Just to the south of the hulking Stern Beverage beer-distribution warehouse in Milan sits a relatively tiny and decidedly nondescript building. It has massive rocks between the parking lot and the structure that look decorative but are actually a low-tech security measure designed to prevent a smash-and-grab theft.
This is the future home of Nature’s Treatment of Illinois, a medical-cannabis dispensary run by Stern Beverage President Matt Stern. It received conditional approval from the State of Illinois last week and now requires an inspection and the approval of employees before it can receive an operating license.
“If everything went great, [we could be open] right around Christmas,” Stern said. “But it’s the State of Illinois, so I’m guessing we’re probably going to float into the first or second week of January.”
Every inch of the 2,700-square-foot facility, Stern said, can be seen by camera, and feeds are sent to the state as well as to two off-site locations where they’re stored for 180 days. The glass is bullet-proof, of course, but so are the walls. “I don’t know really what it is or how it works,” Stern said of the wall material, “but I know it’s expensive.”
With these and other security measures inside the building, Stern said, it would be exceedingly difficult for somebody to rob Nature’s Treatment, and an internal theft would be detected when inventory and sales are reconciled at the end of each day: “It would be virtually impossible for someone to get something out of here unless they were willing to get fired. ... It’ll be very, very easy to catch.”
And those rocks would prevent somebody from trying to ram a vehicle into the dispensary.
Stern said he and his six business partners in the dispensary have put a million dollars into the project before they’ve purchased any product or hired any employees.
That’s a big investment considering that Illinois’ medical-cannabis pilot project is scheduled to sunset at the end of 2017.
It’s also one of the more-restrictive programs among the 23 states that have legalized cannabis for medicinal use. The project forbids home-grown marijuana, requires fingerprint-based criminal-background checks for patients, and excludes pain conditions from the list of 39 ailments eligible for treatment with medical cannabis.
Stern said he and his partners won’t make back their money in the next two years, so they – and everybody else who’s entered the legal-marijuana business in recent months – are taking a chance.
“It’s a risk,” Stern said. “No doubt about that. But it’s something we strongly believe in, and we think that the pilot project will become law permanently. If it doesn’t, then we’re going to have a really fancy building over here to do something with.”
But Stern, like many in the medical-cannabis business, doubts the program will be allowed to expire after 2017. With “the momentum that will be created, and the case studies and benefits for the patients that are coming out, I think it’ll be hard to stop it.”
Green Thumb Industries (GTI) has also made a major capital investment in the Quad Cities, with its cannabis-cultivation center in southwest Rock Island. The company also has an Oglesby cultivation center (in LaSalle County) and the Clinic Mundelein dispensary (in Lake County).
Ben Kovler, founder and CEO of GTI, said his company has invested more than $10 million in those three facilities.
“We’re business operators. We understand the risk going into a business like this,” he said. “Nothing’s a given in this world, particularly when you’re dealing with politics and particularly in Illinois. However, we strongly believe that as thousands and thousands of patients are seeing demonstrated relief and positive benefits from the medicine, the program will continue ... .”
Mark Passerini, president of the Illinois Cannabis Industry Association, said that few if any medical-cannabis businesses in Illinois will recoup their investments over the next two years, but he expressed confidence that the program will eventually be extended.
“I think most of the people that are in the industry now kind of see this as a long-term play, and realize that this is not going to go away,” he said. “Too much toothpaste has been squeezed out of the tube at this point to put it back in. ... There would be so much backlash at that point. There would be really too much political pressure on the administration to continue it. I just don’t see it happening.”
Yet there’s still the potential – however remote – that the pilot project won’t be made permanent. “That’s the concern of every licensee in the state, with the amount of money and time that they’ve poured into this,” Passerini said.
And he expressed concern that some businesses will struggle to survive given the limited scope of the Illinois program: “We definitely see a lot of work that needs to be done for the program to be successful, because right now it’s not really viable for a lot of these businesses. People are pouring in hundreds of thousands if not a million dollars into their facilities and their operations, and with only 3,500 patients signed up, that’s just not going to be a sustainable system for them.”
Putting the Brakes on Expansion
At the end of October, 15 cultivation centers had been authorized by the Illinois Department of Agriculture to commence cultivation. As of December 1, 15 dispensaries had been licensed by the Illinois Department of Financial & Professional Regulation.
Eventually under the pilot project, there will be fewer than 20 cultivation centers around the state and nearly 60 dispensaries.
The four-year medical-cannabis project was signed into law in August 2013, yet sales only began on November 9 of this year. With the program’s scheduled expiration on January 1, 2018, those legally growing and selling medical marijuana in Illinois are only guaranteed roughly two years to sell their products.
And Governor Bruce Rauner has thus far been unwilling to make that window of opportunity larger by extending or expanding the program.
Rauner in August vetoed legislation extending the program into August 2019, suggesting instead an extension through April 2018. The bill was intended to give growers and sellers something closer to the four years the pilot project originally envisioned.
And in September, Rauner vetoed legislation to add post-traumatic stress disorder (PTSD) to the list of conditions eligible for treatment with medical marijuana.
