Kentucky‘s legal medical marijuana program is set to launch this year, but the hottest commodity in the program so far are the licenses, which are being flipped by many of the lottery winners.
Senate Bill 47 officially went into effect on Jan. 1 when the Patient and Caregiver Registry Portal opened for applications. In preparation for the full launch, 26 applicants were selected in October for cultivation and processor licenses, and dispensary license lotteries followed in November and December. A total of 65 licenses have been awarded.
But many of those license winners never intended to actually operate cannabis businesses. Instead, they applied with the sole intent to resell them.
Market quirks
Kentucky’s applications for cannabis licenses had no residency requirements, which opened the application process to many out-of-state operations. Park Jordan cannabis consultant Kristen Jordan said that only one license was awarded to someone in the state. The rest were serial applicants: companies that have the resources to create numerous single-purpose LLCs and can file dozens – if not hundreds – of applications to increase their odds of winning.
“There’s a whole bunch of operators who this is their business – just applying for licenses and flipping them,” Jordan said. She also noted that regulators typically don’t have the resources to determine how many of these applications all roll up to one entity.
Kentucky also has particular quirks that contributed to this dynamic, such as applicants having to demonstrate ownership of a bank account with a specified amount of money, with the intent to prove the applicant would be able to operate the eventual business. This varied from $50,000 to $200,000 depending on the license type. Jordan said that few Kentuckians could meet this requirement in the application stage.
Another quirk is that potential licensees needed to have a location attached to the application. However, municipalities could opt out of the program as late as December.
For many applicants, that was a significant risk. What if you attached yourself to a building lease but the town opted out? Ultimately Kentucky regulators deemed that applicants would be able to switch locations if the town opted out, but it remained a concern for many.
Serial applicants, on the other hand, didn’t worry about the real estate issue. Some even employed a strategy of attaching an application to a property from a town likely to opt out because they could get a cheaper deal. Then if the town did opt out, they could just move to another location.
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