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From state regulations to finding financing, Illinois cannabis craft growers face multiple obstacles

Reese Xavier wants to turn this vacant strip mall in south suburban Chicago Heights into a cannabis craft grower operation. His company is called HT23 Growers.
Manuel Martinez / WBEZ
WBEZ | Illinois Public Radio
Reese Xavier wants to turn this vacant strip mall in south suburban Chicago Heights into a cannabis craft grower operation. His company is called HT23 Growers.

Craft grower marijuana licenses are supposed to help Black and brown communities, yet only one business is open.

Reese Xavier has a vision for a vacant strip mall in south suburban Chicago Heights centered around Illinois’ newest billion-dollar industry: cannabis.

A craft grow operation, a kitchen, dispensary and consumption lounge will eventually replace what years ago used to be a hardware store, a boxing gym, resale shop and a tax preparer.

After spending 25 years in corporate training and development, he decided in 2019 to start HT23Growers.

“I thought if I could find a company that could be rooted in the community, that could provide economic opportunity, maybe that could change things around,” Xavier said. “And I thought maybe cannabis could be the tool to make that happen.”

But he and the vast majority of future craft growers in Illinois are facing significant obstacles. It’s been three years since recreational cannabis became legal in Illinois. Out of 88 licenses issued, so far only one facility has opened and only one secured a loan through a state program set up specifically for marijuana businesses.

Craft growers are finding it difficult to get financing or outside investments and they’re hamstrung by state regulations. Plus, they only have until March 1 to be ready to operate.

Xavier is among those 88 applicants selected by a state lottery for a conditional craft grow license. These licenses were created, in part, as a way to help people get into the cannabis industry who otherwise wouldn’t have the means to do so.

All of the licenses issued went to social equity applicants, which means the principal owners of the company lived in a disadvantaged area for most of the last 10 years or were convicted of cannabis offenses. They can also be considered a social equity company if the majority of their workforce comes from a disadvantaged area.

Illinois’ recreational cannabis law has certain criteria as to what constitutes such an area, but it generally refers to Black and brown communities hit hardest by past drug enforcement policies.

Craft cannabis is like craft beer because the product is made up of unique, smaller batches. In Illinois, Verano and Cresco have been operating since the pilot medical marijuana program began. They’re like Miller Brewing Company and Budweiser in the cannabis industry, so their products can be found in a lot of dispensaries.

The state law currently allows the craft facilities to use up to 5,000 square feet to grow plants, with the eventual ability to expand to 14,000. The big players can be as large as 210,000 square feet, which Xavier says has made it hard to attract investors.

“One of the main questions they ask is, ‘Well, how much can you grow?’ And we have to start with 5,000 square feet,” Xavier said. “And as I quickly try to say, ‘Well, we can go up to 14,000,’ they say, ‘Well, wait a minute, what are the big folks doing?’ ”

After spending 25 years in corporate training and development, Reese Xavier started HT23 Growers in 2019.
Courtesy of Reese Xavier
After spending 25 years in corporate training and development, Reese Xavier started HT23 Growers in 2019.

There was a measure in the state Legislature to fix that, which cannabis businesses have wanted for years, but passing marijuana-related legislation in Illinois is hard.

State Sen. Cristina Castro, D-Elgin, had a bill to allow craft growers to use 14,000 square feet of grow space immediately. It languished for nearly a year and died when the last General Assembly finished up. Now new lawmakers have been sworn for a fresh two-year term and Castro has to start over.

“My commitment is to continue working on this,” Castro said. “I know there are other things that the industry and also craft growers are looking into. So maybe it can become part of a small package.”

But even if that measure had become law, there’s no guarantee that cannabis businesses would have the capital needed to use all the space — and there’s no guarantee investors would come back.

The Illinois Department of Commerce and Economic Opportunity (DCEO) realized there was a need and set up a loan program with Credit Union One and Good Tree Capital. Craft growers can get up to $1 million — half of it from the state, the other half from one of the lenders.

Credit Union One turned down Xavier. They didn’t tell him why, and they didn’t respond to questions from WBEZ. He does have an idea though.

“I would imagine the lending institution has to evaluate a start-up company, social equity applicants [with] no cash flow. Oftentimes, we’re not millionaires,” he said.

DCEO Spokeswoman Emily Bolton acknowledged those challenges and others in an email, saying a certain level of uncertainty is expected anytime a new program is launched.

“The complexities of navigating a new industry that remains illegal under federal law, as well as institutions' fiduciary, regulatory responsibilities and underwriting standards that are set independent of the program presented challenges,” Bolton said.

A new state direct forgivable loan program for cannabis businesses launched in November 2022, which made $8.5 million in fully forgivable loans available directly from the state. Anyone with a conditional license can still apply for a loan through both programs.

But craft cannabis advocates are concerned it might be too late for this cohort of license holders.

“I’m not naive to the uphill challenges that any small business faces, but I really do believe at this point that we’re being set up to fail,” said Lisbeth Vargas Jaimes, executive director of the Illinois Independent Craft Growers Association.

She said only one craft grow operation has opened so far in Illinois, and even though DCEO said several more are close to getting approved for financing, everyone with a conditional license has to be ready to operate by March 1.

“Our fear is March 1 is going to come around the corner and people who weren’t able to be operational leading up to that are going to be forced to either buckle, lose their license or sell,” Vargas Jaimes said.

The Illinois Department of Agriculture, which oversees craft grow licenses, said the deadline has already been extended multiple times due to COVID-19, legal challenges and other problems. The department didn’t say whether it would be extended again.

Xavier is confident that it will be and he’ll be operational within six months.

In the meantime, he’s going to use his infuser license to make things like gummies and vape cartridges.

“We’re trying to scale back our need to the bare minimum, break it up into phases, become operational, generate some money and then be able to move forward on a second phase.”

Xavier thinks it’ll take about $9 million to get fully up and running. As he crowdfunds, invests his own money and starts infusing — he said the
state hasn’t held up its end of the deal.

And so he waits.

Alex Degman is a Statehouse reporter with Illinois Public Radio
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