Constitutional Challenge To Illinois Cannabis Licensing Heads To Court

CHICAGO — State regulators have pledged not to issue any pot shop licenses pending a federal judge's ruling in a lawsuit alleging that Illinois' cannabis dispensary permitting process unconstitutionally discriminates against out-of-state residents.

Two men hoping to apply for licenses to operate retail stores that sell recreational marijuana have gone to court to seek a judge's order blocking the Illinois Department of Financial and Professional Regulation from issuing 185 cannabis dispensary licenses that have been allocated in the course of three lotteries — but not yet awarded.

Juan Finch Jr. and Mark Toigo argue that they have been blocked from participating in a series of lotteries to determine who would be awarded a limited number of the lucrative licenses.

"[The agency's] discrimination is not narrowly tailored to serve a legitimate local purpose," their suit said. "This discrimination, in fact, has no legitimate local purpose at all, and the stated rationale in the [Cannabis Regulation and Tax] Act for awarding particular benefits to social equity applicants—i.e., to remedy harms resulting from disproportionate enforcement of cannabis-related laws—applies equally to Americans in all states, and thus can be achieved without discriminating against nonresidents."

The pair's two-count complaint, filed March 23, also seeks to block state regulators from giving preferential treatment to applicants who live in Illinois.

According to the suit, Finch is a Chicago resident and active-duty U.S. Navy sailor who was living in California when he applied for a dispensary license in 2019. Toigo is a Pennsylvania-based cannabis investor who said he decided against applying for a license because he determined it would have been "futile."

Last year, Toigo sued Missouri state officials over the residency rules in that state's medical marijuana program. In November, a federal judge sided with the businessman and tossed out the requirement that license holders must be majority-owned by people who have been Missouri residents for at least a year.

The law that legalized the retail sale of recreational weed in Illinois, the Cannabis Regulation and Tax Act, established a scoring process for aspiring pot shop operators. To get a perfect score, applicants needed to be majority-owned by Illinois residents and veterans. Initially, only applications with perfect scores were included in a lottery for licenses.

That led to a flurry of lawsuits, and lawmakers last year passed cleaned-up legislation to allow for more lotteries with a larger group of participants.

Shortly after Gov. J.B. Pritzker signed the bill and announced the new lottery dates in July 2021, a Cook County judge placed a stay on the actual awarding of the licenses while still allowing the drawing to move forward.

Related:
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Pot Shop Lottery Process Unfair To Out-Of-State Applicants: Suit

Despite state officials' announcement last month that the application process would be simplified, Finch and Toigo remain excluded from future licensing lotteries, according to their complaint.

After the two men filed an emergency motion for a temporary restraining order and preliminary injunction along with their lawsuit last week, lawyers for the Illinois Attorney General's Office, which is representing the state regulatory agency in the case, stipulated that state officials "will not issue any adult-use cannabis dispensary licenses pending further order of this Court on Plaintiff's motion and of the Circuit Court of Cook County."

That means 185 dispensary licenses that were already in legal limbo in state court are now also tied up in federal court.

U.S. District Judge Rebecca Pallmeyer scheduled hearing on the motion for April 22.

The question of whether Illinois' residency rules violate the U.S. Constitution's commerce clause has been raised before — in a quickly withdrawn lawsuit filed in federal court last year by the Michigan-based cannabis company Sozo.

In a statement explaining why they scrapped the suit, company officials said they did not want to slow down the awarding of additional new licenses.

"Withdrawal does not change the company's strong belief that the process is fundamentally flawed," it said. "Unchallenged, the Illinois process will continue to benefit just a few connected and influential political insiders."