Reflections on Illinois' Social Equity Program

The Problems

This highly attractive market seemed to be a great environment to ensure social equity owners' commercial success, but what it turned into instead was another opportunity for corporate stakeholders to get "creative" with the definition of social equity. And that's precisely what happened. With 20% of the application's points riding on having 51% of the owners qualify for social equity, what started as a means to rectify the disproportionate cannabis possession arrests experienced by minorities became simply a correctable annoyance for corporate figures. But the question is, was this bound to happen? Or was the state's social equity program flawed from the start? 


By far, the most valuable license during both rounds of adult-use applications was the Craft Grow license. This license allows operators to cultivate, extract, infuse, and distribute their products directly to dispensaries, allowing for near seed-to-sale control of their entire operation. Unlike the dispensary round of applications hosted by the Illinois Department of Financial & Professional Regulation ("IDFPR"), the Craft Grower license under the regulatory oversight of the Illinois Department of Agriculture ("DOA") required operators to secure a location.


Cultivation facilities are by far the most expensive cannabis structures to date; by adding extraction, infusion, and transportation operations in the facility, the total startup costs only increase. Equally, the facility must be zoned correctly, limiting the number of compliant properties available. Given that one of the qualifiers for social equity is living in a disproportionately impacted area, it is strange to see why they were required to secure a multimillion-dollar facility before applying for the adult-use licenses. When taken into account that two of the narrative requirements' scores in the application (Exhibit A: Suitability of the Proposed Facility and Exhibit C: Security & Recordkeeping Plan) are contingent on the type of facility or land you secure, you begin to see how easy it might be for social equity applicants to fall behind on the total score. Exhibit A and Exhibit C are worth a combined total of 220 points out of 1,000 total points, which is higher than the 200 points allocated towards being a social equity applicant.


Another factor to take into consideration is the page length allocation for each exhibit that required written narrative. Exhibit A, which related directly to the proposed facility's suitability, began with a maximum of 50 pages and later was altered to unlimited. The security plan allowed for 65 pages, and the cultivation plan allocated 50 pages. Although demonstrating business acumen and operating competence is crucial, we have to wonder why Illinois allocated so many pages towards narrative-heavy exhibits. Although there was no minimum page requirement, applicants know that their competitors will undoubtedly use each page to increase their likelihood of scoring more points.


With that in mind, how can an individual with no cannabis experience and minimal financial resources realistically conjure a 65-page security plan or 50-page cultivation plan? The answer is either through experienced cannabis consultants or by securing individuals specialized in cannabis that can write the content for them—both of which share a common contingency: capital. Not every social equity applicant can afford a consultant, so what's left for the applicant is to dilute their share of equity with other principal officers. With all these considerations in play, the 200 points granted by being a social equity applicant seems more and more insignificant in the face of practicality.


The most significant evidence of this negligence towards social equity applicants can be seen in the state's loan program, which to the detriment of the applicant, was only available after the cannabis applications were already submitted. So what's left for the social equity applicant merely wanting a better commercial opportunity? They are left to navigate through predatory waters where stakeholders offer them what the program calls for: investor capital. Now, somehow a business owner is no more than a token, a token they can quite easily get rid of through equally predatory operating agreements loaded with investor-favored provisions.


Had the loans been available to social equity applicants before the application process, applicants would not have to chip away pieces of their ownership to get the best possible shot at success. There were instances where social equity applicants had to sell homes to afford to apply for a license. One can only hope that such sacrifice would pay off. Yet, with the odds ever rising against true social equity applicants, it seems like the Illinois program is far from a genuine commercial opportunity for those disproportionately impacted. Instead, another on-paper promise that things would get better.



The Solutions

For most social equity applicants, the problems became all too apparent during the strenuous, several-month-long application process. They need no lecturing on the issues with Illinois' social equity program. But what can social equity applicants do in the future to prevent themselves from being used as front-people for stakeholders? Finding the right partner will always be the toughest fight. Taking the initiative and becoming heavily involved in the local cannabis community plays a vital role in positioning yourself well in the industry. Attend events, focus on advocacy, attend workshops, and network, network, and network. Focus on serving the local community as you prepare for your local program license application process.


When it comes to investors, you need to clarify that this is your company, your vision. Actively engage in business-making discussions and expand your network. A more robust network is a resource and quite a valuable one. In essence, capital should be your only limiting factor in operating a successful business. By giving yourself the tools, resources, and means of fully operating a business under your vision, you shift the power dynamics. Remember, investors need you just as much as you need them, yet their legal counsels work to formulate operating agreements entirely in their favor. Always review the agreements carefully before signing, and always ask for clarification regarding any of the provisions. Document the investor's or their counsel's responses to your questions to hold them accountable.


Social equity applicants are more than just a passway to secure lucrative cannabis business licenses; they are valued leaders in their communities vital to building successful cannabis brands. With each local region steeped in its own culture, who better to lead a local business than someone connected to and knowledgeable about their community. Without interstate commerce, the cannabis industry is naturally more localized. Therefore, branding, products, services, and business practices need to fit the local market's needs. We've seen these truths ignored by some MSOs to obtain valuable licenses by any means necessary. 


The right partner or investor will take the time to understand your business. They will listen as opposed to try to dictate. We are actively entering a hyper-localized economy, especially in light of the recent COVID-19 pandemic. Whereas globalism dominated the world in early 2020, marketing and sales dynamics are shifting. The nation will experience an inevitable trend of hyper-localization and hyper-localized spending, so poor community engagement and, more importantly, a poor understanding of community needs, is one sure way to tank your business. Social equity applicants with an intimate knowledge of their communities' needs can create long-term economic opportunities and a lasting impact that is truly valuable.