Illinois Retail

In one of the most challenging medical cannabis markets in the country, dispensary owners see slow growth, but plenty of potential

The first wave of Illinois dispensaries has just passed its one-year anniversary. Looking back, four licensees discuss the challenges, solutions and rewards of participating in one of the most expensive and restrictive programs in the country.

The pick-up counter at Midwest Compassion Center adds some dynamic flourish to the medical atmosphere.

Barrier to entry

For many, the startup costs for Illinois’ medical cannabis pilot program were simply too steep. A non-refundable $5,000 application fee for a dispensary permit or a $25,000 fee for cultivation were among the smallest of several fees applicants could expect. From there, the cost to participate in the program grows exponentially.

“It seems as though they were trying to put up barriers so that only a specific set of individuals would be able to apply,” says Cameron Lehman, co-owner of Harbory, the first dispensary licensed in Illinois.

“We were fortunate to have enough funds available,” says Nicole van Rensburg, co-owner of Midwest Compassion Center in Romeoville. “Oftentimes expenses can exceed what you project, so we did have to demonstrate that we were adequately capitalized.”

The front desk at Dispensary 33 in Chicago.

In addition to the costly application fees, all applicants were required to demonstrate $400,000 to $500,000 in liquid assets, plus $50,000 in escrow for dispensaries. Prospective cultivators were required to provide a $2 million surety bond to the Department of Agriculture. In one of the most populous states in the nation, Illinois granted just 60 licenses for dispensaries and 22 for cultivation.

For the lucky few who were successful in the application process, the actual licensing fee was $30,000 for dispensaries and $100,000 for cultivators. Both license types renew for $100,000 annually.

“We probably spent about $300,000 just putting the application together and filing,” says Brad Zerman, CEO of Seven Point, a dispensary located in Oak Park. “We initially applied for three licenses, but we just won one.”

Zachary Zises, co-owner of Dispensary 33 in Chicago, says the applications “were like SAT tests, but with real estate.”

A closer look at the semi-transparent, humidor-style room at Seven Point.

Medical or modern

In highly regulated medical marijuana markets, such as Illinois, dispensary design tends to skew more toward serious health care than cannabis culture.

Dispensary 33 and Seven Point are two examples that showcase classy, modern designs more akin to traditional shopping experiences.

In response to the state wanting dispensaries to be compartmentalized, Zerman kept regulators happy by installing transparent, humidor-style rooms at Seven Point. These innovative spaces are similar to walk-in humidors at high-end cigar shops, allowing patients to see products from inside the waiting rooms.

“In Illinois dispensaries, you have a lot of rooms. You have a room for this, and a room for that,” Zerman explains. “We just didn’t want to have a bunch of drywall. A lot of our space is glass or polycarbonate walls. You can sort of see through them.”

Zises says his decision to craft Dispensary 33 after popular retail outlets was with patients’ wellbeing in mind. He believes one less visit to a doctor’s office is appreciated by patients who are probably tired of sterile hospitals and utilitarian medical facilities.

Illinois requires dispensaries to be separated into smaller room, thankfully, glass walls – like those used at Seven Point -are just as valid as drywall.

“Our space is a wide-open environment, like an Apple store or any other retail environment,” Zises says. “You come in, you look at the products, you read information on the product, and when you are ready to purchase, you come over to the transaction counter and we’re there to help you.”

Meanwhile, Harbory in Marion and Midwest Compassion Center in Romeoville opted for more traditional medical approaches — not surprisingly, the owners of these dispensaries have backgrounds in health care.

Van Rensburg, who opened Midwest Compassion Center with her brother in April 2016, continues to work in her family’s medical diagnostics business. Lehman co-owns Harbory with his mother, a plastic surgeon.

Van Rensburg says she is thankful they kept the emphasis on the medical and not the marijuana side of the program.

“One thing that I can tell you that was very unexpected for me is that the patients we see are very, seriously ill,” she says. “That wasn’t something that I was emotionally prepared for, nor had I prepared my staff.”

To her surprise, patients rarely choose to use the fast-pickup drive-thru window she and her brother built into the dispensary. Van Rensburg says the average patient spends 20 to 40 minutes at the dispensary.

