Illinois is no stranger to the marijuana trade. There has been controversy regarding the recreational use of cannabis since the early 20th century. In 1931, during the time of prohibition, Illinois banned the use of cannabis as part of a nationwide trend that affected 29 states. In 1978, Illinois passed the Cannabis Control Act, which allowed for the use of medical marijuana. Unfortunately, the law did not gain approval by either state police or the human services department and was therefore never put into action. This article will cover opening a marijuana dispensary in Illinois.
In 2013, the Illinois General Assembly put the Compassionate Use of Medical Cannabis Pilot Program Act into law. This law legalized the use of medical cannabis under highly-controlled circumstances. With a prescription from a medical caregiver, legally registered patients may apply for an ID card that allows them to obtain marijuana for medical purposes. The law lists more than 30 different medical conditions in which cannabis can be used as a source of treatment and pain relief. By July 2016, Illinois had also decriminalized the use of cannabis, reducing the punishment for having under 10 grams to a fine of $100 to $200. Previously, this amount would be a misdemeanor.
Legal Status Of Cannabis In 2019
Today, cannabis in Illinois is legal for medicinal use. By January 1, 2020, it will also be legal for recreational use. According to a report published by the Medical Cannabis Patient Program, the Illinois Department of Public Health (IDPH) has so far approved more than 80,035 patients since mid-2014. As of July 31, 2019, the state has a total of 55 licensed medical cannabis dispensaries resulting in more than $125,944,638.54 in retail sales in 2019 alone. The rapid growth of the medicinal cannabis industry has had a positive influence on legal changes for the recreational use of cannabis.
The new law will allow Illinois residents over the age of 21 to possess up to 30 grams of cannabis flower, 5 grams of concentrated cannabis, or 500 milligrams of concentrated THC present in a cannabis-infused product. Residents who use marijuana for medical purposes will now be allowed to grow it at home and can possess more than 30 grams. However, recreational users will still be prohibited from home-growing. For non-Illinois residents in the state, there is a limit of 15 grams of cannabis flower, 2.5 grams of cannabis, or 250 milligrams of THC contents in a cannabis-infused product.
Recreational Grow Licenses
Opening a marijuana dispensary requires a series of steps to ensure that you meet all laws, zoning requirements, and insurance needs. Applying for a recreational grow license is the first step. In Illinois, there are two primary license types: dispensary and growing operation. Unfortunately, acquiring a license in the state will be no easy task. The 55 medical marijuana dispensaries already doing business in the state will have the first claim on obtaining a second license. However, by May 2020 there is expected to be 75 additional dispensary licenses, and by January 1, 2021, there is expected to be another 110 licenses.
Applications and Fees
Opening a marijuana dispensary in Illinois is a process that requires a lot of paperwork and significant funding. Prospective business owners are faced with many strict requirements, including an extensive background check, mandatory fingerprinting, and the release of full tax returns for previous years. These business owners will be checked for everything from unpaid child support and alimony to defaulted student loans and past bankruptcies. If these types of events are found, it could result in a denial of the license application.
In addition to completing an application and providing various requested documentation, prospective business owners will also be responsible for paying certain fees. The cost of a recreational grow license application is $5,000, and the fee is non-refundable. This cost will provide you with a dispensary permit. In addition, you will need to pay a $30,000 permit fee for the first year, as well as a $100,000 annual permit renewal. Business owners will also need to show that they have the financial means to operate a business. This means having at least $50,000 in escrow and an additional $400,000 in liquid assets.
Property and Zoning Requirements
The next step involves either buying or renting a property to use as a storefront for your marijuana dispensary. Business owners are responsible for finding a compliant property, which means it needs to be 1,000 feet from a church, school, residential zone, and any other compliant property. If you plan to rent, you will need to be upfront with the landlord about your plans to open a marijuana business. You will also want to choose a location that is convenient for your potential customers. It may take time to find the right location, but where you choose to open your business can make a big difference.
