CRITICAL ANALYSIS OF

FREEDMAN & KOSKI DEMAND STUDY

SNAPSHOT OF DEMAND FOR ADULT-USE CANNABIS IN ILLINOIS

&

MARIJUANA POLICY GROUP DEMAND STUDY

COMMISSIONED BY MEDICAL CANNABIS ALLIANCE OF ILLINOIS

DEMAND, MARKET SIZE, AND LICENSING STRATEGY FOR LEGAL CANNABIS IN ILLINOIS

1.0 – FREEDMAN & KOSKI DEMAND STUDY

SNAPSHOT OF DEMAND FOR ADULT-USE CANNABIS IN ILLINOIS

Two critical flaws are present in the Freedman & Koski (F&K) report commissioned on behalf of

Senator Steans and Representative Cassidy to analyze and evaluate the current medical cannabis and

potential adult use markets in Illinois.

Utilization of Inaccurate and Dated Survey Results as a Basis for all Demand Estimation

The F&K report rests the entire basis of the demand estimate on a single flawed statistic. F&K

utilizes a self reported survey from 2014/2015, now five years old, to evaluate the number of cannabis

users in both Colorado and Illinois. This survey represents a snapshot in time in Illinois prior to the

launch of the medical program, prior to statewide decriminalization of personal possession amounts in

Illinois, and at a time where adult use cannabis had been approved in Colorado for over two years with

Colorado’s medical cannabis program in operation for over a decade.

This survey shows a ‘Past Month Use’ of 17.12% for Colorado and 8.06% for Illinois. This F&K

study proceeds to utilize these past month use survey results as absolute fact, ignoring that this is a five

year old study with drastically different political climates regarding cannabis in Illinois than the current

climate in 2019. When surveying a population, of course a state with a legalized act several years into

effect will report higher usage rates than those participants in another state where that same act is illegal,

those respondents are asked to admit to a crime, and even medical usage is essentially non-existent. It

does not factor in the drastic change in public perception due to the effects of decriminalization, the very

likely under reporting of usage from respondents, the increase in the number and normalization of

legalized adult use states nationwide, and the Illinois Medical Cannabis Pilot Program which has become

much more commonplace and accepted statewide, far beyond medical cannabis users themselves, and

was not even operational at the time of this survey.

From the IL NORML Report v1.3, this issue is further discussed with references:

A recent survey as well as numerous others have found approximately 1 in 7 Americans had used

cannabis within the last year. 17, 18

One issue that is becoming more and more apparent due to the rapid adoption and expansion of

medical cannabis as well as adult use programs throughout the nation, is the resulting participation

of the population in cannabis use studies and the resources available to study such are increasingly

available and are changing drastically. A recent report issued by Eaze, a cannabis data clearing

house, found that first time cannabis users increased 140% in adult use state programs in 2018, with

senior consumption increasing 25%, and women’s consumption also doubling in 2018. 20, 21

The IWSR, the leading source of data and intelligence on the alcoholic beverage market, in

conjunction with BDS Analytics says a growing number of consumers, especially millennials, are

showing preferences to consume both alcohol and cannabis, versus older generations which tend to

stick with just one. That could cut into long-term loyalty efforts by beverage makers, especially those

in the beer and spirits fields. “Our research shows that up to 40% of adults 21 and over consume

cannabis in states where it’s legal,” said Jessica Lukas, vice-president at BDS Analytics. 22

Clearly, rapidly changing demographics can result in drastically different results when

analyzing usage rates and often a several year old study simply does not capture the actual demand

present and can lead to significantly underestimating the actual demand statewide. All of which

indicate the consumption rate of adults in the United States is growing faster than it can be tracked in

states which have implemented adult use.

In short, utilizing a survey that is five years old with results collected during a vastly different

political climate both here in Illinois as well as nationwide is misleading and proceeding to make it a

critical component of any demand estimate is simply inaccurate.

17 – “Marist Poll.” Weed and The American Family - Poll Results Conducted March 2017, maristpoll.marist.edu/yahoo-newsmarist-

poll/#sthash.iuGvQeBO.qVzvX2X9.dpbs.

