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Thursday, Aug. 1, 2019 12:08 am

Smoke ’em if you can afford ’em

Regs may cause shortages

 

Back in high school, Killer Green Bud – KGB – cost $200 an ounce, maybe $175 if you knew someone. The price soon shot to $400.

It seemed an astronomical sum in a day when Mexican or Colombian cost half as much, or less, but connoisseurs realized the benefits of no-stems-no-seeds, not to mention high potency, and so indoor-grown became the gold standard while Acapulco Gold faded. Nearly 40 years later, with pot becoming mainstream across the land, an ounce of quality weed that sells for $400 or less elsewhere might retail for $800 in the Land of Lincoln once legal sales start on Jan. 1, according to a recent Forbes magazine article written by Kris Krane, president of 4 Front Ventures, which runs a cultivation center near Chicago, another in Massachusetts and aims for a nationwide footprint.

“Illinois is going to run out of cannabis,” Krane wrote in Forbes. “Because of the licensing structure adopted in Illinois’ legalization bill, product shortages in the state can be expected to be more drastic than any other state’s roll out and will likely last for months or years after implementation. … Simply put, it is going to be years before there is close to enough supply in Illinois to meet market demand and bring down pricing.”

Krane walked back the $800 figure in an interview with Illinois Times – “I don’t know if it’s actually going to be $800,” he says – but the gist, he says, is true: Illinois isn’t granting enough licenses to sell or grow pot, and so consumers will suffer.

It seems an odd argument to make for someone who holds one of 19 licenses to operate a large-scale cultivation center – under the new state law, each of the 19 first licensed to grow medical marijuana can grow as much as 210,000 square feet of mature pot, and 100 smaller operations will be limited to 14,000 square feet apiece. “Companies that have licenses are going to do quite well – we’ll probably be able to sell every gram that’s produced out of that facility,” Krane says. But things, he says, aren’t as simple as they might appear.

Krane says the Elk Grove cultivation center his company runs can’t grow more than 60,000 square feet of mature marijuana because the building isn’t big enough and the law doesn’t allow for satellite locations. “I’m sure we’re not the only cultivator that’s limited on its existing facility,” Krane says.

Math suggests that Krane’s prediction of a prolonged shortage, compared with other states that have legalized recreational pot, may not be alarmist.

Under the new law, 119 cultivators, collectively, would be limited to 5.4 million square feet of canopy, with the last growing permit due to be issued by the end of 2020. By contrast, 4 million square feet of canopy are under cultivation in Washington state, where 7.5 million people live, bordered by Oregon, where pot is legal, and Canada, which legalized recreational use last year.

Illinois, where nearly 13 million people live, borders no state that has legalized recreational marijuana. Krane predicts that 57 million tourists who flow through Chicago alone each year might want to pick up some weed on their way home. In Michigan, the only other Midwestern state that has legalized recreational pot, the state is working out regulations for sales expected to begin by year’s end, but there will be no cap on licenses.

The price of pot has plummeted in Oregon and Washington, where licenses are cheap and there is no cap on licenses. Nonetheless, Cannex, a Canadian cannabis company that is merging with Krane’s firm, has formed a partnership with the biggest marijuana cultivation firm in Washington state, even though a Washington grower recently told Marijuana Business Daily that margins have become so thin that growers must produce product for a nickel per gram – less than $1.50 an ounce – to make money.

State Rep. Kelly Cassidy, D-Chicago, who sponsored the cannabis bill, says that existing growers, licensed under the state’s medical marijuana program, who complain about caps on licenses and limits on growing space have self-interest in mind. She noted that the medical marijuana law didn’t limit the amount of pot that could be grown at cultivation centers; on the other hand, the medical marijuana market has been so thin, in part due to strict regulations on granting medical marijuana cards, that some cultivation centers, including the one owned by Krane’s company, have grown token amounts of a half-dozen plants or fewer simply to keep licenses active.

“Some of the existing operators would like to have an unfettered monopoly,” Cassidy said. “And that’s just not going to happen.”

Lawmakers, Cassidy says, tried to thread a needle by passing a law that allowed a sufficient amount of pot to meet demand while not creating a glut of product that would cause businesses to fail, particularly smaller cultivators. She pointed out that the regulatory scheme can be adjusted as time passes and market forces become clear. And she said that legal pot has come sooner than she imagined when she started pushing the issue two-and-a-half years ago.

“We thought this might be a seven-year process,” she said.

Contact Bruce Rushton at brushton@illinoistimes.com.

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