By Timmy Bridges

Despite deliberate efforts on the part of State and local municipalities to support small businesses entering the cannabis industry, these small businesses continue to face challenges breaking into that same industry. The degree to which this is true varies state to state and has many different causes. Speaking with several craft cannabis licensees, it has become clear that Illinois has one of the highest barriers of entry in the legal cannabis industry. The goal of this article is to address a few challenges craft cultivation licensees endure while competing in Illinois’ cannabis market.

In my current role at PayQwick, I have had the opportunity to work with companies in several markets, including Illinois. We provide cannabis banking, payment processing, and lending solutions to companies within the cannabis industry, and this experience has given me insight into the processes of founding companies in the various segments of this relatively new market. Illinois craft cultivation licensees have faced common obstacles that have impeded progress in establishing a foundation in this growing industry. A prevailing concern is the availability of debt capital to cover the initial costs of starting a licensed cannabis company. Factor in the cost of the license, property (real estate and equipment), and payroll of a full staff, the bill of expenses begins adding up quickly.

For businesses that have available money, these expenses can easily deplete reserves. When it comes time to begin the preparations to open, most ventures need capital financing in some form. However, the amount someone can receive in a loan is based on the amount of collateral assets that the loan can be valued against. When we take into consideration that not all assets are deemed as worthy collateral, such as licenses, the amount available to borrow is drastically decreased. This means a prospective cannabis business owner can spend millions in start up costs, and then fall short of the necessary asset value to acquire outside funding.

According to Alisa Brill of Drecsico Farms LLC, an Illinois craft cultivation licensee, the three largest obstacles her company has faced so far are canopy size restriction for craft grows, debt capital availability and its cost, and the current multi-state operator (MSO) dispensary landscape that may not welcome certain craft grow brands. Alisa stated that it would be extremely helpful if they were able to open up to a 14,000 sq ft canopy right away, instead of the current initial 5,000 sq ft followed by increments upwards. Her first two points represent familiar barriers for new cannabis companies, but the last point indicates an issue craft growers may face even after passing the starting line: shelf-space availability in dispensaries.

In Illinois, almost all dispensaries are vertically consolidated with companies that buy products grown at their own cultivation facilities. This may prove to be an added struggle for craft cultivators in getting their product to the end consumer and will come down to the willingness of dispensary owners to work with these smaller companies to provide customers with a wider array of quality cannabis products.

Asking Alisa what advice she would give to those who decide to enter the cannabis industry as a craft grower, she responded, “Don’t think you are getting into this business to get rich quick. It is a startup operation that requires someone to be knowledgeable about business. Having experience in other industries (manufacturing, CPG for example) translates over and is necessary to get things off the ground the right way.” In other words, the cannabis industry is a marathon, not a sprint.

Whether it is due to start-up costs, licensing obstructions, or inter-market struggles, setting up shop in Illinois is a challenging and resource intensive process that can be prohibitive for anyone besides the MSOs. This is not to say that other states have it easy. For a long time, large companies were the only ones with the capital necessary to successfully complete the many requirements Illinois had and still has in place, which is indicative of a fundamental issue in the mandatory procedures for setting up a cannabis business in Illinois.

At this point, a possible solution to the issues craft cultivation licensees face in this state is tough to determine. However, some politicians in Illinois are listening. The Illinois Senate has introduced House Bill 4195 that may provide some relief to craft licensees, by allowing premises to be shared between three craft growers, infuser organizations, dispensaries, or any combination of these therein. Sharing space between licensees can help dilute the cost of leasing a space and operating in a given area. Many of the small operators feel like the current requirements implicitly exclude the smaller entrepreneurs, making the dream of owning a successful legal cannabis company seem out of reach.

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