18 - Carroll, Linda. “One in Seven U.S. Adults Used Marijuana in 2017.” Reuters, 27 Aug. 2018, www.reuters.com/article/us-health-

marijuna-us-adults/one-in-seven-us-adults-used-marijuana-in-2017-idUSKCN1LC2B7.

20 - “State of Cannabis: Consumers Diversified in 2018.” Eaze, 15 Jan. 2019, www.eaze.com/article/insights-2018-state-of-cannabis-

report-marijuana-consumer-diversify.

21 - Pellechia, Thomas. “In 2018, U.S. Consumers Ordered Cannabis Every 8 Seconds.” Forbes, 2 Feb. 2019,

www.forbes.com/sites/thomaspellechia/2019/02/01/in-2018-u-s-consumers-ordered-cannabis-every-8-

seconds/#3228742c322e.

22 - Morris, Chris. “Cannabis May Pose a 'Long-Term Risk' to the Alcohol Industry.” Fortune, 21 Feb. 2019,

fortune.com/2019/02/21/cannabis-risk-to-alcohol-industry/.

Estimated Yield and Data is not Supported by Current Medical Cannabis Production Statistics

After falsely establishing that Illinois currently consumes cannabis at less than half of the rate of

Colorado, the F&K report goes onto ignore current medical cannabis production shortfalls despite having

significant access to data from the Department of Agriculture on actual production canopy and yields.

The F&K report cites a current, active production canopy of 259,762 square feet under the Illinois

medical cannabis program. They proceed to establish, based on Illinois and Colorado statistics, that with

a plants per pound average of 1.33 combined with a per plant area of 2.44 square feet, Illinois would

require 1.1 to 1.7 million square feet of production area to meet their proposed demand estimate. While

the F&K report provides citations and disclaimers throughout, it never takes those numbers and applies

them to the current medical program to evaluate the results and gain insight into current medical

production.

As of Jan 2019, Illinois is selling approximately 1,250 pounds of dry cannabis monthly. If we

extrapolate that to an annual number, Illinois sells approximately 15,000 pounds of dry cannabis each

year, and when factoring in extracts, edibles and infusions, a very conservative approach (overestimation)

could estimate total production at 30,000 pounds annually of cannabis flower weight equivalent, doubling

the dry flower sales.

Using those figures cited from the F&K report, with 259ksf of production space, averaging 1.33

plants per pound, and 2.44 square feet per plant, we can estimate the number of pounds that the medical

program should theoretically be yielding annually through simple multiplication and division assuming

that all facts and figures provided by the commissioned F&K report are accurate.

As established, Illinois is actually only producing and selling at most, 30,000 pounds annually. Yet,

using the F&K report’s yield estimates, the Illinois medical market should be producing over 80,000

pounds annually. Ask any medical patient, view any medical dispensary menu on Leafly from Illinois,

call your nearest dispensary and ask for pricing, or view more detailed and relevant state comparison data

in Sections 1.0, 4.0, and the Addendums of the IL NORML Report v1.3: Illinois prices are some of the

highest in the nation and higher than the current Illinois black market.

Illinois patients regularly see dispensary pricing with ounces up to and in multiple cases exceeding

$400 per ounce, while black market products in abundance range from $150 to $300 for product quality

that meets or exceeds that provided by the current medical program in many cases and its limited

operators. Illinois patients have reverted to visiting Michigan to purchase their medication, with

numerous reports of such activities throughout social media message boards with the reasoning for such

being both the higher quality and more affordable pricing for medical products in Michigan.

We can proceed to use the current sales in Illinois at 30,000 pounds, to estimate how much area this

should theoretically require for production, using the F&K report figures of 1.33 plants per pound and

2.44 square feet per plant.

Utilizing the F&K reports on figures, we can estimate only 98ksf of plant canopy is theoretically

required to produce the current cannabis products sold in Illinois, yet 259ksf is reported in operation.

Still, Illinois medical cannabis prices remain artificially high and product supply limited with often sold

out varieties and limited selections from licensed producers. See Section 1.0 of the IL NORML Report

v1.3 covering the medical cannabis program for a more detailed discussion on this topic.

