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HB1438: ARTICLE 7. SOCIAL EQUITY IN THE CANNABIS INDUSTRY (Illinois Cannabis Regulation & Tax Act)

ARTICLE 7. SOCIAL EQUITY IN THE CANNABIS INDUSTRY

Section 7-1. Findings.

(a) The General Assembly finds that the medical cannabis industry, established in 2014 through the Compassionate Use of Medical Cannabis Pilot Program Act, has shown that additional efforts are needed to reduce barriers to ownership. Through that program, 55 licenses for dispensing organizations and 20 licenses for cultivation centers have been issued. Those licenses are held by only a small number of businesses, the ownership of which does not sufficiently meet the General Assembly’s interest in business ownership that reflects the population of the State of Illinois and that demonstrates the need to reduce barriers to entry for individuals and communities most adversely impacted by the enforcement of cannabis-related laws.

(b) In the interest of establishing a legal cannabis industry that is equitable and accessible to those most adversely impacted by the enforcement of drug-related laws in this State, including cannabis-related laws, the General Assembly finds and declares that a social equity program should be established.

(c) The General Assembly also finds and declares that individuals who have been arrested or incarcerated due to drug laws suffer long-lasting negative consequences, including impacts to employment, business ownership, housing, health, and long-term financial well-being.

(d) The General Assembly also finds and declares that family members, especially children, and communities of those who have been arrested or incarcerated due to drug laws, suffer from emotional, psychological, and financial harms as a result of such arrests or incarcerations.

(e) Furthermore, the General Assembly finds and declares that certain communities have disproportionately suffered the harms of enforcement of cannabis-related laws. Those communities face greater difficulties accessing traditional banking systems and capital for establishing businesses.

(f) The General Assembly also finds that individuals who have resided in areas of high poverty suffer negative consequences, including barriers to entry in employment, business ownership, housing, health, and long-term financial well-being.

(g) The General Assembly also finds and declares that promotion of business ownership by individuals who have resided in areas of high poverty and high enforcement of cannabis-related laws furthers an equitable cannabis industry.

(h) Therefore, in the interest of remedying the harms resulting from the disproportionate enforcement of cannabis-related laws, the General Assembly finds and declares that a social equity program should offer, among other things, financial assistance and license application benefits to individuals most directly and adversely impacted by the enforcement of cannabis-related laws who are interested in starting cannabis business establishments.

Section 7-10. Cannabis Business Development Fund.

(a) There is created in the State treasury a special fund, which shall be held separate and apart from all other State moneys, to be known as the Cannabis Business Development Fund. The Cannabis Business Development Fund shall be exclusively used for the following purposes:

  • (1) to provide low-interest rate loans to Social Equity Applicants to pay for ordinary and necessary expenses to start and operate a cannabis business establishment permitted by this Act;
  • (2) to provide grants to Qualified Social Equity Applicants to pay for ordinary and necessary expenses to start and operate a cannabis business establishment permitted by this Act;
  • (3) to compensate the Department of Commerce and Economic Opportunity for any costs related to the provision of low-interest loans and grants to Qualified Social Equity Applicants;
  • (4) to pay for outreach that may be provided or targeted to attract and support Social Equity Applicants;
  • (5) (blank);
  • (6) to conduct any study or research concerning the participation of minorities, women, veterans, or people with disabilities in the cannabis industry, including, without limitation, barriers to such individuals entering the industry as equity owners of cannabis business establishments;
  • (7) (blank); and
  • (8) to assist with job training and technical assistance for residents in Disproportionately Impacted Areas.

(b) All moneys collected under Sections 15-15 and 15-20 for Early Approval Adult Use Dispensing Organization Licenses issued before January 1, 2021 and remunerations made as a result of transfers of permits awarded to Qualified Social Equity Applicants shall be deposited into the Cannabis Business Development Fund.

(c) As soon as practical after July 1, 2019, the Comptroller shall order and the Treasurer shall transfer $12,000,000 from the Compassionate Use of Medical Cannabis Fund to the Cannabis Business Development Fund.

(d) Notwithstanding any other law to the contrary, the Cannabis Business Development Fund is not subject to sweeps, administrative charge-backs, or any other fiscal or budgetary maneuver that would in any way transfer any amounts from the Cannabis Business Development Fund into any other fund of the State.

Section 7-15. Loans and grants to Social Equity Applicants.

(a) The Department of Commerce and Economic Opportunity shall establish grant and loan programs, subject to appropriations from the Cannabis Business Development Fund, for the purposes of providing financial assistance, loans, grants, and technical assistance to Social Equity Applicants.

(b) The Department of Commerce and Economic Opportunity has the power to:

  • (1) provide Cannabis Social Equity loans and grants from appropriations from the Cannabis Business Development Fund to assist Social Equity Applicants in gaining entry to, and successfully operating in, the State’s regulated cannabis marketplace;
  • (2) enter into agreements that set forth terms and conditions of the financial assistance, accept funds or grants, and engage in cooperation with private entities and agencies of State or local government to carry out the purposes of this Section;
  • (3) fix, determine, charge, and collect any premiums, fees, charges, costs and expenses, including application fees, commitment fees, program fees, financing charges, or publication fees in connection with its activities under this Section;
  • (4) coordinate assistance under these loan programs with activities of the Illinois Department of Financial and Professional Regulation, the Illinois Department of Agriculture, and other agencies as needed to maximize the effectiveness and efficiency of this Act;
  • (5) provide staff, administration, and related support required to administer this Section;
  • (6) take whatever actions are necessary or appropriate to protect the State’s interest in the event of bankruptcy, default, foreclosure, or noncompliance with the terms and conditions of financial assistance provided under this Section, including the ability to recapture funds if the recipient is found to be noncompliant with the terms and conditions of the financial assistance agreement;
  • (7) establish application, notification, contract, and other forms, procedures, or rules deemed necessary and appropriate; and
  • (8) utilize vendors or contract work to carry out the purposes of this Act.

