The commercial cannabis industry in Illinois and beyond is largely comprised of professionals who seek economic expansion opportunities selling and servicing a product that has placed many people behind bars.
This thorny reality was recognized by Illinois legislators who drafted the Cannabis and Regulation Tax Act, which passed nearly a year ago and went into law January 1.
The law that makes it legal to recreationally consume the plant is predicated on extending application scoring advantages to the many Social Equity Applicants who are seeking coveted dispensary and wholesale licenses. Accordingly, most of the more than 700 applications filed for the next 75 dispensary licenses issued across the state are from Social Equity Applicants.
Winning a license is a longshot for one application, which typically involves tens of thousands of dollars in legal, consulting and filing expenses. The fortunate few with the winning bids, however, own an exclusive asset worth potentially millions in paper value tat a– with additional investment – could eventually generate millions of dollars in income for the stakeholders.
This is why the members of 40 Acres and a Mule pooled together about $100,000, as well as their collective professional expertise, to file 60 dispensary applications. Additionally, the mostly friends and family holding company – with founding members from neighborhoods that include Woodlawn and Chatham on Chicago’s southside – applied for 21 wholesale licenses for cultivation, processing and transport.
“I’ve always wanted to be part of the cannabis industry,” explained LaRicia Nelson, a life insurance broker and “jack of all trades” who also serves as a swim instructor, film producer and podcaster. The 36-year-old is also a mother of twins. “I didn’t know if I could because the prices of getting in were too expensive.”
Nelson’s cousin Gregory Owens, 48, designs wireless communication networks for companies like AT&T and T-Mobile. While Owens said he enjoyed cannabis socially in college, he began experimenting with it professionally, specifically to achieve greater focus as his work became technically more complex.
“I’d get stressed trying to concentrate on different electrical engineering technologies that came with the job,” he said. “Then one day I got high, then worked, and figured it all out.”
Like thousands of entrepreneurs, investors and professionals hoping to capitalize on a state license, Nelson and Owens knew that without sufficient capital and industry expertise their plan was a bit of a pipe dream.
Enter Aunt Ingrid
Arizona cannabis entrepreneur and Chicago native Ingrid Joiya-Warrick literally wrote the book on Being Black or Brown in the Green Rush. Understanding the challenges and costs associated with breaking through in the cannabis industry, the former National Cannabis Industry Association national board member found her winter coat and flew to Chicago for Thanksgiving to convene with her niece, nephew and other family members and friends to discuss a plan of action.
“I knew our family collectively had lots of degrees and business experience,” she said. “Greg and LaRicia understood the cannabis component, just not the industry.”
A limited liability company was formed, with a minimum investment of $1,500 from approximately 30 members. Proceeds were used for application fees and key expenses outside of their purview including zoning permits and architectural plans for the wholesale applications. Joiya-Warrick, 64, is an attorney and cannabis industry subject matter expert, and oversaw legal and industry components within the applications.
No company is allowed to own and operate more than 10 dispensaries in Illinois. Thirty separate entities with different ownership structures among the 30 Four Acres and a Mule LLC members each filed two dispensary applications. The entity or entities that could win one more multiple application bids will own those dispensaries. The holding company or its individuals, Joiya-Warrick said, could acquire real estate, lend capital or provide key business services to those fast-growing startup retailers.
“This brings to mind the two-tier property management and operator structure that’s commonly used to address IRC 280E issues, says Chicago-based attorney and cannabis industry expert Scott Redman, referring to an IRS code that prohibits cannabis companies from deducting business expenses associated with trafficking Schedule 1 or Schedule 2 substances. He added that because most traditional lenders won’t touch cannabis firms, a structure like 40 Acres and a Mule “would seem to be a good solution to that.”
A homegrown cannabis incubator
By statute, Illinois-based cannabis companies that hold medical cannabis licenses and seek to expand to recreational sales invest in various programs designed to provide resources and education to Social Equity Applicants. Companies like Cresco Labs and Green Thumb Industries operate incubator programs to partner with Applicants on applications and business planning.
“We did what the large conglomerates in the industry did,” Joiya-Warrick said, noting that most applicants don’t have the capacity and specialization to file approximately 75 applications.
Mike McGrory, a law partner at Chicago-based SmithAmundsen, admires the “clever” approach.
“It sounds like they are trying to find a way to leverage the social equity advantages of the law, and combine it with the institutional know-how that larger cannabis operators have developed,” he said.
Playing the long game
While the 40 Acres and a Mule members wait to see who is awarded a license (this was scheduled to be announced May 1 but delayed due to bureaucratic slowdowns associated with the coronavirus), the holding company is preparing for the future with an eye toward history.
The term “40 acres and a mule” is part of a post-Civil War proclamation by general William Sherman stating that freed people had the right to own the land in which they once served as slaves. The proclamation was soon reversed by president Andrew Johnson. As the trade of cannabis and other recreational drugs that have historically contributed to the incarceration of mostly black and brown users and traffickers becomes increasingly commercially lucrative, Joiya-Warrick and her partners are working within the system to claim a piece of a franchise they believe is rightfully theirs.
Regardless of who wins any of this next batch of dispensary licenses, or the wholesale licenses expected to be announced in the fall, the tight-knit group of entrepreneurs is setting up an infrastructure designed to accommodate generational access and prosperity.
“When I first entered the business and wanted to find anybody that looked like me,” Joiya-Warrick explains, I had to go to the prisons. “We are now all pooling together to earn a seat at the table.”