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ILLINOIS CANNABIS INDUSTRY

OVERVIEW AND ANALYSIS

Original Publication Jan 2019 v.1.1

Updated Feb 2019 v.1.2

Updated Mar 2019 v.1.3

Updated Mar 2019 v.1.4

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FOREWORD

Issues Facing Medical and Adult Use

Cannabis Programs in Illinois

The passage of Senate Bill 336, the Opioid Alternative Pilot Program (OAPP), coupled with support and

encouragement from newly elected Governor, J.B. Pritzker, will likely redefine how cannabis is treated in the

state of Illinois as we proceed through and beyond 2019. Legislators, rule makers, and existing as well as

future program participants would be well served to carefully and thoroughly consider the implementation of

such programs and the far reaching potential effects on the medical patients, operators, and our communities.

After conferring with participants in the Illinois medical program, both license holders and operators,

operators throughout various other states, as well as those that have participated in non-US based medical

programs worldwide, we would like to provide input on some of the key issues facing the Medical Cannabis

Pilot Program (MCPP), the OAPP, medical expansion, and the potential adult use programs in Illinois. While

it is often stated that Illinois wishes to seek, and be seen as the gold standard for a well regulated cannabis

policy, we are gravely concerned with the potential for program falter or failure without significant foresight,

consideration, and action to address the many issues that are currently facing the medical and would be facing

adult use cannabis programs in Illinois.

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TABLE OF CONTENTS

1.0 - Medical Cannabis Program ............................................................................................... 4

1.1 – LIMITED SUPPLY AND MARKET FORCES .................................................................................................................................... 4

1.2 – EMPTY AND UNLICENSED DISPENSARY DISTRICTS ............................................................................................................. 7

1.3 – LIMITED MEDICAL CONDITIONS AND PARTICIPATION ..................................................................................................... 8

1.4 – CONSOLIDATION OF INDUSTRY OPERATORS AND OLIGOPOLIZATION .................................................................. 9

1.5 – OAPP EXPANSION AND MARKET PREDICTIONS .................................................................................................................. 10

1.6 – PROGRAM SOLUTIONS AND POSSIBLE ACTIONS .................................................................................................................. 11

2.0 - Adult Use Cannabis Program .......................................................................................... 13

2.1 – MARKET SIZE COMPARISONS ......................................................................................................................................................... 13

2.2 – CONCESSIONS FOR EXISTING MEDICAL STAKEHOLDERS .............................................................................................. 16

2.3 – PRODUCT SHORTAGES AND PROTECTIONS FOR EXISTING MEDICAL PATIENTS .............................................. 18

2.4 – USE OF TAX REVENUE ....................................................................................................................................................................... 20

3.0 – Illinois Adult Use Projections and Recommendations .................................................. 21

3.1 – ILLINOIS ADULT USE DEMAND ESTIMATE .............................................................................................................................. 21

3.2 – ILLINOIS ADULT USE LICENSED PRODUCTION SPACE ..................................................................................................... 25

3.3 – ILLINOIS ADULT USE ADDITIONAL LICENSED OPERATORS REQUIRED ................................................................. 27

3.4 – ILLINOIS ADULT USE PROGRAM IMPLEMENTATION NOTES ......................................................................................... 31

4.0 – Critical Analysis of Alternative Demand Studies ............................................................ 36

4.1 – FREEDMAN & KOSKI DEMAND STUDY ...................................................................................................................................... 36

4.2 – MARIJUANA POLICY GROUP DEMAND STUDY ....................................................................................................................... 42

4.3 – IL NORML DEMAND STUDY SUMMARY ...................................................................................................................................... 45

5.0 – Cannabis Program State Comparisons ........................................................................... 46

5.1 – CANNABIS PROGRAM LICENSING STRUCTURES ................................................................................................................... 46

5.2 – STATE OPERATOR LICENSE ALLOCATION AND COMPARISON .................................................................................... 48

5.3 – ANNUAL SALES AND OPERATIONAL CAPACITY ................................................................................................................... 52

6.0 – Conclusion....................................................................................................................... 55

CONTACT ............................................................................................................................................................................................................ 56

7.0 - References ........................................................................................................................ 57

ADDENDUM I - LICENSED CULTIVATION OPERATIONS ............................................................................................................ 59

ADDENDUM II - AVERAGE PRODUCT PRICING ............................................................................................................................... 62

ADDENDUM III - LICENSED DISPENSARY OPERATIONS ............................................................................................................ 65

ADDENDUM IV – VERSION UPDATES ................................................................................................................................................... 68

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1.0 - Medical Cannabis Program

1.1 – LIMITED SUPPLY AND MARKET FORCES

ISSUE: The current Illinois medical market has limited production capacity which limits

competition and artificially inflates medicine prices. 1

The current medical program is represented by a limited number of producers and retailers. As a result,

this has limited competition and has allowed the market to stagnate, inhibiting product development,

artificially inflating medicine prices above that of the black market and comparable legal markets, and limiting

product availability for patients. In Illinois, sixteen (16) cultivators, covering twenty (21) discreet licenses,

control the entire supply for the state’s medical program, which is distributed by fifty five (55) dispensary

retail establishments. Since the program’s launch in 2015, more than half of the licensed retail dispensaries

are now owned, or partially owned by cultivators or cultivator affiliated groups through the result of

numerous private acquisitions with clear ownership records unavailable to the public.

Production is further limited by those producers with multiple licenses and those with minimal

production capacity. Several licensed producers in Illinois maintain facilities at a bare minimum in order to

preserve those licenses in good standing according to the letter of the law. These facilities are not producing

medicine, or in the best case, are producing a negligible amount of medicine, and further decrease the supply

available for patients. Rules and regulations from the Department of Agriculture (AGR) called for

commencing operations within six months, with failure to do so eventually resulting in a forfeiture of a

license and surety bond. Many license holders missed this timeline with no repercussion, and several

continue to operate facilities with no production or negligible production simply to retain those coveted

medical licenses. Additional regulations in AGR rules require that licensees have the ability to expand to meet

demand as the program expands. This was a part of every cultivator’s original application that was reviewed

for approval by AGR and the basis for their original selection.2 These claims are further supported by

information acquired by the commissioned report from consultancy Freedman & Koski, which states per the

Illinois Department of Agriculture, Illinois cultivators currently operate only 259,000 square feet, with

613,000 square feet unused, approved, and or still under construction as the program is now entering year 5

since licenses were awarded in February 2015. 3 Worthy of note is there are single cultivator locations

throughout the nation that approach or exceed the size that all Illinois stakeholders cumulatively currently

occupy.

Numerous examples of the shortcomings of current Illinois cultivators and their accompanying

production limitations can be listed, but the general failings and themes within each shortcoming example

apply statewide and can be summarized. Wait times for medical products have been continuously growing

and have been quoted as high as two months as of January 2019, with other orders reduced in quantity due to

stock issues. Statements made by those licensed cultivators confirm that no operators will be able to meet the

upcoming demand of the OAPP, let alone further medical expansion or future adult use. Several cultivators

maintain second licensed cultivation sites that are inoperative as the medical program now enters its fifth year

since licenses were originally awarded in February of 2015. While some of those non operational and non

producing cultivation site have been recently sold, remaining stakeholders are increasingly becoming publicly

traded organizations, acquiring interest and control of numerous Illinois dispensaries, and expanding into

multiple other states. With such expansion elsewhere, these cultivation sites still sit undeveloped and under

or not producing as we rapidly move towards expanded medical and adult use while medical patients are

forced to pay some of the highest prices nationwide. These undeveloped facilities totaling in the hundreds of

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thousands of square feet represent desperately needed production space while entering a period where

millions of additional are a necessity. The inability to meet demand should be seen as a failure to uphold the

rules and regulations by which they have agreed to abide by as a condition of licensure, and specifically

required cultivators to describe and confirm their ability to expand in a timely fashion and meet patient

demand. Such actions ultimately harm the patients of Illinois, to whom all licensed operators have a duty and

obligation to protect and serve.

A similar medical market can be seen in Arizona, when looking for a direct medical comparison. Arizona

currently has approximately three and a half times (3.5x) the patient population (~180,000) compared to

Illinois (~50,000), with more than 4x the cultivators and more than 2x the dispensaries. Current dry flower

sales are approximately five and a half (5.5) tons or approximately 11,000 lbs per month, which compares

with Illinois sales of just over half a ton of dry flower (~1,250 lbs) per month. Despite a patient population

difference of only three and a half times, Arizona patients purchase nine times (9x) more medical products by

weight when compared to Illinois. With the anticipated medical expansions, Illinois will likely see similar

demand to Arizona’s current program, and given the current product offerings in Illinois, the sales and

therefore production capacity would need to increase by ten times (10x) in a very short amount of time just to

serve the medical program.

Arizona allows ‘personal cultivation rights’, also referred to as ‘caregivers’ in Arizona. These producers

alone have near the current dry flower sales of the entire existing Illinois medical program, representing

approximately 1,200 additional pounds per month. This additional capacity is not included in the five and a

half (5.5) ton per month sales by licensed Arizona producers and merely serves to further highlight Illinois’

limited production capacity.

This limited supply has artificially inflated wholesale and therefore retail pricing resulting in medical

product wholesale costs that are, on average, three to four times the wholesale price seen in Colorado and

Arizona and retail costs that are double that of the existing black market in Illinois. As operators with years

of extensive experience dating back to the earliest implementation in Colorado have stated, this increase in

cost cannot be justified by any significant increase in regulations, compliance, or product quality. In any other

industry, this would likely be seen as price collusion due to the similar offerings and pricing from almost all

operators, along with their membership within cooperative industry based lobbying organizations.

Ultimately, the patients most in need that suffer the very serious ailments that the program was meant to

help, are the ones who bear the brunt of the burden. This can be clearly seen by the number of purchasing

patients in Illinois. Generally each month, only around 60% of the medical patients are actively purchasing

from licensed producers. 1, 4

SOLUTION: Increase the number of licensed operators and demand existing operators increase

capacity to meet patient demand. See Section 1.6 for further elaboration.

For a visual interpretation of the above, please see the chart on the following page which lists production

capacity and patient counts in Arizona.

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Figure 1 – Arizona Medical Cannabis Patient Count and Sales

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1.2 – EMPTY AND UNLICENSED DISPENSARY DISTRICTS

ISSUE: Unallocated dispensary licenses which could be serving the patients of their respective

regions remain unissued after many years.

Following the original medical cannabis applications in 2014, several dispensary districts were not

awarded any licenses due to a lack of applicants in those regions. These include but are not limited to

Southern Chicagoland, DeKalb County, and Ford/Iroquois/Kankakee Counties. Under the program’s rules

issued by the Illinois Department of Financial and Professional Regulation (DFPR), the licensing process is to

be reopened with those remaining licenses awarded under the same scoring and application process as the

original round. 5

Multiple organizations have sought and retained special use permits for these areas, anticipating a

reopening of this application period for over three and a half years. Continued requests for clarification from

DFPR return no information regarding a potential application timeline and show no urgency in increasing

access for the state’s medical patients. Dispensary retail establishments are limited as it is, and for these more

rural locations, it results in patients having to drive upwards of 1 hour or more to reach their nearest

dispensary location. For patients that are seriously ill or suffer from limited mobility, this is a serious burden

to obtaining relief from their chronic and debilitating ailments. This issue is further compounded by the

limited 1:1 caregiver/patient ratio that Illinois currently allows. A caregiver possesses no other legal rights

other than to procure medicine for their designated patient, and this has always remained a significant and

unreasonable obstacle for patient access in Illinois. A common ratio also seen in other states which would

serve those patients in Illinois with mobility issues would be at a 1:5 caregiver to patient ratio or some

compromise to allow for ease of access for all patients.

SOLUTION: IDFPR reopens the application period for licensed dispensaries in the remaining,

unoccupied districts. See Section 1.6 for further elaboration.

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1.3 – LIMITED MEDICAL CONDITIONS AND PARTICIPATION

ISSUE: Limited medical conditions qualify for the MCPP under the Illinois program rules and

regulations. 5

The medical program in Illinois has a list of qualifying conditions along with a petitioning process to add

new conditions to that list. Several rounds of petitions were submitted following the program launch in 2015,

and most were suggested for approval unanimously by the Board tasked with making those determinations.

All, aside from PTSD which was forced through by judicial order, have stalled or been outright denied by the

Director of the Department of Public Health (DPH), Dr. Nirav Shah. 6

These mixed signals from Illinois regulatory bodies, on top of difficulties coordinating patient paperwork

with the state, along with the federal classification of cannabis have made licensed physicians in Illinois very

hesitant to participate within the medical cannabis program. Many patients and prospective patients find

their general practitioner unwilling to sign any documentation for cannabis and are forced to go out of

network and out of pocket to find a doctor willing to work within the confines of the program. Improving

physician participation and allowing physicians to determine which of their patients would benefit from

cannabis treatment should be a prime target for any regulations looking to ease suffering for medical patients

in Illinois as well as a goal for the responsible agencies including DPH and DFPR.

The limited medical conditions and limited physician participation serve as two significant barriers to

participation. The third and largest barrier is the cost to participate within the program. Prior to setting foot

inside any limited access areas of a dispensary, one must pay the non-refundable state application fee ($250

for 3 years) as well as their physician visit costs which regularly average around three hundred dollars ($300).

This provides a monetary and socioeconomic barrier to entry and represents a large outlay of funds for many

patients, prior to purchasing any medical products to actually treat their conditions which are not covered by

insurance. Due to the previously mentioned factors, we have also established that Illinois has the highest

prices nationwide, which greatly limit the ability of those operating under a budget to obtain their medicine.

In rural areas of the state, a large portion of patients are operating with limited budgets or on fixed incomes

relying on Social Security or disability benefits. Decreasing medical fees, increasing physician outreach,

education, and support, and/or allowing medical patients limited home production through personal

cultivation rights would go a long way towards easing this burden and increasing program participation, as

well as increasing the number of licensed operators to address adequate supply and pricing.

SOLUTION: IDPH accepts the presented findings and adds new qualifying conditions at the

suggestion of the Board, or by direct request from the Governor. See Section 1.6 for further

elaboration.

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1.4 – CONSOLIDATION OF INDUSTRY OPERATORS AND

OLIGOPOLIZATION

ISSUE: Limited product supply, high medicine prices, and unfavorable tax codes have led to a

market which is dominated by several large operators, further limiting competition and forcing

consolidation.

The above factors including limited operators, limited product supply, and limited participation have

resulted in an unprecedented rate of consolidation and oligopolization within the medical cannabis industry in

Illinois.

The tax code, 280E, stipulates that federally illegal businesses are only allowed to deduct cost of goods

sold. This results in cultivators and producers possessing a greater advantage in claiming standard business

expenses. This includes staff wages, utilities, rent, materials, as all are devoted to producing a product and

therefore can be deducted as cost of goods sold. Unfortunately for dispensaries and retail operators, since no

products are being produced, available deductions for cost of goods sold are extremely limited. This does not

include the most basic standard deductions such as wages for sales and front desk staff. This only includes a

small portion of rent and utilities (essentially any activities or spaces related to inventory storage or inventory

management). This results in a tax burden that does not represent actual sales, revenues, and profits.

Furthermore, this tax code creates a financial incentive for vertically integrated organizations to keep

wholesale prices as high as possible to maximize taxable deductions on both the production and retail

operations.

As a result, cultivators, while maintaining high unit pricing for wholesale purchasing, have limited

production and thereby participation, and as a result, many dispensaries that are not well versed or well

prepared have been forced out of business and/or acquired. Over half of the dispensaries in the state are

now owned outright, or partially owned by cultivator or cultivator affiliated groups through private

transactions not available to public record. This consolidation ultimately continues to hurt the patients by

limiting competition as outlined in Section 1.1, along with all the associated fallout from such pricing

schemes, ultimately placing the burden and costs on the medical patients of Illinois.

Furthermore, while it is understandable for existing operators to seek dominant market share, the

concept is already being rejected in patient communities and groups, and between limited options, pricing,

and taxation, patients and potential adult use consumers are already gravitating to the Michigan medical and

adult use markets, and awaiting the emerging and quite favorable Missouri medical program as well as a

potentially expanded black market in Illinois. One of the basic duties of any emerging and proposed adult

use program is to provide a regulated and taxed in-state system which provides safe access to cannabis while

ideally eliminating the black market. A consolidated and concentrated license distribution throughout the

Illinois industry encourages the opposite and could potentially push consumers towards these newly

expanded legal markets in other states and towards the Illinois black market.

