This entry is part 1 of 4 in the series Illinois’ Stumbling Dispensary Scoring System
Illinois’ disputed 2020 cannabis dispensary applications were scored by approximately 40 briefly trained gig workers paid $35 an hour by a subcontractor to global accounting firm KPMG, according to interviews and thousands of documents obtained by Grown In.
The Illinois Department of Financial and Professional Regulation (IDFPR) was close to signing with a firm to judge the 3,895 applications for social equity-targeted licenses when KPMG came onto the scene. The original firm was scrapped at the 11th-hour and, skirting typical government procurement process, KPMG received a non-bid contract eventually costing $4.2 million.
It took KPMG and the state six weeks to finalize the contract, delaying an already time-crunched process.
And then KPMG outsourced the bulk of the work to a Florida company for $700,000.
Emails and other documents obtained by Grown In through the Freedom of Information Act paint a picture of a messy applications review process hampered by the last-minute contract, pressure to meet a timetable set by Illinois law, and little appreciation by state employees and contract workers of the complexity of the new process aimed at ensuring racial equity in the Illinois cannabis industry.
May 1, 2020 was the deadline established by law to award social equity licenses. Gov. J.B. Pritzker extended that by executive order. The state finally announced 21 winners in September. Dozens of losing applicants immediately filed suit, halting the process. Today legislators are struggling to write a legal compromise that changes the future application process and awards more dispensary license opportunities to social equity applicants in an effort to settle the suits.
Nearly a year later, no social equity licenses have been issued.
Seeking a clear picture of the murky and contentious application process, Grown In submitted a request to state regulators in September. Over a five-month period, the state delivered thousands of emails and other documents in batches, a week’s worth of data at a time.
Viewed together, the documents provide a window into a fledgling state cannabis regulatory system, with employees navigating uncertainty, confusion, and a brand new set of laws as they worked to establish a working process.
- KPMG was not the original choice for state regulators to evaluate the applications. Email discussions show that on January 7 state regulators were close to closing terms with another vendor. KPMG submitted a late entry, delaying the evaluation process six weeks.
- While KPMG was contracted for a no-bid, $4.2 million contract, most of the application scoring work was carried out by subcontractor Indelible Solutions based in Jacksonville, Fla. KPMG capped billing for that work at $700,000.
- Indelible Solutions hired gig workers from around the country for $35 an hour. Some evaluators felt the training was rushed and inadequate for the weight and complexity of the work. One went so far as to contact Illinois regulators to complain.
- The governor’s lead advisor for cannabis policy did not review the KPMG contract before it was signed. No state official reviewed the subcontract involving most of the scoring work until the process was completed in August 2020.
- The load of evaluation work was maybe bigger than anyone anticipated. 68 percent of applications received had a deficiency. Many had multiple deficiencies. One third had a deficiency with the application section involving proof of their social equity status.
- Just as the evaluation process was close to finishing in June, Illinois officials and KPMG were confronted with concerns with scoring “Exhibit P,’’ the section demonstrating applicants’ social equity status. They debated whether the section needed to be rewritten.
- When speaking to the media during the process, state officials blamed delays in the process on workplace limitations related to COVID-19. But that had little to do with complications and delays. Emails reveal that, instead, state employees continually underestimated how long it would take to manage scoring, issue discrepancy notices, and rescore corrected applications.
A spokesman for the Illinois Department of Financial and Professional Regulation defended the process, issuing this statement: “IDFPR remains committed to issuing conditional adult-use dispensary licenses in a fair, equitable manner. Under the Cannabis Regulation and Tax Act (CRTA), IDFPR had the ability to enter into a contract with an outside vendor directly without going through a competitive process. The Department entered into a contract with KPMG early last year based on KPMG’s experience and ability to conduct the scoring of applications.”
It was March 5, 2020, and accounting firm KPMG had been struggling for more than a week to extract 3,895 cannabis dispensary applications from USB thumb drives. Winning applications were to be announced in less than two months, on May 1. KPMG had signed its contract to manage the process on February 22.
Illinois regulators couldn’t just overnight the applications to KPMG. Each had its own USB thumb drive and each was considered an original file and a legal document. They had to stay in the presence of a state employee at all times. A KPMG employee traveled to Springfield to manually copy each of the 3,895 thumb drive applications, one for each license application.
