Cresco’s CEO on Cannabis and Equity in Illinois

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In the months before the new Illinois governor, J.B. Pritzker, was sworn in this January, he appointed a transition team that began to decide what a new measure to legalize adult-use cannabis should look like. Pritzker appointed a forty-five-member group that included criminal justice advocates, local law enforcement,  prosecutors, healthcare experts, and elected officials.

In the midst of it all was Charlie Bachtell, the CEO of Chicago-based Cresco Labs, one of the largest cannabis companies in North America with an estimated valuation of around $4 billion.

Bachtell told Cannabis Wire in an interview that the governor’s appointed team helped yield a range of perspectives and proposals that were baked into the recently-filed adult use legalization bill. The measure, which proponents hope to see  passed by the end of the month, is scheduled for its first big test, a hearing in a Senate committee on Wednesday.

The transition team, Bachtell said, focused on how to ensure that communities harmed by America’s drug war would benefit from new tax dollars and business opportunities. To that end the bill features a low-interest $20 million loan program for “social equity applicants” who qualify; automatic expungement of certain cannabis crimes; priority status in the state’s application process for those previously charged with cannabis-related crimes, among other factors; and tax revenue that would be allocated to disadvantaged communities—the kind of provisions that have been categorized under the heading of “equity.”

Still, Illinois’s existing medical-cannabis industry is likely to play an outsized role in the development of the new industry, as the state is home to several of the largest national operators, including Cresco, Green Thumb Industries (GTI), PharmaCann, and Verano, among others.

Governor Pritzker’s vow to create a diverse industry sets up a tall challenge for Illinois lawmakers, who want to be the first state to legalize and regulate cannabis sales by legislature and to ensure equity. (Only Vermont has legalized cannabis by legislature, but the bill did not allow for sales.)

Meanwhile one of Cresco’s co-founders, Kayvan Khalatbari, is constantly pushing Bachtell and other businesses on equity. A recent Denver mayoral candidate and cannabis business consultant who is a board member of the Minority Cannabis Business Association, Khalatbari told Cannabis Wire that he would be watching the Illinois bill and cannabis businesses to make sure they follow through on promises regarding equity if the bill passes.

The Association has not yet taken a position on Illinois’ legislation. While he believes it is “a lot better than what a lot of other states have done,” he worries that it does not include effective oversight of its diversity and community reinvestment goals.

Khalatbari said, of other laws focused on encouraging a diverse industry and reinvestment in communities, “A lot of it is political posturing, it’s not intended to meet its outcome,” adding, “I think the bigger issue is the people who are primarily funding these companies frankly don’t give a shit.”

He said he also worries that small businesses in Illinois will be at a significant disadvantage facing large operators such as Cresco. “You have people who have massive, behemoth market shares,” he said. “Are they even going to be able to compete? On price? Or differentiate their product enough? Even if we implement these equity provisions properly, I worry about [the law’s] ability to be successful.”

Cannabis Wire spoke with Bachtell about the bill, how he helped shape it as a part of the governor’s transition team, and how Cresco and the state’s existing medical cannabis businesses plan to create a strong adult use industry in Illinois. Cresco can play a role in showing what a responsible and diverse industry looks like, Bachtell said.

“I think a more diverse, more accepted, positively received program in Illinois, which will require that it does address the social equity components, is a better business environment for me to operate in,” Bachtell said.

The interview has been edited for length and clarity.

Jeremy Borden: Can you tell us how you and others on the transition team helped shape the bill that is being debated?

Charlie Bachtell: You put together these task forces to blend different viewpoints and perspectives. The specific transition team that I was a part of was the restorative justice and community safety transition team. There were multiple components to that team, and then the [subcommittee] that I was on was related to adult use. There were a handful of face-to-face meetings, and there’s been subsequent collaboration between the committee members ever since. And so I think those voices have continued to play a part in the many iterations of this bill. There’s a lot of scrutiny on how this bill ended up looking.  

Jeremy Borden: What kind of feedback have you gotten from the industry since the bill was released?

Charlie Bachtell: I think the industry is supportive of the bill. There might be a preconceived notion that industry participants are concerned about expansion, and wanting to sort of ‘keep this for themselves.’ That’s not the case. I think we’re fortunate that in a state like Illinois, it did a fairly good job during the issuing of licenses and has a highly regulated compliance-focused medical cannabis program. They did a really good job of vetting the applicants to the point where you ended up with some really good actors in this space. And I think most of us understand that you can’t have an adult-use conversation without having a social equity, social justice discussion along with it. It’s a requirement. We’re all in favor of it.

Jeremy Borden: I’ve heard other industry leaders agree with what you’re saying in terms of equity, but the results elsewhere have not been great so far. So why do you think that is? (Editors’ Note: Despite increasing calls for equity by advocates and officials across the country, and in Congress, similar programs haven’t yet been effective in the growing cannabis industry, which is overwhelmingly white and male. Colorado lawmakers have expressed growing alarm. Massachusetts has been leading statewide efforts, and Los Angeles is pushing for changes to help low-income communities.)