Quad Cities-area Representatives Mike Smiddy (D-Hillsdale) and Pat Verschoore (D-Milan) voted for both bills; Senator Neil Anderson (R-Rock Island) did not vote on the pilot-project extension and voted against adding PTSD.
Both bills are now dead.
Also in September, the Illinois Department of Public Health refused to expand the list of eligible medical conditions for the pilot project. The Illinois Medical Cannabis Advisory Board had recommended adding 11 diagnoses, including PTSD.
Since then, that advisory board has recommended that the Illinois Department of Public Health add eight conditions to the list of eligible ailments. Four of those (PTSD, chronic post-operative pain, irritable bowel syndrome, and osteoarthritis) were among those recommendations previously rejected by the department, while four (autism, chronic pain due to trauma, chronic pain syndrome, and intractable pain) are new.
Rauner has not indicated that he’s opposed to eventual expansion or extension. But his September veto message made clear he wants to consider changes to the program only after it’s been up and running: “No patients have yet been served, and, consequently, the state has not had the opportunity to evaluate the benefits and costs of the pilot program or determine areas for improvement or even whether to extend the program beyond its pilot period.”
Barriers and Advantages
The viability of the Milan dispensary can be reduced to simple math. “For us to break even,” Stern said, “we’re going to need probably 600” customers spending $100 weekly. Under the law, patients are allowed to buy up to 2.5 ounces of medicinal cannabis every 14 days.
But only 3,600 patients have gotten approval from the Illinois Department of Public Health to buy medical cannabis at this point.
And by June 30 – when 2,600 patients had received approval – only 57 came from the district (covering Rock Island, Henry, Mercer, and Knox counties) that Nature’s Treatment will logically serve. Patients can register with only one dispensary, but it can be anywhere in the state.
If that proportion is representative of the program moving forward, Illinois would need more than 27,000 medical-cannabis patients for Stern to get to 600 regular patients from those four counties. The Illinois Cannabis Industry Association’s Passerini guessed that Illinois might get to 20,000 approved patients by the end of 2017 under the program’s current restrictions.
“I’m not worried about that,” Stern said last week about the number of approved patients. “For one, the first sale was only [three-plus] weeks ago in the state.” In addition, only a handful of dispensaries were operating in the program’s early days, and the application fee for patients is $100.
Stern said that patients are thinking that “I’m not going to get that card early. I’m going to wait until there’s actually product for sale.”
Passerini agreed: “Nothing has really been open. Why would anybody sign up when you really can’t access cannabis?”
Stern added: “Now that the sales have started, and once the other dispensaries open up, I think you’ll see a pretty big boom.”
But there are concerns.
Passerini said that Illinois is rare among states that allow medical cannabis in requiring a fingerprint background check. (California earlier this year added a similar clause to its medical-marijuana program.) That, he said, “makes people feel like criminals right off the bat” and likely has reduced the number of people applying for medical-marijuana cards.
He added that the provision is “pretty ludicrous if you think about it. There’s really nothing else that a doctor would recommend that you would need to get fingerprinted in order to get a prescription for.” For example, he said, people getting prescriptions for widely abused opioid pain medications (such as OxyContin) aren’t required to get fingerprint-based criminal-background checks.
A larger issue cited by nearly everybody in the medical-cannabis industry in Illinois is the restrictive list of qualifying conditions – specifically the exclusion of pain without an identified underlying medical condition.
The Journal of Global Drug Policy & Practice – which is funded by the U.S. Department of Justice – last year studied medical-cannabis users in seven states. The report said: “Our findings suggest that a very small proportion of medical-marijuana patients report having serious medical conditions (i.e., HIV/AIDS, glaucoma, cancer, Alzheimer’s), while almost all (91 percent) of medical-marijuana users report using marijuana to alleviate severe or chronic pain.”
The study has a clear bias against using medical marijuana for pain, but Passerini confirmed the basic conclusion: “Probably the most certifications around the country are written up for chronic pain.”
He advocated including chronic pain among the eligible conditions along with PTSD. He also said that it’s disingenuous for the Rauner administration to nix the addition of various conditions related to pain given the history of medical cannabis: “The problem with that thinking is that there’ve been medical [cannabis for pain] programs in the United States for almost 20 years. Just because Illinois was late to get on-board with it doesn’t mean there’s not a history of medical efficacy.”
Another likely issue in the low number of approved patients in Illinois is the medical community, both Passerini and Stern said. Illinois’ law requires medical-cannabis patients to get a written certification from a physician with whom they have an established relationship.
“Not once has cannabis ever been mentioned in their schooling,” Passerini said. “So it’s difficult for doctors to recommend it without really the education and knowledge of cannabinoid therapy.”
“Here’s where you get a lot of politics,” Stern added. “Your major hospitals, especially around here, are very, very tied into the big pharmaceutical companies. And [with] big pharmaceutical companies, you can imagine this is their worst nightmare – a natural, holistic remedy that will replace their drugs. They are putting a lot of pressure on the big corporate hospitals and institutions ... .”
