The ‘Never Ending Saga’ Of Illinois’ Botched Marijuana Licensing Process – Wirepoints

By: Mark Glennon*

“It doesn’t make sense how they can delay a year and a half and come back more incompetent than when we started.” That’s what one of the applicants suing Illinois told the Chicago Sun-Times about the state’s process for licensing marijuana retailers.

Oh, come on. Sure it makes sense. We’re talking about a state that has resorted heavily to funding itself though gambling and pot sales.

For over year, dribs and drabs have been reported about flaws and fixes here and there in the licensing process. But put it all together and you find a “never ending saga,” as one major law firm describes it. It’s about mistakes and confusion piled high, complete with charges of political favoritism, built on the foundation of a licensing scheme that seems to have been defective from the start.

Much of the mess is now in court, which will be difficult to sort out even there.

To get a sense of the totality of the problems in the process, it’s best to go through one of the legal complaints, as we will discuss below. First, however, some background.

In total, 937 businesses submitted 4,518 applications last year, according to High Times, an industry trade publication. But only 21 of those applicants earned the perfect scores necessary to qualify for the first lottery and those who lost went on to file lawsuits on the basis that scoring. The scoring was done by KPMG, a major consulting and accounting firm.

“In order to remedy this issue,” that publication says, “the state passed a law that would create two more lotteries to make up for the problems with the first one. With this lottery system, the applicants only needed to score 85 percent or better to qualify. However, applicants still complained about this round of lotteries, saying that the process favored folks who were white, politically connected and wealthy, since it allowed unlimited applications attempts for those who could afford the $5,000 application fee multiple times.”

It’s unclear how many lawsuits are pending and where, but at least six reportedly are now before Judge Moshe Jacobius in a Cook County Chancery Court.

Pity that judge. Sorting out the huge number of objections to the licensing may be impossible. Jacobius believes his decision could cause the entire process to be redone according to High Times. “We can’t predict the future. And counsel says that if you ultimately rule that the whole structure was improper, then the whole thing will have to be redone over again,” Jacobius said. “That may very well be, but I can’t anticipate what’s going to happen. And that’s just the most extreme thing that can happen. It might happen. It’s very possible. But then, everybody then would be subject to just another application process or another lottery, who knows what.”

One way to get a handle on the dizzying list of problems alleged to have permeated the process is to look through one of the legal complaints that lays out the whole chronology. Attached here is one of the complaints, which was filed in state court in Jo Davies County in northwest Illinois.

You have to read the first 15 pages of the complaint to appreciate the full frustration of the applicant that filed that lawsuit, but a few highlights are below.

The applicant bringing the lawsuit says it is a social justice applicant majority owned by a veteran with African Americans also among the team and other ownership. These allegations in the complaint are not yet proved, but presumably represent what the plaintiff in good faith thinks it can prove:

In September 2020, the Illinois Department of Financial and Professional Regulation awarded application scores to candidates and proposed to award 75 dispensary licenses collectively worth more than $1 billion, to a group of 21 companies, “many if not most owned by politically connected insiders.” The applications had been graded by KPMG pursuant to a no-bid, $4.2 million contract awarded by the State of Illinois. The Department proposed to issue those licenses to the companies by lottery, without any administrative judicial review for over 4,000 other applicants that the state deemed ineligible to participate in the lottery. The plaintiff was not provided with the score it had received.

In response to public outcry over the lottery process, the Department allowed applicants who had not received a perfect score to submit an amended application addressing any deficiencies. But the Department still had not told the plaintiff what its score was; KPMG and the Department ignored requests to provide the score.

The Department and KPMG then told the applicant that it had not received any score because its application was late, which was because KPMG was using Greenwich Mean Time, not Illinois local time, for the deadline application.

The Department apparently changed its mind, provided the score and advised the applicant that three separate lotteries would be used to issue the licenses, two of which were to be based on “Social Justice” and “Social Equity” criteria. The third would be entirely random and only for applicants with perfect scores.

Based on their corporate registrations and news articles, at least some of the approximately 55 Qualifying Application Lottery winners are politically connected and/or well connected individuals. The complaint lists quite a few. Applications were not anonymous, which the complaint implies opened the door to insider favoritism.

Because of the way the process has been set up by the Department, “Plaintiff is being denied explanation as to why they did not receive a perfect score and any post announcement hearing to challenge the denial of their eligibility to participate in the Tied Applicant Lottery.”

“Absent emergency injunctive relief, by the time Plaintiff has any opportunity for judicial review in this Court, they will have no remedy. The State will argue that it is too late to afford them a License, because the Plaintiff will have been provided an explanation as to why they did not receive a perfect score, not have provided time to challenge, and the 75 dispensaries will be under construction. The State will further argue that there is no entitlement to damages because once the Lottery is over, Plaintiff could never prove definitively that their lot would have been drawn entitling them to a License.”

Serving as “pot czar” for the Pritzker Administration is Toi Hutchinson, a former state senator who helped craft the legislation for the licensing process.

Earlier this month the Chicago Sun-Times wrote that she “sought to spin the announcement of the lottery — the latest issue in a licensing rollout marked by controversy and delays — as an example of officials being ‘as fair as possible’ throughout the process. Despite the myriad of issues, she claimed the state is making good on its push to diversify the lily white weed industry, citing the designated winners of the next batch of lucrative cannabis licenses.”

It will take more than spin to sort this out.

UPDATE: A reader sent this article she wrote on the flawed original conception of process.

*Mark Glennon is founder of Wirepoints.