In October, Kentucky Governor Andy Beshear revealed the winners of the state’s first medical cannabis cultivator and processor licenses, awarded through a random lottery. While the process was touted as the most fair and transparent way to distribute the limited number of licenses, the results have raised concerns about potential manipulation by out-of-state cannabis companies.
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A review by Kentucky Public Radio found that around three-quarters of the 26 lottery winners were affiliated with large cannabis businesses based outside the state. Some of these companies, including those connected to Arkansas-based Dark Horse Cannabis, flooded the state with numerous applications. Dark Horse, led by co-founder and CFO Sean Clarkson, filed paperwork for over 350 businesses in the weeks leading up to the August 31 application deadline. Despite claims that these companies had no ownership ties to Dark Horse, a pitch deck from the company’s parent, Arkanna Investments, reveals its connections to two of the Kentucky license winners, raising questions about potential application stacking.
The issue is especially troubling for Kentucky hemp farmers, who had expected to play a major role in the state’s medical cannabis industry. Despite being well-positioned to grow marijuana quickly, none of the 16 cultivator licenses went to local hemp businesses. Some Kentucky farmers, like Michael Adair, feel frustrated that out-of-state companies with significant resources are being prioritized over local operators who could start growing immediately.
In response to these concerns, the Beshear administration has defended the lottery process, claiming it avoids the complications and delays caused by competitive scoring systems, which often lead to lawsuits. However, some legal experts, including Paula Savchenko, argue that a competitive process could ensure that the best-qualified companies operate within the state’s medical cannabis market, potentially leading to better outcomes for patients.
Adair, in particular, is skeptical about the long-term effectiveness of the lottery system. He believes that many of the license winners either lack experience or won’t have facilities ready to grow and process cannabis until well into 2025 or 2026. The prospect of larger, vertically integrated companies dominating the market could also drive up prices and squeeze out smaller operators.
The overall distribution of the licenses has also drawn scrutiny. Of the 16 cultivator licenses, only two went to Kentucky residents, and none were awarded to local hemp businesses, despite the state’s pledge to give them priority. Additionally, many of the companies that won licenses were registered with the state just a month before the deadline, with some businesses submitting multiple expensive applications for various license types.
While Beshear had previously claimed that the lottery system would prevent deep-pocketed out-of-state companies from having an unfair advantage, the outcome of the first round of lottery draws suggests that such companies may have found a way to influence the process. Kentucky’s medical cannabis program, including the licensing of dispensaries, is expected to continue through multiple lottery rounds. However, questions about the fairness of the process, and whether it will lead to timely access to cannabis products for patients, are likely to persist.
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