Marijuana Shortages Aren’t A Coincidence – Illinois Kept The Market Small On Purpose

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Marijuana shortages aren’t a coincidence. Illinois kept the market small on purpose.

Long lines, closures and shortages of product have frustrated consumers of legal weed in Illinois since the first of the year.

But state officials said the slow start to the sale of recreational marijuana was intentional, and one that cultivators also wanted. Both, however, say the eventual goal is a market where supply and demand are in balance.

Regulators sought to “intentionally slow things down to make sure we made space for new entrance to the market,” said Toi Hutchinson, Gov. J.B. Pritzker’s senior adviser on cannabis, better known unofficially as the Illinois “pot czar.”

Similar shortages have been part of in every marijuana market after legalization, said Chris Lindsey, director of government relations for the Marijuana Policy Project. Lindsey helped state officials draft legal marijuana legislation. Cultivators predicted shortages even before recreational use became legal.

The state never disclosed plans for the slow approach to the public as they were drafting the law, Lindsey said, but “it was certainly a conversation among public agencies.” After exploring different options, that path made the most sense, he said.

There are two main types of systems states can build, Lindsey said. One makes a finite number of licenses available, the choice Illinois went with. The other offers an unlimited licensing and lets the market decide which businesses survive.

“We did not want to see a situation where it would be tempting to do the straight math and say how many consumers are there and multiply it straight across,” Lindsey said. “That’s a brute force way of trying to find the right number. … If we had let it off the chain, it would have been a lot harder to scale back.”

Despite consumer frustration, the slow and steady approach has its advantages, Hutchinson and those in the cannabis industry say. For one, a small start helped businesses build up a revenue stream before expanding. Additionally, it protected medical marijuana patients by ensuring the adult use program didn’t take priority, Hutchinson said.

More than 87,000 patients have qualified for the medical program since 2015. There are 8.6 million Illinois residents over 21, not to mention millions of tourists, who could buy recreational marijuana.

With that kind of gap between medical and recreational users, the demand for product can easily overwhelm growers and push medical patients to the sidelines, said Kris Krane, president and co-founder of 4Front Ventures, a cannabis operations company with businesses in nine states.

Illinois had to keep the adult use program small to give cultivators a chance to ramp up operations and infrastructure while still serving patients, Krane said.

Cultivators said they can’t complain about the slow approach. They sell out of all the wholesale products they can grow. Even if they sell out of marijuana flowers, the most popular cannabis product, their business enjoys an unending flow of customers.

“It’s a good problem to have,” said Steve Bundy, general manager of Wellness Group Pharms, a cultivation center in the rural southern Illinois town of Anna.

Wellness Pharms plans to expand its cultivation facility, possibly breaking ground within the next month and a half. Bundy said he expects the staff of 50 mostly full-time employees to grow to roughly 100 later this year.

His facility isn’t the only one set for expansion. Krane said 4Front Ventures plans to expand its cultivation center in a northwest Chicago suburb this year.

Though growth will come gradually, Krane said he believes state officials were “trying to strike a balance” when they decided to keep initial license availability low. Only 21 licenses were handed out to existing cultivation centers, while only 55 existing medical dispensaries were eligible for the first wave of licenses for selling recreational pot.

The last thing growers and officials wanted was to build a market that failed after a few years. In states such as Oregon and Washington, overabundance of supply after legalization harmed business in the long term, Krane said.

“The program got up and running, the prices were too high and they issued a bunch more cultivation licenses (than Illinois),” Krane said. “Fast forward a year or so, there’s now so much product that companies are going under and there’s no incentive to stop you from selling out the back door.”

Ultimately, the goal is to balance the market over the next few years, said Hutchinson, a former state senator from Chicago who earns $220,000 annually as pot czar.

Another goal other states didn’t set when they legalized pot was ensuring access to the market by minority groups, Hutchinson said. The typical business person in the cannabis industry is highly resourced, “homogeneously white and rich and male,” she added. Illinois wanted to protect market share for people who don’t fit that description.

“The conventional system runs at odds with equity,” Hutchinson said.

