Their stories are often inspiring. One Illinois social equity applicant is using the application process to become closer with his dad, whom he had only met last year after finding him on Ancestry.com. Another pair of sisters are applying for a transport license because after watching their disabled mother struggle to pick up cannabis from dispensaries, they want to be in the first wave of delivery services when it becomes legal.
But inspiring origin stories aren’t enough when it comes to building a successful business, and for Illinois’ social equity applicants, while the personal stories can be moving, the social and market barriers sometimes seem overwhelming.
“They definitely are going to be entering a pretty challenging environment. I don’t know what the solution for that is. It’s just where we are. If I had a magic wand and created the marketplace I want, it would be a lot more level,” said Akele Parnell, an attorney representing a number of social equity applicants.
There’s a consistent series of discussions between social equity license applicants, attorneys, and their consultants that the deck seems stacked in Illinois for social equity applicants in the cannabis business. Even if they manage to get a license, the cost of capital, cost of insurance, difficulty of finding a banker, and then the challenge of building a strong relationship with and getting supply from the few cultivators that control the market seems daunting, if not impossible.
“You’re last to the dance, because you’re behind the medical licenses, and those with the next set, and you have likely have no operating experience,” said African-American financier Al Grace on the difficulty of finding investment capital, who is advising a team of craft grow, transport, and dispensary applicants. “There’s at least six or seven levels of ‘no’. If it’s a yes or maybe, it’s at those Russian [underworld] rates. Consequently you’re set up to fail because of the cost of the debt, but you’re not getting better ROI on product than others, so how do you pay it?”
“For a social equity applicant the costs keep going up. Banking’s high, capital’s high, cost of insurance is high. Just go down the list. As a participant, if out of the box you are thinly capitalized, you’re saying I’m not going to be able to play in a way that makes economic sense at the end of the year,” said Grace.
While some applicants struggle to find the right people to talk to, others have relied on previous non-cannabis business experience counting on an array of backgrounds for their new field.
Chris Precise is an Mexican-American firefighter in Chattanooga working on a transport application with his father in the south suburbs of Chicago. Precise and his father connected for the first time in his adult life just last November and decided to throw themselves into the application process to grow closer.
“I’ve been doing a lot of reading. Scouring the internet. I started with cash and transit business models, Brinks trucks. Stuff like that. Just watching YouTube, learning about other states,” said Precise.
“My dad and our partner, they worked on the security side. I’m doing business and logistics. They are working on the vans, making sure the vans are secure and set up,” he said.
Rasheeda and Ayesha, a pair of African-American sisters based in metro Springfield, Illinois, who requested anonymity because of the sensitivity of cannabis in their community, are also applying for a cannabis transport license after saving for years to start a family business.
“Our family has a lot of different backgrounds to bring to the table,” Ayesha said. “One of our family members has been doing trucking and delivery for over 20 years. We have another that’s a veteran that is very knowledgeable about security. We have another that has worked in warehouse logistics, another in education, and another with experience in federal regulations. Each of us has something to bring and with different relationships to get people what they need.”
But despite submitting a thick application for a license in January, the sisters, like most applicants, haven’t heard from the state about whether or not their application was received or anything about its status.
“I actually called the Department of Agriculture and I talked to someone, one of the agents on the hotline,” said Rasheeda. “I asked if he was able to provide confirmation for receipt, and he flat out said he can’t provide that. I come from a highly regulated background as well – clinical research. So, it’s very strange to me that we can’t track anything at all.”
Hard to find and afford services
Finding a bank that will service their plant-touching business is one of the most universal concerns of applicants, none of whom would talk about it on the record to Grown In. Names of possible banks are furtively whispered between applicants and trusted advisors, with care taken to not tell too many people, so as to not lose an advantage.
“Nobody wants a transporter hauling around a lot of cash. If you aren’t able to get a bank, it’s an issue of staying in the business long term,” says Sisi Shen, a consultant for numerous social equity applicants.
“Basically, it’s once again the same kind of issue, not being in the in-crowd, so you don’t have access to the information to know where to go. I think its access to reliable information, for consultations, banking, insurance, all those components,” said Belicia Royster, an activist who has been coordinating efforts between social equity applicants.
