Social Equity Cannabis Business Owners Ask City Council Not to Abandon Them, Warn Intoxicating Hemp is Undermining Investments in Minority Communities

News, Statements, Social Equity

CHICAGO – A collective of predominately Black, brown and women social equity cannabis license holders joined Ald. Gilbert Villegas (36th Ward) at City Hall today to urge members of the Chicago City Council to reject attempts to legitimize intoxicating hemp, which is endangering consumers and undermining the state’s legal cannabis market, threatening investments in minority communities.

This comes Ald. William Hall (6th Ward) explores proposals to tax hemp-derived intoxicants sold in Chicago. Such an effort would legitimize intoxicating hemp products in exchange for a quick cash grab by the city. Instead of setting up separate rules for Chicago, city officials should work with the General Assembly to implement a statewide solution that regulates intoxicating hemp in a similar manner as legal cannabis.

“We need to take a moment to pause and reassess the legitimate market that already exists for cannabis and apply similar guardrails and guidelines to the grey market that hemp dominates,” said Ald. Villegas. “Many questions need to be answered and any form of incentivizing its use for a quick payout needs to be severely reconsidered. The city should work with state officials to outline a more structured, fair, and safe way of moving forward.”

Given the complexity of the state’s legal cannabis system – with more than 12 agencies overseeing the cannabis market – it is unlikely the city can meaningfully oversee intoxicating hemp on its own. There are also serious questions about how much money would really be captured, because legitimizing intoxicating hemp would only to cannibalize existing cannabis tax revenues. To see additional cannabis revenues to support city operations, the city should consider streamlining internal processes to make it easier for licensed cannabis business to locate in Chicago.

When Illinois launched its adult use cannabis program five years ago, it came with the promise of providing opportunities to those who have been disproportionately impacted by the War on Drugs. That included expungements for cannabis convictions, investing in violence prevention and youth development programs, and creating opportunities to participate in the legal cannabis industry. But just as many of these businesses are finally becoming operational, with more continuing to struggle, they are being pushed aside in favor of a gray market selling intoxicating hemp products.

“We are proud to operate in Illinois and want to continue to grow and invest in our businesses, but doing so is becoming increasingly unsustainable due in large part to the unregulated grey market,” said Akele Parnell, CEO of Umi Farms. “Without meaningful efforts to rein in the intoxicating hemp market, officials are turning away from the promise of our legal cannabis market and the investments made by small minority businesses owners across Illinois. It’s time Illinois lived up to the promises it made.”

Licensed cannabis businesses regulated by the state have gone through countless steps to ensure they are operating safely and adhering to detailed rules—including product quality control and testing, a strict ban on sales to anyone under 18, and numerous zoning guidelines such as those that prohibit dispensaries from opening next to schools. Intoxicating hemp products should be held to the same strict standards.

“As responsible cannabis license holders, we have invested significant resources, time, and effort to comply with the regulations and standards,” said Ted Parks, Executive Director of the Independent Third-Party Carriers Association and owner of Moetta’s Transport. “We as an industry adhere to strict protocols for cultivation, processing, and distribution to ensure the safety and well-being of our consumers and the integrity of this industry. The hemp industry has none of these same rules and no one holds them accountable. Why should they be allowed to write their own rules?”

Not only are those selling intoxicating hemp able to bypass strict requirements to operate a dispensary, but their market is also profiting from our communities without giving back. Illinois sets aside 25 percent of adult-use cannabis tax revenue to fund the Restore, Reinvest, Renew grant program. To date, roughly $250 million in R3 grants have been awarded to support legal aid, economic development, re-entry, violence prevention and youth development programs in communities impacted by the War on Drugs. The unregulated market supports no such programs.

“Cannabis operators are proud of the programs our revenue supports, including legal aid, economic development, reentry programs, and violence prevention,” said Ambrose Jackson, Chairman and CEO of Parkway Dispensary and The 1937 Foundation. “This work benefits our entire city, lessening the dependency on public support. This is the real-world benefit of our state’s cannabis program, and it’s missing from the unregulated hemp market.”

Tax Rules Just One More Hurdle for Social Equity

Tax Rules Just One More Hurdle for Social Equity

Social Equity

Navada Labs, LLC is a family business started by siblings who grew up in Chicago’s North Lawndale neighborhood. They believe in the power of cannabis to treat some common ailments and stimulate small business opportunities for Black and brown entrepreneurs.

After they were exposed to the health and wellness successes of cannabis for conditions like PTSD, anxiety, and cancer side effects, in 2019 they formed Navada. The moniker is a portmanteau of their grandmother (Navie) and mother’s (Ada) names, two women who inspired them to achieve personal and professional successes.

“We are very interested in giving back to communities and their members who have been devastated by the war on drugs,” explains Navada’s Ron Miller. “We will be hiring employees from all communities, especially minority communities, and we are also helping other social equity cannabis business applicants work through the process to ultimately become successful business owners.”

But starting and maintaining a small cannabis business isn’t easy for small entrepreneurs. This is something Navada has learned since winning a license to open a dispensary in Mt. Vernon, IL.

“I think we will spend between one and a half and two million dollars just to get us to the launch phase,” Miller says. “That includes the build-out, supply chain needs, professional services, security services, marketing, and rent, among other expenses.”

In addition to sheer cost, what has made Navada’s journey to a Mt. Vernon grand opening more difficult is acquiring funding, something that isn’t possible through banks because cannabis isn’t a federally regulated business. “Some credit unions are starting to approve cannabis business banking needs, which is helpful,” Miller says.

Another challenge to balancing Navada’s bottom line is the inability to deduct ordinary business expenses such as payroll, rent, utilities and other items which are typical write-offs for other kinds of small businesses. This has to do with IRS Code Section 280e which prohibits legitimate cannabis businesses from deducting normal business expenses. Making it more difficult, Miller expects to be taxed higher on Nevada’s profits while having fewer options for deductions than they would in other industries.

The Cannabis Business Association of Illinois is working closely with Illinois Senator Elgie Sims to pass Senate Bill 2196 which aims to de-couple Illinois from 280e, making it easier for small businesses like Miller’s to thrive. The urgency to pass this measure is important considering the significant growth in the Illinois cannabis industry and new licenses coming online, particularly those run by minority business owners who have received social equity licenses but struggle to access capital to get started.

Click here to learn more about 280e.