Finch v. Treto

• Decision Date: 09 June 2022
• Docket Number: 22 C 1508
• Parties: Juan FINCH, Jr., and Mark Toigo, Plaintiffs, v. Mario TRETO, Jr., in his official Capacity as Acting Secretary of the Illinois Department of Financial and Professional Regulation, Defendant.
• Court: U.S. District Court — Northern District of Illinois

606 F.Supp.3d 811

Juan FINCH, Jr., and Mark Toigo, Plaintiffs,

v.Mario TRETO, Jr., in his official Capacity as Acting Secretary of the Illinois Department of Financial and Professional Regulation, Defendant.

No. 22 C 1508

United States District Court, N.D. Illinois, Eastern Division.

Signed June 9, 2022

John K. Adams, Daniel D. Birk, Eimer Stahl LLP, Chicago, IL, John David Tripoli, Eimer Stahl LLP, Madison, WI, for Plaintiffs.

R. Douglas Rees, Richard Scott Huszagh, Hal Dworkin, Sunil Shashikant Bhave, Office of the Illinois Attorney General, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

REBECCA R. PALLMEYER, United States District Judge

This case is a challenge to the constitutionality of the criteria that govern the issuance of licenses for operating dispensaries of recreational cannabis in the State of Illinois. Plaintiffs, who are aspiring owners of such dispensaries, argue that the State's preference for Illinois residents in this licensing scheme violates the Commerce Clause of the United States Constitution. In this motion, they seek a preliminary injunction against the secretary of the agency that administers the licensing scheme in question. The injunction would (1) prevent the agency from formally issuing dispensary licenses that were allocated using the disputed criteria in 2021, and (2) prevent the agency from enforcing the disputed criteria (or similar criteria) going forward, including in a lottery that will occur later in 2022. For the reasons given below, the court concludes that the equities do not support the relief requested here. Plaintiffs’ motion is denied.

FACTUAL BACKGROUND

Plaintiffs Juan Finch, Jr. and Mark Toigo each hope to own a recreational cannabis dispensary in Illinois. (Decl. of Juan Finch, Jr. [7-2] (hereinafter "Finch Decl.") ¶¶ 2, 4–8; Decl. of Mark Toigo [7-3] (hereinafter "Toigo Decl.") ¶¶ 3, 5–7.)¹ Plaintiff Finch has resided in Illinois since December 2021 (Finch Decl. ¶ 2), while Plaintiff Toigo is a resident of Pennsylvania (Toigo Decl. ¶ 2). Defendant Mario Treto, Jr. is the Secretary of the Department of Financial and Professional Regulation (the "Department").² The Department is the Illinois agency responsible for issuing licenses to recreational cannabis dispensaries under the Cannabis Regulation and Tax Act, 410 ILCS 705/1-1 et seq. ("Cannabis Act"); see also id. § 15-5(b).

I. The Cannabis Act

Illinois enacted the Cannabis Act in June 2019. See Cannabis Regulation and Tax Act, 2019 Ill. Legis. Serv. P.A. 101-27 (West). The statute legalized the recreational use of cannabis by adults in Illinois, see 410 ILCS 705/10-5(a) ; provided for expungement of criminal records for certain marijuana offenses, see 20 ILCS 2630/5.2(i) ; and created a licensing scheme to regulate the newly legalized market "in a manner similar to alcohol," see 410 ILCS 705/1-5(b). To sell cannabis to adults in Illinois for recreational use, a vendor must first obtain a license from the Department.³ Id. § 15-5(c); see also id. § 1-10 (defining "dispensing organization").

This case concerns a preliminary form of license referred to as a "Conditional Adult Use Dispensing Organization License." Although this conditional license "does not entitle the recipient to begin purchasing or selling cannabis or cannabis-infused products," it "reserves the right" to a full-status license (an "Adult Use Dispensing Organization License") if the conditional licensee meets certain additional requirements of the Cannabis Act. Id. § 1-10 (defining "Conditional Adult Use Dispensing Organization License"); see also id. §§ 15-25(f), 15-36(a). Plaintiffs challenge only the process for obtaining a conditional license, not the additional requirements for converting it to a full-status license, so for purposes of this opinion, the court will refer to the conditional license simply as a "license."

As the court will explain in more detail below, the Department has already attempted to allocate a total of 185 licenses in three batches. See 410 ILCS 705/15-25 (directing the Department to issue up to 75 licenses); id. § 15-35 (55 more); id. § 15-35.10 (55 more). And the Department is required to issue at least 50 additional licenses later this year. Id. § 15-35.20. Eventually, the Department may issue up to a total of 500 full-status licenses, though the Cannabis Act does not specify how soon the Department can or should reach that limit. See id. § 15-35.20. Significantly, no "Conditional Adult Use Dispensing Organization Licenses" have officially been "issued" yet.⁴ (See Pls.’ Mot. [7] at 11; Def.’s Resp. [20] at 8.) Until recently, the 185 licenses that the Department allocated in 2021 were tied up in state court litigation; now, they remain subject to the Department's promise that it will not issue them until this court rules. As for the 2022 licenses, the Department has not yet finalized the rules that will govern how they are allocated.

