Sozo Illinois, which applied for dispensary licenses, sued in federal court here, claiming a provision in the application that gives Illinois residents five bonus points unfairly discriminates against the company and violates state and federal laws guaranteeing due process and equal protection. The company also said it’s being unfairly excluded from one of three lotteries that will be used to distribute licenses, taking aim at a legislative fix to one of the most controversial provisions of the licensing process.
It’s just the latest twist in a process to add new pot businesses that’s taken longer than expected. The original law aimed to diversify the white, male ownership of the newly legal weed industry by giving licenses to “social-equity” applicants from neighborhoods hit hard by poverty, crime, violence and imprisonment related to the war on drugs.
One of the ways to achieve social-equity status—which carried a 20 percent bonus in application scoring—was for an applicant to hire 10 people who either lived in areas disproportionately impacted by the war on drugs or those who had been arrested or jailed for marijuana possession that was no longer a crime. It was derided as the “slave-master clause.”
The process to issue the first 75 licenses for new marijuana shops has been under fire since it resulted in a tie between 21 applicants who achieved perfect scores, some of which appeared to have tenuous connections to communities the law was designed to help. The Legislature decided that applicants who didn’t win the first 75 licenses would be eligible for two lotteries for 110 more licenses to be distributed this year. Applicants such as Sozo, which achieved social-equity status through employment, were excluded from the second of the two lotteries.
“This is fundamentally unfair and damages applicants like Sozo,” the suit says. “The new law effectively changed the rules of the game at the start of the fourth quarter by giving special priority to those social equity applicants who qualified solely under the “ownership method.”
Legislators allowed applicants who did not achieve perfect scores in the in the competition for the first 75 licenses to be considered for the two lotteries that will be used to award the additional 110 licenses so they did not have to spend more time and money submitting new applications. It’s unclear if a judge will view the 110 licenses as part of the same competition used to issue the first 75 licenses.
Sozo is likely, however, to qualify for one of the three lotteries.
The company is based in Warren, Mich., where it has marijuana cultivation and retail operations. It’s led by Aaron Rasty, a former Chicago entrepreneur who launched Bluestar Energy Services, an independent electricity supplier with 23,000 customers that was acquired in 2012 by American Electric Power for an undisclosed price. Rasty was a member of Crain’s 40 under 40 class of 2008.
The company claims in its suit that it spent more than $350,000 employing the workers in Illinois to maintain its social-equity status. That demonstrates the lengths to which applicants are willing to go in order to win dispensary licenses, which can be worth $10 million or more. The lawsuit, one of several that have been filed, shows that companies are willing to spend money to protect those investments.
“The lawsuit was predictable,” Rep. LaShawn Ford, who co-sponsored the update to the cannabis legislation, said in a statement. “The intent of the law was to support the men, women, families and communities destroyed by the war on drugs. The intent of the law was to repair the harms to those people and communities. We never changed the lottery for the promise to hire and the veteran points. We created new opportunities. The governor made the process fair to avoid lawsuits. The only people that should be suing are social equity applicants because there has been a monopoly in this industry.”