If recreational cannabis becomes legal in Illinois, how the industry could grow

No one predicts pot brownies for sale in every grocery store if recreational adult use of cannabis is approved by the Illinois legislature.

But experts and industry insiders anticipate plenty of opportunities for businesses to get involved in what could be a new legal market for an already popular product.

Business possibilities will expand beyond growing, processing, packaging and selling cannabis into education, health care, science, research, construction, banking, accounting, legal services and other ancillary fields.

Companies entering the fray will have to comply with government regulations and taxes that are yet to be written and likely will vary from those applied to the medical branch of the industry. Experts predict these rules will be the biggest limiting factor in what could be an economic boom.

While not everyone supports the legalization of recreational cannabis, it's on Gov. J.B. Pritzker's agenda and has been pitched by state Sen. Heather Steans and state Rep. Kelly Cassidy, both of Chicago.

Pritzker told the Daily Herald editorial board he hopes legalization could expand opportunities for employment and investment.

“One goal is also to create jobs and have ownership and equity owned by the people who live in Illinois,” he said.

Some suburban doctors, superintendents, politicians and police chiefs fear increases in cannabis-related overdose deaths, fatal crashes and misuse by teens. But many supporters and skeptics alike predict adult use eventually will gain approval.

For businesses, that means now is the time to prepare for what one cannabis company executive calls “a slow crawl into a beautiful industry.”

High demand

Dustin Shroyer, chief operations officer of Revolution Enterprises, a cultivation and consulting company that grows cannabis in downstate Delavan between Bloomington/Normal and Peoria, said job possibilities will include beginner and advanced positions if a recreational industry is introduced, allowing companies to capitalize legally on money cannabis consumers already are spending.

In Delavan, Revolution employs entry-level cultivators and plant processors as well as trained chemists, geneticists, managers and a security team. Shroyer said the company would need to increase staffing in all of these positions if it gets the green light to grow for recreational as well as medical consumers.

A need for new shops to sell recreational-use cannabis would arise as well “because there will be a lot of consumer demand,” Shroyer said. But because of anticipated licensing regulations, he predicts only cannabis-specific businesses - not general retailers or food sellers - will earn permission to offer the products.

As the market forms, Pritzker said, it's important to ensure minorities can get involved after drug laws disproportionately have imprisoned people of color and none of the state's medical cannabis licenses have been awarded to minority operators.

“That shouldn't happen with adult cannabis,” Pritzker said. “We want to be sure the benefits of the industry in part flow to communities of color.”

Others want to ensure gender diversity in the new market as well, especially members of an organization called Illinois Women in Cannabis.

Kalee Hooghkirk, who runs a West Dundee business called Full Spektrum Services, which sells hemp-based products and helps patients apply to join the medical cannabis program, is one of them.

“We really need to expand the field for more women and minority business owners,” she said.

Outside of cultivation companies and retail shops, industry expansion after recreational legalization in other states has led to new positions in other realms, said Morgan Fox, spokesman for the National Cannabis Industry Association.

“One of the most noticeable effects, aside from direct job creation, will be the bolstering of the ancillary industries that are involved with a new cannabis industry: contractors, plumbers, construction, real estate, software companies, people who work on point-of-sale systems, interior designers,” Fox said - even companies that make and install specialized lighting fixtures used for cultivation and retailers who sell gardening supplies.

“Cannabis has been around and popular and available for decades,” Fox said. “There is nothing anyone could do that is going to alter the consumer base that much.”

Producing a market

If recreational use in Illinois mirrors trends in Oregon, which approved the practice in 2014, the state could see large numbers of residents report being users.

Oregon has 417,000 active cannabis users, who make up roughly 10 percent of the state's population, according to a 2018 report about production, distribution and consumption by the Oregon-Idaho High Intensity Drug Trafficking Area. Those users consume an estimated 185,000 to 372,600 pounds of cannabis a year, with a market value of up to $1.3 billion. Studies have shown consumption rates vary depending on retail prices.

While the user market appears large in other states, studies caution against potential price fluctuations for producers and wholesalers.

In Oregon and in Washington state, which approved recreational use in late 2012, cannabis prices have fallen over time, according to a research paper on Washington's legal market in the International Journal of Drug Policy in 2018. In Oregon, that's because legal production capacity totals 2 million pounds a year - far outpacing even high-end consumption estimates.

Consumers in Washington now can buy an ounce of cannabis at a recreational dispensary for roughly $100. But several reports say the wholesale price producers are receiving per ounce has dropped to roughly $30 because of oversupply.

