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Illinois Cannabis Adult Use Measure: A Primer

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Illinois Cannabis Adult Use Measure: A Primer

As cannabis industry participants and observers are well aware, on June 4th, the Illinois General Assembly officially passed House Bill 1438, which will create the financial and regulatory framework for the sale and use of cannabis and cannabis-infused products in Illinois via (the “ Cannabis Regulation and Tax Act” or “CRTA”). This legislation was patterned after, and is structured to supplement, the Illinois Compassionate Use of Medical Cannabis Pilot Program Act, which became effective January 1, 2014 (the “MCPP”).

CTRA was officially sent to the Governor on June 6th, and he has 60 days to act or it will automatically become law. While Governor Pritzker is expected to sign the measure into law relatively quickly, legislative sponsors admitted in floor debate that potential “clean up” and further revisions to it may still be necessary due to the complexity of the legislation and the compressed time frame legislators were working under for passage before the adjournment of the Spring legislative session. “Trailer bill” discussions are anticipated over the Summer and into the Fall veto session, and Dykema will be monitoring these developments closely and advising clients accordingly. Also, along a parallel track in the coming weeks and months ahead will be the development of administrative rules issued by the Illinois Department of Agriculture, the Illinois Department of Financial and Professional Regulation and any other state regulatory agencies charged with implementation of CRTA. This process will commence immediately following the Governor’s anticipated signature and will further flesh out the details of how this new licensing program will operate. Stakeholder input will be accepted by the regulatory agencies involved in the rulemaking process, and Dykema will also be advising our clients on that process as well.

As summarized in greater detail below, CRTA will provide existing holders of licenses under the MCPP with the opportunity to apply for expansion of their existing licenses (operated at either the existing site or a secondary site) to include recreational cultivation or use within 60 days after CRTA becomes effective. Expanded cultivation licenses will become effective on December 1, 2019, and expanded dispensing licenses on January 1, 2020. It should be noted, however, that failure to comply with regulations governing the recreational rules could result in forfeiture of both the recreational license and the medical license. Further, to the extent there are shortages of cannabis, the State will dictate the allocation of supply between recreational and medical users by those dispensing facilities serving both.

While a head start is provided to current MCPP license holders, new participants may apply for new dispensary licenses between October 1, 2019, and January 1, 2020, with the first licenses being awarded by May 1, 2020. New participants may also apply for craft grower, infuser, transporter, and full cultivation center licenses. Infuser and transporter licenses may be applied for beginning January 7, 2020, with licenses to be awarded on or before July 1, 2020. The date for craft grower applications has not been set, but craft grower licenses are to be awarded beginning by July 1, 2020. The timing for the issuance of new cultivation licenses has not yet been determined.

Available Licenses Under CRTA.

Below is a summary of the licenses created under CRTA. With respect to all of these licenses, the application process is strict, with applicants given only 10 days to cure any deficiencies noted in a license application.

Early Approval Adult Use Cultivation Center License

Any medical cannabis cultivation center in good standing under the MCPP as of the effective date of CRTA may apply for this license. This license allows the licensee to cultivate, process, transport (prior to July 1, 2020; after that, a separate transport license will be required) and do any other necessary activities to provide cannabis and cannabis-infused products to other cannabis business establishments (i.e., dispensing organizations, infusing organizations and transporters). However, if there is a shortage of cannabis supply, priority must be given to medical patients. Specifics for obtaining these licenses are as follows:

  • Timing for applications and license issuance: Applications may be filed any time between 60 and 180 days after the effective date of CRTA. If approved, a licensee may begin producing adult use cannabis/cannabis-infused products when the license is approved and may begin selling them on December 1, 2019.
  • Number of licenses: Limited to the number of cultivation centers licensed under MCPP as of the effective date of CRTA.
  • License fees: $100,000 application fee; business development fee between $250,000 and $750,000; applicant must commit to a Social Equity Inclusion Plan that may cost 5 percent of total sales between 6/1/2018 and 6/1/2019, up to $100,000 or, provide a loan to a Social Equity Applicant (described below) of at least $100,000; license renewal fee of $100,000.
  • Criteria for awarding licenses: None; all permissible applicants should receive the license.

