Tough Times Likely Ahead for New Illinois Marijuana Shops

July 12, 2023 · Green Market Report

If past is prologue, then the 55 upcoming Illinois social equity license lottery winners on Thursday are going to have a rough time actually getting their shops open for business.

As of January, only three of 192 social equity retailers that received Illinois licenses last year had opened for business, the state Department of Financial and Professional Regulation said in a press release. Only 113 adult-use shops were serving customers.

As of Tuesday, the number of operational stores had increased only slightly to 137, which includes 27 social equity retailers, according to an IDFPR spokesman. That leaves 165 social equity dispensaries yet to open.

Still, 2,675 applicants threw their hats into the ring for the coming lottery.

Chicago-based consultant Michael Mayes of Quantum 9 said the slow movement is largely because the license holders are reportedly having trouble raising money they need.

“The money that’s plowing into cannabis isn’t what it used to be, and a lot of these licenses were earmarked to be sold right off the bat,” Mayes said,

Mayes said he knows of several social equity permits that have already been sold on the secondary market for between $1.5 million and $3 million. But those are primarily in the Chicago region, whereas licenses in more rural parts of the state are valued far less.

Flipping licenses for a profit is still an option for both last year’s license winners and Thursday’s.

Mayes estimated that the cost of opening a new cannabis store in Illinois can run between $650,000 and $1.5 million, depending on the location. And for true social equity applicants – who are typically not wealthy and often have to rely on investors or other types of financial backers – that’s not an easy goal to hit.

But Illinois social equity rules bar investors from taking a majority ownership stake in the new retailers, Mayes said, and that’s disincentivizing many investors from putting serious cash into new Illinois cannabis companies.

“Let’s say you’re a true social equity person. It’s difficult to have an investor not have control. So the first thing any investor who’s going to put over $1 million into any project that’s a startup, the likelihood they want control is high,” Mayes said. “If (the social equity licensee) wants to retain control, then the investor may look elsewhere.”

So unless social equity retail permit winners already have a good chunk of cash in the bank, the licenses may simply “sit on the shelf” until the right buyer comes along, Mayes said.

For instance, he said, word on the street is that some of the 88 craft grow permits awarded last year have already been sold for less than $1 million apiece, since that demographic of licensee is facing the same fundraising hurdles as the retailers. Mayes added that “less than five” of those growers have yet opened their doors for business, largely due to financial issues. (Full Story)

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