I. Social Equity in the Cannabis Industry
In late May 2019, the Illinois House and Senate approved the Cannabis Regulation and Tax Act (the “CRTA”), which Illinois Governor J.B. Pritzker has already signed into law. The CRTA is set to go into effect on January 1, 2020. The CRTA creates a social equity program to benefit the groups of Illinois citizens most negatively affected by the enforcement of the State’s previous cannabis-related laws. The social equity program aims to provide financial assistance and license application benefits to qualifying individuals within these groups who wish to sell, distribute, or otherwise participate in the cannabis trade. CRTA, IL H.B. 1438, 101st Gen. Assemb. § 1-1 (2019).
Qualifying social equity applicants must either (1) be majority owned by persons who have been directly impacted by the enforcement of the State’s previous cannabis-related laws (e.g., persons who have been previously arrested and/or convicted of a cannabis-related offenses or persons with strong ties to a community of low income citizens which has been disproportionately impacted by the enforcement of the State’s previous cannabis-related laws), or (2) employ ten or more persons, the majority of whom have been directly impacted by the enforcement of the State’s previous cannabis-related laws. CRTA, IL H.B. 1438, 101st Gen. Assemb. Art. 7 § 1 (2019).
Qualifying social equity applicants for legal cannabis business licenses will receive additional points on the business license application’s scoring system. Id at § 10. Further, a legal cannabis business development fund will provide financial assistance for qualifying start-up businesses which these businesses can either use to offset licensing fees or as a low-interest business loan. Id. As of July 1, 2019, the Illinois General Assembly provided an initial contribution of $12 million into the cannabis business development fund and requires that additional early fees be transferred into it as well. Id.
Under the new law, local colleges can also obtain a license for training programs to help citizens prepare for cannabis-industry related jobs. CRTA, IL H.B. 1438, 101st Gen. Assemb. Art. 25 § 10 (2019). The Department of Agriculture and the Community College Board will also create up to eight pilot programs to train students to work in the legal cannabis industry. Id. At least five of the eight programs must be established through schools where at least half of the student body is comprised of students from low income backgrounds. Id.
II. Licensing
Under the CRTA, potential business owners and entrepreneurs need to pay an application fee of $100,000. Future dispensaries would pay a cannabis business development fee, either 5% of total annual sales or a flat fee of $750,000, but in any case, no less than $250,000. The following types of cannabis business licenses will be issued:
- Dispensary: Provides cannabis products to adult consumers;
- Processor: Infuses products such as edibles with cannabis extract;
- Transporter: Transports cannabis between business licensees;
- Craft Grower: Can grow between 5,000 and 14,000 square feet of canopy space and may be separately licensed as a processor and a dispensary at the same facility; and
- Cultivation Center: Can grow up to 210,000 square feet of canopy space.
CRTA, IL H.B. 1438, 101st Gen. Assemb. Art. 15 § (5)-(20) (2019). For qualifying social equity applicants, the State will waive 50% of the nonrefundable license application fees, the nonrefundable fees associated with purchasing a license to operate a cannabis business establishment, and any surety bond or other financial requirements. CRTA, IL H.B. 1438, 101st Gen. Assemb. Art. 7 § 20(a) (2019). To qualify, a social equity applicant must meet the following qualifications when payment is due:
- The applicant—including all individuals and entities with 10% or greater ownership and all parent companies, subsidies, and affiliates—has less than $750,000 of total income in the previous calendar year; and
- The applicant—including all individuals and entities with 10% or greater ownership and all parent companies, subsidies, and affiliates—has no more than two other licenses for cannabis business establishments in the State of Illinois.
Id at § 20(a)(1)-(2). Further, if a qualifying social equity applicant decides to sell or otherwise transfer a cannabis business establishment license within five years after it was issued to a person or entity that does not qualify as a social equity applicant, the transfer agreement requires the new license holder to pay certain fees into the cannabis business development fund, including:
- Any fees that were waived by any State agency based on the original applicant's status as a social equity applicant, if applicable;
- Any outstanding amount owed by the qualified social equity applicant for a loan through the cannabis business development fund, if applicable; and
- The full amount of any grants that the qualified social equity applicant received from the Department of Commerce and Economic Opportunity, if applicable.
Id at § 25(a)(1)-(3).
III. Clemency
The CRTA also grants clemency to persons convicted for possession of up to 30 grams of cannabis and automatically expunges those convictions. For convictions for possession of 30-500 grams of cannabis, the State’s attorney or the individual can petition a court to vacate the conviction. 20 ILCS 2630/5.2 (West 2019).
IV. Regulations and Authorities
Under the CRTA, the Department of Agriculture administers and enforces any provisions related to oversight and registration of cultivation centers, craft growers, infuser organizations, and transporting organizations and agents. CRTA, IL H.B. 1438, 101st Gen. Assemb. Art. 20 § 5(1) (2019). This includes the issuance of identification cards and establishing limits on potency or serving size for cannabis and cannabis-infused products. Id. The CRTA also grants the Department with the authority to issue any revocations, suspensions, and/or other penalties for violations of the CRTA. CRTA, IL H.B. 1438, 101st Gen. Assemb. Art. 45 § 35(a) (2019). The Department Financial and Professional Regulation shares the same powers as the Department of Agriculture. Id.
The Department of State Police will conduct background checks of the principal officers, board members, and agents of a cannabis business establishment applying for a license or identification card under the CRTA. CRTA, IL H.B. 1438, 101st Gen. Assemb. Art. 40 § 5(b) (2019). The CRTA further requires that these persons must submit fingerprints, and that the State Police report the results of the background checks to both the Department of Agriculture and the Department Financial and Professional Regulation. CRTA, IL H.B. 1438, 101st Gen. Assemb. Art. 5 § 20(a) (2019). The background checks must be completed before submitting the application to the licensing and/or issuing agency. Id.
The Department of Public Health will make recommendations to the Department of Agriculture and the Department Financial and Professional Regulation regarding health warnings and advertising, including item-type specific labeling and/or warning types. CRTA, IL H.B. 1438, 101st Gen. Assemb. Art. 5 § 25(a) (2019). The new law also creates an Adult Use Cannabis Health Advisory Committee that meets twice annually. Id at § 25(b). This committee consists of twenty-four members and is comprised of doctors, medical professionals, and public officials. Id.
The Department of Human Services is tasked with creating educational materials to help prevent addiction and with making policy recommendations on use by pregnant women. CRTA, IL H.B. 1438, 101st Gen. Assemb. Art. 5 § 30 (2019).
Finally, an Illinois Cannabis Regulation Oversight Officer will be appointed every two years. He or she will have the general power to make recommendations for policy changes and rules regarding the regulation of cannabis. CRTA, IL H.B. 1438, 101st Gen. Assemb. Art. 5 § 45 (2019).
V. Penalties
Violations of the CRTA can result in hefty fines, which include:
- $50,000 fine for each violation by a cultivation center or cultivation center agent
- $10,000 fine for each violation by a dispensing organization or dispensing organization agent
- $15,000 fine for each violation by a craft grower or craft grower agent
- $10,000 fine for each violation by an infuser organization or infuser organization agent
- $10,000 fine for each violation by a transporting organization or transporting organization agent
CRTA, IL H.B. 1438, 101st Gen. Assemb. Art. 45 § 5(a)(1)-(5) (2019). Violations may also be deemed as an unlawful business practice under the Illinois Consumer Fraud and Deceptive Business Practices Act. Id at § 5(d).