We can proceed a step further and verify these results and noted discrepancy using the IL NORML

yield metrics found in Section 3.0 of the IL NORML Report v1.3. Instead of establishing a method of

plant count, IL NORML used an analogous method of estimating yields based on flowering canopy with

low, normal, and high yield metrics from published studies and benchmarks utilized in the indoor

cannabis cultivation community for decades.

Ultimately, the IL NORML method looks at a cultivation method minimizing downtime between

harvests with dedicated flowering and vegetative areas and establishing that approximately two thirds

(2/3) of plant canopy can be utilized for flowering with the rest for vegetative, propagation, and non-

flowering plant growth, with average yields in the flowering areas of 42.0 grams per square feet, five

harvests annually, and the rough cannabis-based conversion of 448 grams to a pound (as opposed to 453.6

g/lb). Using these same metrics, we can repeat the calculations above to determine both the annual yield

that would be theoretically expected from Illinois’ current 259ksf operational canopy, as well as the

theoretical plant canopy necessary to produce 30,000 pounds annually, and we find that almost the exact

same theoretical values are established through the IL NORML yield metrics despite using an alternative

method compared to the F&K Report.

Using the IL NORML yield metrics, we would theoretically expect a state with 259ksf of operational

plant canopy to yield over 80,000 pounds annually, far exceeding the current medical sales of 30,000

pounds. Using those same yield metrics to determine the plant canopy area needed to produce 30,000

pounds, we can estimate approximately 96ksf of indoor plant canopy would theoretically be required to

produce 30,000 pounds annually, again far less than the currently claimed operational canopy of 259ksf.

While the IL NORML Report v1.3 and the F&K Report utilize different methods to establish and

evaluate yields, those yield metrics from both reports agree as to the final theoretical capacities, and both

clearly show there is a serious gap between theoretical yield capacities and actual, real world reported

yields and product sales, both coming to nearly the same conclusion for production capacity and square

feet of canopy required.

The questions then become, why is there this discrepancy between estimated yield capacities and

actual sales data coupled with artificially high prices? Given the supply capacity calculated and a

significantly lower demand based on current purchasing patterns from medical patients, any introductory

economics student would anticipate a decreasing price due to ample availability and limited demand.

However, this is not what we see in Illinois, with increasing prices as of early 2019, with limited

product offerings and abundant out of stock notices from producers, with detailed information covered in

Section 1.0 of the IL NORML Report v1.3.

Based on the evidence presented, several potential conclusions may be reached:

1. Actual operational production space within the Illinois medical program could be significantly

less than the 259ksf reported. Production claims which accordingly overstate the current and

future capacities could have the consequence of limiting competition and future license

opportunities for new, unique producers.

2. Current Illinois production facilities are producing extremely low yields. Using the lowest yield

metrics from the IL NORML report of 29.1 g/sf, the current medical sales of 30,000lbs annually

under the Illinois medical program represent a level that is only 53% of these lowest yield metrics

and only 37% of the average yield metrics given the 259ksf of operational space claimed, well off

the chart and far below from the lowest expected theoretical production targets for any cannabis

cultivation operation.

3. Medical products in Illinois are sold for artificially inflated prices due to limited product supply,

thereby taking advantage of the current limited competition to the detriment of sick and dying

medical patients in Illinois.

All three possibilities should result in the same conclusion: More licensed producers are required

throughout the medical market and necessary to serve any adult use market.

We can potentially conclude that current prices are under manipulation in the current medical market

and therefore more competition is needed to maintain fair pricing, actual production space in operation is

less than claimed with overstating production abilities potentially resulting in a limited market for

existing operators only, the current production facilities are producing very low yields, or more likely,

some combination thereof. All of these issues would be remedied by simply allowing for an open market

in which producers and retailers are forced to compete instead of being granted state sanctioned

monopolistic control.

This discrepancy is addressed in Section 1.0 of the IL NORML Report v1.3 where it touches on these

issues within the medical program more in depth. Additionally, Section 4.0 shows state comparisons

between medical and adult use programs nationwide which also demonstrates a model based on such a

concentration of licensed operations in the hands of so few unique operators is not supported by any

operational cannabis programs nationwide with significant production capacity and sales.

