What social equity? The latest on the Illinois licensing scandals

Illinois’ recreational marijuana law established a lottery to address social equity issues. The system awards extra points to companies that are majority owned by a person with a cannabis-related arrest on their record, applicants who live in an area impacted by the war on drugs, and other qualifications. This lottery was meant to give social equity applicants a chance to partner with companies experienced in selling recreational cannabis.

Companies employing a minimum of 10 people meeting these qualifications can be considered a social equity applicant. But for a perfect score, an applicant has to achieve social equity status and veteran status. This means a minimum of 51% of the organization has to be owned by a veteran or group of veterans.

Some believe that the application process has been rigged in favor of candidates with ties to state politics.

Illinois’ social equity licensing is the first opportunity new cannabis entrepreneurs have to break into the industry. Before this lottery, the only people allowed to open new dispensaries and sell recreational cannabis products were those operating in Illinois’ medical marijuana market.

Millions of dollars worth of cannabis licenses are on the line. Some believe that the application process has been rigged in favor of candidates with ties to state politics. But are these beliefs justified?

The GRI scandal

On Thursday, Sept. 3, 2020, cannabis firm Green Renaissance Illinois (GRI) moved on to the finals of Illinois’ lottery to receive cannabis shop licenses. But the company’s contributors have ties that may have given it an unfair advantage over the competition.

When the state announced the finalists, State Rep. La Shawn Ford (D-Chicago) began speaking out against the social equity licensing process.

“Anybody that thought that they had a chance to get into cannabis with a fair shot, it seems as though they were wrong,” Ford explained. “And they invested and borrowed to make this dream become a reality when their odds were against them because the odds were for the well-connected. And that’s the problem.”

GRI’s registered managers include restaurant mogul Phil Stefani, Thomas Wheller Jr., a former high-ranking Chicago cop, and John Trotta, the former vice president of purchasing and warehousing for the Chicago Transit Authority. The former director of operations for the Illinois House Republican Organization, Ashley Barry, is also working with the GRI as its community outreach coordinator.

Ross Morreale, brother-in-law of former state Rep. Michael McAuliffe (R-Chicago) and the co-founder of one of Illinois’ more lucrative cannabis cultivation sites, and Jay Stewart, a former director of the Illinois Department of Financial and Professional Regulation (the agency responsible for issuing new cannabis shop licenses) have guided GRI throughout the application process.

After submitting 25 perfect applications under the name GRI Holdings LLC, the company has the potential to win the right to open up to 10 cannabis shops. Chicago Sun-Times reported that one estimate values the licenses at more than $133 million.

GRI’s listed address is located in the same office suite of multiple powerful lobbyists registered with Illinois. But GRI spokeswoman Anne Kavanagh claims this is only a mailing address and that none of the building’s tenants are connected to the company.

GRI states that their applications are fully compliant with state regulations. The company’s chief executive is a Latino real estate developer, Gabriel Martinez, and their team is composed of women, African Americans, and veterans, ensuring they fit the state’s guidelines for social equity applicants.

But this scandal isn’t about fulfilling state regulations; it’s about the fact that several members of this cannabis firm could have been given an unfair advantage because of their connections. The evidence is stacked against this firm, and the public doesn’t believe this evidence is coincidental.

The KPMG/EHR scandal

As Quad-City Times reported, the Illinois Department of Financial and Professional Regulation created a 250 point scale to score firms. An unaffiliated third-party consulting firm, KPMG, was paid $4.2 million to grade the applications. IDFPR gave them a no-bid contract.

But some applicants who have applied in multiple regions complain that they’ve been given different scores on identical parts of their applications–depending on what region they’re applying in. Some even allege that they’d been turned down without being given notice of the deficiencies in their applications.This notice is required by the law that made cannabis legal in Illinois.

Hamd Kamal, a risk management consultant for KPMG, raised red flags because he’s also listed as a manager of EHR Holdings LLC, an upstart cannabis firm. Chicago Sun-Times reported that former Chicago Police Supt. Terry Hillward, a retired cop of 35 years who spent the last 5 and-a-half years as the city’s top police officer and has connections to the city’s most prominent politicians, is backing the firm. This firm’s principal address is near a West Side head shop, Smoke Stop, that Kamal also operates.

EHR is one of the 21 firms that made it to the lottery finals after earning perfect scores on its applications. But once news broke that a KPMG employee works with a firm that’s secured five spots in the dispensary lottery, critics voiced concerns over the firm’s contract, methods, and how the application process was carried out.

Despite the uncertainty over KPMG’s role in doling out new recreational cannabis licenses, the Illinois Department of Agriculture awarded the firm another no-bid contract valued at $2.5 million.

State Rep. Emmanuel “Chris” Welch took to Twitter about the situation, “The worst thing you can do is to keep digging a deeper hole. I would like to suggest to (Gov. Pritzker) to step up and put the social equity licenses on hold. KPMG and others screwed up. Stop this mess!!!”

Applicants given second chance to qualify for a cannabis retail license in Illinois

With the evidence stacked against GRI, KPMG, and EHR and concerns over shutting out the same minorities this process was meant to benefit, lawmakers and stakeholders have demanded Gov. JB Pritzker wait before awarding 75 cannabis dispensary licenses.

On Monday, Pritzker announced that any applicant who didn’t receive a perfect score of 252 will be given information on how to improve and may amend their applications. If they think their original score was actually erroneous, they can request a rescore from the Illinois Department of Financial and Professional Regulation.

“…When we heard significant concerns from numerous stakeholders about the process to award dispensary licenses, I said we needed to take a pause to fix their concerns, within the bounds of our landmark law,” Gov. Pritzker explained in a press release. “While this process remains a marathon and not a sprint, we believe that these new steps will inject more equity and fairness in the first round of license awards and provide insight as we improve the process for future rounds.”