Career venture capitalist and current Illinois Governor J.B. Pritzker arguably helped kick off Chicago’s digital startup scene through an eponymous investment firm and nonprofit ventures like the 1871 incubator. Now, as chief executive of Illinois, Pritzker’s administration has made possible the Windy City’s bizarro emergence as a global legal cannabis capital.
The venture capitalist who made early bets on local tech darlings Cameo, Avant, and SpotHero arguably created more local enterprise value as a public servant when he signed a law that permitted a small cohort of incumbent medical marijuana operators to sell in excess of $1 billion of grass last year.
The entourage effect of legislation enacted 21 months ago, and a lack of new licenses created since then, is that a handful of Chicago pot startups have amassed billions of dollars in wealth.
“What is very different about cannabis is that there are real revenues and massive job creation,” explains Wendy Berger, a director of Chicago-based Green Thumb industries (GTI) who co-founded a pioneering Internet company in the Nineties and later became one of the first employees of Orbitz.
Digital companies like Groupon and GrubHub over time figured out how to monetize online consumption and become household brands. Today companies like GTI, Cresco Labs, and Verano Holdings are building houses of brands to sell edibles, flower, and other form factors to many consumers already accustomed to procuring pot from illicit sources. And now that marijuana is mainstream for consumers looking for approved alternatives to pills for pain and to spirits for celebration, expect sales to multiply in the coming years.
“The demand is nowhere near satisfied,” explains Paul O’Connor, founding executive director of World Business Chicago (WBC).
On O’Connor’s watch at WBC, Chicago landed Boeing’s corporate headquarters while also emerging as a digital metropolis. He likens legal weed to the industries that emerged after prohibitions in gambling and alcohol were lifted. Both had a preexisting base of consumers as well as connected capitalists with expertise obtaining licenses and raising capital.
“Some people in Chicago were already successful before getting into the cannabis industry because they previously had opportunities,” he said.
A leaked State of Illinois report obtained by Grown In last month shows that as of June 2020, less than two percent of Illinois dispensary owners were Black and Latino while less than 25 percent were women.
Dispensary, craft grow, and infusion licenses scheduled to be awarded last summer to social equity applicants largely from Black and brown communities remain in limbo due to scoring irregularities by state-commissioned accounting firm KPMG. While there is some movement on granting craft grow and infusion licenses, applicants who are optimistic that licenses will be issued soon, say the legal right to enter the pot industry in Illinois is just the first step.
“Black people having access to capital is extremely important,” says Anton Seals, Chief Executive and Experience Officer of OURS, a Black-owned business based on Chicago’s South Side that is awaiting response for multiple dispensary, infusion, and craft grow applications. “Having access to generational wealth makes a big difference. If folks can’t fail up, it’s not going to work.”
Not all economic opportunities in cannabis are predicated on having a license. There are ancillary businesses that apply technology solutions to problems and opportunities unique to the industry.
Case in point, last month investment firm Chicago Ventures led a $5 million round raised by Chicago-based AeroPay, which markets software to cannabis companies to handle cash free payments for a federally illegal product.
“I think Chicago could be considered one of the cannabis capitals,” said Dan Muller, CEO of AeroPay, which was part of the LatinX Incubator, a joint venture between 1871 and the Illinois Hispanic Chamber of Commerce.
The stated intent of recreational legalization, however, was to right previous wrongs associated with marijuana prohibition and extend economic opportunity beyond the first wave of license holders.
“I would submit that getting the communities to get those licenses,” says O’Conner, “would allow for an opportunity to keep more money spent in those communities than spent with those multinational corporations.”
GTI, Cresco, and other original medical marijuana license holders in Illinois that have continued to expand through unexpected licensing delays associated with botched application scoring and Covid-19-related disruptions, point to support they provide to social equity applicants through incubator programs. The startup companies they support, as is the case for every cannabis applicant, eagerly await movement by the state to issue new licenses.
“We’re in the top of the third inning,” says Berger, also a co-founder of Illinois Women in Cannabis, an education and mentorship community.
“It’s incumbent upon all of us in the industry to make sure opportunities are given to all people who want to be in this business. It’s not lost on me that the color of my skin, the address I grew up in, helped me get to where we want to be.”
The inability, at least to date, of the State of Illinois to commence its social equity program for over a year is playing out amidst the backdrop of a nationwide conversation about race and reparations. While some applicants are confident that meaningful work is being done behind the scenes, they say now is a time for greater transparency.
“There is work being done,” says Natascha Neptune, president of the Social Equity Empowerment Network (SEEN), “but it would help to bring all of that to light. I would also like to better understand how the state gauges the success of the social equity program.”
With great power, says economic development veteran O’Connor, comes great responsibility.
“The job of the governor’s office is to recognize that they have a tool of unprecedented power,” he said.
“Doling out licenses and being a regulator takes a great deal of work. There is somebody who is tasked with saying ‘OK governor, I want to make sure we do some social good and community good with these licenses.’ White people can’t own all this stuff given the history of the product and its retail penetration into those communities.”