New cannabis licensees in Illinois face David vs. Goliath fight against industry giants
Entry-level entrepreneurs will have, in many cases, one dispensary to compete with companies that control up to 10 stores across the state. New craft growers will be limited to 5,000 square feet, compared with behemoth cultivators in cavernous warehouses up to 221,000 square feet.
The upstarts will have to compete with international corporations that advertise on radio and billboards, hire award-winning chefs to make edibles and have established brand name loyalty. The uneven playing field affects customers, because dominance by a few competitors has led to higher prices, which helps perpetuate illegal sales.
Those who have already competed in this market, though, say the newbies can succeed — if they concentrate on their own strengths and customers.
“The industry doesn’t even come close to hitting what it can,” Dispensary 33 co-owner and general manager Paul Lee said. “So there’s still a lot of room for growth. But they’ll have a heck of a time getting started.”
Illinois held a lottery last week to award 55 new recreational cannabis store licenses after more than a year of delay. Meanwhile, the industry has changed drastically since Illinois first gave out medical cannabis licenses at the end of 2015. Chicago also has become a capital of the industry, as home to some of the largest multistate operators, or MSOs, in the country.
Industry newsletter Grown In reported that 77% of legal recreational cannabis shipped in Illinois this March was produced by just six MSOs — Verano Holdings’ Ataraxia, Cresco Labs, Green Thumb Industries, Ascend Holdings, PharmaCann and Revolution Global.
Verano alone accounted for one-third of the product. Independent growers made up just 12% of the market.
One key to small and minority companies succeeding, former state Rep. Rickey Hendon said, will be working with each other, so growers and infusers supply stores, and retailers sell craft products.
“It’s not going to be easy,” he said. “If we work together, we’ll be able to help each other. Craft growers will need somebody to sell their products.”
Hendon’s group, West Side Visionaries LLC, won rights to a retail license and hopes to open a shop where he previously ran a CBD store.
But first he needs to raise funds for the $1 million or so he expects it will take to buy, build, hire, stock up and get running by this fall. It should be easier now that he has access to a license.
“Now, people are calling me saying, ‘You need any money?’” he said.
Even with two more lotteries in August to award 130 more dispensary licenses, a few companies that had the wherewithal to submit dozens of applications could end up with most of the licenses.
“It does concern me that consolidation is turning the industry into all big boys, so we want to make sure the small operators get their businesses started,” Chicago NORML’s Edie Moore, whose investment group won a craft license, said. “Just a few could own the most. We’re trying to change that, but it’s going to take a little bit of time.”
It’s not only important to get a license and start a business, she added, but also to keep it. There’s the danger that big companies could buy out the small investors, so regulators will have to make sure there are no violations of ownership agreements.