Over the past six months we have fielded dozens of calls (and emails) from people looking to get into Illinois’ MMJ scene, ranging from the mildly curious to the serious, well-heeled entrepreneur complete with an incorporated entity and investors in hand. But no matter who is on the other end of the line, certain questions always seem to come up, to which our reply has been: “We should get answers from the state during rule-making.” Now that the departments of Agriculture and Financial and Professional Regulation have released their draft rules, we finally have some clarity on many of these issues and the below is what we now know:
- Vertical integration: We’ve always read HB0001 to not expressly prohibit anyone from owning both a dispensary and a cultivation center. Of course, that is not the same thing as saying it is actually allowed, but we can safely say now that Illinois has given vertical integration the green light. Section 1290.100(i) of DFPR’s draft rules states that a dispensing organization in good standing “is not prohibited from applying for a cultivation center registration in conformance with the Department of Agriculture’s rules.” Unfortunately, there does not seem to be a parallel rule among the Department of Ag’s guidelines, so we are still left wondering whether a business looking to vertically integrate has to first obtain a dispensary registration. Also worth noting is that your vertically integrated businesses must still be physically distinct because the Ag rules require cultivation centers be at least 1000 feet from other cultivation centers or dispensaries. Finally, you won’t be able to integrate testing into your dispensary or cultivation center since laboratories must be completely independent from MMJ businesses.
- Residency: Many were concerned Illinois would impose a strict residency requirement, in keeping with the state’s mission to institute the nation’s most hard-nosed MMJ regime. Instead, there are subtle nods to the fact that a non-Illinois business can get in the game. Out-of-state applicants may apply but must show proof of good standing and authority to transact business in Illinois. Also, extra points will be awarded to applicants based in Illinois providing jobs to Illinoisans. These provisions are applicable to both cultivator and dispenser applicants.
- Multiple licenses: A single entity may hold up to three cultivation center permits. Dispensers may be awarded up to five registrations. Same rules apply for individual officers, directors, shareholders, etc.
- Fees: Rumors had been swirling that application fees would be between $50,000 and $100,000. In the end, these numbers were not too far off, but a two-step application process has been proposed for both cultivators and dispensers, so it won’t be so costly just to throw your hat in the ring. The initial (non-refundable) application fee to obtain a cultivation center permit is $25,000, $5,000 for a dispensary authorization. If you are the lucky winner and your application is approved, you will pay an additional $200,000 for a cultivator’s permit and $30,000 to register your dispensary.
- Form of entity: Other states have mandated that medical marijuana enterprises operate as a non-profit (or, in Washington, the confusing “collective garden”) and many thought Illinois would require the same, especially since a non-profit entity requirement was part of draft versions of HB0001. But the legislature did not impose such a requirement in the end. HB0001 was not very explicit, but the proposed regs from Ag and DFPR clearly contemplate corporations, LLCs, partnerships and sole proprietorships participating in the IL MMJ market.
- Transferability: Before even entering the market, some wanted to know how easy it will be to get out. The short answer is, not very. Mechanisms have been set up to transfer a cultivation center or dispensary to a new location, and to get state approval for selling stock in your MMJ business, but cultivation center permits and dispensary registrations are explicitly deemed non-transferable and non-assignable. The sole exception is transferring an ownership interest in a cultivation center permit to a surviving spouse upon the death of the permit holder.
Stay tuned for upcoming posts on the particulars of Illinois MMJ applications and what it will take to be an owner of a medical cannabis business here (spoiler: telling the state a LOT about yourself).