Under the rules in the original Illinois recreational marijuana statute, dispensary licenses were divided among 17 regions of the state, varying by population. Applicants could submit one application for each license at a cost of $2,500 each.
Botavi, Blounts & Moore and World of Weed each spent $187,500 applying for licenses. That works out to $26,786 for each license Botavi won; Blounts & Moore and World of Weed each paid $31,250 per license. KAP-JG won six licenses on just 15 applications, which works out to $6,250 a license.
It’s an attractive return on investment, considering each license could be worth $5 million apiece, insiders say, or up to $20 million once they’re turned into profitable stores with strong sales.
“The idea of the law was to spread the wealth out across all the citizens of Illinois,” says Chris Carmichael, who sued the Illinois Department of Financial & Professional Regulation to stop the licenses from being awarded.
His client, Well-Being Holistic Group, submitted four applications but didn’t win a license. “Someone with 100 tickets has a lot better shot than someone who has one,” he says. “It benefits the wealthy people with resources. It doesn’t spread the licenses around.”
Winning a lottery comes down to simple probability. The more chances you have, the more likely you are to win.
“We put more submissions in the same (region) than normal, because of the probabilities,” says Michael Mayes, CEO of Quantum 9, a Chicago-based consulting firm. “It was a gamble. We advised (clients) to submit as many as possible.”
One of his clients, whom he declined to disclose, submitted 75 applications and won six licenses. Another, who submitted four, won one license.
WHAT WERE THE ODDS?
At Crain’s request, Craig Marderstein, who teaches probabilities and statistics at Fordham University, analyzed the largest drawing: the competition for 47 licenses awarded in the Chicago region by 135 applicants who received perfect scores on their applications.
The rules allowed people to submit as many applications as there were licenses in a particular region. Because most applicants submitted multiple applications, there were 901 applications for 47 licenses.
For someone who submitted the maximum 47 applications, their odds of winning at least one license were 92.5%, he says. KAP-JG, on the other hand, with just 13 chances, had about a 50% chance of winning once.
In the marijuana business, the real money lies in having more than one license. Herbal Remedies Dispensaries, for example, sold a pair of successful retail dispensaries for about $30 million.
“The odds of people winning multiple licenses seems nearly impossible,” says Carmichael, whose clients sued over the lottery results. “The numbers don’t add up. It doesn’t look right.”
Marderstein figures that Botavi and World of Weed, with 47 applications apiece, each had roughly a 44% chance of winning three or more times in the lottery for 47 Chicago-area licenses.
By winning four of the 47 licenses with just 13 applications, KAP-JG defied the odds, which were less than 0.5%, or about 1 in 200. “That doesn’t mean the lottery is a fraud,” Marderstein says. “They got extremely lucky. Everyone’s allowed to get lucky sometimes. People win lotteries where the odds are 1 in a million.”
Edie Moore, a cannabis activist and former executive director of the Chicago chapter of the National Organization for the Reform of Marijuana Laws, which lobbied on the cannabis legislation, was part of the KAP-JG group.
“It was surprising,” Moore says of winning six licenses. “We’re ecstatic and a little overwhelmed. I didn’t do any math on it. We knew the more applications you had in, the better your odds. We knew you could put in up to 75 applications. We put in what we could afford to put in. It was just luck.”
Moore says she was involved in several teams that qualified for the lotteries. Only one team won.
WHY USE A LOTTERY?
Several states have turned to lotteries to hand out lucrative licenses, including Washington, Arizona, Rhode Island and Connecticut, as well as municipalities in California, South Dakota and Maine.
“Lotteries are generally a bad way to decide these things,” says Morgan Fox, a spokesman for the National Cannabis Industry Association. “They have a veneer of fairness about them, but, generally, every lottery has issues. Lotteries for social-equity licensees put the competition between people it’s designed to help. Ideally, we’d like to see anyone who meets the criteria obtain a license.”
Arizona could get 1,000 to 3,000 applications for 26 social-equity licenses, according to the state’s chapter of the National Organization for the Reform of Marijuana Laws.
Competition for recreational marijuana licenses in Illinois was far more intense than the state experienced during the medical marijuana license application process. Several of the initial winners of Illinois medical licenses went on to become publicly traded companies with $1 billion in annual sales and thousands of employees.
There were 937 applicants for recreational dispensary licenses, compared with 178 applicants for medical dispensary licenses in 2014, according to state data. The number of applications grew twice as fast as the number of applicants, to 2,589 from 221.
Controversy dogged the Illinois licensing process, which was praised for social-equity provisions laid out in the 2019 statute that legalized recreational marijuana.
When initial results were announced for the competition for the initial 75 dispensary licenses—just 21 applicants, including some with ties to politicians and prominent business owners, achieved perfect scores—it set off a round of complaints about mistakes and inconsistencies. Black and Latino leaders questioned whether the process would fail to meet the social-equity goals of the original legislation to bring more minority business owners into a white, male-dominated industry.
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