F&K Report Conclusion

Two main issues with the F&K report commissioned by Illinois Legislators Senator Steans and

Representative Cassidy are critical errors including inaccurate demand estimates using dated and

underrepresented usage data coupled with serious supply concerns through a drastic difference between

estimated and actual, real world output. These critical errors are then utilized to draw a conclusion that is

inaccurate and if used to form the basis of a new adult use program, may significantly inhibit the success

of that very same program. Should the state of Illinois proceed utilizing the demand and yield estimates

calculated within the F&K report, there is a very high possibility that the Illinois adult use program will

not only falter and/or fail initially upon startup, but the existing medical program may also be decimated,

limiting product and access to those sick and dying patients that require such.

No adult use model currently implemented throughout the nation and world supports the idea that a

market limiting production to a handful of licensed operators is healthy or sustainable.

2.0 – MARIJUANA POLICY GROUP DEMAND STUDY

COMMISSIONED BY MEDICAL CANNABIS ALLIANCE OF ILLINOIS

DEMAND, MARKET SIZE, AND LICENSING STRATEGY FOR LEGAL CANNABIS IN ILLINOIS

The demand study by the Marijuana Policy Group (MPG Report) which was commissioned by the

Medical Cannabis Alliance of Illinois features the same demand based inaccuracies due to utilizing the

exact same outdated survey data, as well as similar yield metric inconsistencies featured in the F&K

Report. These issues discussed above in the F&K Report Analysis are critical assumptions and form the

basis of the entire demand estimate for both reports, leading to a significant underestimating of demand in

Illinois.

The MPG Report has an additional critical flaw. This report was commissioned by a group of

industry operators who have actively lobbied for no additional production licenses. A short mention at

the beginning of the document makes reference to this commission and represents a clear conflict of

interest from the funding source. The MPG Report then goes onto establish an even lower estimated

demand when compared to the F&K Report, with first year demand estimated at roughly 207,000 pounds,

a total mature market demand of 334,000 pounds, and a theoretical high capacity of approximately

483,000 pounds.

The MPG Report anticipates only a portion of demand will be captured in the first year. Essentially,

this acknowledges and accepts the fact that a large portion of demand will continue to be met by the black

market. The Illinois black market currently supplies all adult use demand and also contributes to

supplying a portion of the medical demand in Illinois due to issues discussed in Section 1.0 of the IL

NORML Report v1.3, mainly due to pricing and product quality issues.

It is important to realize that demand does not spontaneously and conveniently increase as a program

ages and develops, and much of this demand is currently existing and being met. Licensed operators

become more skilled and prices decrease to a level that forces the black market out of business or into

very limited non-regulated markets. To date, no adult use program has launched nationwide or

worldwide with sufficient inventory and pricing which competes with all black market products, and until

these product offerings can catch up, the black market will continue to fill the demand, regardless of any

demand estimations, licensing, and state programs. The goal of any adult use program should be to

improve the safety of our communities, and relegating a high percentage of an already under estimated

demand to the black market is not meeting or striving to meet those goals. Authorizing only a handful of

large organizations to cultivate for such an immense program is actively working against those goals.

Taking a look at those demand estimates from the MPG Report, we can compare them to programs

nationwide that are already operating with significant data available. As mentioned throughout all three

reports, Colorado sold over 650,000 pounds in 2017 with less than half of the residents and a lower tourist

population when compared to Illinois. The MPG Report proceeds to rely on outdated and inaccurate

survey data and manipulate statistics to estimate that Illinois therefore will purchase half of the cannabis

that was purchased in Colorado, despite the drastic differences in resident and tourist populations.

Furthermore, Arizona, based on November 2018 monthly sales of 11,486 pounds in their medical

cannabis program, sells approximately 138,000 pounds annually by extrapolation. This is purchased by a

patient population of just over 180,000 medical patients, with no adult use sales, and additional home

grow with quite a significant production capacity which is not accounted for in the data set. According to

this study, the total adult use demand in Illinois during the first year will only be 50% more than what

approximately 180,000 Arizona medical users purchased from licensed retailers under just the medical

program, with a total Arizona resident population of approximately 7.2 million compared to Illinois’ 12.8

million.

