The Kentucky Finance and Administration Cabinet Office of the Inspector General determined the application and licensing processes used by the Kentucky Office of Medical Cannabis to choose who would be granted dispensary licenses in 2024 was “fully fair and transparent,” according to a May 7 report.
The report comes just over a year after the OMC requested the OIG carry out an investigation following complaints about the lottery licensing process, after many small, in-state business owners claimed larger, out-of-state companies were able to take advantage of loopholes in state law to apply for Kentucky licenses.
As part of its investigation, the OIG reviewed reports, data, processes, footage and legislative testimony in addition to conducting interviews with individuals involved in the licensing process. To maximize efficiency, officials said the review focused on the circumstances surrounding cannabis dispensary license lotteries and analyzed the applications of all companies that were selected for licenses, rather than reviewing about 5,000 applications in total.
All business licenses, other than safety compliance facility licenses, were distributed through a random lottery of all qualified applicants, adding the program “issued regulations in a fully transparent manner” after going through a full review by multiple legislative committees.
“The program established a licensure application process that included fully reviewing applications for consistency, uniformly flagging of any issues with applications, and providing applicants the opportunity to correct any deficiencies in time to be eligible for the random lottery drawing created by regulation,” the report reads.
In its review of the report, the OMC added the cabinet prioritizes “applications submitted by an individual or entity who is an existing Kentucky hemp business in good standing with the Kentucky Department of Agriculture,” given they met the application requirements and other regulations.
Kentucky’s license lottery system began after an emergency regulation in April 2024 called for an open process that gave everyone, including small businesses, “a fair shake,” former Office of Medical Cannabis Executive Director Sam Flynn said.
The lottery process was originally intended to prevent time-consuming conflicts and litigation and level the playing field, but has since drawn criticism by Kentucky farmers and business owners, who claimed larger out-of-state businesses submitted hundreds of applications to increase their odds of receiving a spot, according to previous Courier Journal reporting.
The complaints prompted Kentucky Auditor of Public Accounts Allison Ball to launch an investigation, and her preliminary findings showed at least one company was able to obtain business licenses across all categories, which state law was intended to prevent. Ball added she found the current licensing process favors existing and out-of-state cannabis companies.
In one example, Arkansas-based Dark Horse Cannabis was able to secure licenses across all three business categories when state law only allows companies to hold licenses in one category at a time, according to a Courier Journal investigation.
Several in-state medical marijuana businesses have since filed lawsuits over the program, claiming the way issuance limits and the creation of licensing districts were delegated violated Kentucky’s constitution.