Then some of the thumb drives had problems, forcing KPMG to send a technician with special software to extract the applications from the errant thumb drives.
“I have arranged for the KPMG tech expert to come on site with the unique computer that can hopefully resolve a large chunk of the remaining malfunctioning USBs,” KPMG Director Brad Nemeth told Illinois regulators on March 5, almost two weeks after the process started.
It was one of a number of challenges Illinois cannabis regulators could not have predicted in a process that became more complicated than anyone had imagined.
There was a flood of applications and the process to score them was complex. Each application included 20 different exhibits. Most required at least some subjective review. Scorers flagged problems as “deficiencies.’’ The law required that applicants be notified of their deficiencies and given 10 days to address them before final scores were issued.
And just as the complicated scoring work began, COVID-19 brought chaos and shutdowns. In mid-March, the state began pulling state resources from the cannabis application process to deal with the public health emergency.
The KPMG Contract
The pandemic couldn’t be blamed for all the delays. KPMG was a relatively late arrival to the process. On January 7, Bret Bender, IDFPR Director of Medical Marijuana, and the Illinois government staffer leading the dispensary application process, told KPMG Director Heather Woodard that her firm needed to get their proposal in soon. “We are close to coming to final terms on a contract with another vendor,’’ he wrote in an email
The next day Woodard sent Bender a draft scope of work. The state immediately shifted to discussions with KPMG, taking more than a month to work out terms. On Feb. 17, KPMG nudged the state. “We are anxious to get started,” KPMG said in an email, asking if the contract could be signed that day. It was signed on Saturday, February 22.
And on the following Monday, KPMG staff was working to extract data from 3,895 thumb drives.
Asked for comment on Grown In’s findings, KPMG spokesman Russell Grote said, “KPMG is dedicated to ensuring this important effort is a trusted process and took action to verify and help ensure the state’s criteria were applied as prescribed to applicants’ submitted material.”
The $4.2 million KPMG contract to manage the dispensary application evaluation process was widely reported by news organizations, including Grown In. Not previously reported is that KPMG hired another firm, Indelible Solutions, to do most of the work.
On March 2, 2020, KPMG, who had been managing the project from an office in Tallahassee, Fla., executed a contract with Indelible Solutions, a corporate audit consulting firm based in Jacksonville, Fla. KPMG hired Indelible Solutions “To provide professional and technical services to blindly evaluate, score, and report the initial stand-alone cannabis dispensary applications,” according to contract language. Indelible Solutions was to hire dozens of evaluators to review Illinois dispensary applications, get all the application reviews done, and charge KPMG no more than $700,000, according to the subcontract.
Based on correspondence and interviews provided to the press, the master contract with KPMG was negotiated by IDFPR staff and signed by IDFPR Secretary Deborah Hagan, and not reviewed by the Governor’s office. Special Advisor to the Governor for Cannabis Control Toi Hutchinson, who served as the public face for much of the application review process, told the Chicago Sun-Times, “I didn’t read the KPMG contract itself.”
Procurement rules required KPMG to disclose the existence of the subcontract and its value to Illinois, but state employees did not request a copy of the subcontract until August 18.
Contacted for comment, Anna Farrar, spokesperson for Indelible Solutions said, “Indelible Solutions is a minority-owned and operated consulting firm with a proven track record of working with state and local governments. The work done by this team often centers on ensuring processes are fair and programs are accessible to those who need them the most. Indelible Solutions served as a subcontractor to KPMG on this engagement and, along with KPMG, was responsible for scoring based on criteria set by the state.”
According to the FOIA’ed email correspondence, Indelible Solutions hired over 40 people on an hourly basis to evaluate applications. KPMG required Indelible Solutions to provide their home addresses and contact information. Some spoke with Grown In on the condition of anonymity, citing non-disclosure agreements signed with Indelible Solutions as part of their contracts.
Working from their homes, in Illinois, Texas, Florida, and Michigan, many were Black. Some told Grown In that they had heard about the Illinois dispensary application process and felt it was important to the Black community that they get the job done right.
Evaluators said they were paid $35 an hour to review applications for eight hours a day, five days a week. While there was no daily quota to review applications, evaluators were told each day by an Indelible Solutions team leader what to review and in how much time. Evaluators typically worked alone, but were grouped in teams by application sections, or exhibits. When a section was completed, evaluators were assigned to different teams to work on different sections.
