McHenry loosens zoning rules for marijuana dispensaries, hoping to attract one

McHenry officials tried to make opening a marijuana dispensary in the city a little easier this week.

The McHenry City Council changed municipal zoning rules so commercial areas near state highways can host cannabis retailers without having to gain approval from elected leaders through a public hearing process.

City officials also eliminated a McHenry regulation that required the issuance of special licenses for marijuana-related businesses in the city, similar to how establishments that sell alcohol are treated at the local government level.

The licensing process had been previously put into the city’s code, but legal counsel for the city has since advised local officials state law does not allow municipalities to have their own licensing system for marijuana businesses, and that they instead must use zoning rules to regulate the budding industry.

The tweaks to city ordinances were meant to give the city a better shot at luring a cannabis retailer, as McHenry in May 2020 approved a dispensary operator to open up shop in the city in at 4510 Prime Parkway, but that business operator has so far not obtained the proper licensing to do so from the state.

But the prospects of a retailer coming to McHenry have been renewed with the state’s announcements that three randomized lotteries to distribute dispensary licenses to eligible applicants will occur by the end of next month, including one that was supposed to have taken place more than a year ago.

This week’s city rule changes making dispensaries able to locate by-right in C-5 Highway Commercial Districts and C-3 Community Commercial Districts was accompanied by another change that will give craft marijuana growing, infusion and processing businesses the opportunity to co-locate with a cannabis retailer in those same two zoning designations.

Previously, those industrial uses were only permitted in the I-1 Industrial and BP Business Park districts, and required conditional use permits, which can only be obtained through a public hearing and City Council approval, to set up in the C-5 Highway Commercial district.

McHenry Planner Cody Sheriff said allowing the growing, infusing and processing operations to take place alongside retailers compared with breweries that make their own beer on site and also sell it by the glass in their adjacent tasting rooms.

The approval issued by the council for the Prime Parkway location is for a conditional use permit allowing a recreational cannabis dispensary, craft grow, transportation and infusion business, but the proposal still requires its backer to obtain the proper licensing from the state to open its doors, according to city documents.

Before this week’s changes, McHenry’s rules required conditional use permits for all retail cannabis businesses, and city officials found dispensary operators who had been awarded licenses by the state were choosing to locate in municipalities with zoning districts that allowed pot sales to take place without going through public hearings, like Lake in the Hills, which became host to a Rise dispensary this year.

In addition to the city’s intention to boost the chances that McHenry lands a dispensary – officials estimate a single store could generate between $300,000 and $600,000 annually for the city through the its 3% Cannabis Retailers’ Occupation Tax – city staff also anticipates there could be spillover of marijuana buyers to nearby businesses, and wants the city to capitalize on that.

“We want a positive effect on adjacent businesses,” Sheriff said.

The previous zoning rules might have allowed dispensaries to operate in business areas shielded from McHenry’s main corridors and other retail uses, but now they will be limited to buildings on a state highway or a commercial subdivision adjacent to a state highway, Sheriff said.

“This restriction along with not allowing them within 1,000 feet of a school or day care effectively eliminated the risk of dispensaries locating in the aforementioned outlier areas,” city staff said in a memo to council.

All cannabis businesses still are prohibited in McHenry’s downtown areas, including on Main Street from Crystal Lake Road to Route 31, but the city did peel back a prohibition on cannabis retailers locating north of McCollum Lake Road, meaning the northern part of the city is now an option.