Weed finds a home in the Windy City

CHICAGO — The Midwest’s biggest city is emerging as an increasingly crucial financial epicenter of the booming multibillion-dollar marijuana industry.

Three of the country’s biggest publicly traded weed companies — Green Thumb Industries, Cresco Labs and Verano Holdings — are headquartered here. Another major national player, privately held PharmaCann, also calls Chicago home. And a growing number of legal, financial and technology firms with big books of cannabis business are based in Illinois.

Chicago’s rising profile as a magnet for marijuana companies has been boosted by the failure of New York to enact legalization, as well as Illinois’ rapidly growing cannabis market, which racked up more than $1 billion in revenues during its first year of recreational sales.

“It’s about exposure,” said Andy Grossman, Green Thumb’s head of capital markets. “[Illinois] is a billion-dollar market today and on the way to being a $3-to-$4 billion market. If you want exposure in the biggest market, then Illinois is at the top of your list.”

The weed behemoths in Illinois are poised to get a lot bigger, with each raising large amounts of capital in recent weeks, spurred in part by increasing optimism that with Democrats in control of the White House and Congress, federal marijuana restrictions will be loosened.

Cresco filed with the SEC last month for an option to raise up to $1 billion in funding over the next 25 months. Green Thumb announced last month that it received a $100 million commitment from a single investor, part of plans to generate more than $300 million in capital. And Verano just snapped up $80 million through a stock offering. A fourth Chicago firm, Choice Consolidation — a cannabis-focused special purpose acquisition company — raised $150 million through an initial public offering last month.

“The companies that have started here in Illinois have a little bit of an advantage because they’ve already built their businesses throughout the U.S.,” George Archos, the co-founder and CEO of Verano, which has operations in fourteen states, said in an interview. “We have a little bit of an edge” in terms of having “years of experience.”

It’s not just plant-touching companies that have been drawn to Chicago. Fyllo, a data and software startup that helps cannabis companies comply with city and state regulations, started here in 2019. Big law firms with sizeable cannabis practices like Saul Ewing Arnstein & Lehr and Sidley Austin have major offices in the city.

There’s also a deep pool of institutional investors and family offices in Chicago to support cannabis entrepreneurs. That will continue to grow even after New York and New Jersey start to gain traction in the industry, says Jeff Howard, managing partner of Salveo Capital, a Chicago investment firm that focuses on cannabis.

“Think of it like Silicon Valley,” he said. “As much as people might want to criticize it, it’s still the tech center of the world. The technological heartbeat is still in Silicon Valley but the capital markets exist on Wall Street. You’ll see the same in the weed industry.”

How Illinois gained traction

The roots of Illinois’ success go back six years, some industry observers say, when the state launched its medical marijuana program. Unlike many other states, Illinois opted to create strict limits on the number of business licenses that would be available.

“Investors saw a good return on the money by having a limited set of competition,” said William Bogot, a partner at Fox Rothschild, where he’s co-chair of the firm’s cannabis practice group in Chicago. “I can’t think of another state that started with such tight bona fide medical conditions and limited licenses before Illinois.”

Having a head start in a new industry “will provide a significant runway for Illinois to continue on a path on its own,” even as other states work to catch up, says Bryna Dahlin, a partner in the cannabis industry group at Benesch in Chicago.

The cannabis industry, however, is a rapidly-changing landscape. Illinois is the shiny object for now because it’s the fastest growing market in the country.

When New Jersey‘s fledgling recreational market takes off, and if New York eventually enacts full legalization, “there will be near limitless financing,” says Mitch Baruchowitz, managing partner at Merida Capital Partners in New York, which has invested in Cresco Labs and other cannabis companies across the country. “The spending when those markets go rec will be stratospheric.”