Early Approval Adult Use Dispensing Organization License

Any medical cannabis dispensing organization in good standing under MCPP may apply for a new Early Adult Use Dispensing Organization License. These licenses allow the licensee to engage in the sale of cannabis to any lawful purchaser. However, if there is a shortage of cannabis supply, priority must be given to medical patients. Specifics for obtaining these licenses are as follows:

  • Timing for applications and license issuance: Applications may be filed any time within 60 days after the effective date of CRTA; if approved, licenses will become effective on January 1, 2020.
  • Number of licenses: Limited to the number of dispensing organizations licensed under MCPP as of the effective date of CRTA.
  • License fees: $30,000 license fee; business development fee of 3 percent of sales between 6/1/2018 and 6/1/2019, up to $100,000; applicant must commit to a Social Equity Inclusion Plan that may cost 3 percent of total sales between 6/1/2018 and 6/1/2019, up to $100,000; or, provide a loan to a Social Equity Applicant of at least $200,000; $30,000 license renewal fee.
  • Criteria for awarding licenses: None; all permissible applicants should receive the license.

Conditional Adult Use Cultivation Center License

Anyone over 21 who is not delinquent in tax or fee payments to the State of Illinois may apply for a new “conditional” Adult Use Cultivation Center License. These licenses allow the licensee to reserve the right to an Adult Use Cultivation Center License. Upon approval, when the license is no longer “conditional,” the licensee may engage in cultivation, processing and transporting, to provide cannabis and infused products to a dispensing organization, craft grower, infusing organization, or transporter. After July 1, 2020, those holding this license may no longer transport; it must be done by licensed transporters. Specifics for obtaining these licenses are as follows:

  • Timing for applications and license issuance: To be determined by the Department of Agriculture.
  • Number of licenses: To be determined by the Illinois Department of Agriculture.
  • License fees: Application fee in an amount to be determined by the Department of Agriculture; $100,000 fee upon approval of conditional license (i.e., license is no longer “conditional,”); $100,00 license renewal fee.
  • Criteria for awarding licenses: The Illinois Department of Agriculture will determine a scoring system using the following 14 criteria: (1) suitability of the proposed facility; (2) employee training plan; (3) security and record keeping; (4) cultivation plan; (5) product safety and labeling plan; (6) business plan; (7) Status as a Social Equity Applicant (not  less than 20 percent of available points); (8) labor and employment practices (not less than 2 percent of available points); (9) environmental plan; (10) majority-owned by Illinois residents; (11) majority-owned by veterans; (12) diversity plan; (13) any other criteria that the Illinois Department of Agriculture may set; and (14) community engagement (bonus points).

Conditional Adult Use Dispensing Organization License

Anyone over 21 who is not delinquent in tax or fee payments to the State may apply for a new “conditional” Adult Use Dispensing Organization License. These licenses allow the licensee to reserve the right to an Adult Use Dispensing Organization License. Upon approval, when the license is no longer “conditional,” the licensee may purchase or sell cannabis or cannabis-infused products to purchasers. Specifics for obtaining these licenses are as follows:

  • Timing for applications and license issuance: Applications will be available on October 1, 2019, and will be accepted until January 1, 2020.
  • Number of licenses: 75 to be awarded on or before May 1, 2020 (locations of these initial 75 described below); up to 110 to be awarded after January 1, 2021.  After January 1, 2022, the Illinois Department of Financial and Professional Regulation may authorize additional dispensary licenses, up to a maximum of 500 outstanding at any one time.
  • License fees: $5,000 application fee; $60,000 fee upon approval of conditional license; $60,000 renewal fee.
  • Criteria for awarding licenses: The Illinois Department of Financial and Professional Regulation will score applications on a 250 point system. These points are allocated among the following 11 criteria: (1) employee training plan (15 points); (2) security and recordkeeping (65 points); (3) business plan (65 points); (4) knowledge and experience (30 points); (5) Social Equity Applicants (50 points); (6) labor and employment practices (5 points); (7) environmental plan (5 points); (8) majority-owned by Illinois residents (5 points); (9) majority-owned by veterans (5 points); (10) diversity plan (5 points); and (11) community engagement (2 bonus points).

