Will recreational cannabis achieve Gov. Pritzker’s goals?
July 5, 2019

JB Pritzker campaigned for governor on a promise to legalize adult use of cannabis in Illinois.

By Eva Hofmann

A bill to legalize recreational marijuana was signed by Illinois Governor JB Pritzker on June 25. The law will take effect Wednesday, Jan. 1, 2020. Once it takes effect, House Bill 1438 will make Illinois the first state to legalize marijuana sales through the legislative process versus voter initiative and the 11th state to allow recreational use of the drug.

The new law will allow residents age 21 and older to possess 30 grams of cannabis, five grams of cannabis concentrate, or 500 milligrams of tetrahydrocannabinol (or THC—the compound that gets users high) contained in a cannabis-infused product. Non-residents will be able to possess 15 grams of cannabis.

Consumers will be able to purchase marijuana legally from licensed marijuana dispensaries, but it will remain illegal to smoke marijuana in public places or to drive under the influence.

Tax revenue

In Illinois, those who cultivate cannabis will be required to pay a 7% tax on their gross receipts from its sale. At the point of sale, users will pay a proposed rate ranging from 10% to 25% of the purchase price, depending on the amount of THC in the product.

“States are increasingly relying on cannabis to address longstanding financial problems such as unfunded liabilities, pensions, and underfunded education,” said Bronzeville State Representative Kambium Buckner (D-26th). Buckner earlier this year was appointed to the 26th District seat, succeeding Christian Mitchell, who resigned to become a deputy governor in the Pritzker administration.

That move has proven effective in many cases, according to Buckner. “Oregon and Washington both reported roughly $1 billion in sales last year,” he said.

After paying for regulatory expenses and related costs, marijuana revenue would support several areas. The largest share, 35%, would go into the State’s general fund; 25% would go to a grant program to help communities hit hard by poverty, violence, and the war on drugs; 20% to mental health and substance abuse programs; 10% to pay down the State’s backlog of unpaid bills; 8% to support law enforcement; and 2% for public education.

Forecasting marijuana tax revenues can be difficult. In Washington State, tax collections from recreational cannabis started out twice as high as originally projected but have since leveled off. Nevada enjoyed revenues 38% higher than expected last year. In California, however, revenue fell about 50% short of 2018 projections, reporting $345.2 million versus the $643 million that was initially expected in the state’s first full year of adult-use sales.

“Proponents of legalizing marijuana point to all the money that governments will make by legalizing it and taxing it,” said Irene O’Neill, MD, a physician and Bridgeport resident. She believes legalizing recreational cannabis actually increases the drug’s sales on the black market, including in neighboring states. “Because marijuana is decriminalized, the black market flourishes, undercutting the government price of marijuana,” she said.

Kevin Sabet, of the Drug Policy Institute at the University of Florida, writes in the scholarly journal the Berkeley Journal of Criminal Law, that legalization has made it easier for the black market to thrive. In rural areas of Colorado, for example, the black market is thriving, Sabet said, “due to the difficulties involved in distinguishing between legal and criminal marijuana farms.”

According to Sabet in his scholarly treatise “Marijuana and Legalization Impacts,” the ability to hide black market activity in legalized states has encouraged drug trafficking organizations and Mexican cartels to begin growing marijuana illegally within the United States.”

According to O’Neill, states in which cannabis has been legalized have incurred more expenses due to emergency room visits and hospitalizations from adverse outcomes of marijuana use as well as more homelessness and absenteeism from school and work. “These costs to society far outweigh any money made by increased taxation of marijuana,” she said. “The police in those states are overwhelmed with increased criminal activities.” O’Neill noted taxpayers must pay for increased use of these services, not the people making millions of dollars by marijuana’s legalization.

The restorative justice component

Historically, law enforcement has used cannabis possession as a pretext for arresting minorities. HB 1438 includes a social justice provision allowing Illinois residents convicted of minor marijuana crimes to petition to have their records expunged, provided the offense was not associated with a violent crime.

