When Illinois Gov. J.B. Pritzker last month touted his state’s social equity program as a possible “national standard,” some in the industry cringed. Word on the ground is that the program is at best still a work in progress and, at worst, a failed launch altogether.

And according to state data, less than half of the social equity permits issued are even operational, and many of them may go unused altogether.

By the numbers

According to statistical updates in recent weeks from the Illinois Department of Financial and Professional Regulation, which oversees dispensaries, and the Department of Agriculture, which oversees all other cannabis business license types, there are just 199 out of 504 social equity licenses operational thus far.

That’s only 39% of licensed operations opened thus far, more than two years after the licenses were awarded.

The breakdown of operational social equity businesses includes:

• 111 retailers, out of 199 social equity dispensary permits issued (as of July 26)
• 16 craft growers, out of 87 permits issued (as of Aug. 8)
• 13 infusers, out of 55 permits issued
• 59 transporters, out of 163 permits issued

There’s a total of 221 marijuana dispensaries open in Illinois as of July 26, including 55 medical and the 111 social equity shops, the IDFPR reported. There are 21 operational cultivation centers and six licensed testing labs, according to the Department of Agriculture.

It’s also now unclear how many of the licenses that are not yet operational may now formally expire and become useless, since both the IDFPR and the DOA have longstanding policies that licenses that aren’t used will be voided. Many of the retail licensees have been faced in recent weeks with the potential loss of their permits due to those expiration dates, MJBizDaily reported last month, and the DOA has a notice on its website asserting that any of the Group 1 of the craft grow permits issued that are not operational as of Aug. 1 will be deemed expired.

Spokespeople for those agencies did not immediately respond to requests for comment this week from Green Market Report.

The reality

The operational statistics stand in stark contrast to the picture Pritzker painted last month during a speech to attorney members of the International Cannabis Bar Association, in which he touted another state report which found that Illinois has “the most diverse cannabis industry in the nation,” with 60% of recreational marijuana permits held by women or minorities.

But that report, issued by the Cannabis Regulation Oversight Office, was based on licensing data from January 2023. It didn’t contain any up-to-date information for mid-2024 about how many permit holders had managed to open for business.

The reality is that many licensees have faced major hurdles raising the millions of dollars they needed to open, insiders said. As a result, plenty either sold their permits to larger corporations or haven’t done anything yet with their licenses.

“What does that even mean, to be a national standard? We do have a lot of licenses that have been awarded, but many people are not operational,” said Dr. Mila Marshall, a social equity advocate, consultant and columnist with Chicago News Weekly. “It’s not necessarily so cut and dried. There are still a lot of things that are up in the air.”

Marshall estimated that it costs craft growers $3 million to $5 million to build out a proper cultivation facility and get a business running, which accounts for how few in that license type are yet open. Dispensaries that have managed to open still face a raft of advertising, banking and customer retention obstacles, Marshall said, meaning the program is far from a raging success.

“It’s super expensive for growers, so people have not been able to secure capital. Investors are kind of hesitant,” Marshall said. “People are looking for a quick turnaround, but cannabis is not the space … for people without a long game vision.”

Reese Xavier, the owner of HT23 Growers, told Green Market Report he won a social equity craft grow license in 2021 but has not yet been able to raise the money he’s needed to get construction underway. Out of the $10 million Xavier said he’ll probably need, he’s thus far been able to raise only about $1.5 million.

“We received some funds from the state, but you still have to have real estate, you still have to do blueprints, then construction. All that costs a ton of money,” Xavier said.

The state did just open a new round of grant funding for social equity businesses, with $5.5 million ready to be awarded to 23 retail applicants, with each receiving $240,000. An earlier grant round divided $22 million among many social equity growers, transporters, and infusers.

Xavier was careful to clarify that he’s happy to have gotten the business opportunity – and he isn’t sure it’s even the state’s responsibility to make sure that social equity companies succeed. He said he’s focused on getting the business open without government assistance, but the path forward has been tough to navigate.

“The state made a pathway for folks of color to receive the license, but the biggest challenge, if you ask me, is access to capital,” Xavier said. “I’m not one to criticize those who are trying to do the right thing. I wouldn’t have anything negative to say to the governor.”

While he’s still fundraising for his microbusiness, Xavier said he’s been making slow but steady progress getting his cannabis brand, Savour, up and on some dispensary shelves in Missouri by partnering with other businesses, and is hoping Savour will make its Illinois debut before long. He’s also hoping to get his microbusiness open as soon as the first half of next year.

Investment disincentive

Chicago-based consultant Michael Mayes, CEO of Quantum 9, said a lot of the social equity retail permit winners have worked out deals with larger companies and small retail chains to unload their licenses for a small profit, because they weren’t able to raise the capital in order to stand up dispensaries by themselves.

But the state has made it hard for many of them to legally sell their permits, Mayes said, which means many will likely expire and turn into nothing.

“How social equity has been handled in Illinois has been a total disaster,” Mayes said. “Forcing a company to remain social equity majority-owned and managed was the stake in the heart of the program. The amount of grows and dispensaries that will likely be turned back into or decided by the state is exactly what you would expect in a failed program.”

Mayes said that the common social equity structure across the country – requiring a social equity permit holder to keep a majority ownership of the business – once again in Illinois proved to be a major disincentive for investors, as it has in many other states with similar programs. That has left a lot of social equity license winners with few ways to raise the money they need, since they can’t access traditional small business loans, given marijuana’s ongoing federal illegality.

“These businesses, right off the bat, they want them to be 51% social equity applicant owned and managed,” Mayes said. “That’s tough for an investor that’s going to put in, to a dispensary, $2 million-plus into it without control.”

Mayes pointed out that such a hurdle is common precisely because of the demographics that social equity programs are theoretically designed to help: minorities who are often already impoverished, in part due to cannabis-related persecution from the war on drugs.

“These individuals, by definition, are not well-financed. There’s an off-chance that they could be, but they’re few and far between,” Mayes said. “Where does that leave us? It leaves us with tons of individuals getting licenses, and a trust factor” between the licensee and investors that’s tough to overcome.

‘Wolf in sheep’s clothing’

Peyton Langlais, an Illinois cannabis industry operative who’s helped open multiple recreational marijuana shops, estimated that probably 70% of the social equity dispensaries operational today were sold or transferred from the original winner to a bigger corporation with the resources necessary to monetize the permit.

“It has succeeded, but it needs to succeed some more,” Langlais said of the social equity program at large. “It’s like a wolf in sheep’s clothing sometimes … It’s like having a gas station and having to sell it to Shell Mobile.”

Langlais said from his point of view it’s tough for anyone in the Illinois cannabis trade to really succeed unless a company is 100% vertically integrated and can control its own supply chain.

Marshall and Xavier didn’t quite jump on board with Mayes’ denunciation of the Illinois program, but the acknowledged it could use refining.

Xavier said that he didn’t fault the state for celebrating last month when the 100th social equity dispensary opened for business, even calling it a “significant achievement.”

Marshall said that the program has done a lot of good for many of the stakeholders, but said the bottom line is there’s “a very, very long way to go.”