SOLUTION: Increase the number of licensed operators and demand existing operators increase

capacity to meet patient demand. See Section 1.6 for further elaboration.

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1.5 – OAPP EXPANSION AND MARKET PREDICTIONS

ISSUE: Current product shortages in the program foreshadow a market that will be further stressed

with the increased demand from the OAPP, leading to an increased rate of consolidation, increased

medicine prices, and limited availability.

Current product shortages and increases in prices are foreshadowing what could be the first of potentially

several severe product shortages. Illinois licensed cultivators have stated outright (as recent as Jan 2019) that

they cannot meet current demand with wait times exceeding two months in some cases for delivery of

medical cannabis products. They have also stated that no cultivator will be able to meet the upcoming

anticipated demand of the OAPP which is clearly evident when viewing sales and production capacity

without bias. With SB 336 and the OAPP, this opens the medical cannabis program up to anyone with an

opioid prescription for a 90 day medical card. The OAPP also removes the waiting period and allows

patients ‘provisional’ access which negates the 90-120 day wait currently plaguing patients. Removal of this

wait is a fantastic step forward as it allows those with serious ailments to begin treatment earlier (especially in

the cases of cancer where proactive treatment can result in a very large difference for tumor growth and

metastasis). The removal of this waiting period will result in an immediate influx of new patients that will

further stress the current program and existing product shortages.

In the meantime, until sales and production capacity can meet demand and both producers and retailers

are forced to compete through additional operators, large operators will continue to consolidate the market

and demand prices simply due to lack of availability and lack of choices for the patients of Illinois, despite

producing medicine that would be considered lacking in quality and overpriced in any mature market

nationwide. An immediate solution to this would be to follow the model implemented in Arizona and allow

dispensary operators to have their own production space with additional licensing open to all applicants to

follow, as this pulls from an already vetted group that has undergone due diligence through background

checks and regular compliance audits. Coupled with the model from Washington featuring tiered canopy

limits, many small producers via existing dispensary stakeholders and new operators can be introduced to the

program quickly that will allow for increased diversity and competition in the marketplace while still allowing

licensed cultivators an advantage with a significantly higher or no canopy limit for production. This model is

further elaborated on in the following sections.

SOLUTION: Increase the number of licensed operators and demand existing operators increase

capacity to meet patient demand. See Section 1.6 for further elaboration.

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1.6 – PROGRAM SOLUTIONS AND POSSIBLE ACTIONS

When viewing solutions and possibilities, one can look at existing states and determine best practices

using that existing data and our experiences. The following programs have unique and beneficial features that

may serve the Illinois cannabis program as it matures.

New Jersey – Offering a direct comparison and essentially mirroring the progress of the Illinois

medical program. The New Jersey medical program featured a resistant Governor who inhibited the

program. Following the election of a new and more favorable Governor, Phil Murphy, executive

orders were immediately issued following his inauguration to expand the list of qualifying conditions,

expand the number of operators within the state, and ease restrictions on patients and physicians

regarding reporting policies and program fees. Through executive orders, New Jersey’s Governor

Murphy immediately implemented the above actions which represented much needed changes to a

failing medical cannabis program and would be an option for Governor-elect Pritzker. 7

Arizona – Offering a similar comparison and relevant look to Illinois’ medical program following the

OAPP program implementation. Sales and production capacity in Arizona first shows that Illinois is

ill-equipped to meet the growing and soon to surge demand for medical products, even with

expansions from each organization (despite the inability of all organizations to expand at this time,

this would require approximately a ten time increase in sales from each licensed operator). Arizona

offers dispensaries the option to cultivate both on site and off site, following approval from

regulatory bodies under the rules and regulations of the medical cannabis program. Allowing

licensed dispensaries to cultivate immediately increases production capacity and competition while

pulling from an already vetted group that has undergone due diligence through background checks

and regular compliance audits. This can be incorporated with features from Washington’s cannabis

programs to introduce new operators statewide and still provide ample opportunities and advantages

to the original operators, while increasing product availability to existing and prospective patients.

Missouri – Offering the newest medical program with licensing anticipated in 2019. Missouri

requires a minimum number of licensed operators: to guarantee access for patients but also to

maintain a competitive marketplace less susceptible to manipulation. This is established based on

population and requires one cultivation license per 100,000 inhabitants based on the latest census

data. This will result in Missouri licensing sixty (60) cultivators in a state with roughly six million

residents. An equivalent number of licensed cultivators in Illinois based on population would require

approximately one hundred and twenty seven (127) licensed producers. Similarly, dispensaries are

limited based on the congressional districts in Missouri and require a minimum of one hundred and

ninety two (192) licensed retail dispensaries which would be the equivalent of over four hundred

(400) retail establishments in Illinois. 8

Washington – Offering a developed medical and adult use program. Washington and other states

utilize tiered production systems. Washington’s system includes the following tiers:

Tier 1 – Less than 2,000SF of plant canopy

Tier 2 – 2,000SF to 10,000SF of plant canopy

Tier 3 – 10,000SF to 30,000SF of plant canopy

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A tiered system would allow grandfathered cultivation operations to operate on a theoretical Tier 4

with an upper level or no canopy limit, while the proposed dispensary and future new licensees

would operate under Tier 1-3. Additional scaled licensing fees would be implemented to cover

program costs associated with compliance and regulation. 9

Michigan – Offering both a well developed medical program and the most recent transition into an

adult use state program. Michigan, foreseeing a lack of production capacity from licensed operators,

allows medical patients to operate as caregivers with personal cultivation rights. With the transition

to adult use, an emergency ruling was issued which authorized licensed establishments to purchase

from legal caregivers due to the lack of supply on hand from licensed producers and the large

demand from residents.10 This was a direct response by Michigan’s rule makers to the low supply,

and the expansion ruling came at the heels of forty licensed dispensary outlets which were almost

forced to close due to lack of cannabis products available for purchase. 11

While the medical program in Illinois has been successful to date with no outrageous cases of diversion,

theft, or notable public events, the program has been struggling with the above issues in the shadows at the

expense of the medical patients. As the program grows, these issues are becoming more and more evident

and if allowed to continue unaddressed, may very well end with failing the people the program was meant to

serve and protect - the medical patients of Illinois. As a result, additional operators need to be added to the

program immediately to prevent serious issues with product accessibility.

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2.0 - Adult Use Cannabis Program

2.1 – MARKET SIZE COMPARISONS

ISSUE: Illinois, compared to other medical and adult use states, is ill-equipped to meet any

significant increase in demand beyond the existing MCPP (not including OAPP), let alone the

demand generated by an adult use market.

We seem to continually hear about the ability of Illinois cultivators to meet increased demand, despite

supply already lacking in a limited participation medical market. Instead of debating theoretical capacity, we

again prefer to look at existing adult use programs both nationwide and in Canada. By looking at the served

population (residents plus tourism) and comparing that to production capacity and licensed producers, one

can obtain a very clear picture and understanding of Illinois’ shortfalls.

Adult Use in Illinois would represent a 127 million person market with 13 million residents and roughly

114 million visitors annually. Five of the six states (including Michigan) bordering Illinois have no cannabis

programs. Missouri is currently in the process of launching a medical program which many patients and

consumers have already identified as quite favorable allowing physicians to recommend cannabis for any

condition they deem appropriate and potentially poses many future challenges to the Southern Illinois current

stakeholders. Illinois features sixteen (16) cultivators with twenty one (21) licenses, and an additional fifty five

(55) licensed dispensaries. Currently, approximately 1,250 lbs of dry cannabis is sold per month with

additional material going towards extractions and edibles, of which would likely not exceed 2,100 lbs of dry

cannabis equivalent monthly. An in depth estimate of the demand in Illinois is featured in Section 3.0.

Colorado features an 87 million person market with 5 million residents and 82 million annual visitors.

Colorado currently has issued 1,000 dispensary licenses and approximately 1,500 cultivation licenses. One

single cultivation license, Los Suenos Farms, has a canopy twice the size of the entire Illinois program’s

combined cultivation footprint. Los Suenos operates approximately 1.2 million square feet of production

space. A second single cultivator in Colorado covers 300,000SF and is one of the largest indoor cannabis

producers worldwide. This leaves (approximately) 1,498 additional cultivation licensees in Colorado. In

2017, Colorado sold over six hundred and fifty thousand (650,000) pounds of cannabis which is

approximately forty times (40x) more than was sold in Illinois.

Arizona currently only has a medical program. With 180,000 patients, dry cannabis production in

Arizona (~11,000lbs/month) is still almost nine times (9x) that of Illinois (~1,250lbs/month) not including

personal cultivation rights/caregiver production, despite only having three and a half times (3.5x) the patient

population. The OAPP could easily bring in 100,000 or more new patients over the first several months of

2019, and with full patient and physician participation which would require every current operator to increase

sales by approximately ten times to meet that anticipated medical demand (e.g. each 30,000SF facility must

expand to 200,000SF, accounting for some increased efficiencies with economies of scale, and facilities

previously serving one hundred patients a day now serve one thousand). This does not include the expansion

that would be required for an adult use program.

Additionally Canada just recently legalized adult use cannabis. This is of particular interest given the

depth and longevity of their medical program. Canada entered into Adult Use implementation with over five

hundred licensed cultivation operations (~520) with several exceeding the total current operational combined

footprint in Illinois. Licensed producers stockpiled nearly 100,000 kilograms (~200,000 lbs) of cannabis

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product for adult use. This stockpile represents over thirteen (13) years of current Illinois dry flower sales.

Amazingly, there was still a product shortage following launch in Canada which represents a 57 million

market comprised of 37 million residents and 20 million visitors annually. This goes on to demonstrate that

there has not been a single adult use program launch, not only in the U.S, but now worldwide, that did not

see a product shortage despite production capacities that are orders of magnitude larger than Illinois.12

Additional market size comparisons can be found in Sections 3.0 and 4.0 including estimated Illinois

adult use demand as well as side by side comparisons of state cannabis programs.

SOLUTION: Increase the number of licensed operators and demand existing operators increase

capacity to meet demand. See Section 1.6 for further elaboration.

For a visual interpretation of the above, please see the charts on the following page. Figure 2 lists

licensed producers in various states under medical and adult use programs. To compare, Oklahoma is

approximately a 26 million market with 4 million residents and 22 million annual visitors. Figure 3 shows

Canada’s adult use ramp up timeline, stockpile, and anticipated year one demand.

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Figure 2 – Number of Licensed Producers in Various States

Figure 3 - Canada Cannabis Stockpile and Adult Use Demand

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2.2 – CONCESSIONS FOR EXISTING MEDICAL STAKEHOLDERS

ISSUE: Significant risk and outlay was required from medical operators and reasonable and

favorable concessions should be made for existing stakeholders when implementing an adult use

program in Illinois.

While we continue to hear many arguments against additional licensees for those wishing to retain their

oligopoly and market share, the fact of the matter is a successful medical expansion and more so an adult use

program will require additional operators to meet demand, as clearly shown in Section 2.1. This can be

accomplished in a way that makes accommodations for existing operators, which has always been the norm

nationwide, is a reasonable request, and one which we fully support. Such expansion then, as outlined in

Section 1.5 and 1.6, should focus on the best attributes from various cannabis programs nationwide for

incorporation into the Illinois proposed adult use bill and subsequent launch. This could include the addition

of cultivators through current Illinois licensed dispensary stakeholders, as well as new applicants to follow

statewide which are limited in production capacity through tiered licensing and/or locations.

Concessions for medical stakeholders are reasonable and typical in most states. Concessions should be

made in Illinois, as they have been elsewhere, but as mentioned in this specific scenario, the successful launch

of a new program is not possible without significant expansion. The current market is showing it is incapable

of meeting medical demand, let alone the enormous surge an adult use program would generate. These

additional licensees will need six to twelve months or more of advanced positioning in order to establish and

develop adequate production with stockpiles of inventory depending on the license type. To reiterate, these

are based on the following states:

Arizona – Sales and production capacity in Arizona first shows that Illinois is ill-equipped to meet

the growing and soon to surge demand for medical products, and even less equipped to meet

demand generated by an adult use program. Adult use would likely require expansion in the range of

30-80x for each operator in Illinois given sales and demand seen in other states without additional

licensees. Arizona offers dispensaries the option to cultivate both on site and off site, following

approval from regulatory bodies under the rules and regulations of the medical cannabis program.

Allowing licensed dispensaries to cultivate immediately increases production capacity and

competition while pulling from an already vetted group that has undergone due diligence through

background checks and regular compliance audits. This can be incorporated with features from

Washington’s cannabis programs to introduce new operators statewide and still provide ample

opportunities and advantages to the original operators, while increasing product availability to

existing and prospective patients.

Washington –Washington and other states utilize tiered production systems. Washington’s system

includes the following tiers:

Tier 1 – Less than 2,000SF of plant canopy

Tier 2 – 2,000SF to 10,000SF of plant canopy

Tier 3 – 10,000SF to 30,000SF of plant canopy

A tiered system would allow grandfathered cultivation operations to operate on a theoretical Tier 4

with no canopy limit, while the proposed dispensary and new licensees would operate under Tier 1-3.

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Additional licensing fees would be implemented to cover program costs associated with compliance

and regulation and scaled according to the tier under which the licensee operates. 9

Michigan – Michigan, foreseeing a lack of production capacity from licensed operators, allows

medical patients to operate as caregivers with personal cultivation rights. With the transition to adult

use, an emergency ruling was issued which authorized licensed establishments to purchase from legal

caregivers due to the lack of supply on hand from licensed producers and the large demand from

residents. 10 This was a direct response by Michigan’s rule makers to the low supply, and the

expansion ruling came at the heels of forty licensed dispensary outlets which were almost forced to

close due to lack of cannabis products available for purchase. 11

While sales and production capacity are greatly lacking in Illinois, distribution outlets are also limited as

shown by the chart in Figure 2. Additional retail licenses will be required to meet this demand and prevent

long lines and wait times for both adult use and medical patients. Other states often feature grandfathered

adult use licenses for medical dispensaries which would likely be an immediate solution prior to fully opening

up the applications to the public. Illinois features many organizations with multiple owners, where it may be

beneficial to allow a licensed dispensary to allocate its license to an alternative LLC should all the members of

the original entity be unwilling or unable to participate in the expansion. It is also preferred due to the current

Federal status of cannabis that individual locations and operations be legally separated. Generally a grace

period of several months to a year or more is provided, however capacity must be significant enough to allow

medical patients to continue to visit and obtain their medical products without interruption which will require

additional licensees all around due to the limited number currently existing under the MCPP, and the new

OAPP.

SOLUTION: Concessions for existing medical stakeholders through strategies which have been

implemented in Arizona, Washington, and Michigan, focusing initially on additional production for

fully vetted operators and new applicants with tiered canopy limits.

18

2.3 – PRODUCT SHORTAGES AND PROTECTIONS FOR EXISTING

MEDICAL PATIENTS

ISSUE: The current production capacity in Illinois is unable to meet demand. Protections need to

remain for existing medical patients that guarantee their medicine supply at affordable prices and

protect the integrity of the medical program.

As mentioned in Section 2.1, every state which has implemented an adult use cannabis program has seen

production shortages initially out of the gate. This includes Canada with hundreds of licensed producers and

several hundred thousand pounds of product stockpiled. We have established Illinois is ill-equipped to

handle the current growing demand as well as any increase. However additional production capacity must

also coincide with an adult use program launch. Several months following construction must be allocated for

planting, growth, harvest, processing, and final sale and distribution to retail outlets. With that, additional

cultivation licenses should be awarded approximately a year or more prior to program launch in order to

build out facilities, commence production, and manage a harvest.

Very concerning would be a program that does not specify between medical and adult use production

while facing a lack of supply. Many of our patients require daily treatment for their conditions, whether that

is for Parkinson’s and Epilepsy patients that require daily relief, cancer patients that require daily treatment in

order to fight tumor growth and metastasis, as well as the other conditions which require daily or regular

medication in order to live a normal lifestyle. A situation where product shortages are severe enough to cause

an increase in price, or worse, a lack of availability, could not only be detrimental to their health; it could be

fatal. Guaranteeing production capacity through a sufficient number of licensed operators and therefore

product availability for medical patients that require such should be paramount to any program launch.