“We built it to meet the state’s specifications, and I joke when people come into the store that this is the most inefficient use of 2,200 square feet of space you’ve seen,” she says. “It’s room after room, because it’s all designed after this concept of security.”

At Harbory, Lehman echoes van Rensburg’s sentiments about taking a strictly medical approach to the design. He says the layout mirrors his mother’s medical practice.

“We have taken that model and applied it to our dispensary,” Lehman says. “We built it around the empathetic understanding of how people actually suffer through these debilitating illnesses.”

Dispensaries that choose to display product, like at Dispensary 33 pictured above, are required to destroy any flower used for displaying purposes.

Expansion

Relatively recent expansions to the Illinois Medical Cannabis Pilot Program have provided some much-needed relief to the state’s licensed marijuana businesses.

“It’s a better program now,” Zerman says. “There’s more people that have medical marijuana cards now.”

Despite having a population of almost 13 million people, Illinois had only a few thousand registered medical marijuana patients for most of the past year. Additional qualifying conditions and a streamlined application process allowed the program to grow to more than 13,000 qualified patients by the end of 2016.

Through November 2016, nearly $31 million of cannabis had been sold by 47 currently licensed dispensaries. About 57% of dispensary sales were dried flower.

Outside the front entrance for Seven Point in Oak Park, Illinois.

Welcome to the neighborhood

Each of these four licensees came to similar conclusions about the best ways to help build their businesses: education and removing the taboos associated with marijuana were vital steps in the process.

“Part of our marketing strategy was to help people learn about medical cannabis and at the same time help them fill out all of the complicated paperwork that they need to in order to get a card,” says Zerman, who opened Seven Point after having been in the ATM business.

Although Seven Point was one of the last dispensaries in the state to open, it began cultivating relationships with patients and the local community early in the process. After reading the rules and regulations of the pilot program, Zerman began developing a network of people to help the company succeed.

“We’ve been pioneers in patient education; we started doing educational workshops in the Oak Park area from April 2015 until now,” he says. “We’ve held over 100 educational workshops.”

For those interested in learning more about the Illinois medical cannabis program, Zerman cordoned off a portion of Seven Point’s lobby as an educational hub where would-be patients can talk to staff members about the program and get help with the application process.

“That includes helping them get fingerprinted, which is a state requirement,” he says. “We have a front lobby area that is a public space where anyone can come in, so we have a fingerprinting machine in that room. We have an employee who is just in that room to help people with their paperwork and get through the process.”

Midwest Compassion Center also provides a public space for people to talk with an employee about the program. However, van Rensburg faced different challenges in the suburbs west of Chicago.

“The stigma of cannabis is very real in Illinois,” she says.

Like Zerman, van Rensburg saw educational events as a way to destigmatize cannabis, while promoting Midwest Compassion Center. At first, the company scheduled classes at a nearby public library, but complaints eventually forced the sessions to move to a community center. Even though the company agreed to move the educational event away from the library, protestors followed and picketed outside.

But not all entrepreneurs have faced the same level of community resistance. In Southern Illinois, the community surrounding Harbory has embraced the medical dispensary. When the company set out collection bins for a food drive, charitable donations of non-perishable foods overflowed the containers at the dispensary. Lehman says the overwhelming response sent him searching for more and more collection bins.

“In Southern Illinois, there is a really strong, communal feel,” he says. “People want to do right by the other members of their community. If we were in, say, Chicago, I don’t know if we would have that same response.”

Yet, community acceptance hasn’t been a problem for Dispensary 33, located less than two miles away from historic Wrigley Field on Chicago’s North Side.

Despite having the option for speedy pick-ups, patients at the Midwest Compassion Center often prefer to stay a while.

As it turns out, Zises says operating a dispensary in the Windy City shares more similarities with small-town businesses than they might think.

“The city has completely embraced us and the neighborhood has completely embraced us from day one, and that feels great,” Zises says.

Zises hosted an open house for the community to see the store firsthand. Over the course of the open house, he estimates that 700-800 visitors came through the doors and not one had anything negative to say about the cannabis business.

“We’re in the middle of a crowded neighborhood on a crowded street and we’re just another business like every other,” he says. “That normalization is really an integral part of what we’re able to give the community and what the community gives back to us.”

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