(c) Loans made under this Section:

  • (1) shall only be made if, in the Department’s judgment, the project furthers the goals set forth in this Act; and
  • (2) shall be in such principal amount and form and contain such terms and provisions with respect to security, insurance, reporting, delinquency charges, default remedies, and other matters as the Department shall determine appropriate to protect the public interest and to be consistent with the purposes of this Section. The terms and provisions may be less than required for similar loans not covered by this Section.

(d) Grants made under this Section shall be awarded on a competitive and annual basis under the Grant Accountability and Transparency Act. Grants made under this Section shall further and promote the goals of this Act, including promotion of Social Equity Applicants, job training and workforce development, and technical assistance to Social Equity Applicants.

(e) Beginning January 1, 2021 and each year thereafter, the Department shall annually report to the Governor and the General Assembly on the outcomes and effectiveness of this Section that shall include the following:

  • (1) the number of persons or businesses receiving financial assistance under this Section;
  • (2) the amount in financial assistance awarded in the aggregate, in addition to the amount of loans made that are outstanding and the amount of grants awarded;
  • (3) the location of the project engaged in by the person or business; and
  • (4) if applicable, the number of new jobs and other forms of economic output created as a result of the financial assistance.

(f) The Department of Commerce and Economic Opportunity shall include engagement with individuals with limited English proficiency as part of its outreach provided or targeted to attract and support Social Equity Applicants.

Section 7-20. Fee waivers.

(a) For Social Equity Applicants, the Department of Financial and Professional Regulation and the Department of Agriculture shall waive 50% of any nonrefundable license application fees, any nonrefundable fees associated with purchasing a license to operate a cannabis business establishment, and any surety bond or other financial requirements, provided a Social Equity Applicant meets the following qualifications at the time the payment is due:

  • (1) the applicant, including all individuals and entities with 10% or greater ownership and all parent companies, subsidiaries, and affiliates, has less than a total of $750,000 of income in the previous calendar year; and
  • (2) the applicant, including all individuals and entities with 10% or greater ownership and all parent companies, subsidiaries, and affiliates, has no more than 2 other licenses for cannabis business establishments in the State of Illinois.

(b) The Department of Financial and Professional Regulation and the Department of Agriculture may require Social Equity Applicants to attest that they meet the requirements for a fee waiver as provided in subsection (a) and to provide evidence of annual total income in the previous calendar year.

(c) If the Department of Financial and Professional Regulation or the Department of Agriculture determines that an applicant who applied as a Social Equity Applicant is not eligible for such status, the applicant shall be provided an additional 10 days to provide alternative evidence that he or she qualifies as a Social Equity Applicant. Alternatively, the applicant may pay the remainder of the waived fee and be considered as a non-Social Equity Applicant. If the applicant cannot do either, then the Departments may keep the initial application fee and the application shall not be graded.

Section 7-25. Transfer of license awarded to Social Equity Applicant.

(a) In the event a Social Equity Applicant seeks to transfer, sell, or grant a cannabis business establishment license within 5 years after it was issued to a person or entity that does not qualify as a Social Equity Applicant, the transfer agreement shall require the new license holder to pay the Cannabis Business Development Fund an amount equal to:

  • (1) any fees that were waived by any State agency based on the applicant’s status as a Social Equity Applicant, if applicable;
  • (2) any outstanding amount owed by the Qualified Social Equity Applicant for a loan through the Cannabis Business Development Fund, if applicable; and
  • (3) the full amount of any grants that the Qualified Social Equity Applicant received from the Department of Commerce and Economic Opportunity, if applicable.

(b) Transfers of cannabis business establishment licenses awarded to a Social Equity Applicant are subject to all other provisions of this Act, the Compassionate Use of Medical Cannabis Pilot Program Act, and rules regarding transfers.

Section 7-30. Reporting.

By January 1, 2021, and on January 1 of every year thereafter, or upon request by the Illinois Cannabis Regulation Oversight Officer, each cannabis business establishment licensed under this Act shall report to the Illinois Cannabis Regulation Oversight Officer, on a form to be provided by the Illinois Cannabis Regulation Oversight Officer, information that will allow it to assess the extent of diversity in the medical and adult use cannabis industry and methods for reducing or eliminating any identified barriers to entry, including access to capital. The information to be collected shall be designed to identify the following:

  • (1) the number and percentage of licenses provided to Social Equity Applicants and to businesses owned by minorities, women, veterans, and people with disabilities;
  • (2) the total number and percentage of employees in the cannabis industry who meet the criteria in (3)(i) or (3)(ii) in the definition of Social Equity Applicant or who are minorities, women, veterans, or people with disabilities;
  • (3) the total number and percentage of contractors and subcontractors in the cannabis industry that meet the definition of a Social Equity Applicant or who are owned by minorities, women, veterans, or people with disabilities, if known to the cannabis business establishment; and
  • (4) recommendations on reducing or eliminating any identified barriers to entry, including access to capital, in the cannabis industry.