This may be accomplished in several ways, or with a combination of several approaches. The first,

discussed in depth above, would include the increase of production capacity through additional licensees to

meet the demand. Many other states also reserve the right for home cultivation. This would be one quick

way to allow patients to control their medicine intake and accessibility. For decades, starting in California,

personal cultivation rights allowed medical patients who could not afford the costs the ability to provide high

quality medicine for their ailments. This benefits those that require specific products (strains, cultivars,

products, terpene profiles, etc) as well as those that cannot afford the high costs of cannabis without the help

of insurance.

Often, states allow these medical patients to serve as caregivers for multiple other patients (e.g. Arizona

allows caregivers to cultivate for themselves as well as five other patients, with an allotment of twelve (12)

plants per patient, for a total of seventy two (72) plants for any individual caregiver). California, Colorado,

and Michigan, as well as many others, all allow for some sort of personal cultivation rights, varying based on

medical status, the number of associated patients working together as a collective, as well as the

differentiation between flowering and vegetative growth. Often, multiple cultivars are required for multiple

ailments, and especially when searching for desired phenotypes and plant gender, a limited plant count greatly

limits a patient’s ability to find relief. Instead, a limit on flowering plants with a higher limit or preferably no

limit for small vegetative plants would be a reasonable compromise that would serve to limit production

potential while still allowing for the variety necessary for medical users to treat multiple ailments. This model

can be seen in Oregon with various vegetative and immature plant limits ranging from twelve (12) to

unlimited counts depending on specifics as outlined by the state.13 These patients in need are the ones that

most benefit from the implementation of a personal cultivation rights program.

19

Cultivation is undoubtedly a difficult process, much more so to consistently produce the highest quality,

and many products provided today (certain oils, extraction methods, cartridges, drinks, sprays, etc) require

specific and expensive equipment or processes that cannot be completed in the home. For these reasons, the

personal cultivation rights market has a negligible effect, if any, on the actual cannabis market. Those fighting

against personal cultivation rights often are profit or fear motivated and desire to control the means of

production beyond simple licensure.

While the ability to provide for medical patients is a valid argument for personal cultivation rights, the

second argument in favor simply comes from the ethical perspective. One should not continue to be

imprisoned for cultivating a plant that is legally sold and cultivated numbering in the hundreds of thousands

by numerous licensed operators statewide. Furthermore, Illinois has always treated the cultivation of five

plants or less as a misdemeanor, yet six and beyond as a felony The hypocrisy should not be ignored and the

benefits from allowing those unable to afford their medicine to produce it safely in the confines of their own

home should be a guaranteed right under any adult use program.

The largest benefit of an adult use program is the immediate access to medical patients that do not qualify

under the current program or cannot afford to. These may include patients that cannot find a doctor to

participate, do not want their doctor or family to know they medicate with cannabis, cannot afford to have a

medical cannabis license due to work, or for various other reasons. Increased availability for these patients is

very significant, as many do not know or understand the importance of our internal endocannabinoid system

(ECS). Please take the time to view this very short, three minute video from Dr. David Allen on the

importance of the ECS and why accessibility to cannabis products could greatly change the lives of many

patients suffering from various ailments statewide. (VIDEO LINK) 14

SOLUTION: Increase the number of licensed operators and demand existing operators increase

capacity to meet patient demand. Implement additional incentives that justify the costs of the

medical program such as personal cultivation rights or increased weight limits, and reconsider the

current medical program fees to make the program competitive with an adult use market.

20

2.4 – USE OF TAX REVENUE

ISSUE: Should additional taxes be placed on cannabis in the form of a vice tax, and where should

those funds be allocated?

Tax revenue generated from an adult use cannabis program should go to benefit our communities and

provide all operating funds for compliance and regulation of the program. These primary outlets for funds

include schools, educational programs, infrastructure, and cannabis program regulation and compliance.

While a vice tax may increase product costs, we believe some additional tax is a necessary component to a

successful cannabis program. For example, Colorado has the top anti-bullying program in the nation, and it

is funded entirely by cannabis generated taxes. Programs like these along with much needed improvements

to school facilities and infrastructure should be focused on.

There is concern that an additional vice tax would encourage a more robust black market. While this may

be true with an excessive tax, currently Illinois is priced above the black market at this moment (and as a

result only 60% of the registered patients are actively purchasing). A small vice tax can generate a

tremendous amount of beneficial revenue. The largest contributor to decreasing prices that compete with

and/or eliminate the black market is increased competition. An increase in licensed operators and production

capacity will do far more to regulate pricing than any reduction in tax. Furthermore, an additional tax would

also serve to protect the medical program. If adult use is legalized and does not require the $500-600 initial

outlay of the medical program, there will likely not be an existing medical program in the near future without

an incentive to remain within the program. This could range from lower product costs due to taxes, legalized

personal cultivation rights or higher plant count when compared to adult use authorizations, as well as higher

personal limits for those that require more cannabis for the treatment of their ailments.

SOLUTION: Appropriate use of a vice tax can help fund necessary social programs and legitimize

and maintain the ongoing need for a medical program. Increasing licensed operators and thereby

competition, will be the largest factor in controlling prices and staying competitive with the black

market.

21

3.0 – Illinois Adult Use Projections and Recommendations

3.1 – ILLINOIS ADULT USE DEMAND ESTIMATE

To the benefit of Illinois, demand studies based on existing cannabis program data from states

nationwide are available for review. This overview will cover estimates provided by the Marijuana Policy

Project (MPP) report entitled Potential Tax Revenue from a Regulated Cannabis Market: Illinois 15 as well as the

latest available report by the Marijuana Policy Group (MPG) in association with the University of Colorado

Boulder Leeds School of Business and commissioned by the Colorado Department of Revenue entitled

Market Size and Demand for Marijuana in Colorado 2017 Market Update 16.

The MPP report estimates demand using dated NIH self reported numbers regarding nationwide and

Illinois residents who have consumed cannabis. Compared with nationwide and statewide population

statistics, the MPP estimated the market share of an adult use program in Illinois. Based upon the estimated

total national consumption released as a Feb 2014 White House report, the MPP estimates that Illinois

demand is between roughly 350,000 pounds and 725,000 pounds. The usage rates are based on usage

statistics self-reported to the NIH, and due to the historical illegality of cannabis, may under represent actual

use in a mature, legal market. This report dates prior to the Illinois medical program launch as well as

decriminalization statewide, which may have had a significant effect on perception in the past five years.

The MPP report estimate only includes Illinois residents and does not account for tourism prior to adult

use legalization, or the additional potential cannabis-specific tourism post adult use legalization that would be

generated as seen in other states. Undoubtedly, Illinois would continue to draw millions of tourists annually.

If adult use was passed, Illinois, in association with Michigan, would be one the first state’s in the Midwest

with such programs and one can reasonably assume the tourism sector would see increased benefit from

those specific, cannabis-based visits from out of state residents. A recent survey as well as numerous others

have found approximately 1 in 7 Americans had used cannabis within the last year. 17, 18

Furthermore, trends are increasingly showing one of the largest growing demographics for cannabis

usage is seniors which this 2014 survey, now five years old, may not have accurately captured. Governor

Hickenlooper of Colorado who oversaw the initial rollout of the adult use program further supported the

rapid and continued growth of this demographic as recently as 2018 by stating, “We haven’t seen a big spike

in consumption. The only increase in consumption is among senior citizens, which we think is either Baby

Boomers coming home to roost or arthritis and the aches and pains of growing older – people finding that

marijuana is better pain solution than opioids or other things.” 19

One issue that is becoming more and more apparent is due to the rapid adoption and expansion of

medical cannabis as well as adult use programs throughout the nation, the resulting participation of the

population in cannabis use studies and the resources available to study such are increasingly available. A

recent report issued by Eaze, a cannabis data clearing house, found that first time cannabis users increased

140% in adult use state programs in 2018, with senior consumption increasing 25%, and women’s

consumption also doubling in 2018. 20, 21

The IWSR, the leading source of data and intelligence on the alcoholic beverage market, in conjunction

with BDS Analytics says a growing number of consumers, especially millennials, are showing preferences to

consume both alcohol and cannabis, versus older generations which tend to stick with just one. That could

cut into long-term loyalty efforts by beverage makers, especially those in the beer and spirits fields. “Our

22

research shows that up to 40% of adults 21 and over consume cannabis in states where it’s legal,” said Jessica

Lukas, vice-president at BDS Analytics. 22

Clearly, rapidly changing demographics can result in drastically different results when analyzing usage

rates and often a several year old study simply does not capture the actual demand present and can lead to

underestimating the actual demand statewide. All of which indicate the consumption rate of adults in the

United States is growing faster than it can be tracked in states which have implemented adult use.

States developing and preparing for adult use programs more and more are finding reduced tax rates as

well as product supply and pricing have a direct impact on the conversion of consumers from the black

market to the regulated market. Oregon’s OLCC noted in their January 2019 report that greater production

and lower pricing models represent an increase in the ratio of regulated cannabis sales compared to that of

the black market. 23 As Illinois currently operates, prices for medical patients exceed the black market by a

substantial margin and are one of the main factors in limited Illinois medical participation for those with

medical registry cards. This price discrepancy between the black market and regulated market can be directly

attributed, among other shortfalls, to the lack of production and lack of licensed operators in the current state

program. The New Jersey adult use cannabis bill which has been inching its way towards finalization as of

March 2019, has been delayed only by the disagreement and negotiations between Governor Murphy and

legislators between a higher tax rate which is feared will continue to feed the black market and prevent the

desired result of users migrating to the taxed and regulated format and products, and a lower rate, which

many believe will ensure that migration.

The MPG report provides access to actual sale numbers for Colorado’s adult use market in 2017,

arguably some of the best data that can be assembled representing a maturing and legal cannabis market.

These numbers were broken down to account for resident and tourist based cannabis purchases based on

Colorado’s reported figures within the report. These showed that visitors were responsible for just over 9%

of sales. While Illinois’ market will not directly mirror Colorado’s market, due to inevitable variations in

population, demand, and preferences, an estimate using these proportions would serve to provide a guideline

for estimating Illinois demand in a mature market using this real world data. When comparing Colorado’s

2017 established benchmarks with Illinois’ population and tourism statistics, we can estimate approximately

1.4 million pounds of cannabis (flower equivalent) would be demanded by the full Illinois market annually if

usage statistics mirrored that of Colorado’s. Flower equivalent is a measure developed specifically for this

industry and utilized in the MPG study that converts non- flower consumption or production into weight-

based units of flower. This method allows regulators to properly compare supply, demand, potency, and

pricing across different product types. 16 More information can be found in Figure 4 below.

Estimating the potential demand in an adult use market in Illinois, as well as knowing current sales data

figures discussed previously which show January 2019 dry cannabis sales of 1,250 pounds and the state of the

medical marketplace with limited product availability and long wait times in certain cases, we can make some

estimates about the market expansion that would be required to meet the estimated adult use demand. At

this current sales rate, the demand estimated by both the MPP and MPG reports would require an increase of

between 23x and 98x statewide, for all operators. Due to the fact the MPP estimate excludes key purchasing

demographics, while the MPG estimate is based upon the latest 2017 sales data and population

demographics, we believe the higher MPG estimate to be a more accurate number when considering what the

actual Illinois market will look like if an adult use program is launched and allowed to mature. Additionally,

depending on the allocation and preferences of the purchasing population and efficiencies of the production

facilities, additional extraction and concentrate yield, and accounting for flower equivalent additions in

production through sugar leaf and trim used to make cannabis products, this may alter demand based on dry

23

flower, concentrate, extract, and edible usage which may decrease the multiplier slightly, in which case an

approximate 40x to 60x rate of expansion would be more appropriate.

As an example, this could require a 30ksf cultivation facility currently in operation, to potentially expand

their footprint up to and exceeding 1,800ksf. Likewise, such an increase would require a retail facility that

serves one hundred (100) patients a day to serve approximately six thousand (6,000) purchasers daily, again,

with our belief that these estimates will lean towards the upper end of the estimated demand figures. Even

when accounting for increased productivity per square foot associated with economies of scale in all

operations, especially in regards to post processing and production, or additional non-dry flower yields of

extracts and infused products, such an increase, or even a fraction of such, is unreasonable to assume could

be accomplished by any or all operators in a way that guarantees access for medical patients and meets that

actual statewide demand.

The tables and graphs on the following page further break down the above Illinois Adult Use Demand

Estimate and provide a graphical depiction of what an increase between 23x and 98x would entail for a state’s

total product sales, as well as a comparison to Colorado’s 2017 sales.

A mature market in Illinois, with twice the population of residents, millions of additional visitors

annually, and even with varying usage rates, would be reasonably expected to exceed Colorado’s 2017 sales as

a mature market. If a sufficient number of licensed operators are not available with the production capacity

necessary at such a scale, as well as the proportionate inventory surplus to meet not only initial demand, but

the continuation of consumer purchasing, this demand will not go unmet, and will likely instead be filled by

the black market.

24

1 Data utilizes equivalent pounds of cannabis covering total product sales Figure 4 - Estimated Illinois Demand Extrapolated Using MPG 2017 Demand and Market Study from Colorado (August 2018)

Sales Annually

(Pounds)

Increase in Sales Required to Meet

Estimated Demand for Illinois Adult Use

Program 1

Current Sales Colorado 3

665,000 N/A

Current Sales Illinois 1

15,000 N/A

Low MPP IL Demand Estimate 2

356,250 23.75x

High MPP IL Demand Estimate 2

725,000 48.3x

IL NORML Demand Estimate 4

1,462,000 97.5x

1 Based on total IL medical dry cannabis sales of 1,250 pounds per month, as of Jan 2019

2 Does not account for out of state visitors and only considers Illinois resident demand

3 Data utilizes equivalent pounds of cannabis covering total product sales 4 Based on extrapolation of actual 2017 Colorado Sales data

Figure 5 - Estimated Illinois Expansion Requirements for Adult Use Using MPG and MEP Demand Studies from Colorado and Illinois

Figure 6 – Illinois Annual Adult Use Demand Estimate and Current Sales

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Current Sales Colorado

Current Dry Flower

Medical Sales Illinois

Low MPP IL Demand Estimate

High MPP IL Demand Estimate

IL NORML Demand Estimate

Po

un

ds

Illinois Annual Adult Use Demand Estimate

State Population (millions)

Visitors (millions)

Resident Cannabis Users

Visitor Cannabis Users

Resident Purchases (Pounds) 1

Visitor Purchases (Pounds) 1

Total Demand (Pounds) 1

Colorado 5.6 84.0 985,000 6,500,000 604,500 60,500 665,000 Illinois 12.8 114.0 2,250,000 8,800,000 1,380,000 82,000 1,462,000

25

3.2 – ILLINOIS ADULT USE LICENSED PRODUCTION SPACE

Estimated demand for an Illinois adult use program far exceeds current medical dry flower sales, and

even when making more than generous considerations for extracts and infused products, Illinois’ current total

medical production is not likely exceeding twenty five thousand flower equivalent pounds annually. This is

approximately two and a half months of Arizona’s current medical dry flower sales only or just about fifteen

(15) days of Colorado’s current cannabis sales. Of the three demand projections presented in Section 3.1, we

believe the MPG based estimate using actual sales data from Colorado’s 2017 fiscal year and population

comparisons is the more accurate model requiring approximately 1.4 million pounds of cannabis flower

equivalent under which we can proceed to estimate the amount of production space and therefore new

licensees such a demand may require.

Several yield metrics are available from published studies24 which we can use to extrapolate and

determine an approximate area necessary for Illinois’ production based on the 1.4 million pound demand

figure. These values can be seen in the below table and have been averaged into low yield, average yield, and

high yield estimates based on grams produced per square foot from published reports. An additional metric

based on a gram/watt standard within the cannabis industry was also included to supplement these values,

and while not present in the cited published study, have served as a benchmark comparison metric for

decades for indoor cultivation under HID lamps for cannabis growers.

These yield metrics account for flowering canopy only. Additional production space required in cannabis

production facilities include: vegetative canopy space; post production areas for drying, trimming, curing,

storage, extraction, infusion; ancillary areas for security, offices, accounting, sales, staff break areas,

washrooms; as well as unoccupied spaces including walkways around plant canopies, equipment, travel

corridors, loading dock, storage, etc. A common metric used for vegetative compared to flowering space is at

a 1:2 vegetative to flowering ratio. Additional post processing and other spaces outside of canopy space often

makes it that cannabis production facilities are often comprised of 50% flowering canopy or less when

compared to a total building footprint.