On the black market in the suburbs, for comparison, dealers typically charge $150 to $200 per ounce, depending on potency, said Andrew Anselm, deputy director of the DuPage Metropolitan Enforcement Group, which fights illicit drug trafficking.

In Illinois, some industry insiders fear not an oversupply but the opposite production issue. Cultivators will want to “corner the market,” said West Dundee businesswoman Hooghkirk. Licensing too few cultivators could lead to an inadequate supply for the state's 54,494 medical cannabis patients. Following the practice in other states, experts say Illinois is likely to allow growers to stock both the medical and recreational industries, while keeping medical patients separate from recreational clients.

“I hope that before moving into adult recreational use, we really make sure the medical program is running as smoothly as possible,” Hooghkirk said. “We want to make sure we're going to have adequate supply to our medical patients.”

Dr. Aaron Weiner, medical director of addiction services for Linden Oaks Behavioral Health in Naperville, also has health-related concerns about the possible creation of a recreational cannabis industry.

But as a critic of the state's medical cannabis program, which he said is “not what medicine looks like,” his issues lie with the potential consequences of expanding access to a substance to which he said a segment of the population is likely to develop dependence. He calls it “creating a public health problem.”

Weiner said the policy the state is considering would constitute commercialization of cannabis, not merely a removal of fines and legal penalties for possessing or using it.

“The commercial aspect of this is really my biggest stumbling block,” he said. “I can think of no benefit of creating a commercial market for marijuana that could not be more effectively solved with more targeted policy changes that do not create a new playground for addiction profiteers.”

Instead of allowing a retail market spawning for-profit enterprises, Weiner said, one alternative policy could be to create “a state-run dispensary system that has public health in mind,” in order to regulate the safety and contents of cannabis products.

Studies have shown youth perception of the risks of cannabis decreases when recreational use becomes legal, Weiner said, and increased availability will make prevention efforts that much trickier.

“It's a big industry,” he said. “It's trying to addict as many people as possible.”

Fox, with the National Cannabis Industry Association, calls it a “disingenuous allegation” that the industry is seeking to entice young clients and get users addicted. He said any law that would be approved in Illinois would contain marketing restrictions to ensure products are not designed to appeal to kids.

Seeking credibility

A large commercial market, while concerning to some, is exciting for others, including Mahja Sulemanjee, director of marketing and outreach for Grassroots Cannabis, which operates four Greenhouse dispensaries in Illinois, including one in Deerfield.

The Greenhouse brand is based on health, Sulemanjee said, and the company prides itself on being an “educational leader.” For medical cannabis sellers to stay profitable if or when recreational retailers enter the market will require strong branding and an emphasis on expertise.

“We'll have to fight more for credibility,” Sulemanjee said.

Even as new recreational-use clients would enter the market, Sulemanjee said, tax benefits likely in any legalization would incentivize medical users to keep their licenses and purchase products from medical dispensaries.

“Separate from the anxiety of thinking, 'Oh, wow, will my products be the same? Will I get the same care?' they'll understand they're not being taxed on those (medical) products, versus the recreational or adult-use products that will be taxed,” Sulemanjee said.

Even outside of the medical cannabis industry, Hooghkirk says recreational-use cannabis can be applied in the alternative health field, creating an “awesome hybrid of wellness services.” She says she'd love to sell cannabis-based products at her shop and allow the massage therapists who see clients there to infuse cannabis into the spa services they provide.

“There's so much potential,” she said.

Hiring positives

If or when Illinois allows adult cannabis use to begin, the business effects could be seen right away, according to a 2018 report called The Economic Effects of the Marijuana Industry in Colorado, produced by the Federal Reserve Bank of Kansas City.

In January 2014, the first month recreational cannabis retailers were open in Colorado, sales at 156 licensed stores exceeded $14 million. That year, sales totaled $303 million.

By 2017, recreational sales had grown to $1.1 billion, and by February 2018, the number of licensed recreational retailers had more than tripled to 518.

The Colorado report also sheds light on the number of people who could work directly in an Illinois adult-use cannabis industry.

Colorado had issued 38,000 licenses for industry employees as of March 2018, according to the report, with roughly half of license-holders actively working in the field. The industry employs roughly 17,821 full-time-equivalent positions - an encouraging statistic to those who would like to see more cannabis jobs created here.

“Generally,” said Shroyer with the cultivator Revolution Enterprises, “I think you're going to see a lot of positive economic benefits.”

Daily Herald staff writer Marni Pyke contributed to this report.