As Illinois’ cannabis craft grow license applicants enter their third month of waiting for overdue licenses from the State of Illinois, questions begin to arise among applicants and investors over how much impact the delay will have on getting winners to market and if craft growers will be able to adequately compete against incumbent cultivation centers.
Craft grow licenses were supposed to be awarded June 30, but state authorities delayed their award with plans to announce them in mid-August. Yet, August has come and gone and Illinois has issued no guidance on when licence awards should be expected.
One new problem created by the delay: Because craft grow license applicants have to demonstrate they have a location ready for build out, the wait has created a real cost for applicants.
“Real estate has been a common issue for applicants I’ve spoken to,” says Shawnee Williams of Illinois Equity Staffing, an backoffices services company for cannabis companies. “With everything going on, they have lost their footing as far as negotiations go because we were supposed to have heard by July 1, and they don’t have a leg to stand on when it comes to coming back to the table and having a real discussion [with landlords] about what the foreseeable future is.”
Meanwhile, existing cannabis cultivators have been building out capacity at a rapid clip. Illinois state law limits the size of the 21 existing cannabis cultivation center indoor grow space to a colossal 210,000 square feet. Last September Green Thumb Industries announced plans to expand its center in Oglesby to about 40,000 square feet, and in April, Cresco Labs announced it had built out 215,000 square feet of grow space across three facilities with plans to eventually build 630,000 square feet.
Each of the anticipated 40 craft grow licenses will start with a legally mandated 5,000 square feet of allowed canopy space, with provisions to eventually expand to 14,000 a piece. That totals 560,000 square feet, less than the total planned by Cresco Labs alone, which owns only three of Illinois’ 21 cultivation center licenses.
A year before getting to market
“It’s a fairly long time before a craft grower could get into the market, and they are competing with mature players with significantly larger space, who are able to leverage economies of scale. It will be interesting to see what happens,” says Kristi Kelly, Chief Operating Officer of Michigan-based Sozo Health, a cannabis company that applied for Illinois dispensary licenses, but decided to pass on craft grow applications.
Craft growers should expect to take six months to build out a grow space, and then three to six month months to get their first crop to market, say applicants interviewed by Grown In. Some applicants have expressed concern that the delay in license awards from July to September has pushed construction back to Illinois’ cold winters. If new cannabis award winners can’t get foundations down and enclose buildings before January’s expected sub-zero weather, it may be hard for craft growers to get to market within six months, a deadline mandated by state law.
For cannabis companies considering entering the Illinois market, craft grow licenses carry a lot of red flags, says Jonathan Loiterman, a Chicagoan who applied for and failed to obtain an Illinois medical cannabis license in 2014. He then took his investment group to Oregon, where he now operates Green Star Growing, a cannabis grower, processor, and wholesaler. Loiterman is interested in coming back to his home state, but would not apply for a craft grow license.
“I haven’t applied, and I don’t have a plan to because I think the program is terrible. For example, there’s no license for processing. Even if I got [a license] in Illinois, because only the cultivation centers can do extractions, and those licenses may never be available, unless regulators decide to allow it. The statute doesn’t allow you to grow more than 14,000 square feet. The message is very clear: Stay out. You’ll never have a real piece of the market,” says Loiterman.
Potential business plans
Scott Redman, a member of a craft grow applicant group, recognizes the limitations of the licenses, and says any applicant’s business plans would have to reflect those limitations.
“One [plan] is [to be] a purely niche grower that finds a strain or two that becomes very popular, that produces limited quantities that sells through an affiliated dispensary, as a niche specialized product, much like small volume craft beer producers. Then there is another type of potential model, and that is to be merely a wholesale supplier for someone like a Cresco or GTI,” says Redman.
“The third is, a group of craft growers get together and coop to market their consistent product as a single brand. You get ten craft growers together, and now you’re talking at full volume, 140,000 square feet of growing capacity. That’s a different idea. There’s some economies there.
“A fourth: There are a lot of out of state brands that want to come in the state, that current MSOs don’t want to deal with because they have their own brands. Once these licenses are awarded and craft growers show they can produce quality product, some of the out of state brands trying to build recognition come into Illinois to do licensing deals so they can get their brands recognized in illinois…I see that as a great opportunity, for some of these craft growers who don’t have the access to capital to build their own brand from scratch. Maybe some of these out of state brands organize a coop,” says Redman.
Anton Seals, who is part of another craft grow application group, has a similar vision to Redman.
“We’re looking at it from the opportunity of our own branding. But others looking at it from the numbers, it’s so cost intensive because it’s a small footprint. Because of the expense, and you’re limited to a certain amount, you’d have to be really savvy to make money there. For our value proposition, we think we have a strategy on that,” says Seals.
Craft grow interest group
Illinois craft grow applicants are already thinking about how their interests are separate from other cannabis companies, and even though there are no license winners yet, discussion has begun around forming their own trade group, one that may be oriented around minority and social equity business owners, who are expected to win most of the craft grow licenses.
“I think there is a kind of organizing happening around Black individuals in the space. I don’t think CBAI [Cannabis Business Association of Illinois] and them have evil intent. They have their own interest: to maintain market share,” says Seals. “The [Pritzker] Administration has been taking cues from them, because there’s no other organized body. And that’s in the works. We coming.”
“We need to organize and have our own association,” says Redman. “For those craft growers, infusers, transporters. It’s important that somebody step up and take the mantle for a trade association. For the craft growers, the issues are not the same as the cultivators. For craft growers, they need to have a seat at the table when decisions are made in the industry. It can’t be left up to the MSO cultivators. The craft growers need to organize quickly, make their presence known when laws are being considered.”
Editor’s Note: The original version of this article originally stated cultivation centers have no size limit. That is incorrect. The limit is 210,000 square feet, set by the 2013 Medical Cannabis law.