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After Fierce Backlash, Michigan-Based Pot Shop Drops Lawsuit To Block Illinois Cannabis Lottery

The company, Sozo Health, sued after it was excluded from two of the three upcoming lotteries. Critics slammed the company as "rich white guys from out of town" who were ruining the process for more diverse applicants.

Former State Sen. Rickey Hendon speaks outside Dirksen Federal Courthouse, July 27, 2021
Justin Laurence
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CHICAGO — A lawsuit targeting the state’s process for granting cannabis dispensary licenses was dropped Tuesday after pushback from people who want to see more diversity and equity among state pot businesses.

Sozo Health, a Michigan-based cannabis company, sued in federal court in Chicago last week, claiming the state’s rules for awarding dispensary licenses unconstitutionally discriminated against them.

The suit claimed the state should not be allowed to favor Illinois-based companies or change the rules for earning social equity status when granting these licenses, saying such measures violated federal and state laws. 

It also said a tweak in how social equity status was determined for one of the three lotteries was “unfair.” Since that provision wasn’t included in the initial law when applications were submitted, it would deprive Sozo or other applicants of “the right to due process and equal protection under” the Illinois and United States Constitution.

The state previously allowed companies to qualify as “Social Equity” applicants if they had at least 10 employees, at least half of whom came from communities most harmed by drug laws or or had been convicted of cannabis-related offenses — even if the firm’s ownership otherwise would not qualify.

Sozo qualified under that provision, by hiring eight employees from disproportionately impacted areas in Illinois for its potential businesses in the state.

But that rule, dubbed the “slave master clause” by former State Sen. Rickey Hendon, allowed the people making the most money in the overwhelmingly-white industry to score points with the state for hiring people of color — who would not benefit in the way a dispensary ownership would.

Facing criticism the state’s vow to empower communities of color by legalizing weed was falling flat, legislators excluded companies that earned social equity status through employment from one of the three upcoming lotteries, prompting the suit.

The lawsuit named Gov. JB Pritzker and the acting director of the agency that regulates dispensaries as defendants, and asked a judge to block the state from moving forward with the lotteries. Sozo voluntarily withdrew the case Tuesday.

The first of the three lotteries to award 185 new dispensary licenses will start Thursday.

In an email obtained by Block Club, Sozo said it “sought to hold the state of Illinois accountable to its problematic licensure rollout.”

“Sozo recognizes that the lawsuit could potentially delay licensure, which negatively impacts deserving social equity applicants, and was never the intention of the lawsuit.

Sozo maintains its belief in the importance of building viable and meaningful cannabis careers, a concept that provides the foundation for its entire operations. Sozo had hoped to replicate this method in Illinois, but after hearing direct feedback from other impacted and deserving cannabis social equity applicants, the company has made the difficult decision to withdraw from the lawsuit.

Withdrawal does not change the company’s strong belief that the process is fundamentally flawed. Unchallenged, the Illinois process will continue to benefit just a few connected and influential political insiders. Sozo will continue to work to support those negatively impacted by the war on drugs, including the investment in new talent and by supporting aspiring entrepreneurs in markets where it operates,” the email said. 

Credit: Pexels

The withdrawal came hours before a scheduled court hearing on the lawsuit that could have thrown another roadblock in the state’s long-delayed journey to issue new dispensary licences aimed at increasing minority ownership in the industry, currently dominated by firms owned by white men. 

On Tuesday morning, equity advocates and dispensary applicants held a press conference outside the Dirksen Federal Courthouse urging Sozo to drop the lawsuit and criticizing the company for seeking to further delay the license roll-out.

After Sozo dropped the lawsuit, those groups, collectively calling themselves The Alliance for Cannabis Equity of Illinois (ACE-IL), issued a statement saying they were “relieved to see this lawsuit dropped.”

“It was selfish and greedy from the very beginning, and we are glad they dropped it. While we wish it didn’t take a week of social media shaming for them to wake up, we look forward to the dispensary lottery beginning, and for true social equity applicants to have a chance in this industry. We will continue fighting for equity and transparency moving forward, and wish the best of luck to those in the lottery,” the statement said. 

Sozo, which owns a cultivation facility and multiple dispensaries in Michigan, submitted 11 applications in Illinois and is still eligible for one of the three lotteries, scheduled for Thursday and open to groups that achieved a score of at least 85 percent on their applications.

But the lawsuit claims that despite being “well qualified” Sozo has “literally no chance at obtaining 130 of the first 185 licenses to be doled out.”

Because Sozo failed to achieve a perfect score, in part because it lost out on five points reserved for Illinois residents, it did not qualify for the 75 license-lottery reserved for the top-scoring applicants. 

The state announced last fall 21 groups achieved a perfect score on their application and would compete for the 75 licenses.

Sozo also doesn’t qualify for an August 5 lottery to award 55 licenses . That lottery, named the Social Equity Justice Involved Lottery by the state, bars applicants that achieved social equity status through the so-called “slave-master clause.”

The withdrawal of the lawsuit clears the way for the three lotteries to move forward. The state was first meant to issue 75 new licenses in the Spring of 2020 but the announcement was delayed by the COVID-19 pandemic. When it announced just 21 groups had qualified for the lottery last fall, a bevy of lawsuits and outcry from equity advocates delayed the process further. 

This spring, the state legislature crafted a deal to create the additional 110 recreational pot-shop licenses, clearing the path for the 185 licenses to be awarded.

Peter Contos, a policy advisor to the Cannabis Equity Coalition Illinois, said the lawsuit “speaks to a larger issue of tone-deafness in the cannabis industry.”

“This company operates cannabis businesses in Michigan and still has an opportunity to win licenses in Illinois,” he said. “But because it’s not as many chances as they’d like, they’re holding the whole program hostage.”

Contos also took issue with Sozo listing his group in the lawsuit as an example of a community group it had worked with on equity issues, saying the move was a “brazen, shameless lie.”

“They stopped coming to our community meetings after coming twice and then backed out of a commitment to underwrite a know-your-rights community educational video,” he said. “So no, they haven’t done anything to support our Coalition.”

Edie Moore, executive director of Chicago Norml and part of a group that achieved a perfect score on it’s application for a dispensary license, said Sozo had shown a “complete disregard” towards those who had long advocated for greater equity in the state’s cannabis industry, including pressuring lawmakers to compromise on the legislation passed in the spring.

“And where were they? Johnny-come-lately,” she said. “This is an opportunist organization that cares little about Illinois, and cares little about working with advocates in Illinois and it cares little about engaging with the community organizations that do.”

Hendon, who is part of an applicant group, said “don’t come from another state and think you’re going to gangster us.”

“This business is 99.9 percent owned by rich white men,” he said. “Sozo, which I call “so-damn-low,” is rich white guys from out of town from Michigan. They ought to be dealing with problems in Detroit, in Flint…mind their own business, mind their own state.”

After the lawsuit was dropped, a spokeswoman for Pritzker said the lottery on Thursday “will be held.”

“As it has been from the very beginning, the top priority for the Pritzker administration remains establishing a legal cannabis industry in Illinois that is equitable and reflects the diversity of communities across the state. IDFPR cannot comment on pending litigation,” she said.

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