Green Thumb Industries Inc (GTBIF)

[FUNMAN]

Illinois adult-use cannabis market continues to be hampered by supply issues

Robert Connelly
Jul 8, 2020
Updated 3 hrs ago

https://qctimes.com/business/illinois-adult-use-cannabis-market-continues-to-be-hampered-by-supply-issues/article_5431a450-0494-5397-8efc-d3aad40615fe.html


Six months in, the supply concerns continue for adult-use cannabis sales at Nature’s Treatment of Illinois in Milan.

While some of it is an understandable growing pain of a state wading into recreational sales, Matt Stern, CEO and NTI’s owner, continues to point to the way the state set up its industry.

Major cannabis companies such as Green Thumb Industries, with a cultivation center in Rock Island, are what’s known as multi-state operators, or vertically-integrated businesses that grow cannabis and own retail dispensaries to sell it.

So an independent dispensary like Nature’s Treatment of Illinois, with its original Milan location and its second location in Galesburg, is at the mercy of cultivators.

“We’re barely getting enough flower now. We’re starting to get some, but it was very, very slow compared to the vertically-integrated shops, or the multi-state operators. So those guys grow their own flower and save it for their own dispensaries, which is a violation of state anti-trust laws,” Stern said.

That has been an issue from the start of the adult-use market opening in the Land of Lincoln on Jan. 1 as NTI wasn't able to sell any cannabis flower, or the most common form of pot that is smokable, until March 13. On Jan. 10, the state’s regulatory agency for the recreational cannabis market sent a letter to operators about that very issue.

Stern said he had been working with the Illinois cannabis lobbying group and other industry leaders in an attempt “to address these issues and get them to self-regulate and self-police before something drastic happens” like a state law change.

That’s happening while the state set another monthly record for sales. June saw 994,545 items sold for a total of about $47.6 million, with about $12.39 million to out-of-state residents, according to data from the Illinois Department of Financial and Professional Regulation, the state agency that oversees cannabis sales.

State Senator Heather Steans, D-Chicago, was one of the architects for the cannabis legislation.

She’s familiar with Stern’s situation as she’s heard from the independent operators who voiced their “concern about not being able to get enough access to product, that they’ve put in orders but aren’t getting them properly filled,” the state legislator said.

“We need to see data on a regular basis so we can understand what’s actually happening, and we need to see accountability on cultivators. ... Dispensaries can’t be held accountable if they just can’t get the product.”

Pam Althoff, executive director of the Cannabis Business Association of Illinois, said the state currently was reevaluating software that it uses to track inventory, a move encouraged by the cannabis industry in Illinois.

“We’re looking at the possibility of either upgrading and/or finding a new software vendor with a capacity to put all of this information online out on the web so that everyone — users, patients, interested parties — can actually see in real time how much cannabis is being produced as well as who they’re selling to,” Althoff said.

States that have similar systems include Colorado, Washington and Massachusetts, Althoff said.

In an emailed statement, Green Thumb Industries, a multi-state operator with a cultivation center in Rock Island, responded to the concerns about companies such as itself.

“We have continuously exceeded the state’s requirements to supply product to all dispensaries and, as our capacity increases, we will increase what we supply to all of the dispensaries,” GTI said.

But the issue isn’t unique to Illinois.

Andrew Livingston is the director of economics and research at Vicente Sederberg LLP in Colorado and also is co-host of the “Weed Wonks” podcast about the cannabis industry.

“This is a natural outgrowth of the fact that in cannabis, we tend to license far fewer cultivators than is necessary in order to meet demand and in order to really be competitive, driving down prices and ensuring everyone has their shelves stocked fully,” Livingston said.

The few licenses, and the cost of setting up those operations, lead to those multi-state operators having both cultivation and retail dispensaries in states that enter the legal cannabis sector, Livingston said.

Also at play is that Illinois has increased its medical patients while adding recreational sales, so the state has a limited supply and only so much square-footage across the state for both programs.

“Illinois should have issued those craft cultivation licenses first, then infusers and then dispensaries. They still haven’t issued any of them so they absolutely could flip the script around, but that would allow more inventory to be available by the time those retailers open,” Livingston said.

“A lot of this is due to the problem that Illinois had enough cultivators to satisfy a market in 2016 and 2017. … It’s pretty clear that Illinois should have issued more medical (cultivation) licenses back in 2018” as that program grew, he said. “The state has never dropped the average price per gram below $10, and that’s pretty expensive when you compare it to other similarly situated medical programs.”

The price per gram has steadily increased from $11 in May 2019 to mid-$14 a gram now.

But those three licenses Livingston talked about have all been delayed. Illinois was set to add 75 new dispensaries as well as licenses for infusers, or businesses that take cannabis and put them into products such as food, and craft cultivators, or smaller cultivation operations, which have been indefinitely continued by state officials. The state has cited COVID-19 as a reason for those delays.

But those delays hold up cannabis businesses for social equity applicants, a significant push behind the legislation that was signed by Gov. JB Pritzker last summer to bring legal adult-use cannabis sales to the Land of Lincoln.

The social equity element was an effort to bolster minority participation in the legal cannabis sector as the state is granting extra points to applicants who live in an area adversely affected by past drug policies, have a weed-related criminal record or have a family member who meets the criteria.

“I understand that COVID’s really impacted (awarding more licenses), but it means our whole effort on the social equity piece to get new companies of, hopefully, a different look and feel to their ownership structures haven’t had a chance to get in place yet so that’s hugely disappointing from my viewpoint,” Steans said.

“When the social equity licenses are issued (the desire) is to make sure they can succeed, and we need to make sure they can get product to sell, and that to me is the biggest outstanding thing that needs to be accomplished is some regulatory mechanism that all the cultivators are selling product to all, including the independent dispensaries.”

As far as how the first six months have gone, Stern, NTI’s owner, said the number of employees in Milan has doubled and, when counting workers at the Galesburg dispensary, likely totals about 50 now. He has also applied for at least 10 more dispensaries, one transportation license and four cultivations.

“We’re very happy that we’ve been able to, on the medical side, we’ve been able to help so many people with the conditions that they’ve had,” Stern said of the increase in patients.

GTI noted that cannabis sales topped more than $77 million total in June, counting the medical side.

“We look forward to the social equity licenses being awarded and to welcoming a new generation of entrepreneurs into the industry,” the company said in an email.

“The industry is providing jobs and much-needed tax revenue in Illinois. Green Thumb has continued to add people to our team even during the COVID-19 crisis.”