The start of the new year will launch a flurry of activity for Illinois’ recreational cannabis industry, a sizable new market that will unleash stiff competition for business licenses and could eventually reach $2.5 billion in annual sales.

On Jan. 1, recreational sales will begin through existing medical marijuana dispensaries in the state. The next day, applications for 75 new retail cannabis licenses are due.

Cannabis industry watchers expect extremely tough competition in the Illinois marketplace.

The maximum number of adult-use dispensaries allowed in Illinois in 2020 is 185, or 1.5 retail stores per 100,000 residents. By comparison, Oregon currently has 15.7 recreational marijuana retailers per 100,000 residents.

That means retail cannabis licenses will be highly coveted and likely very lucrative in Illinois.

Though Illinois will grant more recreational retail licenses over the coming years – up to a maximum of 500 – it’s still a relatively low number considering the state is home to nearly 13 million people.

Social equity applicants are expected to have a strong advantage, as this status is worth 50 points on the application – 20% of the total points that can be awarded.

To apply as a social equity applicant, a business must show it:

Is at least 51% owned and controlled by someone who has a prior cannabis possession offense that’s eligible for expungement.

Has an owner who has an immediate family member with a cannabis possession offense that is eligible for expungement.

Will be located in a disproportionately impacted area or will employ 10 or more workers who would themselves qualify as social equity applicants.

Disproportionately impacted areas are portions of the state that have high poverty rates and above-average rates of cannabis-related arrests, convictions and incarcerations. Illinois released a map of disproportionately impacted areas, which is available here.

Businesses also will have to show they can meet other requirements, such as the ability to implement a robust security plan and manage inventory.

Competition for non-social equity applicants will likely be extremely fierce, and this introduces the potential for some businesses to exploit the law to gain a leg up in the application process.

“Strawman” agreements – where an individual who qualifies as a social equity applicant owns 51% of the businesses on paper but in reality has no control or equity in the company – have become more common in other states looking to provide tangible benefits for businesses with diverse owners.

The state will announce license winners in May 2020.

Eli McVey can be reached at [email protected]