Study Yield per Flowering Canopy Area (g/SF)

Method Yield Type

Botec 21.5 Indoor Low Botec 41.3 Indoor Ave Botec 70.2 Indoor High Netherlands 34.0 Indoor Low Netherlands 46.9 Indoor Ave Netherlands 56.7 Indoor High Cervantes 29.6 Indoor Low Cervantes 48.4 Indoor Ave Cervantes 53.0 Indoor High Vanhove 40.7 Indoor Ave Knight 32.7 Indoor Ave 0.5g/w in 16SF with 1kW 31.3 Indoor Low 1.0g/w in 16SF with 1kW 62.5 Indoor High

Figure 7 – Yield Metrics per Flowering Canopy Area 24

26

The above yield metrics result in three estimated averages for low, average, and high yield values when

compared to flowering area of approximately:

29.1g/sf for low yielding operations;

42.0 g/sf for average yielding operations;

and 60.6g/sf for high yielding operations.

Most operations in Illinois are indoor cultivation operations, and those that are greenhouse operations

include HID supplemental lighting and light deprivation systems, essentially allowing for the same,

continuous production capacity year round through photoperiod manipulation. We can estimate these

facilities will be able to harvest five times per year, with dedicated vegetative space and proper timing,

planting, and coordination. Multiplying each of our average yield metrics above by five then results in a yield

metric that is applied annually, covering grams/sf/year. These values can be seen in the table below.

Yield Metric Per Harvest (g/sf)

Annual Yield Metric (g/sf/year)

Annual Yield Metric (lb/sf/year)

Estimated Total Licensed Illinois Plant Canopy (sf)

Ave Low 29.1 145.4 0.325 6.5 million Ave Average 42.0 210.0 0.469 4.5 million Ave High 60.6 303.0 0.676 3.1 million Figure 8 – Average Yield Metrics and Resulting Required Illinois Estimated Plant Canopy

Knowing both our anticipated demand of approximately 1.4 million pounds of cannabis equivalent

annually, as well as an assumption that vegetative to flowering canopy is split in an approximate 1:2 ratio, we

can estimate anywhere from 3.1 million to 6.5 million total square feet of production canopy area needs to be

licensed to meet demand (due to use of space, total facility footprints will far exceed these values). Initially,

many operators will likely not achieve the high yields metrics utilized above, and in fact many never achieve

those production levels commercially. More than likely, most large scale cultivators will produce average or

under average yields initially given they are cultivating in a new space, with new equipment, new procedures,

on large scales, and sometimes without the knowledge of the experienced, large scale, commercial operators.

Using the average yield of 42.0 g/sf, Illinois would require approximately 4.5 million square feet of licensed

plant canopy with the low yield average requiring approximately 6.5 millions square feet of licensed plant

canopy.

Additionally, the Freedman and Koski report utilizes plant numbers to calculate an estimated yield.

Given the potential variations between plant sizes that exist, ranging from small, sea of green type cultivation

methods, to larger plants capable of yielding multiple pounds each, we prefer to use area based yield metrics

discussed in Section 3.2. When analyzing the Freedman and Koski yield numbers, one can create an

equivalent yield metric per area which, upon conversion, is almost exactly our average number of 210

g/sf/year used above. While two different methods for calculation were used to determine these yield

metrics, the same average yield was therefore independently confirmed between both reports.

27

3.3 – ILLINOIS ADULT USE ADDITIONAL LICENSED OPERATORS

REQUIRED

Knowing the approximate production area required to meet our estimated 1.4 million pound annual

demand, we can then attempt to determine the estimated number of operators required to be licensed for

sufficient production capacity under a wide variety of conditions.

For a base assumption, we are assuming each current medical cultivator licensed will be both

participating in the adult use program as well as significantly increasing production capacity. Those currently

inoperable and/or under producing operations are also included for all twenty one (21) licensed facilities in

the state. Current operations, as cited by the Freedman and Koski report show 260,000SF of current plant

canopy is in operation, with 166,000SF unused, and an additional 447,000SF approved or under construction.

Allocating 75ksf of plant canopy for each cultivator (ultimately requiring a significantly larger facility area

when accounting for walkways, equipment, post processing areas such as dry, trim, cure, storage, extraction,

kitchens, security, offices, etc and therefore total footprint), we can assume those cultivators will utilize a total

production area of just over one and a half million square feet of plant canopy. Such an increase to 75ksf of

plant canopy per current medical cannabis cultivation center stakeholder, for most organizations, is at least

doubling plant canopy and for several, this would represent an increase of ten times or more, with a general

6x increase to all operational canopy statewide for medical cultivation stakeholders. 3

As a comparison and point of reference, a facility with 75,000 square feet of plant canopy, can be

estimated to have 2/3 of that canopy as flowering production. At the average yield metrics listed in Section

3.2 (given these medical cultivators have been in operation for over four years), this would represent an

annual average yield of around 10.5 million grams or around 23,438 pounds per cultivator. At current

wholesale prices of approximately $3,000/pound, this yield would represent approximately $70.3 million in

annual revenue per cultivator, an astonishing figure which still allows for a tremendous amount of new

operators and therefore program health and opportunities as listed below. At a more reasonable wholesale

price of $1,800/pound, this yield would still represent approximately $42.2 million in annual revenue per

cultivator, again an astonishing figure.

Utilizing our average and low yield metrics from Section 3.2, we can estimate the additional required

plant canopy that should be licensed to meet Illinois demand beyond the allocated 75,000 square feet canopy

for each medical operator above, to be between 2.9 million square feet and 4.9 million square feet.

Several proposals have been discussed regarding adult use licensing. These include craft cultivators

which have been proposed at a canopy limit of seven thousand square feet (7ksf). Using our above

calculations for additional licensed operation space of 2.9 million and 4.9 million square feet, we can estimate

between 416 and 699 additional licensed cultivation/craft operators would be required to meet the

immediate, anticipated real demand beyond that reserved for existing medical cannabis cultivation centers

that an Illinois adult use program is estimated to generate statewide.

An alternative would be to also offer additional cultivation licenses to current dispensary stakeholders as

seen in Arizona’s vertically integrated model and has been mentioned previously throughout this report. This

vertical integration model is utilized by numerous other states as well, such as New Jersey, New York, and

Florida. A second tier beyond craft producers authorizing a plant canopy of up to 15ksf based on

Washington’s tiered limits could also be utilized. While not every dispensary operator may have the

knowledge or financial capacity to undertake such expansion and new operations, as well as those already

owned by cultivation groups with no desire to have multiple cultivation operations, vertical integration

28

opportunities in addition to standalone licenses offer a level of competition and price protection to the

consumers of the industry, allowing the free market to flourish.

Even when assuming full participation of all fifty five (55) dispensaries at the full 15,000 square feet, this

would still require between 298 and 581 additional craft cultivators, each possessing 7,000 square feet of plant

canopy. This information can be seen in the table below.

Additional Plant Canopy

Required (SF) 1

Licensed Operators Required with Craft

Cultivators (7ksf) Only

Licensed Operators Required with Craft Cultivators (7ksf) and Tier 2

Dispensary Cultivators (15ksf)

Low Yield Metrics

4,890,000 699 Craft 581 Craft

55 Dispensary Average Yield

Metrics 2,910,000 416 Craft

298 Craft 55 Dispensary

1 Assuming medical cultivators each maintain 75,000SF of plant canopy

Figure 9 – Estimated Illinois Licensed Cultivation Operators Based on Yield Metrics and Licensing Scenario

As seen from the yield metrics and estimates for the number of licensed operators, a significant number

of additional operators must be licensed immediately in order to meet Illinois adult use and medical demand.

Sufficient time must be provided to these operators for the application submission preparation and process,

licensing, build out, growth, harvest, and to create inventory surplus prior to the commencement of adult use

sales, which can be estimated at between eight to twelve months. Despite the licensing of hundreds of

additional craft cultivators, ample opportunity and advantages can still be provided to medical operators as

concessions for their risk, time, and outlay for medical operations. Participation and coordination with both

existing stakeholders and new applicants and operators are paramount to the successful launch of an Illinois

adult use program in order to maintain and develop a healthy marketplace. Furthermore, expansion

opportunities for all cultivators should be available to meet demand as necessary as hard data becomes

available following program launch to further ensure and control the over and under supply and production

issues which are a concern.

However, an estimate for additional production capacity based upon sugar leaf and trim products must

be accounted for that is not present in the grams per square foot metrics. Unfortunately, no readily available

data is available. We can reasonably estimate an additional production capacity of approximately 10% could

be achieved when accounting for the collection of this additional cannabis resin and active ingredients for

incorporation into extracts, edibles, and infusions. With this additional production capacity, it may serve the

state better initially to select the number of cultivation licensed operators based on the average, or slightly

above the average yield metric licensing scenarios listed above.

Based on our research and analysis, an example using the following licensing classes and number of

cultivation licenses available is shown in the table on the following page. These do not include additional

licensing for dispensaries, processors, transporters, and analytical labs which will also require new operators

initially at program launch. The table on the follow page assumes each producer has maximized their

available plant canopy space and is using the entire allotment, while in reality many will not use the entire

amount to the absolute fullest. The licensing structure proposed below results in approximately 4.15 million

square feet of licensed plant canopy space, just under our average yield estimation for total plant canopy

statewide of 4.5 million square feet as shown in Figure 8.

29

Plant Canopy Limit

Number of Licenses Issued

Cumulative Plant Canopy Footprint

(SF)

Tier 4 - Existing Medical Cultivation Center

Up to 75,000SF

21 1,575,000

Tier 3 – Future Expanded Operations

Up to 30,000SF

0 0

Tier 2 - Existing Medical Dispensary

Up to 15,000SF

55 825,000

Tier 1 - New Craft Cultivator Applicants

Up to 7,000SF

250 1,750,000

Figure 10 – Sample Licensed Cultivation Operator Distribution

With data from the Illinois Department of Agriculture on current operators, looking at their production

areas, total facility areas, and total yields, would provide significant input into the realistic abilities to meet

such demand and verify that such increases in capacity are simply unreasonable for the limited operators

currently licensed under the MCPP and OAPP. Recent numbers published through a Colorado based report

by a Freedman and Koski show current cultivators throughout the entire state are only operating 260,000

square feet cumulatively between every licensed operation at the approximate average yield method cited

above of 42.0 g/sf. 3 Such an increase to 75,000 square feet of plant canopy per current medical cannabis

cultivation center, for most organizations, is at least doubling plant canopy and for several, would represent a

ten times or more increase, with a general 6x increase to all operational canopy statewide for medical

cultivation stakeholders representing approximately one and a half million square feet of plant canopy.

Additionally, actual plant canopy data is readily available from states with currently operational adult use

programs for comparisons. From a report just recently released in March of 2019 by Washington’s Liquor

and Cannabis Board (LCB), full and detailed plant canopy sizes are measured and extrapolated for the entire

state program including both the total active canopy in production statewide, as well as licensed canopy limits

as issued by the regulatory authority. This report showed that over 4 million square feet of canopy is

currently active in Washington State, which includes a population of 7.7 million residents as well as 40.1

million tourists annually, compared to Illinois’ 12.8 million residents and 114 million tourists. Additional

licensed canopy is over 10 million square feet and demonstrates that very rarely is licensed space used to its

absolute fullest, as mentioned previously in this section. 25 As a reminder and mentioned previously in this

report, Washington’s classification for Tiers 1-3 are listed below:

Tier 1 – Less than 2,000SF of plant canopy

Tier 2 – 2,000SF to 10,000SF of plant canopy

Tier 3 – 10,000SF to 30,000SF of plant canopy

An expanded commentary on such possibilities, as well as additional program regulatory notes can be

found in the following section 3.4, as well as section 4.0 discussing those alternative demand studies which

provides further input on some suggested best practices for adult use implementation based on our research

and analysis.

30

Figure 11 – Total Active and Licensed Plant Canopy in Washington State from March

2019 Report by Liquor and Cannabis Board 25

31

3.4 – ILLINOIS ADULT USE PROGRAM IMPLEMENTATION NOTES

We believe due to the sales data covered from the MPG study during 2017 in Colorado, combined

Illinois population demographics, Illinois will far exceed the Colorado’s sale figure of just over 650,000

pounds, requiring approximately 1.4 million pounds of cannabis flower equivalent annually. An adult use

program launch insufficient to meet demand, with burdensome restrictions and limitations, or overpriced

cannabis products will drive sales to the black market, as well as deprive Illinois patients and citizens most in

need access to in some cases life changing medicine and relief. Given Illinois has more than twice the

resident population and fifty percent more tourist visitors each year; we can safely assume demand will follow

accordingly, and at the very least, will certainly exceed Colorado’s 2017 level. A scenario that sees a drastic

difference in demand based on population percentages and purchasing habits is indicative of a program with

problems that is ultimately driving sales towards the black market. The goal of a regulated adult use program

should be to prevent a robust or thriving black market, while providing safe access to cannabis products for

consenting adults.

The following notes regarding an adult use program implementation have been compiled based on

feedback from industry professionals as well as Illinois residents and categorized into the following areas:

Personal Rights, Medical and Adult Use Program Differentiation, Program Licensing and

Operations, Implementation Timelines, and Taxes

PERSONAL RIGHTS

1. Expunge past convictions for lower level cannabis offenses.

o Create an automatic expungement process as well as allow for a petitioning process to

identify and remove lower level cannabis offenses from the record of those previously

convicted.

2. Legal cannabis use, smell, sight, and/or presence as allowed under any proposed act should no longer

be a reason for probable cause by any law enforcement officer, investigation, or cause for any

assumption due to being a license holder or agent of a cannabis operation.

o Undeniably, cannabis use is not accepted or approved by all, and any proposed law should

serve to protect against discrimination for any lawful user.

3. Place reasonable personal possession levels that encourage participation and limit the black market

o Possession limits have been proposed at thirty (30) grams of flower and five (5) grams of

concentrate. Given the fact that concentrate can simply be dissolved into an edible oil or fat,

one could theoretically take their resident allowed five (5) grams of concentrate and create an

edible blend approaching 5,000 mg THC depending on the purity of the concentrate.

Therefore giving both items a similar limit would be suggested to limit the creation of

homemade edible products that cannot be verified for homogeneity, potency, or ingredients

and therefore reduce black market sales and unregulated edible products.

Flower Concentrate Infused Products

Resident 30 grams 5 grams 3,000 mg THC Non-Resident 15 grams 2.5 grams 1,500 mg THC Figure 12 – Suggested Illinois Adult Use Possession Limits

32

4. Mirror Colorado’s personal cultivation rights with six (6) plants per adult, with a twelve (12) plant per

household cap.

o A 5 plant household limit makes it difficult for those wishing to hold onto cultivars as

mother plants that provide specific relief for their ailments, as well as for those growing

from seed that have to cull male plants as the plants show their sex. There is the possibility a

resident could germinate six standard cannabis seeds and have six male plants, all of which

would be unusable for consumption and would result in 2 months or more of wasted time

and energy. Utilizing an individual plant count limit of six or a household limit of twelve, a

resident can choose to flower three with three remaining in a vegetative state, or has the

option to run a single flowering cycle with all six to supply part of their cannabis needs. As

has been seen in other states, a majority of purchasers will prefer the legal, easily accessible,

and reasonable priced market over personal cultivation due to the time, knowledge, and

effort required for production, and as a result, personal cultivation rights have always had a

negligible effect on cannabis supply in adult use states. It should also be noted personal

cultivation rights of between 6 and 12 plants have become the norm in many states,

including California, New Mexico, Michigan, Arizona*, Washington, Oregon, Alaska,

Washington D.C, Hawaii, Maine, Massachusetts, Montana, Nevada*, North Dakota*,

Oklahoma, Rhode Island, Vermont, and Washington, with a * indicating program limitations

on cultivation rights related to individuals’ distance from a licensed dispensary.

5. Reduce penalties for low level cultivation and possession offenses to misdemeanor charges.

o The goal of an adult use program should be to primarily end a socially and morally unjust

and repressive policy of cannabis prohibition. Therefore, a reduction in these non-violent

offenses is necessary for simply cultivating a plant, especially while licensing potentially

thousands of new operators to cultivate, process, sell, and handle millions cannabis plants

and products statewide. Reduce all cultivation infractions under the federal mandatory

minimum of 100 plants to a misdemeanor at the state level. Allow for residents who are

cultivating under any proposed adult use act to do so freely, without reporting or licensure,

and with the ability to allow a friend or family member to assist with cultivation should they

be unable to themselves (in cases of the elderly, injured, unexpected trip, etc). Creating new

violations for cultivation with overly invasive reporting requirements or limitations will not

serve the purpose of an adult use act, which is to limit the black market and allow for safe

and personal use by consenting adults in the privacy of their home. As Illinois law currently

stands, a felony offense for six (6) plants or possession over the limit does not meet that

purpose. A retroactive expungement process for low level cultivation offenses should also

be considered.