Cities and counties throughout Illinois set their own unique rules and regulations affecting zoning laws and marijuana dispensaries. You will want to check with your local authorities about where you can legally open shop and what areas you will need to avoid. Most municipalities have reasonable zoning restrictions, such as no residential areas, adequate distance from schools and churches, and the use of appropriate signage. Some municipalities also limit the hours that a marijuana dispensary can be open, typically 10 am to 6 pm, but this can change depending on the city or county where you live.
Cannabis Insurance Policies
Having the right insurance policies under your belt when opening a marijuana dispensary is crucial to the long-term success of your business. Cannabis insurance is required to safeguard your business against a wide range of risks and liabilities that could occur in your daily operations. If you already have a general liability insurance policy, this is a good start, but it may not be enough to provide your dispensary with the amount of coverage it needs. Whether you are opening a small or large operation, you may want to consider other important types of cannabis insurance policies.
Product Liability Insurance
Product liability insurance is one such policy that all business owners in the marijuana industry should possess. With product liability insurance, your business is protected against liabilities caused when a customer becomes ill or injured from your product. As a dispensary, you will automatically be exposed to these types of lawsuits no matter how careful you are when it comes to quality control. Regardless if you are found to be at fault for a customer’s illness or injury, your business will likely be deemed responsible as the seller of the product.
Crime Insurance
Crime insurance is another important policy to have, especially if you work in the cannabis industry. This type of insurance policy provides coverage for theft by employee, altercations, forgeries, computer fraud, counterfeit money, and illegal funds transfers, among other events. You will also want to obtain property insurance for your business. A cannabis property insurance policy will provide coverage for your business-related property, such as the building itself, its contents, and any inventory you may have. If you or another employee uses business vehicles to transport goods or perform other business duties, commercial auto insurance is also crucial. A commercial auto policy will typically cover damage and theft to the vehicle, as well as bodily injury.
Additional Important Policies To Consider
There are also other types of cannabis insurance you may want to consider besides general liability insurance and the others mentioned. To protect your employees and yourself from financial repercussions, consider acquiring employee benefits insurance, loss of income insurance, and workers compensation insurance. You will also want to consider your unique needs and possibly obtain other insurance policies, such as equipment breakdown insurance, umbrella insurance, or EPL insurance. Not all businesses are the same, meaning you may not need the exact policies that another marijuana dispensary has. Sit down and assess your risks before obtaining any policies.
Business Taxation
On June 25, 2019, Governor J. B. Pritzker passed a new law, HB 1438, an act that would end cannabis prohibition and introduce a more beneficial system to regulate and tax cannabis for adults, ages 21 or older. Cannabis products will be subject to a 7 percent tax at a wholesale level when they are sold by craft growers or cultivation centers. However, the state of Illinois is approaching tax on retail sales a little differently. Instead of having a blanket tax on all cannabis products, there will instead be a tax rate that is based on the type of product and its potency. In short, the more concentrated the THC, the higher the tax rate.
The new law will apply a 10 percent tax rate on cannabis flowers or products that contain 35 percent less THC. A 20 percent tax rate will apply to any products that are infused with cannabis, such as edible cannabis goods. Finally, a 25 percent tax rate will apply to products that have a THC concentration that is higher than 35 percent. There will also be more taxes on top of these scalable tax rates. In addition to the state’s normal 6.25 percent sales tax rate, local tax rates up to 3.5 percent will still apply. This means that consumers will be responsible for between 19.55 and 34.75 percent tax.
Speak To An Illinois Cannabis Insurance Broker
There are many steps involved in opening a marijuana dispensary in Illinois. One of the most important is acquiring the right insurance policies for your business. Without adequate insurance coverage, your business is left susceptible to a variety of costly risks. For more information about acquiring cannabis insurance for an Illinois opening a marijuana dispensary or to acquire a cannabis insurance policy, contact the cannabis insurance brokers at MFE Insurance.