Craft Grower License

Anyone over 21 who is not delinquent in tax or fee payments to the State of Illinois may apply for a Craft Grower License. However, the applicant may not be a person licensed as a cultivation center or anyone owning more than 10 percent (5 percent if a public company) of a cultivation center, or a principal officer of a cultivation center. In addition, no person or entity may hold more than two Craft Grower Licenses. Specifics for obtaining these licenses are as follows:

  • Timing for applications and license issuance: To be determined by the Illinois Department of Agriculture.
  • Number of licenses: 40 to be awarded on or before July 1, 2020; up to 60 additional licenses to be awarded on or before December 21, 2021.
  • License fees: $5,000 application fee; $40,000 upon awarded of the license; $40,000 renewal fee.
  • Criteria for awarding licenses: (1) suitability of proposed facility; (2) suitability of employee training plan; (3) security and recordkeeping; (4) cultivation plan; (5) product safety and labeling plan; (6) business plan; (7) status as a Social Equity Applicant (not less than 20 percent of available points); (8) labor and employment practices (not less than 2 percent of available points); (9) environmental plan; (10) majority owned by Illinois residents; (11) majority owned by veterans; (12) diversity plan; (13) any other criteria the Illinois Department of Agriculture sets by rule; and (14) community engagement (bonus points).

Infuser Organization License

Anyone over 21 who is not delinquent in tax or fee payments to the State of Illinois may apply for an Infuser License. These licenses allow the licensee to incorporate cannabis or cannabis concentrate into a cannabis-infused product and sell that product to a dispensing organization. Under certain circumstances, this license will also include short-distance transport of cannabis-infused products. At no time may an infuser perform the extraction of cannabis concentrate from cannabis flower; however there are provisions that permit an infuser to apply for a license to extract during periods of cannabis extract shortage. Specifics for obtaining these licenses are as follows:

  • Timing for applications and license issuance: Applications will be available on January 7, 2020, and may be submitted until March 15, 2020.
  • Number of licenses: 40 to be awarded on or before July 1, 2020; up to 60 additional licenses to be awarded on or before December 21, 2021.
  • License fees: $5,000 application fee; upon being awarded the license, the Infuser must submit an additional $5,000; $20,000 renewal fee.
  • Criteria for awarding licenses: (1) suitability of proposed facility; (2) suitability of employee training plan; (3) security and recordkeeping; (4) cultivation plan; (5) product safety and labeling plan; (6) business plan; (7) status as a Social Equity Applicant (not less than 20 percent of available points); (8) labor and employment practices (not less than 2 percent of available points); (9) environmental plan; (10) majority owned by Illinois residents; (11) majority owned by veterans; (12) diversity plan; (13) any other criteria the Illinois Department of Agriculture sets by rule; and (14) community engagement (bonus points).

Transporter License

Anyone over 21 who is not delinquent in tax or fee payments to the State of Illinois may apply for a Transporter License. These licenses allow the licensee to transport cannabis on behalf of a cannabis business establishment or a community college licensed under the Community College Cannabis Vocational Training Pilot Program.

  • Timing for applications and license issuance: Applications will be available on January 7, 2020, and may be submitted until March 15, 2020.
  • Number of licenses: No limit.
  • License fees: $5,000 application fee; $10,000 fee upon once award of the license; $10,000 renewal fee.
  • Criteria for awarding licenses: The Illinois Department of Agriculture will score applications on a point system, among the following 11 criteria: (1) An employee training plan; (2) security and records; (3) business plan; (4) Social Equity Applicants; (5) labor and employment practices; (6) environmental plan; (7) majority-owned by Illinois residents; (8) majority-owned by veterans; (9) diversity plan; (10) any other category that the Department deems proper; (11) community engagement (bonus points).

All applicants scoring over 85 percent will be awarded this license.


The initial 75 Conditional Adult Use Dispensing Organization Licenses have been allocated among the following 17 Bureau of Labor Statistics regions:  (1) Bloomington 1; (2) Cape Girardeau 1; (3) Carbondale-Marion 1; (4) Champaign-Urbana 1; (5) Chicago-Naperville-Elgin 47; (6) Danville 1; (7) Davenport-Moline-Rock Island 1; (8) Decatur 1; (9) Kankakee 1; (10) Peoria 3; (11) Rockford 2; (12) St. Louis 4; (13) Springfield 1; (14) Northwest Illinois nonmetropolitan 3; (15) West Central Illinois nonmetropolitan 3; (16) East Central Illinois nonmetropolitan 2; and (17) South Illinois nonmetropolitan 2.

Prior to each Conditional Adult Use Dispensing Organization License being issued (i.e., no longer being “conditional”), the following must occur: (1) inspection of the site by the Illinois Department of Financial and Professional Regulation and verification it is in compliance with CRTA and local zoning laws; (2) payment of $60,000 registration fee (or pro-rated amount to March 31 of the next even-numbered year); (3) satisfaction of all the requirements in CRTA; (4) confirmation that issuing of the license would not result in any person having an ownership interest in, is employed by, or is an agent of the prospective licensee having any such interest, directly or indirectly in 10 or more dispensing organizations.