6. A ban on home extraction using explosive gases has been discussed by some parties.

o While hydrocarbon extraction using potentially explosive gasses may or may not be legal

under any proposed adult use act, methods for extraction should be available to the home

user which includes non-explosive methods using olive oil, coconut oil, ethanol, butter, or

other, non-explosive solvents. Similar equipment is often used between these methods, and

things such as freeze dryers, vacuum chambers, vacuum pumps, heating pads, and other dual

use equipment which have uses for extraction as well as non-cannabis activities. If

hydrocarbon extraction was not allowed under an adult use bill, the proposed act should

prohibit the actual act of extraction or evidence of such, as opposed to equipment which

may have multiple uses.

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MEDICAL AND ADULT USE PROGRAM DIFFERENTIATION

1. Protect medical patients’ supply.

o Maintaining adequate supply for medical patients is paramount to a successful program

launch, and the most likely way to guarantee such is through licensing a sufficient number of

facility operators. Using yield metrics, state comparisons, and estimated demand figures, we

can estimate the number of licensed operators required for production under different

scenarios. Current production is struggling to meet a limited medical demand, and no

existing operator will be able to guarantee medical access without an increase in supply.

o Authorize additional and expanded personal cultivation rights for registered medical patients,

allotting a higher plant count than the adult use program for treatment of multiple ailments

and maintaining critical cultivars for their specific medical conditions.

2. Differentiate between medical and adult use at the point of sale.

o Allowing for ease of use for retailers and producers alike, differentiating between medical

and adult use cannabis at the point of sale allows for the appropriate tax to be collected

while limiting increased production and dispensary operational and inventory difficulties

which differentiating at time of production creates. A wholesale tax can be collected on all

cannabis products sold, mirroring the current medical program, and a final point of sale tax

can be applied for all adult use purchasers, with medical purchases falling under the current

medical tax rate. With an increase in licensed operators, we would expect to see a spur of

innovation in new available products across the market. Medical purchasers and adult use

purchasers alike should be free to purchase these products. Differentiating at the point of

sale allows for fluid transfer of products to both medical and adult use patients and will best

prevent a shortage or surplus in either program by allowing producers and retailers to adjust

to demand at a moment’s notice and maintain fluid stock levels to meet changing demand as

the program matures.

3. Provisional licensing for existing medical operators should be issued immediately, in addition to new

applicants.

o As mentioned in Section 2.2, medical operators should be allowed certain concessions which

may include on site sales for medical and adult use in existing facilities, additional off site

facilities within their districts, as well as the opportunity for vertical integration as it draws

from a group of licensed operators already vetted to provide and handle cannabis products.

A sample of tiered licensing for cultivation has been provided in Section 3. Allow these

existing medical organizations that desire a separation of finances or those with multiple

owners to apply for those provisional licenses under separate entities elected by the originally

licensed organization. However, additional new operators must be licensed beyond the

existing medical license holders for all activities in order to meet the anticipated increases of

an adult use program demand.

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PROGRAM LICENSING AND OPERATIONS

1. License additional operators for dispensary and cultivation activities.

o A sample tiered licensing schedule has been provided in Section 3.3. Additional operators

for retail and other licensed processes should be included covering processors (infused

products and extractions), as well as analytical laboratories.

2. Mandatory licensed transporters for all operational transfers will increase product costs.

o Licensed production, processing, retail, and lab operations should have the option to

transport products if meeting all transportation requirements under the proposed law and

rules and regulations, as is currently performed under the MCPP and OAPP by cultivation

centers. While licensed transporters may serve to assist with the market and delivery of

products, issues in Nevada arose which nearly forced all operators to utilize separate licensed

transport organizations. This can increase costs and wait times by adding in an additional,

unnecessary operator to the supply chain. For an extreme scenario, Nevada even proposed a

requirement to utilize a separate licensed transport organization when transferring products

between two related, interconnected facilities (e.g. on site cultivation and dispensary).

Transporters should serve as an additional option for licensed operators, but all licensed

operations should be allowed to transport their own products after meeting requirements for

transport under any proposed law.

3. Additional opportunities for transporters through lab testing transport of products.

o Products must be tested for purity and contaminants, which under the medical program

requires a lab employee to visit on site and then the cultivation center to deliver the

products. Allow for a teleconference where the lab employee can choose a sample at

random or alternative, and allow licensed transporters or other licensed operators to deliver

the random samples for testing and analysis. This prevents undue and unnecessary burden

on both cultivators and analytical labs, while providing additional opportunities for

transporting organizations.

4. Consider home delivery for cannabis products from licensed dispensaries and/or coordinated with

licensed transporters.

o Again, using licensed transporters and licensed retailers to transport if meeting all

requirements under any proposed law, home delivery allows those without mobility to access

cannabis products. Verification of identity and home delivery could be coordinated through

seed to sale tracking software with transporters and retailers. With the current medical

program, and especially the OAPP which has no provision for caregivers, lack of mobility is

a serious concern and problem for many medical patients, and would likely also be for many

future adult use purchasers, especially the elderly or handicapped.

5. Provide opportunities for vertical integration.

o For currently licensed medical operators, as well as newly licensed cultivators, producers,

retailers, and transporters, allow for vertical integration of operations and an individual or

entity to obtain a license in each category. Likewise, an individual staff member may require

access to multiple facilities and therefore authorize staff and agents to be licensed at multiple

facilities under different disciplines (retail, cultivation, processing, etc) and different

organizations.

35

IMPLEMENTATION TIMELINES

1. Newly licensed facilities will require ample start up time prior to the commencement of adult use

sales.

o Licensed facilities require significant turnaround time in order to wait for rules formation,

apply, license, build, operate, harvest, and process cannabis products prior to final transport

and sale. Due to these time critical activities, we would suggest any additional adult use

cultivators are licensed nine (9) to twelve (12) months prior to the commencement of adult

sales, and any other licensed operators including dispensaries, transporters, processors, and

analytical laboratories are licensed three (3) to six (6) months prior to the commencement of

adult use sales.

TAXES

As seen in Oregon and mentioned previously in Section 3.1, as well as discussed recently in New

Jersey’s proposed adult use legislative actions, lower taxes and ultimately lower product costs decrease

participation in the black market and increase the proportion of sales under the regulated market. In Nevada,

taxes are placed at the point of purchase, depending on whether a purchaser is a medical or adult use

consumer. Currently, a wholesale tax on medical cannabis provides 7% tax revenue to fund the medical

program and ancillary activities. A point of sale tax on adult use purchasers would supplement program

proceeds, and could be implemented in an easily collectible method for licensed operators and consumers at

the point of sale, simply defining purchasers as adult use or medical and collecting the respective tax.

Reporting and payment for those taxes should be implemented in a way as to not burden licensed

operators and modeled after other industries, with simple and straightforward monthly or quarterly tax

payments. A simple tax and collection system will encourage participation and full compliance from all

operators if laid out in a straightforward manner, paying exactly the amount required, each month, quarter,

and year. Complicating the tax payment system could serve to additional workloads for both licensed

operators and regulatory agencies through analyzing payments and issuing refunds for overpayment based on

mandatory and unnecessary requirements.

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4.0 – Critical Analysis of Alternative Demand Studies

4.1 – FREEDMAN & KOSKI DEMAND STUDY SNAPSHOT OF DEMAND FOR ADULT-USE CANNABIS IN ILLINOIS

Two critical flaws are present in the Freedman & Koski (F&K) report commissioned on behalf of

Senator Steans and Representative Cassidy to analyze and evaluate the current medical cannabis and potential

adult use markets in Illinois.

Utilization of Inaccurate and Dated Survey Results as a Basis for all Demand Estimation

The F&K report rests the entire basis of the demand estimate on a single flawed statistic. F&K utilizes a

self reported survey from 2014/2015, now five years old, to evaluate the number of cannabis users in both

Colorado and Illinois. This survey represents a snapshot in time in Illinois prior to the launch of the medical

program, prior to statewide decriminalization of personal possession amounts in Illinois, and at a time where

adult use cannabis had been approved in Colorado for over two years with Colorado’s medical cannabis

program in operation for over a decade.

This survey shows a ‘Past Month Use’ of 17.12% for Colorado and 8.06% for Illinois. This F&K study

proceeds to utilize these past month use survey results as absolute fact, ignoring that this is a five year old

study with drastically different political climates regarding cannabis in Illinois than the current climate in 2019.

When surveying a population, of course a state with a legalized act several years into effect will report higher

usage rates than those participants in another state where that same act is illegal, those respondents are asked

to admit to a crime, and even medical usage is essentially non-existent. It does not factor in the drastic

change in public perception due to the effects of decriminalization, the very likely under reporting of usage

from respondents, the increase in the number and normalization of legalized adult use states nationwide, and

the Illinois Medical Cannabis Pilot Program which has become much more commonplace and accepted

statewide, far beyond medical cannabis users themselves, and was not even operational at the time of this

survey.

From Section 3.0, this issue is discussed with references:

A recent survey as well as numerous others have found approximately 1 in 7 Americans had used cannabis within the

last year. 17, 18

One issue that is becoming more and more apparent due to the rapid adoption and expansion of medical cannabis as

well as adult use programs throughout the nation, is the resulting participation of the population in cannabis use studies and

the resources available to study such are increasingly available and are changing drastically. A recent report issued by Eaze,

a cannabis data clearing house, found that first time cannabis users increased 140% in adult use state programs in 2018,

with senior consumption increasing 25%, and women’s consumption also doubling in 2018. 20, 21

The IWSR, the leading source of data and intelligence on the alcoholic beverage market, in conjunction with BDS

Analytics says a growing number of consumers, especially millennials, are showing preferences to consume both alcohol and

cannabis, versus older generations which tend to stick with just one. That could cut into long-term loyalty efforts by beverage

37

makers, especially those in the beer and spirits fields. “Our research shows that up to 40% of adults 21 and over consume

cannabis in states where it’s legal,” said Jessica Lukas, vice-president at BDS Analytics. 22

Clearly, rapidly changing demographics can result in drastically different results when analyzing usage rates and often

a several year old study simply does not capture the actual demand present and can lead to significantly underestimating the

actual demand statewide. All of which indicate the consumption rate of adults in the United States is growing faster than it

can be tracked in states which have implemented adult use.

In short, utilizing a survey that is five years old with results collected during a vastly different political

climate both here in Illinois as well as nationwide is misleading and proceeding to make it a critical

component of any demand estimate is simply inaccurate.

38

Estimated Yield and Data is not Supported by Current Medical Cannabis Production Statistics

After falsely establishing that Illinois currently consumes cannabis at less than half of the rate of

Colorado, the F&K report goes onto ignore current medical cannabis production shortfalls despite having

significant access to data from the Department of Agriculture on actual production canopy and yields.

The F&K report cites a current, active production canopy of 259,762 square feet under the Illinois

medical cannabis program. They proceed to establish, based on Illinois and Colorado statistics, that with a

plants per pound average of 1.33 combined with a per plant area of 2.44 square feet, Illinois would require 1.1

to 1.7 million square feet of production area to meet their proposed demand estimate. While the F&K report

provides citations and disclaimers throughout, it never takes those numbers and applies them to the current

medical program to evaluate the results and gain insight into current medical production.

As of Jan 2019, Illinois is selling approximately 1,250 pounds of dry cannabis monthly. If we extrapolate

that to an annual number, Illinois sells approximately 15,000 pounds of dry cannabis each year, and when

factoring in extracts, edibles and infusions, a very conservative approach (overestimation) could estimate total

production at 30,000 pounds annually of cannabis flower weight equivalent, doubling the dry flower sales.

Using those figures cited from the F&K report, with 259ksf of production space, averaging 1.33 plants

per pound, and 2.44 square feet per plant, we can estimate the number of pounds that the medical program

should theoretically be yielding annually through simple multiplication and division assuming that all facts and

figures provided by the commissioned F&K report are accurate.

As established, Illinois is actually only producing and selling at most, 30,000 pounds annually. Yet, using

the F&K report’s yield estimates, the Illinois medical market should be producing over 80,000 pounds

annually. Ask any medical patient, view any medical dispensary menu on Leafly from Illinois, call your

nearest dispensary and ask for pricing, or view more detailed and relevant state comparison data in Sections

1.0, 5.0, and the Addendums: Illinois prices are some of the highest in the nation and higher than the current

Illinois black market.

Illinois patients regularly see dispensary pricing with ounces up to and in multiple cases exceeding $400

per ounce, while black market products in abundance range from $150 to $300 for product quality that meets

or exceeds that provided by the current medical program in many cases and its limited operators. Illinois

patients have reverted to visiting Michigan to purchase their medication, with numerous reports of such

activities throughout social media message boards with the reasoning for such being both the higher quality

and more affordable pricing for medical products in Michigan.

39

We can proceed to use the current sales in Illinois at 30,000 pounds, to estimate how much area this

should theoretically require for production, using the F&K report figures of 1.33 plants per pound and 2.44

square feet per plant.

Utilizing the F&K reports on figures, we can estimate only 98ksf of plant canopy is theoretically required

to produce the current cannabis products sold in Illinois, yet 259ksf is reported in operation. Still, Illinois

medical cannabis prices remain artificially high and product supply limited with often sold out varieties and

limited selections from licensed producers. See Section 1.0 covering the medical cannabis program for a

more detailed discussion on this topic.

We can proceed a step further and verify these results and noted discrepancy using the IL NORML yield

metrics found in Section 3.0. Instead of establishing a method of plant count, IL NORML used an analogous

method of estimating yields based on flowering canopy with low, normal, and high yield metrics from

published studies and benchmarks utilized in the indoor cannabis cultivation community for decades.

Ultimately, the IL NORML method looks at a cultivation method minimizing downtime between

harvests with dedicated flowering and vegetative areas and establishing that approximately two thirds (2/3) of

plant canopy can be utilized for flowering with the rest for vegetative, propagation, and non-flowering plant

growth, with average yields in the flowering areas of 42.0 grams per square feet, five harvests annually, and

the rough cannabis-based conversion of 448 grams to a pound (as opposed to 453.6 g/lb). Using these same

metrics, we can repeat the calculations above to determine both the annual yield that would be theoretically

expected from Illinois’ current 259ksf operational canopy, as well as the theoretical plant canopy necessary to

produce 30,000 pounds annually, and we find that almost the exact same theoretical values are established

through the IL NORML yield metrics despite using an alternative method compared to the F&K Report.

Using the IL NORML yield metrics, we would theoretically expect a state with 259ksf of operational

plant canopy to yield over 80,000 pounds annually, far exceeding the current medical sales of 30,000 pounds.

Using those same yield metrics to determine the plant canopy area needed to produce 30,000 pounds, we can

estimate approximately 96ksf of indoor plant canopy would theoretically be required to produce 30,000

pounds annually, again far less than the currently claimed operational canopy of 259ksf.

40

While the IL NORML Report and the F&K Report utilize different methods to establish and evaluate

yields, those yield metrics from both reports agree as to the final theoretical capacities, and both clearly show

there is a serious gap between theoretical yield capacities and actual, real world reported yields and product

sales, both coming to nearly the same conclusion for production capacity and square feet of canopy required.

The questions then become, why is there this discrepancy between estimated yield capacities and actual

sales data coupled with artificially high prices? Given the supply capacity calculated and a significantly lower

demand based on current purchasing patterns from medical patients, any introductory economics student

would anticipate a decreasing price due to ample availability and limited demand.

However, this is not what we see in Illinois, with increasing prices as of early 2019, with limited product

offerings and abundant out of stock notices from producers, with detailed information covered in Section 1.0.

Based on the evidence presented, several potential conclusions may be reached:

1. Actual operational production space within the Illinois medical program could be significantly less

than the 259ksf reported. Production claims which accordingly overstate the current and future

capacities could have the consequence of limiting competition and future license opportunities for

new, unique producers.

2. Current Illinois production facilities are producing extremely low yields. Using the lowest yield

metrics from the IL NORML report of 29.1 g/sf, the current medical sales of 30,000lbs annually

under the Illinois medical program represent a level that is only 53% of these lowest yield metrics

and only 37% of the average yield metrics given the 259ksf of operational space claimed, well off the

chart and far below from the lowest expected theoretical production targets for any cannabis

cultivation operation.