The MPG Report estimates anticipated monthly adult cannabis users in Illinois as 801,450 despite

using underreporting and outdated survey data which is almost 4.5x the number of medical patients in

Arizona, yet the MPG Report proceeds to estimate product usage of only 50% over the current Arizona

program which is also supplemented with a significant medical home grow program unaccounted for in

the reported sales data. A table and graph below displays this data covering Illinois MPG estimates,

Colorado 2017 sales, and Arizona 2018 sales.

Estimated Illinois First Year Demand

(MPG)

Estimated Illinois Total

Demand (MPG)

Colorado 2017 Sales

Arizona Sales (Nov 2018

data, medical only)

Total Cannabis Equivalent

207,000 lbs 334,000 lbs 665,000 lbs 138,000 lbs

Resident Purchasing Population

12,800,000 12,800,000 5,600,000 180,000

207,000 lbs

334,000 lbs

665,000 lbs

138,000 lbs

12,800,000 12,800,000

5,600,000

180,000

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Estimated Illinois First

Year Demand (MPG)

Estimated Illinois Total

Demand (MPG)

Colorado 2017 Cannabis Sales

Arizona Sales (Nov 2018 data, Medical Only)

Re

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Po

pu

lati

on

Tota

l Can

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is E

qu

ival

en

t (P

ou

nd

s)

Cannabis Demand Estimates and Comparisons

Total Cannabis Equivalent (Pounds)

Resident Purchasing Population

The ratios between cannabis product sales and resident and patient populations in actual operational

states compared to the estimates should be noted for their drastic difference in form. When stepping back

away from the data, and viewing these claims objectively from a distance when compared to other states

with operational programs and real world data, in our opinion, it should be clearly evident that both

reports are significantly underestimating adult use demand in Illinois, with the latest MPG Report under

representing demand to a point where their funding source and motives should be questioned.

Every reader should ask themselves, will a mature market in Illinois with more than twice the

resident population and 38% more tourists annually sell less cannabis than Colorado sold in 2017;

and furthermore, will the first year of adult use demand in Illinois with 12.8 million residents only

require approximately 50% more cannabis than Arizona’s medical program with 180,000 patients?

This is, in fact, what both the F&K and MPG Reports propose.

3.0 – IL NORML REPORT SUMMARY

ILLINOIS CANNABIS INDUSTRY OVERVIEW AND ANALYSIS V1.3

The IL NORML Report v1.3 provides the best comparison, with the largest data set, comparing many

programs nationwide, leading to the most realistic conclusions when compared to both the F&K and

MPG Reports. Hinging the basis of a demand estimate on a several year-old self-reporting survey at a

time with drastically different political atmospheres is inaccurate and if used to form the basis of a new

adult use program, may significantly inhibit the success of that very same program. Detailed evaluation

and a thorough understanding of the shortfalls in the existing medical program were not addressed by

either the F&K Report or the MPG Report, and significant assumptions were made based on the

theoretical production capacity compared to real world data by both groups. Furthermore, the MPG

Report was funded by a biased source.

We do however support the MPG’s stance on significantly increasing dispensary operations

statewide. This would significantly increase access, especially to medical patients, at a time when

patients with limited mobility have limited or, in the case of Opioid Alternative Pilot Program (OAPP)

patients, no alternatives for access with no ability to authorize a caregiver under the OAPP. Even with

additional adult use allocations for medical operations, additional licensees will be required.

The IL NORML Report v1.3, using a straight extrapolation based on in state residents, tourism, and

Colorado 2017 sales data, estimated that Illinois demand in a mature market would reach 1.4 million

pounds annually. Even if including a safety factor of 75% for decreased usage rates when compared to

Colorado, which is claimed from a five year old survey but not necessarily accurate in 2019, even then we

can anticipate Illinois will require well over 1 million pounds of cannabis flower equivalent annually to

meet demand.