The process was well organized, said evaluators. They received their package of work each day, and it was clearly labeled with a clear set of instructions. Multiple people interviewed used the word “streamlined” to describe the process.
What was constantly clear, said evaluators who talked to Grown In, is that the pressure was on to complete the work as soon as possible. Some sort of deadline was looming, although evaluators didn’t know when it was. So they worked as hard as possible to complete the job as soon as possible.
Training was entirely online, and fast, said evaluators. Although evaluators were paid a full rate while they underwent training, it was no more than a day or so of watching online videos and reading documents. Training was originally supposed to be longer, some evaluators thought, but the tight deadlines cut down their training time.
While some application sections were relatively easy to evaluate, said evaluators, those that worked on more complicated sections requiring subjective decisions, felt their training was too limited. But evaluators had no idea how their fellow workers felt about their tasks, since they worked from home and their only contact was their team leader. Sometimes applicants would hear about “auditors” who double checked their work and sent it back to them for a second review, but they never met or talked to these people directly, evaluators told Grown In.
An Overwhelming Task
It wasn’t until March 21 that KPMG and Indelible Solutions had enough evaluators on-boarded. With the May 1 statutory deadline six weeks away, the state was just starting the work to score over 3,800 applications, inform applicants of deficiencies, allow 10 days to fix deficiencies, and rescore applications.
The application evaluation process also required a tremendous “weeding out”. Initially 3,895 license applications from 728 applicants were submitted. But, through the process of evaluation and giving applicants a chance to respond to discrepancies, the number of applications plummeted to 2,604. Still, that was a large number.
On April 22, KPMG reported that it had reviewed all of the applications and provided results to the state. There were still many more deficiency notices to be sent out, some wouldn’t be sent until May 8, according to FOIA’ed state email communications. Clearly, the May 1 license announcement deadline would not be met.
On April 30, Gov. Pritzker issued an executive order, suspending the announcement date without setting a new timeframe. “IDFPR shall provide notice to the public of the date such licenses will be issued,” the order said.
The next deadline in the original time frame was June 9, when emergency rules created to manage tie breakers would expire. The tie breaker rules were considered critical by state officials, since it was likely that dozens, maybe hundreds, of applications would likely have perfect scores. But the tie breaker rules were not part of the original legislation that created the dispensary licenses, they were created by an emergency rule – which only lasted six months – on December 9, 2019.
Once the emergency rule expired, the state would have to enter into a regular rulemaking process, which requires waiting periods for public review. That waiting period would range from 45 to 90 days, depending on the number of public comments. At this juncture, if the applications were not all evaluated by June 9, the earliest they could be distributed would be August – a slow time in state government when many officials would be on vacation. So practically speaking, if the applications were not finished by June 9, nothing was likely to happen until September.
Email correspondence between state officials and KPMG show a furious pace of work on applications during April and May. Deficiency notices were sent to applicants, responses were coming back, and KPMG and Indelible Solutions staff were reviewing responses.
Email correspondence from this period indicates that the state was close to making the June 9 deadline. But then problems arose with the social equity component of the applications.
Exhibit P “Re-Work”
For a week, state officials and KPMG traded email messages and conducted special conference calls to discuss concerns and “scoring scenarios” with Exhibit P, the section of the application where applicants had to provide proof of their social equity status. Considering that the vast majority of applications had a social equity component, problems with this section could bring the review process to a grinding halt.
Later in Fall 2020, after the process was completed and winners were announced, scoring results of Exhibit P would become highly contentious, driving lawsuits against the state that are still in litigation today.
There were four ways an applicant could claim social equity status for an Illinois dispensary. First, by living 5 of the last 10 years in a mapped zone in Illinois deemed as a “Disproportionately Impacted Area” by the War on Drugs. Second, by either being arrested, charged, or convicted at some point on marijuana trafficking or possession charges. Third, by having a close family member who had been arrested, charged, or convicted on those charges. Fourth, by hiring and keeping on payroll ten people who lived in Disproportionately Impacted Areas (DIA).
The requirements to prove social equity status were daunting. Residents of a DIA needed income tax records, utility bills, and mortgage statements showing that they had lived in these communities. People with arrest records or their family members needed to provide copies of those records. Applicants hiring staff from DIAs also had to produce those records for all ten people hired.