3. Medical products in Illinois are sold for artificially inflated prices due to limited product supply,

thereby taking advantage of the current limited competition to the detriment of sick and dying

medical patients in Illinois.

All three possibilities should result in the same conclusion: More licensed producers are required

throughout the medical market and necessary to serve any adult use market.

We can potentially conclude that current prices are under manipulation in the current medical market and

therefore more competition is needed to maintain fair pricing, actual production space in operation is less

than claimed with overstating production abilities potentially resulting in a limited market for existing

operators only, the current production facilities are producing very low yields, or more likely, some

combination thereof. All of these issues would be remedied by simply allowing for an open market in which

producers and retailers are forced to compete instead of being granted state sanctioned monopolistic control.

41

This discrepancy is addressed in Section 1.0 where it touches on these issues within the medical program

more in depth. Additionally, Section 5.0 shows state comparisons between medical and adult use programs

nationwide which also demonstrates a model based on such a concentration of licensed operations in the

hands of so few unique operators is not supported by any operational cannabis programs nationwide with

significant production capacity and sales.

F&K Report Conclusion

Two main issues with the F&K report commissioned by Illinois Legislators Senator Steans and

Representative Cassidy are critical errors including inaccurate demand estimates using dated and

underrepresented usage data coupled with serious supply concerns through a drastic difference between

estimated and actual, real world output. These critical errors are then utilized to draw a conclusion that is

inaccurate and if used to form the basis of a new adult use program, may significantly inhibit the success of

that very same program. Should the state of Illinois proceed utilizing the demand and yield estimates

calculated within the F&K report, there is a very high possibility that the Illinois adult use program will not

only falter and/or fail initially upon startup, but the existing medical program may also be decimated, limiting

product and access to those sick and dying patients that require such.

No adult use model currently implemented throughout the nation and world supports the idea that a

market limiting production to a handful of licensed operators is healthy or sustainable.

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4.2 – MARIJUANA POLICY GROUP DEMAND STUDY COMMISSIONED BY MEDICAL CANNABIS ALLIANCE OF ILLINOIS

DEMAND, MARKET SIZE, AND LICENSING STRATEGY FOR LEGAL CANNABIS IN ILLINOIS

The demand study by the Marijuana Policy Group (MPG Report) which was commissioned by the

Medical Cannabis Alliance of Illinois features the same demand based inaccuracies due to utilizing the exact

same outdated survey data, as well as similar yield metric inconsistencies featured in the F&K Report. These

issues discussed above in the F&K Report Analysis are critical assumptions and form the basis of the entire

demand estimate for both reports, leading to a significant underestimating of demand in Illinois.

The MPG Report has an additional critical flaw. This report was commissioned by a group of industry

operators who have actively lobbied for no additional production licenses. A short mention at the beginning

of the document makes reference to this commission and represents a clear conflict of interest from the

funding source. The MPG Report then goes onto establish an even lower estimated demand when compared

to the F&K Report, with first year demand estimated at roughly 207,000 pounds, a total mature market

demand of 334,000 pounds, and a theoretical high capacity of approximately 483,000 pounds.

The MPG Report anticipates only a portion of demand will be captured in the first year. Essentially, this

acknowledges and accepts the fact that a large portion of demand will continue to be met by the black

market. The Illinois black market currently supplies all adult use demand and also contributes to supplying a

portion of the medical demand in Illinois due to issues discussed in Section 1.0, mainly due to pricing and

product quality issues.

It is important to realize that demand does not spontaneously and conveniently increase as a program

ages and develops, and much of this demand is currently existing and being met. Licensed operators become

more skilled and prices decrease to a level that forces the black market out of business or into very limited

non-regulated markets. To date, no adult use program has launched nationwide or worldwide with sufficient

inventory and pricing which competes with all black market products, and until these product offerings can

catch up, the black market will continue to fill the demand, regardless of any demand estimations, licensing,

and state programs. The goal of any adult use program should be to improve the safety of our communities,

and relegating a high percentage of an already under estimated demand to the black market is not meeting or

striving to meet those goals. Authorizing only a handful of large organizations to cultivate for such an

immense program is actively working against those goals.

Taking a look at those demand estimates from the MPG Report, we can compare them to programs

nationwide that are already operating with significant data available. As mentioned throughout all three

reports, Colorado sold over 650,000 pounds in 2017 with less than half of the residents and a lower tourist

population when compared to Illinois. The MPG Report proceeds to rely on outdated and inaccurate survey

data and manipulate statistics to estimate that Illinois therefore will purchase half of the cannabis that was

purchased in Colorado, despite the drastic differences in resident and tourist populations.

Furthermore, Arizona, based on November 2018 monthly sales of 11,486 pounds in their medical

cannabis program, sells approximately 138,000 pounds annually by extrapolation. This is purchased by a

patient population of just over 180,000 medical patients, with no adult use sales, and additional home grow

with quite a significant production capacity which is not accounted for in the data set. According to this

study, the total adult use demand in Illinois during the first year will only be 50% more than what

approximately 180,000 Arizona medical users purchased from licensed retailers under just the medical

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program, with a total Arizona resident population of approximately 7.2 million compared to Illinois’ 12.8

million.

The MPG Report estimates anticipated monthly adult cannabis users in Illinois as 801,450 despite using

underreporting and outdated survey data which is almost 4.5x the number of medical patients in Arizona, yet

the MPG Report proceeds to estimate product usage of only 50% over the current Arizona program which is

also supplemented with a significant medical home grow program unaccounted for in the reported sales data.

A table and graph below displays this data covering Illinois MPG estimates, Colorado 2017 sales, and Arizona

2018 sales.

Estimated Illinois First Year Demand

(MPG)

Estimated Illinois Total

Demand (MPG)

Colorado 2017 Sales

Arizona Sales (Nov 2018

data, medical only)

Total Cannabis Equivalent

207,000 lbs 334,000 lbs 665,000 lbs 138,000 lbs

Resident Purchasing Population

12,800,000 12,800,000 5,600,000 180,000

Figure 13 – MPG Demand Estimates and Operational State Comparison Table

Figure 14 – State MPG Demand Estimates and Operational State Comparison Graph

665,000 lbs

138,000 lbs

207,000 lbs

334,000 lbs

5,600,000

180,000

12,800,000 12,800,000

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Colorado 2017 Sales

Arizona Sales (Nov 2018 data, Medical Only)

Estimated Illinois First Year

Demand (MPG)

Estimated Illinois Total Demand

(MPG)

Re

sid

en

t P

urc

has

ing

Po

pu

lati

on

Tota

l Can

nab

is F

low

er

Equ

ival

en

t (l

bs)

MPG Demand Estimates and Operational State Comparisons

Total Cannabis Flower Equivalent (lbs)

Resident Purchasing Population

44

The ratios between cannabis product sales and resident and patient populations in actual operational

states compared to the estimates should be noted for their drastic difference in form. When stepping back

away from the data, and viewing these claims objectively from a distance when compared to other states with

operational programs and real world data, in our opinion, it should be clearly evident that both reports are

significantly underestimating adult use demand in Illinois, with the latest MPG Report under representing

demand to a point where their funding source and motives should be questioned.

Every reader should ask themselves, will a mature market in Illinois with more than twice the

resident population and 38% more tourists annually sell less cannabis than Colorado sold in 2017;

and furthermore, will the first year of adult use demand in Illinois with 12.8 million residents only

require approximately 50% more cannabis than Arizona’s medical program with 180,000 patients?

This is, in fact, what both the F&K and MPG Reports propose.

45

4.3 – IL NORML DEMAND STUDY SUMMARY ILLINOIS CANNABIS INDUSTRY OVERVIEW AND ANALYSIS V1.4

The IL NORML Report provides the best comparison, with the largest data set, comparing many

programs nationwide, leading to the most realistic conclusions when compared to both the F&K and MPG

Reports. Hinging the basis of a demand estimate on a several year-old self-reporting survey at a time with

drastically different political atmospheres is inaccurate and if used to form the basis of a new adult use

program, may significantly inhibit the success of that very same program. Detailed evaluation and a thorough

understanding of the shortfalls in the existing medical program were not addressed by either the F&K Report

or the MPG Report, and significant assumptions were made based on the theoretical production capacity

compared to real world data by both groups. Furthermore, the MPG Report was funded by a biased source.

We do however support the MPG’s stance on significantly increasing dispensary operations statewide.

This would significantly increase access, especially to medical patients, at a time when patients with limited

mobility have limited or, in the case of Opioid Alternative Pilot Program (OAPP) patients, no alternatives for

access with no ability to authorize a caregiver under the OAPP. Even with additional adult use allocations for

medical operations, additional licensees will be required.

The IL NORML Report, using a straight extrapolation based on in state residents, tourism, and Colorado

2017 sales data, estimated that Illinois demand in a mature market would reach 1.4 million pounds annually.

Even if including a safety factor of 75% for decreased usage rates when compared to Colorado, which is

claimed from a five year old survey but not necessarily accurate in 2019, even then we can anticipate Illinois

will require well over 1 million pounds of cannabis flower equivalent annually to meet demand.

Diving further into an Illinois adult use program’s needs, the IL NORML Report proceeds to calculate

the number of needed potential licensed cultivators with various canopy restrictions based on their status to

meet this demand. Based on talking points from Illinois legislators surrounding ‘craft cultivation’ licenses at

7ksf plant canopy, we can proceed to estimate the number of new licensees required for production in a

theoretical adult use scenario as well as a scenario that allows for vertical integration with dispensaries

authorized to cultivate on smaller scales, effectively pulling from a group of already vetted and established

operators to increase production capacity. All scenarios require newly licensed operations in the hundreds

even using the highest yield metrics from all combined reports. The number of newly licensed production

operations needed for a successful adult use program is far over the current twenty one facilities which are

held by an even smaller number of unique operators.

Detailed analysis can be found in Section 3.3 including a snapshot of the anticipated demand, some key

figures, and the suggested number of licensed operations required to serve an initial Illinois market have been

included on the following pages.

Ultimately, legislators drafting the adult use cannabis laws for Illinois are responsible for creating an

environment to foster a successful program, while increasing safety for our communities through the

elimination of the black market. A restriction on any new licensing for producers could potentially serve to

bolster the black market in Illinois on a scale that is unprecedented aside from the initial restriction and

illegality of cannabis over eighty years ago and its listing as a Schedule I substance under the Controlled

Substances Act. We ask that all legislators, operators, patients, consumers, and regulators thoroughly

consider and analyze the materials available to prevent a serious falter or failure of a potential adult use

cannabis program in Illinois and allow for an open market with reasonable considerations for all, but most

importantly, the medical patients.

46

5.0 – Cannabis Program State Comparisons

As mentioned in the previous Section 3.0, to the benefit of Illinois, demand studies based on existing

program data and actual sales data from states nationwide are available for review. This data is constantly

changing, as does the cannabis industry, with the varying numbers of licensed operators, patients, production

numbers, and types of licensing, changing as quickly as the industry does. The information with Section 4.0

as well as additional graphs and charts in the attached Addendums, the data was taken from numerous

sources covering the most readily available data our team could compile. These are listed as references in

Section 6.0.26-35

5.1 – CANNABIS PROGRAM LICENSING STRUCTURES

State regulated medical and adult use cannabis programs have taken different approaches to licensing,

each having their own benefits and detriments given the strategies chosen. For categorization, we have

defined these various programs under several categories which include: Open Licensing, Partially Restricted

Licensing, Restricted Licensing, and Vertically Integrated Licensing.

For the purpose of this analysis, we are only considering retail and production activities (dispensaries and

cultivators), and are not including any manufacturing (extractions, infusions, and concentrates), testing

laboratories, transport operators, or other licensed entities. Programs with open licensing are considered

those states with open applications for dispensary and cultivation operators. These states allow for open

competition and development of market forces through a relatively open market. In some cases, a complete

open market has resulted in an excess of production and resulted in states reverted to partially restricted

licensing. Partially restricted licensing may place a hard limit on either cultivators and/or dispensaries, or may

have placed a freeze on new applicants. Some states have turned to placing an upper limit on licenses

awarded, sometimes based on population statistics and congressional districts. Restricted licensing allows for

limited producers and retailers and has

minimal or no ability for new

operators to enter the market. These

states tend to have a limited amount of

available licensing opportunities, which

as a result can be monopolized by

large operators with the resulting

markets subject to manipulation and

consolidation. Finally, vertically

integrated licensing includes programs

that either require or allow for

dispensaries to produce their own

products, often only licensing a

dispensary and authorizing production

at on and/or off site facilities

following inspection and confirmation

of compliance with all regulations.

Vertical integration provides a balance

in the marketplace by allowing each

retail facility the option to cultivate, in

addition to purchasing from

Figure 15 – Cannabis Program Licensing Structures in 26 States

Vertically Integrated

52%

Open 15%

Partially Restricted

15%

Restricted 18%

Cannabis Program Licensing Structure

47

standalone cultivation operations and other dispensaries, preventing the main issue of artificially inflated

pricing and manipulation sometimes seen in limited markets without such.

A review of 27 state programs found over half had opportunities or required operators to be vertical

integrated. Another 30% had either open licensing or partially restricted licensing programs with the ability

for new operators to enter the market and a large enough operator pool to provide an adequate level of

competition. Washington and Oregon have placed a temporary freeze on new applicants for the cannabis

programs. Nevada has placed a hard limit on the number of retailers, but places no such limit on the number

of cultivators. Only 19% of the states reviewed had restricted licensing, which includes Illinois, and offer

very limited or no access to the market for additional operators with limited licensed operations statewide.

The list of twenty seven states analyzed can be found in the table below which is also accompanied by a

breakdown of the associated licensing structure for each state.

State Programs Licensing Type

Arizona MED Vertically Integrated Delaware MED Vertically Integrated Florida MED Vertically Integrated Hawaii MED Vertically Integrated Maine MED + REC Vertically Integrated Massachusetts MED + REC Vertically Integrated Minnesota MED Vertically Integrated Montana 1 MED Vertically Integrated New Hampshire MED Vertically Integrated New Jersey MED Vertically Integrated New Mexico MED Vertically Integrated New York MED Vertically Integrated Rhode Island 2 MED Vertically Integrated Vermont MED Vertically Integrated Connecticut MED Restricted Illinois MED Restricted Maryland MED Restricted Pennsylvania MED Restricted Washington DC MED + REC Restricted Missouri 4 MED Partially Restricted Nevada 3 MED + REC Partially Restricted Washington State 5 MED + REC Partially Restricted Oregon 5 MED + REC Partially Restricted California MED + REC Open Colorado MED + REC Open Michigan MED + REC Open Oklahoma MED Open

1 Option for standalone dispensary licenses 2 Emergency rules issued to license new cultivators 3 Hard limits on retailers with no cap on cultivators 4 Hard limits on retailers and cultivators based upon population statistics and congressional districts 5 Previously open licensing, implemented a temporary freeze on new applicants

Figure 16 – Cannabis Program Licensing Structures in 27 States

48

5.2 – STATE OPERATOR LICENSE ALLOCATION AND COMPARISON

The following figures show comparisons between several states and the number of licensed operators

within the cannabis programs. The data below was assembled from various sources included in the

references, with the key information transcribed to the tables and graphs below, with the most up to date

materials readily available and accessible. Given the ever-changing cannabis industry, market, and demand,

the numbers below and within this document represent the best and latest assembled data set our team could

compile. These figures are changing on a month to month basis, as most adult use programs continue to

experience dramatic growth, with similar growth seen in various medical programs throughout the nation as

well.

A simple review of the number of licensed cannabis operations in various active states shows interesting

trends and patterns. First, adult use states, understandably, tend to have a much higher number of licensed

operators. When compared to Illinois, this is often an order of magnitude or more of a difference, with more

than fifty times (50x) the number of licensed operators in states such as Washington, Oregon, and Colorado.

California, as of the latest released data, had awarded 9,249 cultivation licenses which is more than 450x the

number of cultivators in Illinois. Given the population and tourism that visits Illinois annually, we can safely

assume the demand in Illinois will be greater than all other current adult use states, barring California. When

looking at numbers in other industries and sectors and using those to draw a comparison, the Chicago area’s

demand alone may very well exceed demand in all other adult use states, aside from California.

Secondly, almost sixty percent of states reviewed below had the same number or more cultivators than

dispensaries. Figures 16 and 17 look into the ratio of licensed cultivators and dispensaries. More often than

not, those with ratios below 1.0 (e.g. more dispensaries than cultivators), are limited medical programs. Every

adult use program reviewed licensed significantly more cultivator operators than dispensary operators.

