Blazing a Path

History was made in Illinois in its 2019 legislative session. It is the first state to legalize recreational cannabis through legislation, rather than a voter-approved ballot measure. History was made yet again with the in-depth and broad social equity program included in the legislation. If the program is as thorough as the bill indicates it is supposed to be, it is going to be the most inclusive social equity program in the country to date. Marijuana Policy Project calls the state’s social equity program “the biggest step forward in social and criminal justice reform anywhere in the country, inside or outside the issue of cannabis reform.”

The Minority Cannabis Business Association (MCBA) released findings from the Social Equity Report group earlier this year. The group studied Los Angeles’ social equity program and the findings were not ideal. Areas where the city is lacking are in educational services, long-term success, and a community reinvestment fund. As is the case in many municipalities that have a social equity program, it was found that some shareholders exploit the applicants for their equity. Regarding Los Angeles, MCBA Board Member, Kayvan Khalatbari, stated “Politics and well-funded special interests have dogged Los Angeles’ implementation to the point that its intended outcomes are not being met and communities long harmed by the War on Drugs remain on the sidelines.” It is impossible to know how successful Illinois’ social equity program will be, but the state seems to have addressed certain areas where other states have failed. For example, non social equity license holders are required to offer training, funding, or mentorship to social equity applicants. The state is also reinvesting funds back into the community through the Restore, Reinvest, and Renew Program (R3 Program). Not only that, the state of Illinois is attempting to make reparations for the War on Drugs and how it has affected communities of color and lower income communities by offering incentives to license holders to employ people from these communities. Illinois Governor Pritzker has stated, “As Illinois continues its path toward putting equity at the forefront of the state’s new adult-use cannabis expansion, it’s important to create opportunities in communities that have been hardest hit by the war on marijuana. Not only will social equity applicants receive points on their applications, but many applicants will also get grants, technical assistance, low-interest loans and fee reductions and waivers. Taken together, these efforts will do more than any other state in the nation has done to focus on equity.”

Since the legalization of medical cannabis in 2013, over 40,000 patients have been registered through the state-run Medical Cannabis Pilot Program. Medical patients can purchase up to 2.5 ounces of cannabis during a 14-day supply. The product can be purchased from one of the 55 licensed medical dispensaries throughout the state. These 55 dispensaries have had a total of $185 million in sales since the medical program launched in 2015 and the state’s 22 cultivation centers have had a total of $105 million in sales during the same period. How will the sales of recreational cannabis impact these numbers? Will we see a sharp spike in sales upon legalization to only see it level out down the line? With a population of almost 13 million people, it is believed that the market in Illinois could shape up to be one of the biggest in the country. It is estimated that in the 4th fiscal year of recreational sales, the state could generate up to $375.5 million. That’s a lot of money, but what is the state planning on doing with all of it? Invest it back.

Restore, Reinvest, and Renew Program 

As more states are beginning to roll back their prohibitions on cannabis, they are beginning to look at how they can better their communities with the revenue they’re receiving from the legal sales of this once illicit drug. This is where the Restore, Reinvest, and Renew Program, more commonly known as the R3 Program, comes into play. The R3 Program is designed to apportion 25% of the leftover tax revenue to improve communities that have been devastated by violence and have been disproportionately impacted by historical economic disinvestment (see HB 1438 for more on this). The funds will be used to reduce gun violence through intervention and prevention, improve re-entry programs for people in the criminal justice system, and support programs oriented towards social well-being. The program will provide planning and implementation of grants, technical assistance, and civil legal aid to people living in designated R3 areas. HB 1438 requires that these areas be decided by a board of oversight that has been convened in accordance with specifications for membership also laid out in the aforementioned legislation. This Board has been formed and is currently in the process of calling for and reviewing relevant studies undertaken by the state for the purpose of assessing rates of disinvestment, violence, gun injury, unemployment, child poverty, and state prison commitments in relation to tax revenue that may be returned, or re-invested, into these communities.

Social Equity Meets Entrepreneurship

Another avenue offered by HB 1438 in terms of progress for communities harmed by the War on Drugs is entrepreneurship. Illinois’ social equity program will not only fund initiatives that expand education and job readiness, but it allows residents of the state who might not otherwise meet the rigorous application qualifications required by traditional legalization efforts, to apply for cannabis business licenses. The benefits of this are that individuals and families who have been most impacted by “black” market will be empowered to participate in and profit from that market now that it is legal. In Illinois, social equity applicants must apply with a holding of at least 51% ownership and control by one or more individuals who have resided for at least 5 of the preceding 10 years in a Disproportionately Impacted Area, or have been arrested for, convicted of, or adjudicated delinquent for any offense that is eligible for expungement under HB 1438.

Another way to qualify as a social equity applicant is to have at least 10 full-time employees, at least 51% of whom currently reside in a Disproportionately Impacted Area or have been arrested for, convicted of, or adjudicated delinquent for any offense that is eligible for expungement.  The upfront costs – application fees, licensing fees, attorney fees, acquiring a physical location, training – can oftentimes deter small startup companies from applying, which makes it difficult for the marketplace to be inclusive, let alone make what many consider to be valid reparations. In Illinois, however, the state has pledged to assist with startup costs for social equity applicants through the creation of a $30 million low-interest loan program. This $30 million fund will be seeded from medical cannabis businesses who are now applying to participate in Illinois’ adult use market. Rather than paying a licensing fee, they will pay a fee into the cannabis business development fund. Another way the state plans to encourage social equity applicants to apply is to apportion 20% of the total points for the applications for social equity purposes. This gives social equity applicants an advantage and can help the overall score if the applicant is lacking in another section of the application. Lastly, both the non-refundable and the refundable portion of Illinois’ adult use application fees may be waived by 50%. These measures are crucial as often, application fees alone can be daunting and deter many people from applying.