CHICAGO — Investors who won a chance for a license to sell recreational marijuana in Illinois have filed a lawsuit asserting it’s illegal to give other applicants a second chance.
The lawsuit sets up a potential court battle over when to hold a lottery to award 75 new retail licenses.
Three finalists filed a petition asking the Illinois Supreme Court to order that the licenses be awarded without recent changes to the application process they say were made because of “political expediency.”
Last month, Gov. J.B. Pritzker announced new procedures that would allow applicants to correct any deficiencies in their applications and get rescored for a second chance at qualifying for the license lottery.
The lawsuit was filed by SB IL, Vertical Management and GRI Holdings IL, all limited liability companies that received perfect scores on their applications.
They were among 21 businesses that qualified in September for a lottery for new licenses. They are suing Pritzker and officials from the Illinois Department of Financial and Professional Regulation.
Pritzker changed the application process after applicants complained of inconsistent scoring and handling of applications. The governor allowed applicants to be notified of any deficiencies in their applications and given 10 days to correct any problems.
Those applications are to be scored again to see who else might qualify for the lottery.
David Scott, owner of People Cab Co. and People Loan Club in Bellwood, said his group Vertical Management earned its score and deserve a shot at the lottery without potentially hundreds of more contestants.
In any competition, he said, players must follow the rules. Even if a referee makes a bad call in a basketball game, he said, once the game is over, there are no do-overs.
Winning applicants also took exception to the characterization that they are not legitimate social equity applicants because some have politically connected or wealthy white co-owners, or are already involved in the cannabis industry.
GRI’s investment group, for instance, includes restaurant owner Phil Stefani, while another firm, EHR Holdings, includes former Chicago police Superintendent Terry Hillard, who is African American and helped enforce the laws that legalization seeks to reverse.
The law did not include preferences for any racial group out of concern that would be discriminatory. But all of the finalists were given preference as social equity applicants, meaning most lived in designated poorer areas with many marijuana arrests and convictions, or had prior low-level marijuana convictions themselves or in their family, which state officials said in effect favored minority applicants.
Of the 21 applicants, state officials said, 13 are majority owned and controlled by people of color and 17 have at least one owner who is a person of color.
Scott said his group has five African Americans out of eight owners. “If you want minorities involved, you got ’em,” Scott said.
Pritzker called the state’s legalization “the most equity-centric” approach in the nation, saying it would transform the state and create opportunity in communities that were hardest hit by the war on drugs.
By law, the licenses were to be awarded May 1. But citing delays because of the coronavirus pandemic, and later to set rules establishing the lottery, Pritzker delayed the licensing by executive order.
Many investors, both winners and losers, say they’ve been hurt by the wait, spending tens of thousands of dollars on rent to hold properties for potential use, not knowing whether they’ll get a license.
Plans to award new licenses for craft growers, infusers and transportation workers have also been delayed indefinitely.
Meanwhile, businesses that previously were operating medical marijuana dispensaries were allowed to open new recreational stores on their old sites as well as on new second sites.
Since licensed cannabis sales became legal Jan. 1, those businesses collectively have been setting records for sales almost every month, reaching $64 million in August.
Attorney John Fitzgerald, of the firm Tabet DiVito & Rothstein which filed the lawsuit, said the changes run contrary to the law that legalized pot in the state.
Specifically, the changes created a supplemental deficiency notice and a chance to ask for a rescoring, neither of which are in the law, Fitzgerald said.
Deficiencies were meant to notify applicants of an omission before their applications were scored, he said, not give them a chance to correct mistakes after they were scored.
There are two ways to fix the process, Fitzgerald said. If any of the 937 applicants feel they were the victims of faulty scoring or a missing deficiency notice, they can file suit and ask the courts to correct it.
Beyond that, he said, it’s up to lawmakers to change the law going forward, not for the governor to change the law after the fact. Eventually, up to 500 new licenses are to be awarded in future rounds.
“The act can be amended,” he said. “It can’t be ignored or violated.”
Previously, dozens of applicants who did not make the cut for the lottery filed a federal lawsuit demanding a chance to change the process. They complained that they were not notified of any deficiencies, or that identical exhibits were scored differently for different companies or in different regions of the state.
That lawsuit was dropped after Pritkzer changed the process to give applicants a second chance. The administration did not immediately respond to a request for comment.
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