Figure 17 – State Licensed Cannabis Dispensary and Cultivation Operations

0

200

400

600

800

1,000

1,200

1,400

1,600

State Licensed Cannabis Operations

Licensed Dispensaries

Licensed Cultivators

9,249

49

From the above data, it is clearly evident that adult use states all feature a significantly higher license

count with a majority of all state programs reviewed licensing more cultivators than dispensaries. Analytically,

when considering the amount of products a retailer might need to stock to satisfy patients and consumers,

which generally tallies into the hundreds, multiple producers are commonly needed to supply that wide of a

range of products, especially as the products become more and more specialized as the market matures.

Several states, in addition to Illinois, do license more dispensaries than cultivators. When viewing those

states’ program statistics, we find these are, more often than not, states with limited licenses overall, often

licensing between ten (10) and seventy (70) operators throughout the entire state for both production and

retail activities. While this may be sufficient for limited medical production in some cases, substantial demand

created with any adult use program will far outweigh the ability of limited operators to meet that demand and

allows for the ability to maintain a high market share and manipulate pricing to artificially inflate wholesale

and retail costs. This can be seen in the Illinois demand estimate and comparison to Colorado’s latest sales

data in Section 3.0.

Additional figures which show general demographics including patients participating in medical

programs, land areas in each state, as well as an anticipated purchasing population which is a combination of

state residents and out of state visitor counts from each state’s reported tourism data, as well as the ratio of

state licensed cultivators to dispensaries are available below. Additional figures and metrics can also be found

in the Addendums.

It is important to remember, especially with Chicago, that Illinois has always been a significant economic

state. Given this fact, we anticipate Illinois will feature one of the highest cannabis product demands in the

nation to date if an adult use bill was passed, partly due to resident population and annual tourism as well as

general economic performance across multiple industries that Illinois has historically shown. This in itself

complicates any direct comparisons and analysis based upon all adult use markets in the United States,

including Canada, as the Illinois market is substantially larger than all to date, excluding California, which is a

mature market overall, and the single largest market in the world and is struggling with black market issues

due to high licensing fees, complicated processes, and high tax rates.

50

State Programs Licensed

Dispensaries Licensed

Cultivators Patients

Land Area (thousand

square miles)

Residents (millions)

Tourism Visitors

(millions)

Total Purchasing Population (millions)

Arizona 1 MED 130 130 180,000 114 6.8 44.0 50.8 California MED + REC 377 9,249 350,000 164 39.0 281.0 320.0 Colorado MED + REC 1,019 1,391 88,000 104 5.6 84.0 89.6 Connecticut MED 9 4 29,000 5.5 3.6 6.4 10.0 Illinois MED 55 21 54,500 58 12.8 114.0 126.8 Maryland MED 57 14 64,000 12 6.0 41.5 47.5 Massachusetts 1, 2 MED 40 40 55,046 10.5 7.0 26.0 33.0 Minnesota MED 8 2 12,000 87 5.5 30.9 36.4 Montana MED 300 472 32,000 147 1.0 12.2 13.2 Nevada MED + REC 66 133 17,000 111 3.1 42.9 46.0 New Mexico MED 81 35 58,000 122 1.0 35.4 36.4 New York MED 22 10 78,000 54.5 8.6 243.8 252.4 Oklahoma MED 640 1,028 11,000 70 4.0 21.8 25.8 Oregon MED + REC 606 1,115 34,869 98 4.2 30.0 34.2 Pennsylvania MED 35 12 51,000 46 12.8 197.0 209.8 Rhode Island MED 3 36 19,000 1 1.0 24.8 25.8 Washington State MED + REC 485 1,191 32,000 71 7.7 40.1 47.8 1 States are vertically integrated and license dispensary operations only with no count of cultivation operations readily available. These dispensary licenses to

operate are accompanied with the ability to cultivate; therefore these states were listed at a 1:1 ratio of dispensaries to cultivators. 2 Useable statistics are not yet available for the Massachusetts Adult Use Program.

Figure 18 – State Licensed Operators Comparison

51

Figure 19 – Ratio of State Licensed Cultivator to Dispensary Operators

Figure 20 – Ratio of State Licensed Cultivator to Dispensary Operators

2.46

2.02 1.84

1.61 1.57

1.37

1.00 1.00

0.45 0.44 0.43 0.38 0.34 0.25 0.25

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Ratio of Licensed Cultivators to Licensed Dispensaries

State Program

Ratio of Licensed Cultivators to Licensed Dispensaries

California MED + REC 24.53 Rhode Island MED 12.00 Washington State MED + REC 2.46 Nevada MED + REC 2.02 Oregon MED + REC 1.84 Oklahoma MED 1.61 Montana MED 1.57 Colorado MED + REC 1.37 Arizona MED 1.00 Massachusetts MED 1.00 New York MED 0.45 Connecticut MED 0.44 New Mexico MED 0.43 Illinois MED 0.38 Pennsylvania MED 0.34 Minnesota MED 0.25 Maryland MED 0.25

24.53 12.00

52

5.3 – ANNUAL SALES AND OPERATIONAL CAPACITY

The MPG Colorado report is a starting point for establishing yield estimates based on actual sales data in

a maturing market. Additional states release updated sales information both in regards to revenues and

product weight sold. Readily available data from several states’ statistics have been assembled below which

compare total annual sales with both licensed operators, per patient, and per potential purchaser. These

values are again tabulated based on state population and tourism data, in conjunction with readily available

state cannabis program reports from governing regulatory bodies.

Sales data was obtained from readily available state released reports and news reports which are listed in

the references section. Given the ever-changing cannabis industry, market, and demand, the numbers below

and within this document represent the best and latest assembled data set our team could compile.

1 Additional Caregiver Production not accounted for 2 Additional Caregiver and Personal Cultivation Rights Production not accounted for 3 States are vertically integrated and license dispensary operations only with no count of cultivation operations readily available. These

dispensary licenses to operate are accompanied with the ability to cultivate; therefore these states were listed at a 1:1 ratio of

dispensaries to cultivators. 4 Data utilizes equivalent pounds of cannabis covering total product sales

Figure 21 – State Medical and Adult Use Annual Sales of Dry Flower Comparison

Current sales data from Illinois shows dry cannabis sales of approximately 15,000 pounds annually.

Compared to the Arizona medical program, we have already established Arizona represents a market

consuming approximately ten times the amount of cannabis, despite only having a little over three times the

patient population. This was theorized as a result of the high product pricing in Illinois which restricts

medical patient participation with only 60% or less of registered medical patients purchasing monthly, as well

as supported by various operators by increased sales during times of reduced pricing, and stated by Oregon in

their OLCC 2019 report. It was found that the more reasonable the price, the more the consumer purchases,

and is a factor not well accounted for in attempting to establish anticipated supply and demand needs of the

potential Illinois adult use program. When considering sales metrics from other adult use programs, one can

see Illinois lags by an order of magnitude, and in the case of Colorado’s total sales, represents an increase of

twenty seven times (27x).

While we have established Illinois is currently far under selling what would be required in an adult use

market, the pounds sold per cultivator and pounds sold per dispensary tell an interesting story. In these listed

mature and developing adult use markets, the average cultivator sells between two hundred (200) and one

thousand (1,000) pounds annually. We know there are numerous very large producers nationwide, an

State Programs Approximate Pounds Dry

Cannabis Sold Annually

Pounds Sold Annually

Per Cultivator

Pounds Sold Annually Per Dispensary

Pounds Sold Per Patient

(Medical Only)

Pounds Sold Per Million Potential

Purchasers

Arizona 1, 3 MED 130,000 1,000 1,000 0.72 2,559 Colorado 2, 4 MED + REC 650,000 434 592 N/A 6,753 Illinois MED 15,000 714 273 0.28 118 Nevada MED + REC 108,000 812 1,636 N/A 2,348 Oregon MED + REC 170,000 152 281 N/A 4,971 Washington State 2

MED + REC 173,000 145 357 N/A 3,619

53

example of Los Suenos in Colorado was given previously, however the pounds sold annually per operator

show many smaller licensees are also well represented in these legal markets. Illinois currently sells 714

pounds per cultivator, which is right in the middle of the figure in the adult use states, if not leaning towards

the upper range, and given the fact that numerous Illinois cultivation facilities are currently not producing

and/or inoperable, this does of course affect those statistics which if viewing operating cultivation facilities

would be considerably higher than the above listed 714 pounds per cultivator. This would also be a significant

factor in potential Illinois craft cultivators, as it is highly unlikely each and every licensed craft cultivator

would meet the average square foot production metrics utilized throughout this report.

An increase in demand to accompany adult use without increased licensing opportunities, would force

this number to skyrocket. Given our high and low end demand estimates for an Illinois adult use program

established in Section 3.0 of between 350,000 pounds and 1.4 million pounds annually, this would result in

each cultivator being responsible for, on average, the annual sale of between 17,000 pounds and 63,000

pounds and at current wholesale pricing levels would represent between $51 million and $189 million in

revenue per cultivator. Given the estimate of 1.4 million pounds annual demand was based on actual sales

data from 2017, we believe this higher figure to be more accurate in estimating such a market in Illinois.

Based on the metrics reviewed, a state regulatory model with such a concentrated level of production and

distribution is not supported by any data available from any adult use state operating nationwide. Due to the

often complex regulatory and legislative processes as well as the time to market for a cannabis production and

retail facility from design through build out, to planting, harvest, processing, and finally sale, any serious

shortage would not have a simple or quick remedy. In a case with a prolonged shortage, and similar to

Michigan’s forty licensed dispensaries almost being forced to close due to lack of supply, which was only

temporarily remedied with an emergency ruling, the ripple of affected persons would include licensed

operator’s staff as businesses suffer and lack of supply leads to potential dispensary staff layoffs, unrealized

tax revenue, business closures, increased black market activity, and as mentioned, lack of access for those

medical patients who require such. Furthermore, if these shortages were to occur from combined medical

and adult use operators with no additional production capacity to fill the void, this would have the potential

to cause widespread accessibility and potentially fatal problems for medical patients that require a continued

and uninterrupted supply of cannabis for their seriously debilitating ailments.

54

Figure 22 – Annual Product Sales per Licensed Operator State Comparison

Given the Illinois demand estimates from Section 3.0 and the comparison with mature programs

nationwide, it should be clear that such a limited operator market without additional licensing would be far

from the norm and cannot be supported by any data currently existing or available from any program

nationwide. An increase of twenty three (23x) to eighty three (83x), likely leaning towards the higher end of

the estimate between 40x and 60x based on the fact the higher number was derived from actual sales data,

such an increase is simply not achievable by all operators, nor is it sustainable for the medical program.

Doubling any size business is a significant undertaking, and increasing of multiple times over is not the

standard in any industry.

Clearly, additional licensing is needed for all operators in the case of an adult use program, and even to

expand and maintain the current medical program under the OAPP.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Arizona Colorado Illinois Nevada Oregon Washington State

Po

un

ds

Annual Sales Per Licensed Operator

Per Cultivator

Per Dispensary

55

6.0 – Conclusion

The MCPP, OAPP, and potentially adult use cannabis programs have the ability to provide relief as well

as assistance to a tremendous amount of people throughout the state of Illinois through medical cannabis, tax

revenue, and inhibition of the black market and associated crime. These programs can be a great success;

however, to realize their full potential, proper implementation is paramount. We believe these key issues are:

1. Medical Program Diversification of Operators through Additional Licensing

Open the application process for unawarded dispensary districts and non-operating or non-

producing cultivators under MCPP and in preparation for the OAPP and the potential adult

use program

AZ, WA, MO, and MI based program additions for additional tier based licensing to

increase production immediately and thwart product shortage, adding new licenses from

existing operators thereby allowing for vertical integration as well as opportunities for new

qualifying applicants across all disciplines

NJ based approach for the medical program expansion using a Governor’s Executive Order

to implement these changes quickly and efficiently

Eliminate/minimize current oligopoly and predatory pricing practices which harm the

patients and drive continued or increased sales towards the black market

2. Medical Program Increase in Participation

Allow additional qualifying medical conditions through IDPH and/or a Governor’s

Executive Order as suggested by the appointed advisory board or as determined by

physicians

Protection and incentive to retain the medical program if an adult use program is launched in

Illinois including lower fees, less restrictions on physicians and conditions, increased limits,

and increased personal cultivation rights

3. Adult Use Program Increase in Licensing and Production

Similar programs (CO, AZ, WA, OR, MI, and Canada) as well as Illinois Demand Studies in

Section 3.0 demonstrate Illinois is severely lacking in sales capacity. Additional operators

must be licensed upon the initial program implementation in order to design, construct,

operate, and harvest inventory before adult use sales commence so adequate inventory

surplus can be created to meet the potential demand and guarantee access for medical

patients.

Concessions should be made to existing medical stakeholders including grandfathered

licensing with the possibility of tiered cultivation licenses and additional retail locations, in

addition to an application process for new operators. Tiered cultivation licenses that limit

flowering plant canopy as opposed to facility footprints should be considered, allowing for

greater control in preventing a scenario of oversupply while leaving potential for increases in

production as demand requires.

4. Adult Use Tax Revenue

Determining the proper tax rate and allocating funds generated to necessary programs and

projects

56

Without the implementation of the above to some degree, we are concerned about the ongoing health of

both the medical cannabis programs and any proposed adult use programs. We are quickly proceeding

towards what could be one of, if not the single greatest failures in the history of regulated cannabis. Our

suggestion would include the immediate increase of production capacity to help alleviate current product

shortages and future anticipated demand with the OAPP while plans are made for adult use.

As the industry continues to grow nationwide, it is common to hear legislators utilize the phrase ‘learn

from the mistakes others have made’ when addressing and designing newly proposed adult use programs. To

date, all adult use program launches nationwide, and now with the Canadian program, clearly display one

critical point that is increasingly overlooked. Virtually no adult use program launched in any location

worldwide to date has addressed meeting actual demand with adequate supply upon their initial launch.

Given Illinois’ current shortcomings regarding sales and production capacity compared to similar programs,

Illinois is possibly approaching what could be the most significant product shortage seen in any regulated

program to date with both pricing and accessibility issues. These problems will continue to multiply as the

programs expand if licensed operators are kept in limited and concentrated numbers.

Please feel free to contact us with any questions, concerns, or for more information. Anything we can do

to further advise or assist is encouraged and welcomed. Thank you for the opportunity to provide these

thoughts on the current and future status and success of medical and adult use cannabis in Illinois.

CONTACT

Illinois Chapter of the National Organization for the Reform of

Marijuana Laws (IL NORML)

Dan Linn, Executive Director

847-341-0591

danlinn@illinoisnorml.org

Kelvin D. McCabe, Board of Directors and Legal Counsel

309-837-1110

mccabe.esq@gmail.com

57

7.0 - References

1 - “MCPP Program Update – December 11, 2018.” Medical Cannabis Pilot Program, 11 Dec. 2018,

www2.illinois.gov/sites/mcpp/Pages/update12112018.aspx

2 - “AGR PART 1000 COMPASSIONATE USE OF MEDICAL CANNABIS PILOT PROGRAM.” Illinois General Assembly Home Page, 25 Mar.

2015, www.ilga.gov/commission/jcar/admincode/008/00801000sections.html.

3 - Hudak, John, et al. A Snapshot of Demand for Adult-Use Cannabis in Illinois. Freedman & Koski, Feb. 2019.

4 – “Arizona Medical Marijuana Program - January 2019 Monthly Report.” AZ DHS, Feb. 2019, www.azdhs.gov/documents/licensing/medical-

marijuana/reports/2019/2019-jan-monthly-report.pdf.

5 - “IDFPR PART 1290 RULES FOR ADMINISTRATION OF THE COMPASSIONATE USE OF MEDICAL CANNABIS PILOT

PROGRAM.” Department of Financial and Professional Regulation, 3 Dec. 2018,

www.idfpr.com/MC/68%20IAC%201290%20Emergency%20Amendments%20Register.pdf?ActID=3503&ChapterID=35.

6 - McCoppin, Robert. “Illinois Declines to Expand Medical Marijuana Conditions List.” Chicago Tribune, Chicago Tribune, 1 Feb. 2016,

www.chicagotribune.com/news/local/breaking/ct-illinois-medical-marijuana-met-20160129-story.html.

7 - Livio, Susan K. “Phil Murphy Moves to Expand Access to Medical Marijuana in New Jersey.” NJ.com, 23 Feb. 2018,

www.nj.com/politics/index.ssf/2018/01/hold_murphy_expands_medical_marijuana_program_adds.html.

