders added that he opposes both Cresco and PharmaCann’s proposed dispensaries for his neighborhood and said cannabis providers should stick to retail trade districts, not residential areas like the Gold Coast.

Any legal challenge to a fully licensed dispensary would be another headache for cannabis providers, which are already required to run through a gauntlet of rules before they can open for business.

When the state approved recreational cannabis, it sought to avoid the free-for-all that enveloped cannabis markets elsewhere in the U.S. Legislators added the 1,500-foot rule and restricted new recreational licenses, at least initially, to existing medical cannabis providers such as Cresco, PharmaCann and MOCA, which have operated in the state for years.

Municipal officials layered in their own rules, including Mayor Lori Lightfoot, who did not want Chicago’s cannabis shops near schools or clustered in the city’s top tourist districts. She banned sales on the tourist-heavy Magnificent Mile and in the Central Loop, divided the rest of the city into seven zones and initially limited each to seven total medicinal and recreational shops.

That set the stage for a November lottery held by the Zoning Board of Appeals in City Hall, and the providers whose names were picked first by Chairman Farzin Parang generally chose Chicago’s central zone, which includes some of the city’s most valuable retail districts, including River North. All seven of its slots were quickly picked, kicking off the months-long scramble to find acceptable spaces.

But the 1,500-foot rule narrowed the already sparse options, especially in the dense central zone, according to Jason Erkes, a spokesperson for Cresco. Unlike other buildings that host retail outfits, ones occupied by cannabis dispensaries generally can’t have federally insured mortgages since the product sold is still illegal according to federal law.

“We just can’t move into any shopping mall because most have institutional financing behind them,” Erkes said.

Cresco officials were surprised state officials approved both their application for 436 North Clark St. and MOCA’s plan for 214 West Ohio St. They also don’t know what it means for their application for another cannabis dispensary at 29 West Division St., the Gold Coast site within 1,500 feet of PharmaCann’s proposed dispensary at 12 West Maple St.

“It’s not the way we expected it to happen, but we were happy we got approved,” Erkes said. “What we don’t know is if this sets a precedent for the future.”

Other applicants are also confused.

“It's not clear whether the IDFPR's unique manner of resolving the 1,500-foot conundrum for MOCA and Cresco under the peculiarities of those circumstances would affect our efforts to open a dispensary at 12 West Maple,” PharmaCann Director of Public and Regulatory Affairs Jeremy Unruh said. “We still believe that the 1,500-foot rule is in place, but there is clearly some flexibility arising from the verbiage in the statute surrounding that distance setback.”

Even state Sen. Heather Steans, a Democrat from north suburban Lake Forest who helped write the Cannabis Regulation and Tax Act, is not sure how both sites secured approval.

“The CRTA clearly states that dispensaries must be 1,500 feet apart,” she said. “I think this issue relates back to one request that the cannabis industry has been pushing for, which is for the law to clarify that in instances where two proposed sites are within 1,500 feet, the license should go to the entity that filed its application first. It seems that would have cleared this up before it became a problem.”

Still, now that both MOCA and Cresco have their River North licenses in hand, both companies are free to open for business whenever they’re ready, she added.

“I would say that this is an issue for IDFPR to resolve, because the applicants can't possibly be expected to investigate such matters as businesses that aren't even yet open,” Steans said.

If state officials do decide to make further exceptions to the 1,500-foot rule, they may actually benefit small businesses. Cresco and PharmaCann are two of the nation’s largest cannabis companies, but until the state gave it the opportunity to branch out to River North, MOCA was the independent operator of a single dispensary in Chicago’s Logan Square neighborhood.  

“In general, NCIA is against zoning rules that force cannabis businesses to be a certain distance apart,” National Cannabis Industry Association spokesperson Morgan Fox said. “They severely limit the available real estate that would otherwise be acceptable for licensing purposes and tend to favor both applicants that are first to apply and those that have the capital to explore a wider range of property options. This makes it much harder for smaller businesses and equity applicants to find acceptable locations. It also limits competition and consumer access in high-density areas.”

All firms, no matter what size, need clarity before launching into the expensive process of establishing a recreational cannabis dispensary, Fox added.

“I've never heard of a state approving applications that do not meet a zoning requirement without explicitly saying they are making an exception or changing the rule,” he said.

The pandemic brought even more uncertainty to the future of Illinois’ cannabis market. State officials originally planned to award dozens of additional recreational licenses on May 1, but the shutdown order forced an indefinite delay.

Chicago’s Zoning Board of Appeals canceled a March public meeting on Cresco and PharmaCann’s Gold Coast proposals and hasn’t decided when it will restart its approval process, which requires applicants to hold community meetings and engage with neighborhood residents, a ZBOA spokesperson said.

Whenever officials start up again, they will evaluate applications from MedMen Enterprises, which wants to open a dispensary at 1001 West North Ave. on Chicago’s Near North Side, where it already has a building permit, and from Windy City Cannabis, which wants to establish itself in a building at 923 West Weed St., just one block south.

The sites are within 27th Ward Alderman Walter Burnett’s district, but as the immediate area, part of the Clybourn Corridor, is mostly filled with other retail outlets, including a new Whole Foods, he’s not concerned about their proximity.

“As long as they’re not next to schools and there are no residents worried, I’m OK with it,” he said.

Burnett added that officials should consider how many tax dollars successful cannabis dispensaries will put into state and city coffers.

“I think they need the money now, with everything that is happening. The only things that are popping are grocery stores, liquor stores and cannabis shops,” he said.