Diving further into an Illinois adult use program’s needs, the IL NORML Report v1.3 proceeds to

calculate the number of needed potential licensed cultivators with various canopy restrictions based on

their status to meet this demand. Based on talking points from Illinois legislators surrounding ‘craft

cultivation’ licenses at 7ksf plant canopy, we can proceed to estimate the number of new licensees

required for production in a theoretical adult use scenario as well as a scenario that allows for vertical

integration with dispensaries authorized to cultivate on smaller scales, effectively pulling from a group of

already vetted and established operators to increase production capacity. All scenarios require newly

licensed operations in the hundreds even using the highest yield metrics from all combined reports. The

number of newly licensed production operations needed for a successful adult use program is far over the

current twenty one facilities which are held by an even smaller number of unique operators.

Detailed analysis can be found in Section 3.3 the IL NORML Report v1.3 including a snapshot of the

anticipated demand, some key figures, and the suggested number of licensed operations required to serve

an initial Illinois market have been included on the following pages.

Ultimately, legislators drafting the adult use cannabis laws for Illinois are responsible for creating an

environment to foster a successful program, while increasing safety for our communities through the

elimination of the black market. A restriction on any new licensing for producers could potentially serve

to bolster the black market in Illinois on a scale that is unprecedented aside from the initial restriction and

illegality of cannabis over eighty years ago and its listing as a Schedule I substance under the Controlled

Substances Act. We ask that all legislators, operators, patients, consumers, and regulators thoroughly

consider and analyze the materials available to prevent a serious falter or failure of a potential adult use

cannabis program in Illinois and allow for an open market with reasonable considerations for all, but most

importantly, the medical patients.

1 Data utilizes equivalent pounds of cannabis covering total product sales Figure 4 - Estimated Illinois Demand Extrapolated Using MPG 2017 Demand and Market Study from Colorado (August 2018)

Sales Annually

(Pounds)

Increase in Sales Required to Meet

Estimated Demand for Illinois Adult Use

Program 1

Current Sales Colorado 3

665,000 N/A

Current Sales Illinois 1

15,000 N/A

Low MPP IL Demand Estimate 2

356,250 23.75x

High MPP IL Demand Estimate 2

725,000 48.3x

IL NORML Demand Estimate

1,462,000 97.5x

1 Based on total IL medical dry cannabis sales of 1,250 pounds per month, as of Jan 2019

2 Does not account for out of state visitors and only considers Illinois resident demand

3 Data utilizes equivalent pounds of cannabis covering total product sales

Figure 5 - Estimated Illinois Expansion Requirements for Adult Use Using MPG and MEP Demand Studies from Colorado and Illinois

Figure 6 – Illinois Annual Adult Use Demand Estimate and Current Sales

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Current Sales Colorado

Current Dry Flower

Medical Sales Illinois

Low MPP IL Demand Estimate

High MPP IL Demand Estimate

IL NORML Demand Estimate

Po

un

ds

Illinois Annual Adult Use Demand Estimate

State Population (millions)

Visitors (millions)

Resident Cannabis Users

Visitor Cannabis Users

Resident Purchases (Pounds) 1

Visitor Purchases (Pounds) 1

Total Demand (Pounds) 1

Colorado 5.6 84.0 985,000 6,500,000 604,500 60,500 665,000 Illinois 12.8 114.0 2,250,000 8,800,000 1,380,000 82,000 1,462,000

Additional Plant Canopy

Required (SF) 1

Licensed Operators Required with Craft

Cultivators (7ksf) Only

Licensed Operators Required with Craft Cultivators (7ksf) and Tier 2

Dispensary Cultivators (15ksf)

Low Yield Metrics

4,890,000 699 Craft 581 Craft

55 Dispensary Average Yield

Metrics 2,910,000 416 Craft

298 Craft 55 Dispensary

1 Assuming medical cultivators each maintain 75,000SF of plant canopy

Figure 9 – Estimated Illinois Licensed Cultivation Operators Based on Yield Metrics and Licensing Scenario

Plant Canopy Limit

Number of Licenses Issued

Cumulative Plant Canopy Footprint

(SF)

Tier 4 - Existing Medical Cultivation Center

Up to 75,000SF

21 1,575,000

Tier 3 – Future Expanded Operations

Up to 30,000SF

0 0

Tier 2 - Existing Medical Dispensary

Up to 15,000SF

55 825,000

Tier 1 - New Craft Cultivator Applicants

Up to 7,000SF

250 1,750,000

Figure 10 – Sample Licensed Cultivation Operator Distribution