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What Makes Illinois’s New Adult-Use Marijuana Law Noteworthy . . .

Posted by on Friday, June 28, 2019 in News, Updates.

On Tuesday, Gov. J.B. Pritzker signed legislation that made Illinois the 11th state (or 12th state-like jurisdiction, if you count D.C.) to legalize adult-use (aka recreational) marijuana. Illinois legalized medical marijuana back in 2013.

The full Cannabis Regulation and Tax Act (CRTA) can be found here. It’s long (600 pages), but the state has prepared a helpful summary, which can be found here.

The CRTA is very similar to adult-use marijuana laws that have been passed by other states. (Chapters 4 and 7 of my book discuss those laws in great detail.) It permits adults to possess small amounts of marijuana (e.g., 30 grams of raw flower), and it permits licensed companies to grow and sell the drug commercially, subject to extensive regulations.

Although the CRTA looks familiar, it is noteworthy for at least a few reasons I discuss here.

1. Illinois will put adult use marijuana in close(r) reach of millions of people who live in nearby quasi-prohibition states

Illinois shares a border with four states that still have very restrictive marijuana laws: Iowa, Wisconsin, Indiana, and Kentucky. Each of these states continues to ban cannabis containing THC in any appreciable amount. (Illinois also shares a border with one state that has legalized medical marijuana–Missouri, and another state that has also legalized adult use—Michigan (across Lake Michigan).)

Given the limits imposed by these other states, it seems likely that Illinois marijuana shops will soon be supplying buyers from around the Midwest (i.e., not just from Illinois). After all, as I suggest in my article on Marijuana Localism (excerpted in the book on pages 550-552 and 561-568), marijuana is easy to smuggle across porous local / state borders. Indeed, a recent paper from Benjamin Hansen et al. suggests that legalization in one state can have a sizable impact on access to marijuana in a neighboring prohibition regime: Federalism, Partial Prohibition, and Cross Border Sales: Evidence from Recreational Marijuana (Nov. 2018). For example, the authors find that Washington state’s “unilateral decision to legalize [recreational marijuana] may have effectively given Idaho residents roughly half of the access to marijuana that they would receive were they to choose to legalize themselves.” Id. at 7. As I noted in this prior piece, Idaho is the last state to prohibit marijuana (including CBD only) outright .

How might Illinois’s neighbors respond? When Colorado legalized recreational marijuana, two of its neighbors (Nebraska and Oklahoma) sued the state in the United States Supreme Court. Complaining of an influx of Colorado-sourced marijuana, Nebraska and Oklahoma asked the Court to declare that Amendment 64 and implementing regulations were preempted by the federal Controlled Substances Act. I discuss the suit in the book (pages 535-550). As noted there, the Supreme Court refused to hear the case on its (discretionary) Original Jurisdiction, but it arguably left the door open (a bit) to filing the suit in another venue. In theory, one of Illinois’s neighbors (say, Indiana) could try to mount a similar preemption challenge to the Illinois CRTA in another venue (say, a federal district court). However, for reasons I have discussed in depth elsewhere (e.g., On the Limits of Supremacy; The Implications of Murphy v. NCAA for State Marijuana Reforms), such a suit is likely to be rejected on the merits, even if it gets heard in some court. Thus, if Illinois’s neighbors are bothered by legalization in The Prairie State, they will probably have to resort to intercepting Illinois-sourced marijuana at the state border or inside their own states (no easy task).

Illinois could even create some headaches for Michigan (and vice versa). After all, marijuana’s portability can undermine the regulations passed by legalization states too – i.e., not just prohibition states. Among other things, the availability of adult use shops in a neighboring state likely limits – as a practical matter – the tax rate that either Illinois or Michigan could impose on local marijuana sales.

2. Illinois is planning a fast rollout of marijuana legalization

Illinois officials plan to have adult use shops open and serving customers by Jan. 1, 2020 – just 6.5 months after passage of the CRTA. If Illinois sticks to that plan, it will have made adult use marijuana commercially available faster than most (and perhaps all) other adult-use states. For example, Michigan passed its marijuana legalization initiative back in November 2018, 7.5 months ago, but adult-use shops probably will not open in that state until the end of 2019, at the earliest.

How is Illinois going to do this? Like many of the other medical marijuana states that have expanded to adult use, Illinois will allow existing medical marijuana shops to serve the adult use market. But in comparison to other states, Illinois’s process for licensing these existing medical marijuana suppliers is very fast.

In particular, the CRTA provides that any licensed medical marijuana dispensary may

“within 60 days of the effective date of [the CRTA], apply to the Department for an Early Approval Adult Use Dispensing Organization License to serve purchasers at any medical cannabis dispensing location in operation on the effective date of this Act.”

Section 15-15(a) (emphasis added). I believe the effective date of the Act is June 25, 2019 (per the legislature’s webpage), so a medical marijuana shop could already apply to the state for one of these Early Approval Adult Use licenses (although it might have to wait for the state licensing authority to create an application form). All the shop needs to do is satisfy the criteria explicitly listed in CRTA Section 15-15(b), including, e.g., payment of a $30,000 fee. Moreover, the CRTA mandates that the licensing authority “shall issue the Early Approval Adult Use Dispensing Organization License within 14 days of receiving a completed application” (so long as the applicant meets the criteria specified in Section 15-15(b)). Id. (emphasis added). The only hold up is that Early Approval licensees may not sell to the public before January 1, 2020. Id. at 15-15(g).

