7 years after legalization, final cannabis licensing lawsuit goes to court

CHICAGO — Nearly seven years after Illinois lawmakers approved recreational cannabis legalization, applicants who lost out on coveted business licenses are still battling the state in court, alleging the law’s rollout undermined its purported equity goals.

At the time of its passage in 2019, supporters of Illinois’ landmark law touted it as the most equity-centric legalized cannabis program in the nation. But one of the centerpieces of that legislation — setting aside the majority of cannabis business licenses for “social equity” applicants disproportionately affected by the War on Drugs — proved more complicated than the law’s authors had imagined, setting off years of litigation over the process.

The final lawsuit of dozens filed following the first cannabis licensing lottery in 2020 finally got its day in court this week, marking the conclusion of a yearslong legal saga testing the state’s legalization policy. But it’s also the last chance for the plaintiff, Well-Being Holistic Group, to have an opportunity for a dispensary license after all four of its applications lost in three lotteries.

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“We just want a fair shot,” the Rev. Otis Davis, said after a hearing in the case Wednesday. “We’re not asking for anything special, no special privileges, but what they promised from the very beginning. … So we just saying, ‘Hey, that the system is broken, then they should redo it, and they should give everybody a chance.’”

Davis preaches at Repairers of the Breach Ministries in Chicago’s Back of the Yards neighborhood and unsuccessfully ran for Chicago City Council in 2019. He was part of the team that applied for dispensary licenses as Well-Being Holistic Group in 2020. Chris Harris, an attorney who’d represented Davis, teamed up with his client along with Harris’ friend and business partner David Roberts to submit the applications.

Harris was blunt in his assessment of Davis’ value to the team: “Otis being a veteran, Otis being a practicing minister on the South Side of Chicago coming from a disproportionately impacted area — we had what we thought was a perfect team, and a team that was designed to win this type of license.”

In fact, Well-Being Holistic Group’s applications received perfect scores, but still didn’t win a license. While most lawsuits filed against the state after the lottery process were from applicants who disputed their scores for a chance to be included in the lottery, Well-Being’s case argues a different legal theory, which attorney Chris Carmichael of Henderson Parks said is the “most difficult path” of all the lawsuits.

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Plaintiff alleges lotteries were rigged

Well-Being argues that the Illinois Department of Financial and Professional Regulation, which operated the lotteries, improperly allowed roughly 450 ineligible entries into a lottery of 901 applicants for dispensary licenses in the Chicago region. That, Well-Being argues, nearly doubled the size of the pool and reduced others’ chances of winning.

Well-Being alleges the entries should have been flagged as ineligible because corporate dispensaries that already had a footprint in Illinois’ medical cannabis market had their fingerprints on applications for social equity dispensary licenses.

In one case, Carmichael said a company paid for roughly $500,000 in application fees — something IDFPR and the consultants hired to vet applicants and conduct the lotteries should have caught, as the “remitter” line on those cashier’s checks contained the name of the company.

IDFPR maintains it did its due diligence by checking out the individuals named as principal officers on the license applications, which the agency argues would have caught any attempts to flout application limits or hide true ownership of the entity behind an application.

But Well-Being argues vetting only individuals missed the forest for the trees, causing IDFPR to overlook dozens of applications having the same corporate sponsorship.

Alex Moe, a lawyer from the Illinois Attorney General’s office, told Cook County Judge Patrick Stanton on Wednesday that Well-Being was “missing that consultants were expected” to take part in the application process. There were no rules against those consultants paying for application fees either, he said, unless consultants had undisclosed financial interest in the entity applying for licenses.

Further, Moe said Well-Being’s theory of mathematical unfairness in the lotteries is fundamentally incorrect.

“Even if Well-Being is correct and half the applicants should not have been in there, it doesn’t change the outcome,” he said.

By following the “paper trail” created by the lottery, Moe said IDFPR recalculated what would have happened if the applications Well-Being allege should’ve been marked ineligible weren’t in the pool. Well-Being would have placed 126th out of 450, he said.

“That’s something we know with mathematical certainty — that Well-Being would not have received a winning drawing,” Moe said.

Corrective lottery?

But Carmichael pointed out that since the state has social equity cannabis dispensary licenses going unused, “the only possible meaningful thing to do is to run a corrective lottery.”

The state already ran corrective lotteries after initial litigation held up the license awarding process for a year. The first dispensaries owned by social equity license holders didn’t open until November 2022 — nearly three years after the application process opened. As of January, only 64% of licensed social equity dispensaries were operational, according to an analysis by The Chicago Reporter.

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Stanton, who pointed out multiple times during Wednesday’s hearing that IDFPR had wide latitude over interpreting state statute, said he understood Well-Being’s claims but seemed skeptical of its arguments that a court should step in and tell a state agency how to do its job.

“It sounds to me like … there was some vetting done before the lottery. Maybe not the level of vetting you think should’ve been done,” he told Carmichael. “You’re saying they didn’t do enough. And I feel like, ‘Okay, that’s sort of the decision of the department.’”

The judge said he would need more proof that IDFPR “didn’t follow statute” in order for judicial review to be warranted.

“They did something,” Stanton said of IDFPR. “Perhaps not enough. Applying the standards they did, it seems to me they caught what they should’ve caught.”

The judge is set to rule at a May 21 hearing.

Capitol News Illinois is a nonprofit, nonpartisan news service that distributes state government coverage to hundreds of news outlets statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.