As noted above, a significant factor in being awarded the new licenses is whether the applicant is a “Social Equity Applicant." A Social Equity Applicant must meet one of the following three criteria: (1) the applicant is 51 percent or more owned by individuals residing for at least five of the preceding 10 years in a “Disproportionately Impacted Area” (as defined below); (2) the applicant is 51 percent or more owned by one or more individuals who: (i) have been arrested for, convicted of, or adjudicated delinquent for any, offense that is eligible for expungement under CRTA; (ii) the applicant is a member of an impacted family; or (3) for any applicant with at least 10 full-time employees, 51 percent of such applicant’s employees: (i) currently reside in a Disproportionately Impacted Area; or (ii) have been arrested for, convicted of, or adjudicated delinquent for any, offense that is eligible for expungement under CRTA; or (iii) is a member of an impacted family.

A “Disproportionately Impacted Area” means an area that (1) meets at least one of the following four criteria: (i) the area has a poverty rate of at least 20 percent; (ii) 75 percent or more of the children in the area participate in the federal free lunch program; or (iii) at least 20 percent of the households in the area receive assistance under the Supplemental Nutrition Assistance Program; or (iv) the area has an unemployment rate more than 120 percent of the national average; and (2) has high rates of arrest, conviction, and incarceration related to the sale, possession use, cultivation, manufacture or transport of cannabis.

Regulatory Scheme

The Illinois Department of Agriculture is the principal regulator (and sole licensor) for the cultivation, processing, infusing and transporting of cannabis. The Illinois Department of Financial and Professional Regulation is the principal regulator for (and sole licensor of) dispensing cannabis. Except for a provision that would permit Chicago to prohibit facilities in a specific legislative precinct, the authority of local governments over cannabis business establishments is limited to time, place and manner ordinances, including zoning, site selection and on-premises cannabis consumption, and such ordinances may not be in conflict with CRTA or regulations promulgated by the Illinois Department of Agriculture or the Illinois Department of Financial and Professional Regulation. The extent to which CRTA would permit a municipality to completely bar the sale of cannabis within its borders is unclear. On the one hand, CRTA provides that a municipality cannot completely bar cannabis business establishments through application of site selection or zoning ordinances. On the other hand, another part of CRTA provides that if an applicant that is awarded a dispensing license is restricted from operating one in a Bureau of Labor Statistics area for which it applied, the Illinois Department of Financial and Professional Regulation may specify another region in which to locate it. This area may require additional legislative or regulatory guidance.

Overlapping Ownership and Use Restrictions

CRTA contains certain restrictions on licensees and the premises used by licenses, including the owners of entities that are licensees, holding other licenses. Specifically:

  • An infuser may only share premises with a craft grower or a dispensing organization if each licensee stores cannabis-infused products and currency in separate vaults and they do not share greater than 50 percent ownership.
  • A craft grower may not be a person licensed as a cultivation center or anyone owning more than 10 percent (5 percent if a public company) of a cultivation center or a principal officer of a cultivation center.

Taxing of Recreational Cannabis Activities

CRTA provides for the following taxes:

  • 7 percent on gross sales by cultivators
  • With respect to taxes on dispensing organizations:
    • If THC level of cannabis sold is less than 35 percent, 10 percent of the purchase price
    • If the THC level of cannabis sold is greater than 35 percent, 25 percent of the purchase price
    • For all cannabis-infused products, 20 percent of the purchase price

In addition, CRTA also authorizes local counties and municipalities to assess taxes on recreational cannabis-related activities within their borders. Specifically, the county may assess a County Cannabis Retailers’ Occupation Tax at a level up to (i) 3.75 percent of the gross receipts of sales made in unincorporated areas of the county; and (ii) 0.75 percent of the gross receipts of sales made in a municipality located in a non-home rule county; and (iii) 3 percent of gross sales receipts made in a municipality located in a home rule county. For its part, the municipality may assess a Municipal Cannabis Retailers Occupation Tax not to exceed 3 percent of gross receipts. These taxes will be administered by the Illinois Department of Revenue. These taxes would be in addition to other taxes that would otherwise apply.

As Illinois moves forward with its new adult use measure, developing regulations and applications, we will provide further analysis of the many complex provisions of this law. Stay tuned to Dykema’s Cannabis Law Blog!