As some pot buyers in Illinois are finding dispensary shelves bare, state regulators have notified shops across the state they are investigating apparent violations of a rule meant to prevent stockpiling marijuana from a single grower and ensure that retailers are operating on an equal playing field.
Just over a week after recreational pot sales kicked off statewide, regulators sent a letter saying they were aware of violations and investigating whether stores were sourcing more than 40% of their product from one grower, which is illegal. The law is aimed at preventing pot growers from entering into exclusive agreements with specific shops and making sure all stores have a diversity of products from different sources.
The warning comes as some dispensaries grappling with the pervasive supply shortage said they were worried that some companies that own both dispensaries and cultivation sites could be trying to control the market by limiting product available to competitors. A key sponsor of the marijuana law in Illinois said pot firms were bringing those concerns to the Illinois attorney general’s office, which investigates antitrust issues.
“We need to make sure that everyone’s getting access to product,” said state Sen. Heather Steans, a Chicago Democrat.
The letter, sent to dispensaries Friday by the Illinois Department of Financial and Professional Regulation, noted that “some adult use dispensaries have inventory from a single cultivator center entity in excess of the 40% limit mandated by the Cannabis Regulation and Tax Act.”
While the letter was intended to merely put the shops on notice that they need to correct any violations, they could potentially face citations and fines of up to $20,000 if the situation continues.
“The department is currently investigating the scope and extent of those potential violations,” wrote Bret Bender, deputy director of IDFPR’s cannabis control section. “In addition, it has been reported that many dispensaries are experiencing a shortage of cannabis products, including products for medical cannabis patients.”
The acknowledgment that the medical supply has been depleted is of particular concern given that dispensaries are required by law to keep a dedicated stash of pot products set aside for those patients.
Toi Hutchinson, the senior adviser to Gov. J.B. Pritzker on cannabis control, declined to provide the names of the dispensaries referenced in the letter. She said the administration will continue to “watch and track” the nascent industry as it develops, adding that she’s specifically concerned about protecting people who need the pot for medical reasons.
“We were serious when we said that we embedded patient protections into the law and we would use all tools to get to the bottom of what’s happening and trying to help right the system,” said Hutchinson, a former state senator who co-sponsored the law.
One dispensary operator, who asked not to be named fearing reprisal from cultivators, suspects the rule in question was manipulated by companies looking to “circularly supply each other so that they could game the system and sell their own product at their own stores and box out everyone else.” The concern is that some large pot growers that also own dispensaries are making informal agreements with one other while shutting out other competitors.
No proof has been presented to back up that claim.
Brendan Shiller, an attorney and associate at The Herbal Care Center on the Near West Side, noted that it’s still unclear whether the supply issues are a byproduct of “an actual shortage or some funny business.”
“I don’t want to give the impression that we believe that anyone is playing games because we can’t tell,” said Shiller, adding that businesses “across the board” have seen a downturn in supply.
However, Shiller said, it’s vital for the state “to ferret out any collusion” if it is indeed taking place.
Steans said independent dispensaries have reported seeing a dropoff in deliveries from GTI and Cresco Labs, a pair of multi-state operators based in River North that run multiple grow operations and dispensaries across Illinois.
“I’ve gotten some specific numbers from some dispensaries, and it’s a dramatic change in what product they’re getting from [GTI and Cresco],” she said. “That concerns me greatly.”
Cresco spokesman Jason Erkes said his company has been meeting orders since marijuana was legalized at the start of the year.
“Since January 1st, we have delivered over $1 million in wholesale product to dozens of dispensaries all over the state and will continue filling orders as supply becomes available,” he said.
Last week, as many Chicago pot shops were forced to close their doors to recreational buyers due to supply issues, Erkes downplayed the effects of the shortage on his company.
“There are no product supply shortages — just a shortage of state-approved employees to help efficiently service the hundreds of people that have been showing up every day to make their first legal cannabis purchase in Illinois,” Erkes said.
A GTI spokeswoman didn’t immediately respond to questions from the Sun-Times.
Steans said some dispensaries told her that they were bringing their concerns directly to the attorney general’s office. She believes the anti-trust division should look into the matter.
“If there’s collusion, that’s just what that division looks at,” said Steans, who has also referred dispensary operators to Hutchinson’s office.
Those allegations aren’t currently being investigated by the attorney general’s office, according to spokeswoman Tori Joseph. She could not immediately say whether the office has received complaints from dispensaries.
Meanwhile, Kris Krane, president of Mission dispensary in South Chicago, said he doesn’t share the concerns of some of his fellow dispensary operators, noting that his shop has received product from many of the state’s cultivators since Jan. 1.
“There just isn’t that much wholesale product available,” said Krane. “I’m not worried about anything particularly nefarious going on here because this is exactly what we expected given the limited supply compared to the high demand.”