The cost of insurance – and finding an agent who will sell it to you – is also a significant barrier, say applicants.
“Some policies will require you to have a very expensive space to even have a conversation about premiums. Like a $20,000 space. It adds up to millions of dollars. For craft growers it adds up to about a year before they can even open up their doors, and then another six months before they can even see the fruits of their labors,” says Shawnee Williams, an accountant consulting for a number of social equity applicants.
“You need the insurance,” says financier Grace. “The people that underwrite that paper are not Travellers and not AIG. And you got to check to see if they’re rated at all. The cost for directors and officers insurance! If you touch the product it’s even higher.”
Social equity applicants, most of whom are applying for licenses in urban areas, also say they are having zoning problems, sometimes keeping them from using property they already own, and planned to use as part of their cannabis business.
“Real estate has been a common issue for applicants I’ve spoken to, especially craft grow applicants,” says accountant Williams. “It almost seems intentional, the barriers being created. Especially for people who have already identified the space. It has thrown everyone for a loop.”
“Our biggest challenge was finding a building,” said transport applicant Ayesha. “We started looking in 2019. Maybe two weeks prior to the original deadline I was told there was absolutely nothing in Springfield. My realtor was building a storage facility and he wanted to include us. He went to the city, and the city told him no. He looked a little bit more, and he then called me to say, ‘You know what, there is absolutely nothing here in the city of Springfield.’ We looked outside of Springfield, there was nothing in Sangamon County.”
Giving up on their home turf in downstate Illinois, the sisters finally found a location in suburban Chicago to base their company.
Cautionary partnership tales
Meanwhile, some social equity license applicants have been complaining about predatory practices from MSOs and investors they have partnered with. Mike Malcolm posted on Instagram in June about problems he had with a tentative partnership with Revolution Global to write dispensary applications. His post sparked a conversation among social equity applicants.
“Some of the MSOs are being put on blast on social media, about how their employees have been having problems, but they’re talking to Michael Malcolm,” said Williams. “He shared his story. It opened the floodgates for people to express their own experiences with MSOs.”
Malcolm eventually partnered with Columbia Care, but even then, he said, that if he didn’t have a background in real estate and an attorney, he would not have likely gotten terms he thought were fair.
“For example when my terms came through, they did not have a job for me in the dispensary I had 51 percent ownership with,” said Malcolm. “I had to jump on a call with them, and we had to discuss it. I’m the owner of the place, and they’re not clear I should work there!”
Attorney Parnell, who represents Malcolm, among other social equity applicants, says dispensary control is a consistent theme in operating contracts.
“I’ve seen a lot of different predatory practices from larger operators or well-funded entrepreneurs that try to set up deal structures where the social equity owner doesn’t run or control the business. [Social equity applicant control is] more or less required by the state statute. Or I’ve seen deals where the party with the most money in the situation is trying to create a structure where they can push out the social equity owner for a wide variety of reasons, some of which are relatively trivial,” said Parnell.
“There’s a lot more of those we don’t know about. I’ve only seen a handful, but based on the volume of applications and level of interest, once these [dispensaries] go on line, we’ll see how many of those were actually created.”
“I’ve heard some really bad stories,” said Malcolm. “I’ve done a few zooms with other applicants…A lot of people were taken advantage of during the process. I’m really concerned with people getting taken advantage of by not just MSOs they partner with but the nature of the business. They sign a deal where they don’t have a job, they don’t make any money, and so they sell the equity they had in the partnership and so then it’s not a Black-owned business anymore. The MSO owns it.”
Parnell thinks the entire social equity application process is a cautionary tale for people of color looking for partners.
“If they hadn’t been engaged in social equity work before and the executive team is all white, and it had been for years, it raises a question about, ‘Why all of a sudden they are interested in social equity?’ If there wasn’t this market opportunity, would we be seeing all these social equity partnerships? No,” Parnell said.
Al Grace, who helped found Loop Capital, the largest Black-owned investment bank in America, is even more dour when assessing the future of social equity in Illinois’ cannabis markets.
“If it’s not D.O.A., it’s on life support. Because the cost of capital is too high.”