Kentucky Auditor Allison Ball announced Thursday her office is investigating the Office of Medical Cannabis and how it administered the lottery process for awarding business licenses last year.
In a short press release, Ball indicated her office “has continued to receive complaints” about how the license application process was handled by the state.
“Kentuckians should have confidence that state offices operate with transparency and integrity, and my office is committed to ensuring those standards,” Ball said.
As Kentucky Public Radio reported last year, a large majority of the businesses that won medical marijuana cultivator, processor and dispensary licenses in last year’s lotteries were formed by out-of-state residents, with most listing executives that own, are employed by or are affiliated with large marijuana companies that operate in other states.
The application and lottery process for awarding cannabis licenses was strongly criticized by several hemp farmers within Kentucky, who argued they were shut out from winning any of the cultivator licenses because deep-pocketed companies were able to rig the process with a flood of expensive applications.
Gov. Andy Beshear defended the lottery process from such criticism last year, saying his administration set up the fairest and most transparent way to award medical cannabis licenses. Asked for comment on Ball’s investigation, Beshear spokesperson Crystal Staley again defended the transparency of its licensing process.
“To date, no one has filed a legal claim challenging Kentucky’s medical cannabis laws or the Office of Medical Cannabis’ regulations,” Staley wrote. “The individuals who have come forward to express ‘concerns’ went through the full process and did not complain until after not being selected in the lottery.”
A specific source of criticism about the licensing process involved one Arkansas marijuana company — Dark Horse Cannabis — whose executive created hundreds of companies in Kentucky ahead of the application deadline. As first reported by KPR, these companies then submitted hundreds of expensive applications — at a cost of roughly $2.5 million — ultimately winning four dispensary licenses, one large cultivator license and one processor license.
Though Kentucky regulations prohibit medical marijuana licensees from holding licenses in these three different categories at the same time, KPR last year obtained an investment pitch deck for the parent company of both Dark Horse Cannabis and the “Kentucky vertical,” which stated it would have licenses in all three tiers in Kentucky.
Dark Horse Cannabis and its executive that formed companies obtaining licenses in Kentucky stated last year that no rules were broken by him or the company, as they only followed the application process set up by the Beshear administration.
Beshear was asked about the Dark Horse Cannabis affiliations of license winners at the final lottery in December, saying the Arkansas companies “don't have ownership of these specific Kentucky (LLCs). Either they're wrong, or a false ultimate application was submitted.”
Sam Flynn, the executive director of the Office of Medical Cannabis, added that the pitch deck in question “specifically spells out that they have acquired management services agreements and contracts with these businesses” and “they have clarified that they do not own any of these licensees.”
In that same December press conference, Beshear emphasized that a lottery was the fastest way to get the medical marijuana program off the ground in 2025, as other options could have led to delays of two to four years with litigation.
“I guess the criticism that's been brought up is about the idea that a management company could potentially team with and or ultimately contract with a number of different owners,” Beshear said. “Now you could say that's problematic. You could also say that they bring significant experience that may get this to the market and get it faster.”
Kentucky hemp farmers who criticized the licensing process say they were best equipped to grow marijuana quickly and get product into dispensaries for Kentucky patients, but many out-of-state winners would not have the infrastructure set up to grow marijuana until late into 2025.
One of those hemp farmers, Michael Adair of Paris, said last November that local farmers had the secure indoor facilities to start growing right away, but the allowance of “application stacking” by out-of-state interest would lead to delays for patients’ access to medicine.
“Six months, a year from now, when there's nothing on the shelves and people are screaming, and you've got big cannabis out here doing stuff, it's gonna look real, real bad,” Adair said.
The first groundbreaking in Kentucky for a medical cannabis cultivation and production facility was held Monday in Monticello. The company says it plans to begin operations there early next year.
Asked at his press conference Thursday when he expects medical marijuana to be available in Kentucky dispensaries for patients, Beshear said he hopes that will happen in “late summer and the fall,” but added this was only an estimate.
This story has been updated to include a comment from the Beshear administration.
State government and politics reporting is supported in part by the Corporation for Public Broadcasting.
