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Marijuana license winners in Illinois now compete in ‘Shark Tank’-like scramble to get startup cash

· Sep 20, 2021
But he’s anxious about it, because now the hard part starts for license holders — hustling for funding. Like contestants on the TV show “Shark Tank,” they must sell themselves and their ...

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In the recent competition for cannabis business licenses in Illinois, Ambrose Jackson’s team struck gold. They won rights to both grow and sell their own cannabis. Jackson is quitting his health care management job to commit full time to becoming a legal marijuana business owner.

But he’s anxious about it, because now the hard part starts for license holders — hustling for funding. Like contestants on the TV show “Shark Tank,” they must sell themselves and their plans to get the millions of dollars they need to get started.

Because cannabis remains illegal under federal law, many banks won’t lend to cannabis companies. So weed entrepreneurs like Jackson are exploring innovative ways to raise cash. It may require an unusual business plan, working with competitors, and some help from lawmakers.

“There’s lots of interest in Illinois,” Jackson said. “A lot of people are trying to figure out how they can create the best deal.”

One option is to seek a loan through the Illinois Department of Commerce and Economic Opportunity. DCEO has about $17 million, generated from cannabis sales, for loans to license holders who qualify as “social equity” applicants. Social equity means they or a close family member had a prior low-level marijuana arrest or conviction, were from an area with high rates of poverty or cannabis arrests, or companies that have more than half their employees meet those criteria.

Administrators expect to loan up to $500,000 to each craft grower, and $250,000 to each dispensary, agency spokesperson Lauren Huffman said. As of Sept. 15, 18 license winners have applied for the loans, with a Sept. 30 deadline approaching. Two private partners, Good Tree Capital and Credit Union 1, will also provide financing under the program.

In general, loans will likely have a five-year term and have an interest rate of 8% or less — among the lowest in the nation for cannabis businesses, which can pay three times as much for operating in what’s considered a risky market.

The state loans won’t cover all they need, but will help confer their legitimacy to other lenders, Good Tree Capital founder and CEO Seke Ballard said. Research has shown people of color typically have a harder time getting loans, he said, so the program aims to counter that.

“It really is a bunch of sharks circling these businesses, and loan sharks are a part of them,” Ballard said. “The comparative attractiveness of this loan program looks better and better.”

Illinois’ approval of new licenses was delayed by more than a year because of problems with the scoring of applications and resulting lawsuits. This summer, Gov. J.B. Pritzker’s administration awarded craft grower, infuser and transporter licenses, and held three lotteries to award licenses for retail stores, known as dispensaries.

But a Cook County judge has indefinitely prevented the state from awarding the retail store licenses until he rules on a lawsuit challenging the process. The delay is hurting investors who already spent money for a year to hold property or employees while generating no income.

Some existing or wealthy license winners may have money to start their businesses. But most newcomers must borrow funds or sell shares of ownership.

Cannabis service providers have been holding meetings to initiate business deals with the new lottery winners. The Arcview Group held a seminar last week that addressed, in part, how investors can buy into the new Illinois licenses.

Green Check Verified, which runs a software platform to coordinate cannabis banking, will hold a boot camp on the subject Tuesday. Green Check works with dozens of financial institutions and 1,300 cannabis businesses in 32 states. CEO and founder Kevin Hart said banks and credit unions are increasingly willing to venture into the new field.

To do so, each lender has to verify that the borrower is legitimate and will follow the complex cannabis regulations. Hart cited the example of two businessmen in California who were sentenced to prison for bank fraud, for tricking banks into processing credit card payments for cannabis delivery company Eaze.

“That’s the challenge: How do financial institutions know they’re letting good money in and bad money out?” Hart said.

To increase the borrowing value of their licenses, craft growers are hoping that state lawmakers will approve a plan to increase the size of their facilities from 5,000 square feet to 14,000 square feet and beyond.

As for Jackson, his group is working on a deal to have a large investment company pay for a cultivation warehouse and lease it back to them, an increasingly common practice in the cannabis industry. Jackson’s group, which includes owners from social equity neighborhoods, is also looking for private investors and other social equity companies to combine forces and create a bigger company with multiple retail stores.

“If you want to partner with like-minded individuals and create something with a similar mission and goals, let’s work together,” he said. “Nobody’s going to be successful as an independent by themselves for too long.”

rmccoppin@chicagotribune.com