II. 2021 Lotteries

When the Cannabis Act was adopted in 2019, the statute directed the Department to issue up to 75 licenses before May 1, 2020. See 410 ILCS 705/15-25(a). The Act provided that these licenses would be allocated across 17 specific geographic regions of Illinois in proportion to each region's population: 47 licenses for the Chicago–Naperville–Elgin region, three for the Peoria region, two for the Rockford region, and so on. See id. § 15-25(c). Applications were due on January 1, 2020. Id. § 15-25(b). To apply for a license, a vendor had to submit various documents and pay a nonrefundable $5,000 fee. Id. §§ 15-25(d), 15-30(a).

The Cannabis Act directed the Department to allocate licenses through a competitive, point-based system. Each application could receive up to 250 points (plus 2 bonus points). See 410 ILCS 705/15-30(c) (250 points); id. § 15-30(d) (2 bonus points). Points were awarded to recognize strengths in the applicant's proposals and to promote certain prosocial goals. For example, an applicant could earn 15 points for an effective employee training plan; 65 points for security and recordkeeping plans; 65 points for an effective business plan; 30 points for their knowledge of and experience in the cannabis industry; 5 points for their employment practices; 5 points for their environmental plan; 5 points for their status as a veteran; 5 points for their diversity plan; 5 points for having an "Illinois owner"; and 50 points for qualifying as a "Social Equity Applicant." Id. § 15-30(c). In the event of a tie among applicants in a particular geographic region, an applicant could also be awarded 2 bonus points for a community-engagement plan. Id. § 15-30(d).

The "Illinois owner" and "Social Equity Applicant" items are significant here because both expressly require state residency. To obtain the 5 possible points for having an "Illinois owner," an applicant must be "51% or more owned and controlled by an Illinois resident[ ] who can prove residency in each of the past 5 years." Id. § 15-30(c)(8). To qualify as a "Social Equity Applicant," worth 50 points, an applicant must be an Illinois resident and meet at least one of the following three criteria:

(1) an applicant with at least 51% ownership and control by one or more individuals who have resided for at least 5 of the preceding 10 years in a Disproportionately Impacted Area;

(2) an applicant with at least 51% ownership and control by one or more individuals who:

(i) have been arrested for, convicted of, or adjudicated delinquent for any offense that is eligible for expungement under this Act; or

(ii) is a member of an impacted family [defined as an individual who has a parent, legal guardian, child, spouse, or dependent, or was a dependent of an individual that satisfies (i)];

(3) for applicants with a minimum of 10 full-time employees, an applicant with at least 51% of current employees who:

(i) currently reside in a Disproportionately Impacted Area; or

(ii) have been arrested for, convicted of, or adjudicated delinquent for any offense that is eligible for expungement under this Act or member of an impacted family.

Id. §§ 1-10, 15-30(c)(5). By definition, all "Disproportionately Impacted Areas" are in Illinois. (See Pls.’ Mot. at 10; Def.’s Resp. at 6.) See also 410 ILCS 705/1-10 ; Disproportionate Impacted Area Map , ILL. DEP'T OF COM. (last visited June 9, 2022), https://www2.illinois.gov/dceo/CannabisEquity/Pages/DisproportionateImpactedAreaMap.aspx. Similarly, prior cannabis offenses must have been committed in Illinois to be eligible for expungement under the Cannabis Act. (See Pls.’ Mot. at 10.) See also 20 ILCS 2630/5.2(a)(1)(G-5) (defining "Minor Cannabis Offense" as a violation of certain provisions of the Cannabis Control Act); id. § 5.2(i) (providing for expungement of "Minor Cannabis Offenses").

Neither Plaintiff applied before the January 2020 deadline. (Decl. of Cecilia Abundis [20-3] ¶ 3.) Plaintiff Finch has declared that he "attempted" to apply but gave up after sensing that his application was "doomed," given his lack of Illinois residency. (Finch Decl. ¶ 5.) Plaintiff Toigo has likewise declared that he "would have applied" if doing so had not been "a futile exercise," though he was less forthright about whether he knew about the statute before the application deadline had passed. (See Toigo Decl. ¶ 5.)

Although Plaintiffs did not apply by the January 2020 deadline, 937 applicants did.⁵ (Def.’s Resp. at 6.) The Department had intended to issue licenses to the 75 top-scoring applications, but that plan proved unworkable: For each of the 17 geographic regions, the number of applicants who received a perfect score (250 points plus the 2 bonus points awarded in the event of a tie) was higher than the number of licenses available for issuance in that region.⁶ (Id. at 6–7.) The Department therefore announced on September 3, 2020, that it would conduct a tie-breaker lottery among the applicants who had received perfect scores. (Id. ) Around the same time, several applicants challenged the Department's...