Compare this timeline to the one being followed by Michigan. The Michigan Marijuana Regulatory Agency (MMRA) still needs to create the licensing application that medical marijuana shops will use to apply for adult-use licenses. See  Amy Biolchini, Michigan’s New Marijuana Regulatory Agency Plans to Launch Recreational Market by Fall, at Michigan’s Proposal 1 gives the agency until December 1, 2019 to do so, although the agency hopes to launch the licensing application process a little ahead of schedule, in September (still roughly 10 months after passage of Proposal 1). But even after companies start submitting license applications, the MMRA still gets 90 days (not just 14) to review them. Thus, even if all goes according to plan, licensed adult use shops likely will not open in Michigan until the end of 2019, at the earliest. That’s about the same time shops will open in Illinois, so Illinois will have shaved about 7.5 months off the time it took Michigan to go from passage of legalization to first lawful commercial sale.

3. Illinois will seek to diversify the licensed marijuana industry through race-neutral means that should work—and should survive constitutional scrutiny

The lack of racial diversity among licensed marijuana suppliers has become a hot-button issue, especially given the disproportionate negative impact prohibition had on minority communities. (I discuss the diversity issue in the book on pages 248-249 and 520-525.)

A few states have tried to boost diversity by adopting racial preferences (i.e., affirmative action) in the award of marijuana licenses. However, an Ohio court has already ruled that use of racial preferences in the award of medical marijuana licenses violates the Fourteenth Amendment’s Equal Protection Clause. See  UPDATE: State Judge Holds Ohio Medical Marijuana Licensing System Unconstitutional. And Maryland’s medical marijuana licensing board had earlier declined to use racial preferences in awarding that state’s licenses (notwithstanding a statutory command to use them), due to similar concerns that the preferences violated the federal constitution. See book (pages 520-525) and Suit Challenging Maryland’s Refusal to Use Racial Preferences in Licensing Has Been Settled.

In theory, a state could successfully defend the use of racial preferences – they’re not per se unlawful; but it’s very difficult to satisfy the constitutional test that governs racial preferences (strict scrutiny). See, e.g., New Study Defends Constitutionality of Racial / Gender Preferences in the Award of Marijuana Licenses.

To avoid these constitutional concerns, Illinois has eschewed explicit racial preferences in favor of two race neutral initiatives that should (nonetheless) help boost minority participation in the state-licensed marijuana industry.

First, Illinois will consider “Social Equity” in the award of new marijuana licenses. In particular, Social Equity Applicants will be awarded extra points – 20% or more of the total points available — in the scoring system used to award competitive state licenses. See, e.g., CRTA Section 15-30 (Conditional Adult Use Dispensing Orgnaization); Section 20-20 (Adult Use Cultivation Centers); Section 30-15 (Craft Growers); and Section 35-15 (Infusers).

To simplify somewhat, the CRTA defines a “Social Equity Applicant” as someone who either:

(1) Resides in a high-poverty area that also has a high arrest rate for marijuana offenses, or
(2) Has a prior arrest or conviction for a marijuana offense that may be expunged under the CRTA

CRTA Section 1-10. Here’s the full language of the Section 1-10:

“’Social Equity Applicant’ means an applicant that is an Illinois resident that meets one of the following criteria:

(1) an applicant with at least 51% ownership and control by one or more individuals who have resided for at least 5 of the preceding 10 years in a Disproportionately Impacted Area; or

(2) an applicant with at least 51% ownership and control by one or more individuals who . . . have been arrested for, convicted of, or adjudicated delinquent for any offense that is eligible for expungement under this Act; . . .

(3) for applicants with a minimum of 10 full-time employees, an applicant with at least 51% of current employees who:

(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 this Act . . .

‘Disproportionately Impacted Area’ means a census tract or comparable geographic area that

(1) meets at least one of the following criteria:

(A) the area has “a poverty rate of at least 20% . . . or (B) 75% or more of the children in the area participate in the federal free lunch program according to reported statistics from the State Board of Education; or (C) at least 20% of the households in the area receive assistance under the Supplemental Nutrition Assistance Program; or (D) the area has an average unemployment rate, as determined by the Illinois Department of Employment Security, that is more than 120% of the national unemployment average, as determined by the United States Department of Labor, for a period of at least 2 consecutive calendar years preceding the date of the application; and

(2) has high rates of arrest, conviction, and incarceration related to the sale, possession, use, cultivation, manufacture, or transport of cannabis.”

Using both of these criteria (proximity to poverty and marijuana arrests) to award marijuana licenses should help boost minority participation in the marijuana industry. After all, minority applicants are more likely to satisfy both criteria, even though some non-minority applicants might satisfy them as well (that’s why these are arguably race neutral criteria) However, use of race neutral criteria like these probably will not trigger strict scrutiny. Hence, the CRTA Social Equity program is more likely (than explicit race preferences) to survive any constitutional challenge. (As noted in the book (Problem 9.5, page 525), Oakland has taken a similar approach to awarding local marijuana licenses.)

Second, in addition to considering Social Equity in the award of licenses, Illinois has also made it more affordable for low-income individuals to enter the marijuana industry. Among other things, the CRTA waives certain licensing fees for applicants who demonstrate an inability to pay them. The statute also provides state-funded business loans for low-income marijuana licensees who might otherwise struggle to start a new business. High licensing fees and a lack of access to capital are likely part of the reason why there is such low minority participation in the marijuana industry right now (see book, page 522, n.1). Hence, taking these additional steps should help boost racial (and socio-economic) diversity in Illinois’s marijuana industry.

That’s it for now. There are a few other things that Illinois is doing that may prove noteworthy, but I’ll save discussion of those for another day!

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