Grade inflation?

Unsuccessful applicants for retail marijuana licenses are complaining about a lack of diversity in a program that’s supposed to promote diversity in the marijuana industry.

More than 900 entities asked for 75 retail pot licenses that were preliminarily awarded last week. Fewer than two dozen entities remain in the running. With some entities requesting dozens of licenses, the state Department of Financial and Professional Regulation has said that it received about 4,400 applications, far more than could be approved under the state’s pot law that both limits the number of licenses and says where the new businesses can locate.

Springfield has been allotted one new dispensary; Chicago and nearby communities have been granted 47. The state doesn’t plan on granting more retail licenses until late next year. No new retail licenses have been granted since the state allowed medical marijuana shops to start selling recreational pot on Jan 1, when the state’s recreational marijuana legalization law took effect.

The state says that 21 entities received perfect scores on applications that were graded by a private accounting firm, and so a lottery will be held by month’s end to determine the final winners from the list released last week. The 21 preliminary winners have, combined, qualified for more than 300 licenses, more than can be legally issued. Several have qualified for more than 30, and some qualified in all 17 regulatory regions stretching from Lake Michigan to the Shawnee National Forest. Ownership information contained in applications is exempt from public disclosure under state law.

All 21 finalists are considered social equity applicants under the state law that aims to open the pot industry to people who have suffered disproportionately in the war against drugs – applicants who live in disadvantaged areas, who’ve been arrested for drugs or who have relatives who’ve landed in legal trouble over drugs can qualify as social equity applicants. Under state law, no entity can own more than 10 dispensaries; if one entity ends up with more than 10 licenses, it can choose which ones to keep and which ones to abandon.

Some unsuccessful applicants are questioning why a relatively small number of entities has made the first cut under a program that’s supposed to help disadvantaged would-be entrepreneurs while preventing large companies from dominating the cannabis industry.

Dr. Lawrence Hatchett, a Marion physician who is heading a group that has applied for dispensary and growing licenses, said he believes that successful applicants employed application writers with experience in other states who knew how to produce winning paperwork. Hatchett, whose group has been eliminated from consideration in the first round, said that he’s concerned that the second round of retail licenses due for award next year will turn out the same as this one.

“I’m not going to cry about it,” Hatchett said. “I’m disappointed. … Unless you have a perfect application, you don’t stand a chance.”

Chris Stone, who advised unsuccessful applicants, said he didn’t expect so many perfect scores. When the state awarded licenses to medical marijuana dispensaries in 2015, he said, no applicant received a perfect grade. Depending on how the upcoming lottery goes, he said, between nine and a dozen entities could end up with all of the available licenses. “It’s just odd to me,” Stone said. “I’m not sure this did what the state wanted it to do.”

Chris Slaby, spokesman for the Illinois Department of Financial and Professional Regulation, wrote in an email that 14 of the 21 finalists are social equity applicants because owners have histories of residing in areas disproportionately impacted by the war on drugs; an additional six were deemed social equity applicants because either they, dependents or relatives were arrested and/or convicted of drug crimes; one finalist achieved social equity status by employing workers deemed disproportionately impacted by the war on drugs.

Slaby hinted that change may be coming.

“We are implementing the statute as written,” he wrote. “After this round of licenses is awarded, a disparity study will be undertaken before the next round of licenses is awarded next year. This is one step in a long and deliberative process.”

Stone said the state should disclose guidelines used in grading applications; Hatchett said the state should provide guidance to unsuccessful applicants so that they can succeed when more licenses are awarded.

“If the state does not take time to educate us smaller groups how to compete against these larger groups then they are disingenuous about their desire to diversify this industry,” Hatchett wrote in a text message.

Akele Parnell, a Chicago attorney who advised unsuccessful applicants, said that the state is allowing entities to own too many licenses. Instead of 10 dispensaries, he said, the limit should be five. Under the planned lottery, applicants will receive as many chances in the drawing, set for Sept 23, as they have paid application fees for dispensaries.

Contact Bruce Rushton at [email protected].

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