“We found about 770,000 records could qualify for the low-level marijuana expungement for arrests or a governor pardon for convictions under the legislature’s proposal,” said Nate Steinfeld of the Illinois Sentencing Policy Advisory Council. “However, the number of people who qualify was closer to 314,000 with expunged records and 80,000 with potential pardons,” he said, explaining that “many people have multiple arrests and/or convictions, which means the number of records is greater than people affected.”

In addition to providing opportunities for expungement, the bill requires that revenue generated from the Illinois marijuana industry be reinvested into communities affected the most by discriminatory drug policies.

An equity-centric approach?

The legislation seeks to make it easier for people of color to benefit from the booming marijuana industry, addressing decades of racial injustice in prosecuting drug crimes related to marijuana’s prohibition.

The law features a social equity program to help level the playing field for minority entrepreneurs seeking to enter the cannabis industry. Through the Cannabis Business Development Fund, Illinois will lower licensing fees for and provide low interest business loans to minority entrepreneurs.

Officials disagree, however, about what constitutes equity in the adult-use cannabis space. “There is real concern that legalization of cannabis will go the same way as the creation of the State-run lottery—that minorities who have been policed, prosecuted, and imprisoned at the highest rates will not have the opportunity to be participants in this new endeavor,” said State Representative Buckner.

“Add those facts with exorbitantly high start-up costs, extremely rigid policies on who can participate and how they can participate, and African Americans are put at a disadvantage. Statistics suggest that no more than one percent of businesses in the legalized marijuana space are black-owned,” Buckner added.

The law’s specifics bolster Representative Buckner’s point. According to HB 1438, Illinois will approve adult-use licenses in waves, beginning with current medical cannabis license holders, followed by additional licenses in 2020 and 2021. The bill allows license incumbents to produce no more than three 210,000 square-foot canopies, while new craft growers are only allowed 5,000 square feet of canopy space. 

“This means craft growers don’t stand a chance,” said Jonathan Loiterman, an attorney, cannabis entrepreneur, and former chair of the Illinois State Bar Association Health Law Section. He currently lives in and runs his Green Star Growing cannabis business out of Oregon.

“The Pritzker administration prioritized equity and criminal justice reform in creating one of the most equity-centric adult-use cannabis laws in the country,” said Jordan Abudayyeh, press secretary for the Office of Governor Pritzker. “The plan creates an intentional roll-out process to ensure adequate time for an equity study to take place and uses revenue from licensing fees from the current medical license holders to create a capital fund for equity applicants.”

According to Loiterman, officials intentionally made the Illinois medical marijuana program restrictive, so that when dispensaries opened in 2015, sales were slow. He voiced concern that HB 1438 grandfathers in the medical licensees, who have built large facilities and have a lot of capital investment in Illinois. “If they don’t control a big part of the market, they’ll be overleveraged—but that’s not the taxpayer’s problem—it’s the shareholder’s problem,” he said. “When they get into the recreational market, they’ll be entitled to far more canopy space than anyone else. Almost all the production will go to those incumbent producers from the Illinois medical program.”

“The smaller craft growers have no economies of scale, which will force them to raise prices, and they won’t be competitive,” said Loiterman. Cultivation centers will have control over supply and distribution.

According to Abudayyeh, 5,000 square feet is the initial limit for craft growers, but they can grow up to 14,000 square feet with approval from the Department of Agriculture. “The bill also allows for up to 100 craft growers to be licensed in the first two years of the market, compared to the existing 22 cultivation centers,” she said. “The bill also prohibits people with an ownership stake in cultivation centers from obtaining licensure in the craft grow space.”

“This is an opportunity for so many people in Illinois to benefit from legalization,” said Loiterman. “However, a lot of people will be cheated out of that benefit, and it will be put into the hands of a few very well connected people who already got licenses. In my opinion, the social justice part of the legislation is a distraction from that.”

To contact Buckner, call (773) 924-1755. For Green Star Growing, log on to www.greenstargrowing.com. For the Illinois Sentencing Policy Advisory Council, log on to http://www.icjia.state.il.us/spac/. For the Office of the Governor, log on to https://www2.illinois.gov/sites/gov/Pages/default.aspx.

Editor’s note: This is the first in a Gazette Chicago series of articles on the advantages and disadvantages of legalized cannabis in Illinois.