Kentucky’s launch of its medical marijuana program has been marked by controversy as the initial lottery results reveal a significant concentration of licenses awarded to out-of-state cannabis companies. Governor Andy Beshear’s assurance of a transparent and fair lottery system has come under scrutiny, as a closer examination suggests the process may have inadvertently favored well-funded, out-of-state entities over local Kentucky applicants, including experienced hemp farmers.
The Lottery System: Transparency or Loophole?
Governor Beshear introduced the lottery system as a way to streamline the licensing process for cultivators and processors while avoiding legal battles that have delayed similar programs in other states. However, the results of the first round have fueled criticism that the system allowed deep-pocketed companies to dominate by submitting numerous applications. For Kentucky hemp farmers, who were sidelined despite their expertise, the process feels anything but fair.
Among the 26 licenses awarded, around three-quarters were tied to out-of-state businesses, leaving local farmers and entrepreneurs questioning whether the system truly prioritized Kentucky applicants. While the state touted the lottery as a shield against lobbying and litigation, critics argue that it has opened the door for out-of-state companies to exploit Kentucky’s burgeoning market.
Dark Horse Cannabis and Application Stacking
The role of Arkansas-based Dark Horse Cannabis has drawn particular ire. Sean Clarkson, the company’s co-founder and CFO, reportedly registered 350 new businesses with Kentucky’s secretary of state in the month leading up to the application deadline. Of the 918 total applications for cultivator and processor licenses, 104 came from entities tied to Clarkson, resulting in Dark Horse securing two licenses—a Tier 3 cultivator license and a processor license.
Despite these ties, the Beshear administration contends that Dark Horse did not violate the rules, citing that the parent company had no direct ownership of the winning entities. However, a pitch deck from Arkanna Investments, Dark Horse’s parent company, suggests otherwise, explicitly claiming ownership of the licensed companies and projecting significant revenue from Kentucky operations.
Local Farmers Left Behind
For Kentucky hemp farmers, the outcome is particularly frustrating. Many believed they were the most qualified to transition quickly into marijuana cultivation, given their experience and infrastructure. Michael Adair, a Paris, Kentucky farmer, expressed dismay, noting that his existing greenhouses could have been operational almost immediately. Instead, many license winners lack the facilities or experience to start cultivation in the near term, potentially delaying the availability of medical cannabis in the state.
Adair and other local applicants argue that the lottery system failed to account for readiness and expertise, allowing inexperienced entities to secure licenses they might sell or hold without immediate plans for production.
The Economic Power Play
Dark Horse’s aggressive strategy underscores the influence of capital in Kentucky’s medical marijuana program. Each application came with a significant fee—$20,000 for Tier 3 cultivators, $10,000 for Tier 2, and $5,000 for processors. Dark Horse’s numerous submissions alone totaled over $1 million in fees, demonstrating the financial barrier that local farmers and small businesses face in competing against larger, well-funded companies.
The pitch deck from Arkanna Investments further reveals ambitious plans for Kentucky. The company estimates that its operations could generate $86.3 million in profit over the next three years, leveraging vertical integration to dominate the state’s market. By rapidly scaling its operations, Arkanna aims to capture a substantial share of the state’s limited canopy allotment, raising concerns about monopolization and high consumer prices.
The Debate Over Lottery Systems vs. Competitive Scoring
Kentucky’s choice of a lottery system was intended to avoid litigation and expedite the program’s rollout. In other states, competitive scoring systems have been mired in legal challenges, delaying implementation for years. For example, Alabama’s medical cannabis program remains tied up in lawsuits, while Florida’s was delayed for four years.
However, critics of the lottery system argue that it prioritizes randomness over merit. Paula Savchenko, a Florida-based attorney specializing in cannabis law, advocates for competitive scoring, which allows states to select the most qualified applicants. She notes that lotteries often favor those with the financial resources to flood the system with applications, as seen in Kentucky.
While the lottery system may have expedited license awards, it has not addressed the readiness of recipients to begin operations. Adair and others warn that this could lead to delays in getting products to market, undermining the program’s intended benefits for patients.
Out-of-State Influence Dominates Kentucky’s Market
The dominance of out-of-state companies among Kentucky’s lottery winners highlights the challenges of maintaining local control in a high-demand industry. Of the 16 cultivator licenses awarded, only two were tied to Kentucky residents. None of the recipients had ties to the state’s hemp industry, despite regulatory language suggesting local hemp farmers would receive priority consideration.
Prominent multi-state operators have also secured a foothold. For example, Cresco Labs, a major cannabis company based in Chicago, is connected to one of the two Tier 3 cultivator licenses. Other license winners include individuals and entities with ties to cannabis operations in states like Colorado, Michigan, Arizona, and California.
This trend extends to processor licenses as well. Among the 10 awarded, several are linked to out-of-state owners and companies with existing cannabis operations in Missouri, Arkansas, and Tennessee.
The Potential for License Flipping
As Kentucky’s program moves forward, the resale of licenses has become a contentious issue. State law allows licenses to be sold with approval from the Cabinet for Health and Family Services, and reports suggest that some winners are already fielding offers. One Tier 2 cultivator license is rumored to be listed for $10 million, highlighting the potential for profiteering at the expense of program integrity.
Critics argue that the resale market undermines the program’s goals by enabling speculative applications rather than fostering genuine investment in Kentucky’s medical cannabis industry. Governor Beshear’s administration has defended the lottery process, but the perception of unfairness could erode public trust in the program.
The Road Ahead for Kentucky’s Medical Cannabis Program
As Kentucky’s medical marijuana industry takes shape, the lottery system’s shortcomings are becoming increasingly apparent. While the process avoided immediate legal challenges, it has raised questions about equity, readiness, and the role of out-of-state corporations in shaping the state’s market.
Local farmers and entrepreneurs remain hopeful that subsequent lottery rounds or program adjustments will provide more opportunities for Kentucky-based businesses. However, without significant changes, the state risks cementing an industry dominated by external interests, potentially sidelining the very communities the program was designed to support.
The debate over Kentucky’s approach reflects broader challenges in balancing speed, fairness, and economic opportunity in the rollout of medical cannabis programs. For now, the spotlight remains on the Beshear administration and whether it will address the growing concerns of local stakeholders as the industry moves forward.
