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Round 1 Dispensary Lottery Predictions

As we work long and diligently on preparing for the looming Illinois Adult Use Dispensary Supplemental Deficiency process announced by Governor J.B. Pritzker, it is difficult not to let our minds wander into the realm of probability and potential. Given a perfect application (a prerequisite for entering the lottery), what are our odds of winning? What are anyone's odds of winning?


In order to answer this question we teamed up our partners at Harvest 360 and Cognitive Harmony Technologies and developed a model for simulating the lottery outcome. The tools we used for this simulation are located here: https://github.com/cognitive-harmony-technologies/lottery-simulation


Interestingly, but not surprisingly, the most important factors in the outcome of the lottery are as follows:

  • The number of known perfect applications (current tie-breaker list)

  • The number of new applicants who will be able to perfect their apps during the supplemental deficiency process.

  • The distribution of the number of applications among the new applicants.

  • The nuances of the lottery rules.

Using the Cognitive Harmony lottery simulator we were able to observe the results of several possible scenarios. The first scenario is best described as follows:

  • The number of applicants with perfect scores increases 5 fold to approximately 100

  • Among the new applicants is a single Big Playa INC which submitted a whopping 47 apps in the region (the largest sensible amount of 1 application per available license).

  • The average number of applications submitted by the other new applicants is 3.5 (some more, some less).

  • "Your Company INC" is in the lottery with 5 applications

The results of this simulation looks like:


On average the outcome looked like (in terms of number of licenses won):

{
 'Your Company, INC': 0.59,
 'BigPlaya INC': 2.56,
 '127 IL LLC': 0.11,
 'Alchemy Curations LLC': 0.14,
 'AmeriCanna Dream LLC': 1.47,
 'Black Rain LLC': 0.1,
 'Clean Slate Opco LLC': 0.95,
 'Dealership LLC': 1.1,
 'Deer Park Partners LLC': 0.43,
 'EHR Holdings LLC': 0.32,
 'Fortunate Son Partners LLC': 1.15,
 'Green Equity Ventures 1 LLC': 0.27,
 'GRI Holdings LLC': 1.8,
 'Mint IL LLC': 0.53,
 'SB IL LLC': 0.45,
 'So Baked Too LLC': 0.21,
 'Suite Greens LLC': 0.45,
 'Terra House LLC': 0.55,
 'TPFB LLC': 0.16,
 'V3 Illinois Vending LLC': 0.4,
 'Vertical Management LLC': 1.03,
 'NPC1 INC': 0.28,
 'NPC2 INC': 0.39,
 'NPC3 INC': 0.36,
 'NPC4 INC': 0.36,
 'NPC5 INC': 0.33,
 ...
 }

We can see that Big Playa's strategy definitely pays off to a degree. But there is a clear diminishing return. "Your Company INC" submitted 5 applications, nearly 10x fewer than Big Playa. Big Playa only won 4.34 times as many licenses as "Your Company INC" while expending 10 times the capital on application fees. Is Big Playa's move rational? In order to answer that we have to look at the cost associated with Big Playa's strategy. At $2500 per application, 47 applications cost $117,500 up front, plus all the costs of assembling 47 applications that score perfectly. Our estimate of the cost of this strategy is around $250,000 assuming all 47 applications are identical. So Big Playa invests $367,500 up front for a (presumably) 49% share of each license won. Most recent valuation estimate for Round 1 dispensary licenses in the Chicago region have been on the order of $13 million. Big Playa can therefore expect the payoff for their strategy to be $13M * 49% * 2.56 or $16,307,200. THAT IS A WHOPPING 43X RETURN ON INVESTMENT! Not a bad strategy!


Now what happens if there are multiple big players? In the following simulation, we increase the number of big players who maxed out their strategy to 47 licenses to 3:


With 3 Big Playas, the strategy of maximizing applications in a given BLS region still continues to pay off. But how does "Your Company INC" the little guy perform?


{
 'Your Company, INC': 0.4747,
 'BigPlaya1 INC': 2.2579,
 'BigPlaya2 INC': 2.2713,
 'BigPlaya3 INC': 2.2671,
 '127 IL LLC': 0.1108,
 'Alchemy Curations LLC': 0.1057,
 'AmeriCanna Dream LLC': 1.2505,
 'Black Rain LLC': 0.1022,
 'Clean Slate Opco LLC': 0.874,
 'Dealership LLC': 0.8781,
 'Deer Park Partners LLC': 0.4696,
 'EHR Holdings LLC': 0.2899,
 'Fortunate Son Partners LLC': 0.8828,
 'Green Equity Ventures 1 LLC': 0.2877,
 'GRI Holdings LLC': 1.5634,
 'Mint IL LLC': 0.4703,
 'SB IL LLC': 0.3805,
 'So Baked Too LLC': 0.1973,
 'Suite Greens LLC': 0.384,
 'Terra House LLC': 0.5607,
 'TPFB LLC': 0.1064,
 'V3 Illinois Vending LLC': 0.4733,
 'Vertical Management LLC': 0.8747,
 'NPC1 INC': 0.2892,
 'NPC2 INC': 0.2957,
 'NPC3 INC': 0.2971,
 'NPC4 INC': 0.2927,
 'NPC5 INC': 0.2935,
...


Adding 3 Big Playas to the mix took "Your Company INC" from better than a coin flip, to worse... but "Your Company INC" is still in the game!


Predictions

Now that we know how the lottery behaves in various scenarios, we can make predictions about the most likely outcomes. We won't be surprised if a number of Big Playas bridge the gap between imperfection and inclusion in the tie breaker lottery. Outside the Big Playas, we believe the application density will be near 3.5 (which is less than the current app density of the winner's list). There will likely be about a 5 fold increase in the total number of applicants. Given those assumptions, the 2nd simulation discussed above is probably most realistic. Big Playas are going to win on 2 licenses each on average. Some more, some less, and "Your Company INC" still has a chance, and a bit more than a sliver at that!




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