Illinois' Cannabis Market: What Investors And Entrepreneurs Need To Know

Illinois' cannabis market is ripe with investment and ownership opportunities as it continues to surge upward.

In May, the state surpassed $1 billion in adult-use revenue after beginning sales in January 2020. In April, the state set a new monthly record with $115 million in sales.

Q1 2021 saw additional records reached with $86 million in tax revenue, surpassing the liquor industry's $72 million. The state ended the previous fiscal year with $317 million in cannabis tax revenue.

Still, taxes remain a point of concern, with some adult-use cannabis products reaching 41% in combined sales tax.

A Growing Market Ripe With Investment Opportunities

Operators broadly commended the state for its efforts and results so far.

Kris Krane, co-founder of the multi-state operator (MSO) 4Front Ventures Corp. FFNTF and president of Mission Dispensaries in Illinois, said the state is "ripe for investment" and that it enjoys "blue sky growth potential" backed by a market with minimal regulatory uncertainty.

"It is hard to find an adult-use program two years in with as much growth potential as Illinois has today," Krane said.

Abner Kurtin, CEO of MSO Ascend Wellness Holdings, Inc. AWWH, also noted the state's solid sales and growth potential. He called Illinois the basis for Ascend's expansion strategies into other markets.

"We will continue going full steam ahead with our flagship retail store model, premium brand offerings and increased wholesale output," Kurtin said. Ascend has opened eight retail locations and a 55,000-square-foot cultivation space since launching in Illinois two-and-a-half years ago.

Gary Levenstein, a partner at Chicago firm Nixon Peabody, commended the state's financial performance and commitment to social equity. He highlighted 50% cuts to $5000 licensing fees to encourage more minority ownership in the marketplace.

With its performance so far, Kurtin considers Illinois "a model for surrounding states," including newer adult-use market Michigan and medical states like Missouri and Ohio.

Levenstein also recognized that ongoing prohibition in the surrounding region might be helping Illinois.

"Our state is also bordered by two large states—Wisconsin and Indiana—where adult-use cannabis is not currently legal, which likely benefits Illinois in the form of non-resident sales," he added.

Rollouts And Legal Battles Slightly Hindering Progress

A rapid rollout and licensing delays have created some setbacks to Illinois' maturing market. Still, sources say that optimism reigns supreme.

Krane explained that the fast pivot from medical to adult use led to short-term production shortages, high prices and long waits. In Illinois, medical marijuana patients receive priority over recreational consumers.

"Due to this, we believe that the vast majority of potential adult-use customers are still obtaining product from the legacy market," Krane said, predicting ample room for growth as legacy buyers convert to adult use.

Legal battles slowed the rapid rollout to some degree. Krane said the first round of licensing was primarily out of regulators' hands due to legal disputes.

"Until these issues are resolved, it will be challenging for the existing industry to fully meet demand and see the large increases in market size that we anticipate," he said.

Most operators agree that delays and retail shortages combined with high taxes could steer consumers towards unlicensed retailers.

Krane expects the regulatory hurdles to be addressed through recent regulations.

"This should result in new licenses, particularly social equity licenses, to be granted in short order and allow the program to expand in the coming years," he said.

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