Though 2020 has been a wild ride, and doesn’t include much worthy of celebration, the cannabis market in Illinois has at least seen some positivity this year. Recreational marijuana sales hit record highs in September, 9 months after the state legalized adult-use cannabis.
Dispensaries in Illinois sold almost $68 million worth of cannabis products in September. Of the 1.4 million items sold in September, about a quarter of them went to tourists. People visiting from out of state to buy weed gave about $18 million to Illinois’ economy. Just under $50 million worth of product was sold to in-state residents.
In January, when recreational marijuana was first permitted in Illinois, total sales were just over $39 million, about a fifth of which went to out-of-state buyers. After the flood of people excitedly making their first purchase died down, the Illinois cannabis market saw a slight dip for the next few months. Sales wouldn’t reach January numbers again until May, but from then on, they’ve continued to climb at a rapid pace.
Morgan Fox, the Media Relations Director for the National Cannabis Industry Association, says that trend is to be expected.
“I think a lot of it is also just the fact that it’s a new market. Some stores are finally getting online, whereas they weren’t able to earlier. More and more people are feeling comfortable with the regulated market. You pretty much see this at the beginning of any new cannabis market, where the numbers steadily climb and then eventually reach some sort of equilibrium point.”
The National Cannabis Industry Association has been around since 2010. Today, it is the oldest and most well-established cannabis business trade association in the country. It’s primary focus is lobbying Congress to pass laws that aid the cannabis industry. Fox says there are about 2,000 members of the Association, about 30% of which are plant-touching businesses and 70% ancillary businesses. Its work in Congress has been largely delayed due to the pandemic.
The Benefits of Market Maturity
Cannabis markets as a whole took a major hit in many states when the pandemic started to take hold of America. Some dispensaries were closed for weeks; others were open, but with limitations so strict, they could serve only a fraction of their maximum capacity of customers. People also started spending less money as layoffs and furloughs became more widespread, meaning people had less dispensable income available; then people spent more as they got unemployment checks and stimulus money.
Illinois didn’t seem to be hit by any of those problems. But as to whether sales numbers will continue to rise at such an astonishing rate is difficult to predict.
“I think that it’s very likely that we’re going to see the sales numbers continuing to rise, at least for the foreseeable future. I don’t know how steeply they would; every single market is a little bit different. But, I think that it’s safe to say that as the market continues to establish itself, we will see those sales numbers continue to rise for the near-future,” said Fox.
Those January sales where people eagerly made their first marijuana purchase are meager compared to the success businesses are enjoying as they gain traction. January sales were 29 million less than the amount of money recreational weed made in September. September’s numbers soar past sales in the month prior by almost $4 million.
Fox says the increase in legal sales in Illinois would inherently mean a decrease in those made on the black market.
“Every sale that takes place on the legal market is one that doesn’t take place on the unregulated market. And I don’t think all of that is simply explainable by people wanting to help treat their anxiety or having extra funds through earlier stimulus checks or increased unemployment benefits. There has been a little bit of polling information – nothing I would call scientific – trying to break down some of the motivations for all of this. Not wanting to obtain cannabis from unregulated sources is definitely a factor.”
Cannabis consumers in Illinois tend to favor flower and concentrates over other forms of intake. Combined with medical sales, consumers purchased $95.5 million worth of cannabis products in Illinois during the month of August. That’s made up of about 39% flower sales, at $37 million. A close second place is taken by sales of concentrates, accounting for 35% of sales and $26.8 million, and ingestible or edible products made up 17% of sales with $15.9 million raised. Pre-rolled joints claimed 7% of the market and $6.7 million in revenue in August.
Eventually, Illinois cannabis producers are going to have to participate in the trend of “budget marijuana” or lower-quality, more affordable strains and products. Fox says otherwise, legitimate companies will face more competition from the black market.
“Every regulated market has usually come to some sort of a balance point where basically everybody that wants to be shopping at regulated stores is doing so. But, there is a sub-section of consumers where their primary concern is about price. Unless the regulated stores can be competitive in terms of bottom-line price with the illicit market, there’s always going to be that sub-section that continues to shop from unregulated sources.”
Retail Market Size and Licensing
The State of Illinois says there are 67 licensed recreational dispensaries within the region’s borders. 55 medical dispensaries that were already operating when the product was legalized in January 2020 were permitted to begin adult-use sales at a separate location.
Illinois is also in the process of adjusting its licensing practices. The expectation is that sales will only continue to rise as more companies are able to get their adult-use dispensaries up and running.
Complaints came out that the licensing process favored wealthy or well-connected applicants. Southshore Restore and Heartland Greens filed a federal lawsuit on behalf of more than 70 business owners who’d applied for licenses. Of the 700 businesses that applied, only 21 were able to qualify for the lottery licensing program. There were 75 licenses available, and applicants can try for multiple licenses.
The licensing process incorporated a scoring system that promised to take social equity into account. Military veterans, female and minority applicants, and applicants applying in areas that had been disproportionately affected by the War on Drugs were all supposed to receive extra points, like a handicap score.
The lawsuit asked the State of Illinois to reconsider its licensing process and put the lottery on hold in the meantime. Governor J.B. Pritzker relented, and said unsuccessful applicants could adjust their applications and re-apply before the licenses are awarded through the lottery system. Since the people pushing the complaint forward got what they wanted, they dropped the lawsuit.
Governor Pritzker’s staff is working on changes for future licensing. That includes limiting the number of licenses for which a person can apply and adjusting the scoring system. As recreational marijuana becomes available on a larger scale, meaning people have more choice in variety and options in closer proximity to their homes, sales numbers should continue to rise.
The SAFE Banking Act
Another thing that could help sales in Illinois is the SAFE Banking Act. The Secure and Fair Enforcement Banking Act of 2019 would allow banks to legally work with cannabis-related businesses; right now, most people in the industry have to deal almost exclusively in cash.
“There are ways that banks can work with cannabis businesses, but the vast majority of them don’t want to… It’s incredibly labor-intensive because they have to file special reports for every transaction, and they’re also worried about both reputational and prosecutorial risk.”
Fox says language from the SAFE Banking Act has been incorporated into two separate coronavirus relief packages.
“We’re hoping we’ll be able to have that language included into whatever the final negotiations are between the House and Senate on that. Trump has said there’s not going to be any stimulus deal before the election, but that could change. At the end of the day, though, the SAFE Banking Act language is pretty much revenue-neutral and despite some posturing by a couple of lawmakers here and there, it’s really not anything that is particularly contentious when you’re looking at larger stimulus package negotiations.”
Fox says renewed interest in criminal justice reform and the More Act, which would decriminalize marijuana, are also steps forward.