“It’s nasty. It’s getting nasty,” said Jeff Fulgenzi, an Illinois craft grow license winner trying to find a location in the state’s capital of Springfield.
“Number one, it’s real estate and zoning, with special use permits,” said Ambrose Jackson, CEO of the 1937 Group, which is building out one craft grow location in west suburban Broadview, while looking to site another.
“The barriers remain the same. It’s still access to capital and finance,” said Scott Redman, who heads up the Illinois Independent Craft Growers Association and is part owner of a craft grow license of his own. “We had a Chicago-based finance company tell us directly that it’s not going to do any transactions with craft growers. The canopy is too small. It’s not sufficient for investment on their part.”
This year Illinois has issued 88 cannabis adult use craft grow licenses so far. No organization is directly tracking how many are building out a facility, but it seems you could count facilities under construction on two hands.
Building out a craft grow facility – which is limited to 5,000 square feet of flower canopy by state law – will cost anywhere from $6 to $8 million dollars, say licensees, regardless of whether you use an existing space or build a new building. The biggest costs, license owners say, are the equipment inside the building. Expensive HVAC, lighting, water remediation, and other cannabis-specific gear needed to run a year-round indoor grow operation in a state that reaches sub-zero temperatures in the winter and high rates of humidity in the summer.
Financing a project isn’t easy, especially since the market downturn earlier this year. And because Illinois took so long to issue its licenses, many license winners have seen potential investors shift their interest elsewhere.
“The capital markets have dried up and investors have gone to other states,” said Jackson, who is Black and attempting to build what he bills as Illinois’ largest, social equity-based company. “The interest in Illinois has decreased. There’s not as many dollars to go around. I do think there will be winners and losers, and that affects social equity.”
Even if you’re able to get the money together, like Fulgenzi, finding a location that passes muster with local government can be difficult. Jeff Fulgenzi’s father John sits on the Springfield City Council, but despite his insider connection, younger Fulgenzi has been struggling with a local zoning rule that requires a 1,500 foot setback from homes for a craft grow facility. Complicating matters, Fulgenzi also has an infuser license, which requires a 2,500 foot setback. In a city the size of Springfield, population 114,394, it’s hard to find a location in an industrial zone that’s at least half a mile from residential areas.
“They allow bars and gaming to be 100 feet from what they call ‘sensitive areas’,” said Fulgenzi. “The building I’m interested in has been vacant since 2006. We can’t use it because of investment exclusion zones, it’s redlining.”
“Places that are cannabis friendly, their council is not where the question ends,” said IICGA’s Redman. “You have to deal with their health, building, fire departments. While some communities are cannabis friendly at the council level, they aren’t as friendly at the department levels.”
Fulgenzi is now looking outside of Springfield to build his facility, but that means he’ll likely have to build new, which will not only be costly, but also likely lead to further delay, since electrical equipment has been especially impacted by supply chain delays.
“It’ll be $20 per square foot for an existing building, $250 to $450 for a new one – plus all the supply delays,” he complained. “I see no possible way we can build a building and be operational in one year, particularly with all the obstacles we have right now.”
Meanwhile a small group of craft grow licensees – who managed to keep their financing and real estate lined up through the one year wait for license awards – are moving speedily along with their build out.
Grant Vinkavich, director of Galaxy Labs in Richton Park in Chicago’s far south suburbs, says he expects to start growing clones by December and “fully operating by Q2.”
The difference was they had a lock on the lease of their property, he said.
“It’s advantageous in our favor. There’s a relationship between the building owner and ourselves.”
Hoping to be one of an early – if not the first – craft grow to be operating, Vinkavich says Galaxy Labs will be focusing on selling high quality, high priced cannabis that will set them apart from competitors. After working in Michigan for two years and witnessing the steep wholesale price drops there, Vinkavich says their business strategy is to prepare for things to go wrong.
“I was previously involved inthe Michigan market, and I watched wholesale prices collapse. It’s all about the uncertainty and how do we prepare for market price compression and volatility?”
Jackson’s 1937 Group is also building out a craft grow facility in west suburban Broadview. His company also owns a dispensary license in the Danville area, in southern Illinois, but is taking a broader view of how to build out a cannabis company.
“We’re talking with other other social equity license winners about partnerships and acquisitions with the goal of standing up a few more dispensaries in the Chicagoland area,” said Jackson, who says there’s more than enough people in Illinois willing to sell their dispensary and craft grow licenses right now.
“There’s a lot of activity in the space, folks are having conversations. I don’t think a lot of these deals have been inked yet. We’re in conversations with LOIs [Letters of Intent] for three different Chicago licenses, two in central [Illinois], and one in southern Illinois,” he said.
Jackson is confident there will always be sellers in Illinois’ license market. “If [deals] fall through, I think in the next few months, we’ll find the right partner.”