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Lawsuit by Michigan-based company seeks to stop lotteries for new Illinois marijuana store licenses

Lawsuit by Michigan-based company seeks to stop lotteries for new Illinois marijuana store licenses

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A worker tends to marijuana plants in growing room at Cresco Labs in Joliet in 2019.

A Michigan-based cannabis company has filed suit challenging Illinois’ new law to award 185 long-awaited additional marijuana retail licenses, which could delay a license lottery set to begin July 29.

Sozo Illinois Inc. claims that the law, signed by Gov. J.B. Pritzker last week, unfairly lowers its chances of getting the new licenses. One part of the law gives bonus points in scoring applications from Illinois-based companies, while another removes a bonus for hiring 10 people from areas hurt by the war on drugs — both of which hurt Sozo.

The suit, filed in federal court in Chicago, seeks a court order to keep the state from holding lotteries to award licenses, claiming the process is unconstitutional.

The suit cites a pattern “too familiar in Illinois politics — sound public policy intentions marred by backroom self-dealing between politically connected and powerful factions that undermines the supposed benefits to the public …”

Sozo filed 11 applications for recreational marijuana stores. The company qualified for preferred “social equity” status by hiring 11 employees from poor areas, defined by state law as most affected by the war on drugs due to marijuana-related law enforcement.

To hire and train its workers, the company said it spent more than $300,000, plus $55,000 for license application fees.

The law that legalized recreational marijuana in Illinois last year initially called for awarding 75 new dispensary licenses by May 1, 2020. But the scoring process was delayed by the COVID-19 pandemic and by recurring problems with the scoring process run by the consultant KPMG.

The state finally announced in September that only 21 companies out of more than 4,000 applications were given perfect scores to qualify for a lottery for the licenses. Unsuccessful applicants filed suit, claiming that the winners were unfairly dominated by white, wealthy, politically connected investors, despite the intent of the law to involve more minority-owned entrepreneurs.

In an attempt to address those concerns, lawmakers passed a measure to create an additional 110 dispensary licenses. The new law deleted a provision that awarded bonus points for merely hiring workers from disadvantaged areas, and instead included an alternate provision that only social equity applicants or their family members can be from such areas to earn bonus points.

The suit claims that in-state favoritism violates the federal interstate commerce clause, citing federal court rulings against similar language in other states. A spokeswoman for the state said she could not comment on pending litigation.

Formerly known as Sozo Health, the company is owned by Sozo Companies Inc., in Warren, Michigan, which has cannabis grower and seller licenses in that state. Its founder is Aaron Rasty, who also co-founded alternative electricity supplier BlueStar Energy Services in Chicago that was later bought by AEP Energy Inc.

Sozo reported that it hired eight of its 11 social equity employees through the Community Assistance Programs, which provides employment opportunities on the South Side of Chicago, and three through a job fair by K.L.E.O. Community Life Center in Chicago.

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