A portion of tax revenue from recreational marijuana sales will go to ensuring opportunities for minority populations.

Even if Illinois had handed out twice as many licenses, it’s almost impossible to expand a market that doesn’t exist and that doesn’t have access to traditional funding such as bank loans, Krane said. Growers need the capital from sales to expand their operations, as do distributors.

“Everyone is scaling up and new products are on the way,” Krane said. “In a couple of years, this will be looked at as the growing pains of the early days of legalization and things will really normalize.”

How much can cultivators grow?
As the state grants more licenses this year, growers will continue scaling up. Operations such as 4Front Ventures will try to fill the maximum square footage allowed by the state, Krane says.

Cultivation centers can grow up to 210,000 square feet of canopy space, or the amount of space dedicated to growing plants. In July, the state will award 40 licenses to “craft growers,” who can cultivate up to 5,000 square feet of canopy space.

“Grams per square foot of canopy space” is becoming the industry standard for measuring output, Krane said. 4Front Ventures has built out 14,000 square feet of its 94,000-square-foot facility near Chicago. Cultivators can produce 425 grams per square foot in 6,500 square feet of canopy space.

To meet demand, Krane said his company would need a 400,000 square-foot space.

“Nobody’s able to keep up with demand right now,” Krane said. “It’s just not possible.”

On May 1, the state will award licenses for up to 75 new dispensaries. The next round won’t come until December, when Illinois will hand out 110 licenses to new dispensaries. Craft growers will get another boost in December as well when an additional 60 licenses will become available.

How long does it take to grow weed?
License availability doesn’t necessarily mean products will be available right away. It can take more than four months to grow and process marijuana flowers.

The first step is perhaps one of the best kept secrets among industry insiders. Like other states, Illinois operates under the “don’t ask, don’t tell” rule on where cultivators get cannabis seeds and plants to start their business.

“There’s somewhat of an understanding that no one really questions where the seeds are acquired,” says Pamela Althoff, executive director of the Cannabis Business Association of Illinois and a former state senator.

From there, the process is highly regulated, Althoff said.

Wellness Pharms in Anna employs a team that harvests buds from 48 plants a day five-days-a-week in the 27,000-square-foot growing center. A crew works regular hours all five days packaging the products, which are sent to more than 50 dispensaries throughout the state.

Cultivation starts with clippings from “the mother plant,” or the plant growers use for cloning, Bundy said. The clippings go to the clone room, also known as the nursery, where they grow for one to two weeks depending on the strain.

Next, the baby plants head to the growing room tables, where they will stay for roughly six weeks to develop stems and leaves.

Growers move the plants to a separate area with a different light cycle, where they will stay anywhere from seven to nine weeks. That’s where the plants start producing flowers, or the buds that will eventually be packaged and sold for consumption.

Once growers harvest the buds, some go to a drying room, where they stay for about 10 days. Buds destined to become cannabis concentrate, known in the industry as live resin, for use in edibles and vaping cartridges go straight to the freezer.

The other flowers dry for roughly 10 days followed by about three weeks of curing. Growers keep the buds in airtight containers, which they “burp” each day. That is, they let fresh air into the container. This process removes any remaining chlorophyll and moisture, Bundy said, creating a product with better flavor and odor and reduced harshness.

During curing, an employee from an off-site agricultural lab comes to collect a sample of the marijuana flower for independent testing. This step is required before any sales to distributors. For Wellness Group Pharms, a lab from Sparta does much of the collecting and testing.

The labs test for residual pesticides or solvents, harmful bacteria such as E. coli or Salmonella, yeast, mold and toxins. It takes roughly a week for the lab to return results, Bundy said. The labs also test for concentration of THC, the psychoactive ingredient in marijuana. Weed with less than 35% THC concentration is taxed at 10%. Edibles or other cannabis-infused products with more than 35% THC are taxed at 20%.

As cultivators work to expand, Lindsey said frustrated consumers should pay attention to how things develop in the next three months.

“It’s not a new market. This is a market that’s already out there and that’s getting converted from illegal to lawful,” he said. “We’re going to see cultivators try to meet that demand.”