Cannabis Business in Illinois

Illinois Cannabis Industry Overview

• Medical Marijuana Patients: In 2021, Illinois had 101,366 registered medical marijuana patients, according to the Illinois Department of Public Health.

Cannabis Sales in 2023:

• Medical Cannabis Sales: $16.3 billion
• Recreational Cannabis Sales: Nearly $321 million
• Total Cannabis Sales: Close to $16.7 billion \ (Source: Illinois Cannabis Regulation Oversight Officer or CROO)
• Tax Revenue: In 2023, adult-use cannabis generated nearly $452 million in tax revenue, as reported by the Illinois Department of Revenue.

Categories of Cannabis Businesses in Illinois

In Illinois, cannabis businesses are generally classified into two main categories: Cannabis-Touching (plant-touching) businesses and Cannabis-Adjacent (non-plant-touching/support) businesses.

Each category operates under distinct regulations and legal requirements. Understanding the specific type of cannabis business is crucial, as it determines the challenges and compliance measures that must be addressed.

What is a Cannabis Touching Business?

Cannabis-touching businesses are those directly engaged in the cultivation, processing, distribution, or sale of cannabis products. These businesses are closely connected to the cannabis they handle.

As per the CROO, in 2024, there were:

• 282 adult use cannabis dispensaries in Illinois.

According to the Illinois Department of Agriculture, there were:

• 21 cultivation centers,
• 87 craft growers,
• 55 infusers,
• 163 transporters,
• 6 testing labs in the state in 2024.

Here are some examples of cannabis-touching businesses and their roles in Illinois:

• Craft Growers: Craft growers specialize in cultivating cannabis on a smaller scale, often with a focus on producing high-quality, artisanal cannabis products. They emphasize sustainable and hands-on cultivation methods, typically growing unique or specialty strains. Craft growers often prioritize quality over quantity, allowing for meticulous attention to detail in every aspect of the growing process. They must also comply with state regulations, ensuring their cultivation practices meet the required standards for safety and quality.
• Cultivators: Cultivators are responsible for growing cannabis plants, which can be done both indoors and outdoors. They often specialize in different strains and may be involved in breeding programs to create new cannabis varieties. Cultivators must comply with state regulations to ensure that their cultivation methods and conditions meet quality standards and regulatory requirements.
• Infusers: Infusers are responsible for incorporating cannabis extracts, such as THC and CBD, into a wide variety of consumable products. This includes edibles, beverages, topicals, and other infused goods. Infusers may also handle the extraction of cannabis compounds, effectively functioning as both processors and manufacturers of finished products. They must adhere to strict state regulations to ensure that their products are accurately dosed, safe for consumption, and free from contaminants. Infusers play a crucial role in transforming raw cannabis extracts into consumer-ready products that meet market demand.
• Testing Laboratories: Testing labs play a critical role in verifying that cannabis products are free from contaminants, such as mold and pesticides. These labs conduct thorough testing to confirm the purity and potency of cannabis before it is distributed to dispensaries.
• Dispensaries and Retail Stores: These are the locations where consumers can purchase cannabis products directly. Dispensaries and retail stores must follow state regulations, including verifying the age of customers and adhering to purchase limits. They are also responsible for ensuring compliance with state tracking and reporting systems.
• Distributors and Supply Chain Management: Distributors handle the transportation of cannabis products from producers to retailers. This role includes overseeing the supply chain, ensuring secure transportation, and maintaining compliance with state tracking systems to ensure transparency and accountability throughout the distribution process.

What Are Non-Plant Touching Cannabis Businesses?

Non-plant touching cannabis businesses, also referred to as cannabis-adjacent or ancillary businesses, are essential to the cannabis industry, providing critical support services without directly handling the plant. These businesses play a vital role in maintaining the infrastructure and operations of the industry. Here are some examples:

• Financial and Payment Solutions: Traditional banking services are often unavailable to cannabis businesses due to federal restrictions. Therefore, specialized banking services, loans, and payment processing solutions are crucial for smooth business operations and ensuring compliance with state regulations.
• Legal and Compliance Services: Cannabis businesses must navigate complex and evolving regulations at both state and federal levels. Lawyers and legal firms specializing in cannabis laws provide essential guidance to ensure compliance and prevent legal issues.
• Technology and Software: Modern cannabis operations rely heavily on technology, including seed-to-sale tracking systems, Point-of-Sale (POS) systems, eCommerce platforms, and security solutions. These technological tools are vital for maintaining operational efficiency, compliance, and customer service.
• Insurance and Risk Management: Comprehensive insurance coverage is critical for protecting cannabis businesses, their employees, and their products. Insurance providers with expertise in the cannabis industry offer coverage tailored to various stages of production, business operations, and liability concerns.
• Consulting and Strategic Management: These firms offer specialized assistance with licensing, compliance, market strategy, and operational efficiency. By streamlining processes and developing competitive strategies, they help cannabis businesses thrive in a regulated market.
• Marketing and Brand Development: Due to strict advertising regulations, cannabis businesses need specialized marketing and branding services. These services ensure that products are promoted within the legal framework while effectively reaching the target audience.
• Accounting and Financial Services: The cannabis industry faces unique financial challenges, particularly due to Section 280E of the IRS Code, which limits tax deductions. Specialized accounting services help businesses manage these challenges, ensuring compliance and precise financial tracking.
• Packaging and Labeling Compliance: Companies specializing in packaging solutions ensure that cannabis products meet stringent state regulations for packaging, including requirements for child-resistant, opaque, and clearly labeled products.
• Data Analytics and Market Insights: Data analytics plays a key role in optimizing cannabis business operations. By analyzing consumer behavior, supply chains, and product quality, businesses can make informed decisions and adapt to market trends.
• Advocacy and Policy Organizations: These organizations represent the cannabis industry at the state level, working to influence policy, provide industry insights, and advocate for regulatory changes that promote industry growth and sustainability.

Key Differences Between Plant-Touching and Non-Plant Touching Businesses

The distinctions between plant-touching and non-plant touching cannabis businesses affect their operations in several key areas, including regulatory requirements, financial management, and compliance. Here are the main differences:

State Laws:

• Cannabis-Touching Businesses: These businesses in Illinois require specific state licenses and must comply with stringent regulations, including security measures and product testing. Federal laws also impose significant banking restrictions.
• Cannabis-Adjacent Businesses: Generally, these businesses only require standard business licenses and face fewer regulatory hurdles. They also enjoy better access to financial services.

Banking:

• Cannabis-Touching Businesses: Due to federal regulations, these businesses face major banking restrictions, often operating in cash and depending on a limited number of banks willing to assume the legal risks. This creates complex financial management and high compliance requirements.
• Cannabis-Adjacent Businesses: These businesses have broader access to traditional banking services, such as loans, credit lines, and banking accounts, which simplifies their financial operations and promotes growth.

Accounting:

• Cannabis-Touching Businesses: These businesses are subject to Section 280E of the IRS Code, which limits their ability to deduct standard business expenses, leading to higher taxes. They also deal with intricate inventory management and strict compliance regulations.
• Cannabis-Adjacent Businesses: These businesses can take standard tax deductions and follow more straightforward accounting practices. They avoid the stringent compliance required for cannabis inventory tracking, making financial operations less burdensome.