Passerini said his association will be doing advocacy with doctors, and Stern said that “as we do find doctors that are willing to prescribe [medical cannabis], we will of course publicize the list.”
Despite those obstacles and Rauner’s coolness, Stern remains confident that the program will eventually be extended beyond the pilot project.
And there’s also the geographic monopoly afforded to dispensaries outside of the Chicago area. Although patients may register with any dispensary – and changing dispensaries is relatively simple and quick – patients are going to naturally gravitate to the vendor closest to them. And Stern noted that the closest dispensary to his will be in Fulton – nearly an hour’s drive away.
Nature’s Treatment was the only applicant for this district’s dispensary license, but Stern likely would have had a hand up in any competition considering his experience with the tightly regulated alcohol industry.
He also said the rules and bureaucracy associated with the roll-out of medical cannabis didn’t give him much pause – but they might have spooked potential competitors.
“The political winds are a concern not only for that business but for our beer business here, too. It’s just something we’ve dealt with forever ... .
“The parallels between the businesses are surprisingly numerous. We weren’t worried about dealing with the red tape and the regulation and the government and the taxes. We do that here. The security is something that of course we are used to; we have to do that here. So things that were scaring a lot of people about getting into this business didn’t scare us at all.”
And getting in on the ground floor should prove beneficial if the pilot project is made permanent and expanded – and if recreational use of marijuana is ultimately legalized in the state.
“If and when it does open up and they make the pilot program law, we’ll have that big first-move advantage ... ,” Stern said. “I think that if they expand after the pilot program ... the dispensaries that have operated the best will have the first chance at new locations.”
He later noted in an e-mail that Nature’s Treatment could double its size “quickly.”
The Learning Process
When Nature’s Treatment opens, Stern said, it will mark the beginning of a steep learning curve.
He knows he’ll start with roughly 15 employees. He knows that because of geographic proximity, GTI’s Rock Island cultivation center will almost certainly be “one of our key suppliers.”
But he doesn’t yet know the mix of products he’ll offer, what they’ll cost patients, or from where he’ll get them. All of that will hinge on the types of patients who come to the dispensary and what they need.
It’s unlikely, Stern said, that patients will get much direction from their physicians about precisely what type of cannabis would help most: “It’s 90 percent with us. I don’t think a lot of the doctors will have a knowledge on that yet. I think they’ll get up to speed as time goes on.”
He said patients will likely pay more than they’d pay on the street for similar quantities of marijuana, but that premium comes with benefits. There’s the peace of mind that it’s legal – by state if not federal law – and also that “you’re getting something that’s been tested. You know exactly the components of the product. You know exactly the THC/CBD level[s]. So it is consistent, it is safe. It’s not buying from somebody on the street; you don’t know what was in it. I think that makes a huge difference.”
As for his inventory, he said that “cost is definitely one [factor in choosing what products to offer and their suppliers], but more importantly will be the different strains of marijuana that each of these suppliers offers. Not only strains, but varietals, oils, edibles, creams. So there may be a cultivation out in Chicago that has a really great oil for patients, and so ... they’ll bring it here. ...
“That’s going to be kind of a learning process. As we get up and running, and we get feedback from patients and other dispensaries around the state, I think we’ll be changing that up. [For example,] there’ll be some strain that’s very effective for glaucoma ... .
“Certain conditions will dictate which varietal,” Stern continued. Some illnesses might have symptoms best alleviated with marijuana with a high level of THC, while some patients might benefit from a strain with high CBD levels and little or no THC: “Some of this will have ... no psychoactive components at all.”
Cultivation centers, he added, “will give us literature and teach us about the varietals and what those varietals are best suited for.”
But there’s no substitute for patient experience, he said: “We’re going to learn as much from the patient as they’re going to learn from us. ‘How’d that work?’ ‘How do you feel?’ ‘Are your symptoms better?’”
With a dispensary and two cultivation centers up and running, GTI has already begun that process. Kovler said his company’s cultivation centers are producing 20 different strains of marijuana; planting in Rock Island began in July.
Right now, he added, the company is only shipping dry flower, but by the end of the month the Rock Island extraction lab will be producing concentrates, oils, edibles, and vape pens: “We’re in the eighth or ninth inning in getting those out the door.”
And “we’re learning every day from the patients. ... One certain strain seems to be working excellently, and we’re dramatically scaling up production of that strain.”
Whether the pilot program is extended and expanded, Kovler said, will depend on the nascent industry meeting three goals: a “safe and consistent product,” a “secure and safe supply chain,” and “demonstrated, measurable results from patients.”
That last one will likely be most important, he said, and anecdotal evidence is already encouraging: “We have hundreds of patients coming and telling us they got the best night’s sleep they’ve had in many years. They’ve reduced their intake of Norco, or Vicodin, or Valium, or whatever the pharmaceutical drug that they were taking that they’re able to wean themselves off of and feel better. We have cancer patients who have energy even though they’re on chemo ... . We have fibromyalgia patients who have reduced pain, MS [multiple sclerosis] patients who feel major relief.
“And we think [that], over time, telling those stories and demonstrating those results gives us confidence that the program will not go away.”