Reviewing the records would also be a massive task.
As early as March 6, IDFPR staff flagged a major potential problem, saying in an email, “It appears that the map on the DCEO [Department of Commerce and Economic Opportunity] website may occasionally slightly misplace the geographic location of an address and thus result in an error in determining whether an address is located in a disproportionately impacted area.”
On June 5 and June 8, KPMG and IDFPR staff conducted conference calls regarding Exhibit P, according to email correspondence obtained through FOIA. While none of the email messages discuss the nature of those calls, it was extremely unusual for IDFPR and KPMG to communicate so often, and also unusual for there to be calls scheduled on a specific topic. Days later, on June 11, KPMG Managing Director Kelly Donovan, a New York-based manager who seldom participated in the process normally managed by Florida staff, sent IDFPR’s lead cannabis regulator, Bret Bender an exhilarant email message.
“I hope you heard the good news that we got through the Exhibit P reviews and will have deficiency letters to you asap,” Donovan said. “We are getting there!” she said in a follow up message.
On June 19 KPMG Director Brad Nemeth, notified IDFPR’s Bender that “The team has completed the Exhibit P re-work based on the two form criteria”. “Throughout the course of the week we have also been receiving applicant responses to the re-work Exhibit P letters that were sent at the end of last week.” Nemeth then said he expected Exhibit P deficiency responses to come back from applicants by June 22.
At this point, IDFPR and KPMG were almost two months past the May 1 original statutory deadline. Almost a whole month had been spent working to get just one section of the application evaluated.
Deficiency notices from Exhibit P hit email boxes in June 2020. Grown In later interviewed numerous dispensary applicants who claimed that while they had lived in DIAs their entire lives and had documented proof of that fact, they received discrepancy notices stating their claim was insufficient. Some, despite living in the same neighborhood for decades, were disqualified from consideration.
Blaming COVID-19 And USBs For Delays
The problems with Exhibit P had slowed the process. Because those reviews were not completed until June 22, two weeks after the tie-breaker emergency deadline, licenses would not go out until the end of the summer.
In an interview with The Daily Line on June 15, Hutchinson blamed delays on the need to transfer data from USBs to KPMG in person, rather than online. “We operate with a skeletal staff, operating systems that are in silos, archaic computers. We need to invest in our own IT infrastructure,” Hutchinson said according to a transcript circulated among staff in Gov. Pritzker’s office.
Hutchinson said there would likely be “hundreds of ties” for applicant scores, and that, “I believe the grading will be done before the rules process is complete,” in late August.
On June 11, Hutchinson testified before the Cook County Cannabis Commission, an oversight board of Cook County Commissioners. In the hearing, she said the state would announce by mid-July some dispensary license winners that won outright as well as those with equal points in a tie breaker.
But that mid-July announcement didn’t come. So, instead Hutchinson did another round of press interviews with Illinois media. Then, Hutchinson blamed delays on the pandemic.
“We signed [the] contract with KPMG in March and that would have worked out on timing if not for COVID-19. Everything across the board was impacted by Covid,” Hutchinson told the Chicago Tribune on July 21, according to a transcript circulated among staff in Gov. Pritzker’s office.
The KPMG contract had been signed on February 22.
Asked why the delay in securing the contract with KPMG was so long, even though the contract was signed in February 2020, before pandemic shutdowns, Hutchinson blamed COVID-19, according to the transcript.
- Tribune Reporter Ally Mariotti: On KPMG contract, why wait until March when applications were due in January?
- Hutchinson: That’s a typical negotiation period. Internal IDFPR process [sic] and again that timeframe would not have caused a problem had not everything with Covid happened.
Finally, on July 24, KPMG told IDFPR they had a complete scoring summary of all the applications. On August 17, KPMG provided an overview of the scoring statistics.
On September 3, IDFPR posted the results of the scoring. Rather than the “hundreds” of perfect tie scores Toi Hutchinson had predicted in June, there were just 21 perfect scoring applicants who would advance to the tie-breaking lottery.
Then, on September 4, Bender sent an email to KPMG Managing Director Kelly Donovan and Director Heather Woodard, “The first one is in.”
Only a day after announcing the 21 advancing applicants, a federal lawsuit on the application process had been filed against the state.