Illinois begins accepting applications for marijuana businesses
Illinois officials are now accepting applications for people who want to open a medical marijuana dispensary or cultivation center. The number of licenses are quite limited – only 22 available for cultivation centers and 60 for dispensaries.
Michelle West is hoping to be awarded a license to open a cultivation center. She’s a nurse who originally set out to research how legalization would affect her job, but instead she found a business opportunity.
“It’s not only a business opportunity for a person, but for economic development for a community, for a neighborhood,” West said.
The Illinois Department of Agriculture will sift through the many applications that are expected to be submitted. Officials are looking at six specific areas: the proposed facility, staffing and operations, security, cultivation, product safety and labeling and business and financial disclosure.
West said she’s been researching the industry for the past year. Her 300 plus page plan includes economic growth all the way down to different types of cannabis plants. Most applicants have brought on consultants from other states that have already legalized medical marijuana. West is no different.
“A lot of the other people I met, they spent a ton of money on consultants. Consultants are important, yet I was hesitant. I found one because I have to know my plan, inside out,” she said.
In addition to attending conferences, West hired a consultant from Colorado who's gotten underperforming cultivation centers back up to top production.
The competition to run dispensaries and cultivation centers in the Chicago market will be very tough. West lives in the city, but decided to look elsewhere to set up her cultivation center. She eventually found a rural town in Police District 6.
She presented her plans to the town’s council members and that night they decided to support her. The town preferred she not disclose the name until a license is actually awarded.
“It was amazing the support because people want jobs. Everyone in the town, all the jobs had left. So people have to drive 40 miles away, 50 miles away. Some are driving into Chicago and then they’re driving back home,” she said.
West visited other towns that had mixed views on the legalization of medical marijuana. For this particular community, the cultivation center looks like a path to economic recovery. That’s part of the deal they have with West. Their decision to back her means their community members would get first dibs at the job openings.
“The plan that I have, it includes not only hiring younger people, but there’s been a lot of people over 50 that have been downsized or they couldn’t find a job and they keep trying to find a job. If they’re willing to be retrained or work within the facility, they’re going to have a job, too,” she said.
West has written an employee handbook that includes wages starting at around $12 an hour with benefits.
She found a potential property in the area. She’s already crafted plans for year-round growing and plans to scale in the years following.
State officials are making security a high priority for all applications. They see the future cannabis facilities as major targets for crime, since they will deal with large amounts of cash and drugs.
Joel Brumlik works in law enforcement and he’s been running his suburban security company, Tactical Security since 2007. He started researching how he could profit after the state legalized medical marijuana.
“Right now, we have a significant investment in this. A lot of time, a lot of studying, a lot of resources expended. We’ve been involved in two or three conferences. We’re going to be in one in Las Vegas. These aren’t cheap,” he said.
Tactical Security has been training officers specifically for medical marijuana, everything from use of force to patient hospitality, even how to inspect a facility according to the state’s rules and regulations.
Brumlik prides himself on the hefty 70 plus page security plan he’s written up. He says he’s fielded at least a dozen calls from potential medical marijuana businesses and already has a few signed contracts.
He says his competition seems to be based mostly on price.
“Yes, our company may be charging you a higher price per hour, but what is your cost? And when I say ‘what is your cost’, what I’m saying is, is that if you don’t have the right people, the highly trained people, then your cost might be a lot higher than you believe if you’re just going by the price,” he said.
But some security experts say it isn’t necessary to have such specific tailoring for the marijuana industry. Eugene Ferraro is a security consultant based in Colorado. He calls it a marketing ploy.
“The tailoring that’s necessary to provide services to a marijuana retailer have very small differences from other types of retailers or operations whether it’s manufacturing or distribution operations,” Ferraro said.
He says bigger security companies have been staying away from cannabis to avoid any potential legal issues. But he’s definitely seen specialized companies gaining a lot of business.
“The small operators, the mom and pop alarm companies, the mom and pop guard companies have some opportunity here,” he said.
Ferraro says Illinois’ emphasis on security is overkill and that the cost will be passed down to the consumers, which might create another problem of pushing people to the black market.
Brumlik doesn’t see it that way and says every dispensary he visited in Colorado had been broken into.
“We’re not interested in trying to compete on a level where we’re just trying to put warm bodies in there,” he said.
It’s going to take anyone who’s awarded a license a lot of money to open and operate the marijuana facility. For West, she needs to pay a $25,000 non-refundable application fee, and she also needs to show she has $500,000 in liquid assets. If she’s awarded the license, she’ll have to pay a $200,000 permit fee, not to mention the cost it takes to run any type of business.
Financing and banking has been tricky for business owners in states that are already well into their legalized marijuana programs. Illinois will be no different.
Even ancillary businesses are finding it difficult to find a bank just to make a simple deposit.
“Difficult is such an understatement. It was the bane of my existence for 90 days,” said venture capitalist David Friedman.
Recently, the Chicago businessman added another title to his resume; publisher. He started a news website called Marijuana Investor News.
“I don’t understand why Bloomberg can run stories about medical marijuana, but we can’t. And I’m sure, I understand now about the banking regulations and everyone’s just very cautious about anything that has to do with it. We did ultimately find a bank because it’s ridiculous that we shouldn’t,” he said.
Friedman is being approached by entrepreneurs for investments into their proposed dispensaries and cultivation centers. He says since the final rules were approved he hasn’t slept much.
Troy Dayton is CEO of the Arcview Group, a California-based national investment and research firm focused on cannabis. A lot of accredited investors in the marijuana industry are members of the group, including David Friedman. It has some of the first angel investors in the sector.
Dayton said Illinois’ program might be more difficult to finance with all the restrictions and a possibility of the pilot program sunsetting in a few years.
“[Business owners] had better have a lot of money in the bank because it may be a long ramp up before they can make their businesses profitable,” he said.
According to Arcview’s annual report, the industry is expected to grow to $2.6 billion in 2014.
“That’s a 68 percent growth in one year. Making it the fastest growing industry in America. And growing to 10.2 billion dollar industry by 2018,” Dayton said.
Another challenge businesses are likely to face is a high tax rate. Marijuana is categorized as a Schedule 1 illegal substance, next to heroin and LSD. The Internal Revenue Service has a code to tax illegal drug income, up to 50 percent.
Dooma Wendschuh, CEO of Ebbu, a Colorado cannabis company said it takes a lot of work to keep your business completely above board in this federally illegal industry.
“You’re really limited in who you can raise that money from. You can’t go to Sand Hill Road with a couple of baggies of your product and expect to raise your money. It just doesn’t work like that,” he said.
Sand Hill Road is an area in California with a lot venture capital companies.
But Wendschuh thinks the opportunity in marijuana is bigger than the Internet and tech boom if you’re willing to take the risk.
He looks at it like alcohol after prohibition. Laws were left for states to determine individually. Some counties remain dry even today. It took companies some years after prohibition to feel comfortable enough to even promote their product.
Wendschuh says for the first several years after prohibition, bootlegging was big and the black market thrived.
“Of course it was cheaper than buying alcohol at a licensed facility. But hey look right now. If you wanted to go buy bootleg alcohol could you even find it? I don’t know where you would find it,” he said.
He says eventually the alcohol industry became less taboo. People wanted to buy from a reputable source rather than a cheaper, criminal operation. Product pricing evened out and financing was easier.
Wendschuh believes the cannabis industry isn’t far from seeing relaxation of federal regulations, and marijuana could follow the path of alcohol.
Susie An is WBEZ’s business reporter. Follow her @soosieon.