8 – “Section 1 of Article XVI - Right to Access Medical Marijuana.” Secretary of State - Missouri, 28 Nov. 2016,

www.sos.mo.gov/CMSImages/Elections/Petitions/2018-051.pdf.

9 - “Producer License Descriptions and Fees.” Marijuana Licensing | Washington State Liquor and Cannabis Board, 2013,

lcb.wa.gov/mjlicense/producer_license_discriptions_fees.

10 - “LARA to Make Recommendation to the Medical Marihuana Licensing Board Regarding the Supply of Medical Marihuana Products.” Michigan

Department of Licensing and Regulatory Affairs, 28 Nov. 2018, www.michigan.gov/lara/0,4601,7-154-89505-484210--,00.html.

11 - “Michigan Medical Marijuana Shortage Could Result in Dispensary Shutdowns.” Marijuana Business Daily, 16 Nov. 2018, mjbizdaily.com/medical-

cannabis-supply-shortage-michigan-shutdowns-licensed-dispensaries/.

12 - Lamers, Matt. “On Cusp of Legalization, Canadian Cannabis Stockpiles Hit Record.” Marijuana Business Daily, Marijuana Business Daily, 3 Oct.

2018, mjbizdaily.com/on-cusp-of-legalization-canadian-cannabis-stockpiles-hit-record/.

13 - “OMMP Plant Limits.” Oregon Health Authority,

www.oregon.gov/oha/PH/DISEASESCONDITIONS/CHRONICDISEASE/MEDICALMARIJUANAPROGRAM/Documents/Plant

-Limit-Chart.pdf.

14 - Allen, David, MD. “Dr David Allen the Discovery of the Endocannabinoid System.” YouTube, YouTube, 10 Dec. 2014, youtu.be/LCs4B-oXOdk.

15 – “Potential Tax Revenue from a Regulated Cannabis Market: Illinois.” Marijuana Policy Project (MPP), 2017, www.mpp.org/wp-

content/uploads/2015/04/IL-2017-MPP-Fiscal-Estimate.pdf.

16 – “Market Size and Demand for Marijuana in Colorado - 2017 Market Update.” State of Colorado, Colorado Department of Revenue, University of

Colorado Boulder Leeds School of Business, Marijuana Policy Group, Aug. 2018,

www.colorado.gov/pacific/sites/default/files/MED%20Demand%20and%20Market%20%20Study%20%20082018.pdf.

17 – “Marist Poll.” Weed and The American Family - Poll Results Conducted March 2017, maristpoll.marist.edu/yahoo-newsmarist-

poll/#sthash.iuGvQeBO.qVzvX2X9.dpbs.

18 - Carroll, Linda. “One in Seven U.S. Adults Used Marijuana in 2017.” Reuters, 27 Aug. 2018, www.reuters.com/article/us-health-marijuna-us-

adults/one-in-seven-us-adults-used-marijuana-in-2017-idUSKCN1LC2B7.

19 – Stuart, Tessa. “Interview with John Hickenlooper.” Rolling Stone, 25 June 2018, www.rollingstone.com/politics/politics-features/john-

hickenlooper-on-the-future-of-weed-the-2020-race-and-whats-happening-at-the-denver-post-629368/.

20 - “State of Cannabis: Consumers Diversified in 2018.” Eaze, 15 Jan. 2019, www.eaze.com/article/insights-2018-state-of-cannabis-report-marijuana-

consumer-diversify.

21 - Pellechia, Thomas. “In 2018, U.S. Consumers Ordered Cannabis Every 8 Seconds.” Forbes, 2 Feb. 2019,

www.forbes.com/sites/thomaspellechia/2019/02/01/in-2018-u-s-consumers-ordered-cannabis-every-8-seconds/#3228742c322e.

58

22 - Morris, Chris. “Cannabis May Pose a 'Long-Term Risk' to the Alcohol Industry.” Fortune, 21 Feb. 2019, fortune.com/2019/02/21/cannabis-risk-

to-alcohol-industry/.

23 – “2019 Recreational Marijuana Supply and Demand Legislative Report.” Oregon Liquor Control Commission (OLCC), 31 Jan. 2019,

mjbizdaily.com/wp-content/uploads/2019/01/Recreational-Marijuana-Supply-and-Demand-Legislative-Report.pdf.

24 - Caulkins, Jonathan, et al. “Estimating Adequate Licensed Square Footage for Production.” Washington State Government, Botec Analysis

Corporation, lcb.wa.gov/publications/Marijuana/BOTEC%20reports/5a_Cannabis_Yields-Final.pdf.

25 – “Year One Canopy Report - March 2019.” Liquor and Cannabis Board - Washington State, Mar. 2019, lcb.wa.gov/sites/default/files/publications/Marijuana/YearOneCanopy.pdf.

26 - “Annual Marijuana Business Factbook - Sixth Edition 2018.” Marijuana Business Daily, Anne Holland Ventures Inc., 13 Nov. 2018,

mjbizdaily.com/factbook-2018-access/.

27 – “CalCannabis: 2018 by the Numbers.” California Department of Food and Agriculture, CalCannabis, 31 Dec. 2018,

static.cdfa.ca.gov/MCCP/document/CalCannabis--2018%20by%20the%20Numbers_12.31.18.pdf.

28 – “Constitutional Amendment 2 - Medical Marijuana.” Missouri Department of Health & Senior Services, health.mo.gov/safety/medical-

marijuana/index.php.

29 – “Marijuana Establishments.” State of Nevada, tax.nv.gov/MME/Marijuana_Establishments_-_Home/.

30 – “Marijuana License Applications.” Oregon Liquor Control Commission (OLCC), 15 Feb. 2019.

31 – “Marijuana Statistics and Reports.” State of Nevada, tax.nv.gov/Publications/Marijuana_Statistics_and_Reports/.

32 – McVey, Eli. “Chart: Wholesale Marijuana Prices on the Upswing in Nevada.” Marijuana Business Daily, 17 Aug. 2018, mjbizdaily.com/chart-

wholesale-marijuana-prices-nevada/.

33 – “MED Licensed Facilities.” State of Colorado, 1 Feb. 2019, www.colorado.gov/pacific/enforcement/med-licensed-facilities.

34 – “Retail Marijuana Fair Market Value.” State of Nevada, 1 Jan. 2018, tax.nv.gov/uploadedFiles/taxnvgov/Content/Forms/Retail-Marijuana-Fair-

Market-Value-Jan-1-2018.pdf.

35 – “Washington State Liquor and Cannabis Board Data Portal (WSLCB).” OpenData by Socrata, data.lcb.wa.gov/browse?category=Production.

59

ADDENDUM I - LICENSED CULTIVATION OPERATIONS

STATE COMPARISONS METRICS

372.2

319.8

264.3

158.1 147.5

78.2

18.9 7.3 7.2 6.0 3.9 2.4 2.2 1.7 1.4 1.3

0

50

100

150

200

250

300

350

400

Licensed Cultivators Per Ten Thousand Patients

State Program Licensed Cultivators Per Ten Thousand

Patients

Oklahoma MED 934.5 Washington State MED + REC 372.2 Oregon MED + REC 319.8 California MED + REC 264.3 Colorado MED + REC 158.1 Montana MED 147.5 Nevada MED + REC 78.2 Rhode Island MED 18.9 Massachusetts MED 7.3 Arizona MED 7.2 New Mexico MED 6.0 Illinois MED 3.9 Pennsylvania MED 2.4 Maryland MED 2.2 Minnesota MED 1.7 Connecticut MED 1.4 New York MED 1.3

934.5

60

39.8

35.8 32.6

28.9

24.9

15.5

2.9 2.6 1.4 1.2 1.0 0.4 0.3 0.2 0.1 0.1 0.0 0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Licensed Cultivators Per Million Potential Purchasers

State Program Licensed Cultivators Per Million Potential

Purchasers

Oklahoma MED 39.8 Montana MED 35.8 Oregon MED + REC 32.6 California MED + REC 28.9 Washington State MED + REC 24.9 Colorado MED + REC 15.5 Nevada MED + REC 2.9 Arizona MED 2.6 Rhode Island MED 1.4 Massachusetts MED 1.2 New Mexico MED 1.0 Connecticut MED 0.4 Maryland MED 0.3 Illinois MED 0.2 Pennsylvania MED 0.1 Minnesota MED 0.1 New York MED 0.0

61

56.4

36.0

16.8 14.7 13.4

11.4

3.8 3.2 1.2 1.1 1.2 0.7 0.4 0.3 0.3 0.2 0.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Licensed Cultivators Per Thousand Square Miles

State Program Licensed Cultivators Per Million Potential

Purchasers

California MED + REC 56.4 Rhode Island MED 36.0 Washington State MED + REC 16.8 Oklahoma MED 14.7 Colorado MED + REC 13.4 Oregon MED + REC 11.4 Massachusetts MED 3.8 Montana MED 3.2 Maryland MED 1.2 Arizona MED 1.1 Nevada MED + REC 1.2 Connecticut MED 0.7 Illinois MED 0.4 New Mexico MED 0.3 Pennsylvania MED 0.3 New York MED 0.2 Minnesota MED 0.0

62

ADDENDUM II - AVERAGE PRODUCT PRICING

STATE COMPARISONS METRICS

Several states, during the course of program operation, have released average product pricing per

pound. These states include both medical only and recreational states. The information below includes states

that have released such information and the graph shows the average price per pound as a function of the

number of licensed cultivators in each state. To create these graphs, the number of licensed cultivators was

normalized to a value between zero and one. Due to the sheer amount of cultivation licenses issued by

California (9,249), this skews the normalization. Therefore two graphs are featured, one which shows all

states with data, normalized between zero and one, as well as a detail view.

State Program Licensed

Dispensaries Licensed

Cultivators Patients

Average Price Per

Pound

Ratio of Cultivators to Dispensaries

Arizona MED 130 130 180,000 $2,069 1.00 California MED + REC 377 9,249 350,000 $1,006 24.53 Colorado MED + REC 1,019 1,391 88,000 $860 1.37 Connecticut MED 9 4 29,000 $3,014 0.44 Illinois MED 55 21 54,500 $3,054 0.38

Maine MED 8 Caregiver Model

and Vertical Integration

41,000 $1,910 N/A

Massachusetts MED 40 40 55,046 $2,524 1.00

Michigan MED No Provision Prior to Rec

Caregiver Model 300,000 $1,880 N/A

Nevada MED + REC 62 121 17,000 $2,799 1.95 New Mexico MED 81 35 58,000 $2,874 0.43 Oregon MED + REC 606 1,115 34,869 $626 1.84 Washington DC MED 5 8 6,000 $2,787 1.60 Washington State MED + REC 485 1,191 32,000 $595 2.46

63

Arizona ($2,069)

California ($1,006)

Colorado ($860)

Connecticut ($3,014) Illinois ($3,054)

Maine ($1,910)*

Massachusetts ($2,524)

Michigan ($1,880)*

Nevada 1 ($2,799)

New Mexico ($2,874)

Oregon ($626)

D.O.C. ($2,787)

Washington State ($595)

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

Pri

ce P

er

Po

un

d

Normalized Number of Licensed Cultivators

Average Price Per Pound

* Utilizing Caregiver Model

1 Nevada has seen a price increase from

$1,800/pound to the current high of

$2,799/pound since 2017 and the

commencement of adult use sales.

64

After viewing the detail view and data above, it is clear to see a trend that seems to correlate a higher

price per pound with limited licensed cultivators and limited programs. When considering the market forces

at work, the data supports the idea that limited competition with limited operators artificially inflates prices

and drives purchasers to the black market.

While higher prices for adult use cannabis and those that use such for other benefits aside from

medical purposes can be rationalized as an inherent vice tax, medical patients that require cannabis to treat

their debilitating conditions which do not have the benefit of insurance for purchasing their medicine and

often are operating on a strict and limited budget, should not be victim to pricing manipulation by large

operators. In many cases, access to their medication can quite possibly be the difference between life and

death, both immediately in cases of epilepsy as well as in the long-term in the case of cancer.

Arizona ($2,069)

Connecticut ($3,014) Illinois ($3,054)

Massachusetts ($2,524)

Nevada 1 ($2,799)

New Mexico ($2,874) Washington DC

($2,787)

$1,500

$1,700

$1,900

$2,100

$2,300

$2,500

$2,700

$2,900

$3,100

$3,300

0 0.005 0.01 0.015 0.02

Pri

ce P

er

Po

un

d

Normalized Number of Licensed Cultivators

Average Price Per Pound Detail View States with less than 180 cultivator licenses

1 Nevada has seen a price increase from

$1,800/pound to the current high of

$2,799/pound since 2017 and the

commencement of adult use sales.

65

ADDENDUM III - LICENSED DISPENSARY OPERATIONS

STATE COMPARISONS METRICS

173.8

151.6

115.8

93.8

38.82

14.0 10.8 10.1 8.9 7.3 7.2 6.9 6.7 3.1 2.8 1.6 0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

Licensed Dispensaries Per Ten Thousand Patients

State Program Licensed Dispensaries

Per Ten Thousand Patients

Oklahoma MED 581.8 Oregon MED + REC 173.8 Washington State MED + REC 151.6 Colorado MED + REC 115.8 Montana MED 93.8 Nevada MED + REC 38.82 New Mexico MED 14.0 California MED + REC 10.8 Illinois MED 10.1 Maryland MED 8.9 Massachusetts MED 7.3 Arizona MED 7.2 Pennsylvania MED 6.9 Minnesota MED 6.7 Connecticut MED 3.1 New York MED 2.8 Rhode Island MED 1.6

581.8

66

24.8

22.7

17.7

11.4 10.2

2.6 2.2 1.4 1.2 1.2 1.2 0.9 0.4 0.2 0.2 0.1 0.1

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Licensed Dispensaries Per Million Potential Purchasers

State Program Licensed Dispensaries Per Million Potential

Purchasers

Oklahoma MED 24.8 Montana MED + REC 22.7 Oregon MED + REC 17.7 Colorado MED + REC 11.4 Washington State MED 10.2 Arizona MED + REC 2.6 New Mexico MED 2.2 Nevada MED + REC 1.4 Massachusetts MED 1.2 Maryland MED 1.2 California MED 1.2 Connecticut MED 0.9 Illinois MED 0.4 Minnesota MED 0.2 Pennsylvania MED 0.2 Rhode Island MED 0.1 New York MED 0.1

67

9.8 9.1

6.8 6.2

4.8

3.8

3.0

2.3 2.0 1.6

1.1 0.9 0.8 0.7 0.6 0.4 0.1

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Licensed Dispensaries Per Thousand Square Miles

State Program Licensed Dispensaries Per Thousand Square

Miles

Colorado MED + REC 9.8 Oklahoma MED 9.1 Washington State MED + REC 6.8 Oregon MED + REC 6.2 Maryland MED 4.8 Massachusetts MED 3.8 Rhode Island MED 3.0 California MED + REC 2.3 Montana MED 2.0 Connecticut MED 1.6 Arizona MED 1.1 Illinois MED 0.9 Pennsylvania MED 0.8 New Mexico MED 0.7 Nevada MED + REC 0.6 New York MED 0.4 Minnesota MED 0.1

68

ADDENDUM IV – VERSION UPDATES

March 2019 - Version 1.3

General typography changes throughout covering grammatical errors and stylistic changes

Freedman and Koski report additions including AGR data on current canopy of licensed medical

cultivators as of Dec 2018 throughout report

Adjustment of Colorado 2017 sales figures from 603,500 pounds annually to approximately 665,000

pounds annually due to a metric ton vs. ton conversion error

Colorado changes in pounds sold follows through to Illinois total demand estimate, increasing from

approximately 1.3 million pounds to approximately 1.4 million pounds

Clarify 1.4 million pound demand figure is based on MPG report of dry cannabis flower equivalent,

which accounts for extracts, edibles, infusions, and all non-flower based products

Section 3.1 – Addition of Eaze and IWSR data on usage rates of up to 40% of adults in legalized

states

Section 3.2 – Entire section covering Illinois Adult Use Licensed Production Space

Section 3.3 – Entire section covering Illinois Adult Use Additional Licensed Operators Required

Section 3.4 – Entire section covering Illinois Adult Use Program Implementation Notes

March 2019 – Version 1.4

Section 3.3 – Addition of Washington Canopy Report regarding active and licensed plant canopies in

Washington State

Inserted Section 4.0 – Critical Analysis of Alternative Demand Studies

Renumbered additional sections accordingly