Kentucky to use lottery for medical marijuana business licenses. Here's how it will work

Kentucky’s Medical Cannabis Program moved forward Thursday following the announcement of how the state will license marijuana cultivators and dispensaries.

Gov. Andy Beshear and Kentucky Medical Cannabis Program Executive Director Sam Flynn said the licenses would be awarded via a lottery on Oct. 1.

The legislature passed a bill last year legalizing medical cannabis and setting a start date for the program of Jan. 1, 2025. Cannabis businesses have been concerned that patients’ access to cannabis would be delayed because the state had not yet established a process for issuing business licenses.

That could have caused delays for patients who wanted to access medical cannabis when the program starts next year.

To fix the time lag, the legislature this year passed a law allowing the state to issue business licenses this year, and Beshear on Thursday filed regulations that outline how the process will work.

How will the medical marijuana lottery system will work?

The October lottery will be held only for license categories where there are more applicants than the number of available licenses, according to an emergency regulation filed by Beshear Thursday.

Beshear and Flynn said the lottery system is designed to prevent conflicts and litigation that could slow down the timeline of launching the program, which has happened in other states.

“We want to make sure it is a fair and transparent process. The lottery is the best way to ensure that everybody has a fair shake,” Flynn said.

Flynn and Beshear said legal conflicts about the licensing process tend to favor larger, more-established organizations that have the financial resources to fight lengthy court battles, and that such battles have slowed down the process in other states.

At least five states — Arkansas, Arizona, Connecticut, Missouri and Rhode Island — have used some form of lottery system to award cannabis business licenses, according to the MJBiz Factbook.

Beshear said he anticipates the lottery system will create a more level playing field in Kentucky and that he hopes it will help small businesses enter the medical marijuana space.

Flynn said there is no provision in the program to help minority-owned cannabis businesses or businesses owned by people who have been impacted by prior drug laws. He said last year’s bill creating the program did not include any social equity provisions.

How many medical marijuana licenses will there be?

The state will award 16 licenses for cultivators, 10 for processors and 48 for dispensaries. There is no limit on the number of licenses for safety compliance, which will be the quality control and testing labs.

There will be 10 Tier 1 licenses for cultivators who have indoor growth areas of 2,500 square feet or below.

There will be four Tier 2 licenses for cultivators who have an indoor growth area of less than 10,000 square feet and two Tier 3 licenses for cultivators who have growth areas of less than 25,000 square feet.

The state will not issue any licenses for the largest category by size of cultivators, Tier 4, in the first round.

Beshear said he intends to be cautious with the roll-out of the medical cannabis industry, citing lessons learned from the overeager approval for entry into the Kentucky hemp industry following the 2018 Farm Bill, which legalized hemp outright nationwide.

By 2019, the state department of agriculture had approved 60,000 acres for growing hemp, but saw only about a third of that acreage harvested. By 2022, the state approved only 5,530 acres for hemp, as many businesses left the market due to oversaturation.

"We can always scale up later," Beshear said about starting with a limited roll-out of licenses.

Where will the medical marijuana businesses be located?

Flynn said the state has been divided into 11 regions to ensure Kentuckians in all parts of the state can access medical cannabis. Each region will have four dispensaries, except for the Kentuckiana and Bluegrass regions which will each have up to six dispensaries.

No county can have more than one dispensary, except for Jefferson and Fayette counties, which can each have two dispensaries.

Applications will open on July 1 and close on Aug. 31.

Will there be enough marijuana when the program starts?

Beshear said he was glad the legislature had advanced the timeline for issuing cannabis business licenses. That will give the businesses more time to ramp up operations before the Jan. 1, 2025, start date.

Still, he and Flynn said there could be a time lag between the start of the product and the ability of the cannabis businesses to meet the full demands of the process.

“The businesses selected for licenses will not be able to start growing or processing the cannabis until October. That’s sooner than was previously allowed for under last year’s medical cannabis law, but there could still be a shortfall,” Beshear said.

Flynn said he estimates that over the first two years of the program, between 70,000 and 90,000 Kentuckians will sign up for and qualify for the medical cannabis program.

“I believe it's likely in January there will be at least limited supply,” Beshear said, adding that the release of the regulations this week advanced the timeline by about six months.

Reach Rebecca Grapevine at rgrapevine@courier-journal.com or follow her on X, formerly known as Twitter, at @RebGrapevine. Contact business reporter Olivia Evans at oevans@courier-journal.com or on X, the platform formerly known as Twitter at @oliviamevans_.

This article originally appeared on Louisville Courier Journal: Kentucky medical marijuana business licenses to be awarded by lottery