Charlie Bachtell: Well, a couple different reasons. So this is where I will say that there is the benefit of having a program that is more controlled by the state. So when I say control it is putting some limit on the number of licenses because then it’s more of a holistic project. Nothing against California’s attempt at it, but California’s law, basically with an unlimited license structure, said ‘here it is, go for it, good luck. And, by the way, we’re going to leave it up to the local municipalities and counties to structure whether or not they’re in, how many licenses there can be, in what way, in what form.’

There’s not as much of a sense of industry in that sort of free market environment.

In Illinois, we all know each other by name. We come together and we make sure that the industry and the program is successful first, and then we can have fun competing against each other.

Jeremy Borden: One of your co-founders, Kayvan Khalatbari, basically said he’s skeptical that Illinois will do a good job of policing the equity aspects of this. (Note: Khalatbari, again, is both a co-founder of Cresco Labs and a board member of the Minority Cannabis Business Association, which has not yet taken a position on the bill). Do you think he’s right on that? Does industry have a role in policing the equity aspects of legalization?

Charlie Bachtell: That was one of the things that came up in the meetings. Expungement is a big component of all of these programs, making sure that you don’t have something on your record negatively impacting your ability to make a living and provide for your family. And they brought up the question of ‘How are we going to make sure that people are even aware that they can get their records expunged?’  

And I said, ‘make the operators do it.’ (Note: In other words, business operators can play a role in ensuring the state meets, in particular, its diversity goals) And they were all kind of taken aback and they’re like, ‘Oh you guys would you do that?’

We are a publicly traded company so I am concerned about the bottom line. But there is a return on investment in doing the right things in cannabis because it actually creates a better, more robust program..

I think the other thing I told them was, ‘Don’t be afraid to literally codify this if you want social equity to be a focus of the operators. Make us commit to that as part of the licensing application process, even for those who are grandfathered in.’

Jeremy Borden: But they didn’t put that in the bill though, right?

Charlie Bachtell: That could be a component of the rulemaking process. The law is a very high level description and then it gets turned over to the departments to develop the regulations.

Jeremy Borden: And I just want to unpack something to make sure I understand what you were talking about — Return on Investment. How do equity provisions, or the idea of nurturing smaller businesses, how do they create value for you?

Charlie Bachtell: A well-functioning, well-oiled program—that in and of itself creates a better business environment to participate in. For example, now they have a ten dispensary cap in the bill for one operator. So then, from that standpoint, do I care if there’s twenty or two hundred or five hundred others? So if Illinois can create a nice, diverse, well-run, accessible cannabis program here, that is a wonderful environment for me to have a business in. And I think that’s a wonderful environment for customers to feel good about participating in.

Jeremy Borden: It seems like existing industry members in other states I’ve covered really fought home grow. Were there any of those concerns from the industry in Illinois, and why or why not? (Note: The Illinois proposal so far contains a provision allowing for up to five plants that can be legally grown at home under certain conditions. There is opposition to the provision in the legislature and it may be taken out or changed, the Chicago Tribune reported.)

Charlie Bachtell: I can really only speak for myself and my company. But as far as I know, there’s no operator in Illinois that’s concerned about the business impact of home grow. None of us are concerned about the dollars and cents impacts of home grow. I can make my own beer at home, I can grow my own tomatoes, but for the most part I don’t. I still go to a store and I buy them. I believe the only concerns that we’ve ever had over home grow were: How do you regulate it? Because, again, one of the objectives of an adult use law, especially a state like Illinois, is to impact the illicit market. So it just has to be responsible and appropriate. So I need enough regulation around the home grow concept. And I think we’re there.

Jeremy Borden: The bill allows for an advantage for Cresco and other existing licensed businesses since you’d be able to sell to adults over 21 starting on January 1 of next year. (The state would then accept applications for new businesses starting in two waves, the first in May 2020 and the second in July 2020, according to a bill summary.)

Do you think that gives you too big of an advantage over smaller businesses who want to enter the market?

Charlie Bachtell: It’s not an insurmountable challenge by any stretch, but that’s a challenge. On January 1, I do get to flip the switch because I already have an existing operation. So I get the benefit of that six months, and it probably ends up being closer to nine months because even after you get your piece of paper you’ve probably got some build out and stuff like that.

Jeremy Borden: How do you see Cresco supporting small businesses or the social equity components?

Charlie Bachtell: We really have this social awareness component to us. Sometimes we get painted with this brush of ‘big greedy corporation.’ And it’s a real easy thing to try and say about the industry. The way that we became a big multi-state corporation was because we put such an emphasis on developing these community-based projects in partnership with the local communities. That’s how you win limited licenses in these merit-based application processes.

We didn’t start as a big corporation. We created this by focusing on those fundamentals because those are the points that you need in order to win the licenses to even get access to these programs.

I enjoy operating in environments where the businesses are engaged, where it is challenging, where you have to make sure that you’re doing the right things to make that program successful.

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