Kentucky asks cannabis license applicants to create extensive plans

(This is a contributed guest column. To be considered as an MJBizDaily guest columnist, please submit your request here.)

With the passage of Senate Bill 47, which legalized medical cannabis in the state, Kentucky is now on its way to becoming America’s next MMJ market.

The success of Kentucky’s market will significantly depend on the state’s licensing process; the application submission period opened July 1 and closes Aug. 31.

Kentucky’s licensing rules limit the total number of permits available statewide, potentially avoiding the negative economic effects associated with unlimited licensing too early in a market’s development, such as depressed prices and oversaturation.

Preparing for market

Although its effective date is not until Jan. 1, 2025, the Kentucky Medical Cannabis Program recognized that the licensing and build-out of the regulated supply chain must commence well before that date.

For instance, after the application window closes Aug. 31, the review timeline is:

• Sept. 15, 2024: Program will send action (deficiency)/no action (completeness) letters to all applicants.
• Sept. 25, 2024: Latest possible date for applicants to cure deficient applications.
• Oct. 1, 2024: Program makes determinations on eligible applicants.
• October 2024 (no day specified): Lottery will be held, with payments for license fee due within 15 days of invoicing.

The word “lottery” might evoke thoughts of more recent cannabis lotteries,  such as those in Connecticut and New York, which required corporate documentation (and, in New York’s case, site control) but little else.

Kentucky, in contrast, is a lottery state that requires the preceding information, plus more substantive and objective narrative-like information.

Cannabis application requirements

Applicants for an MMJ license in Kentucky will be required to have site control, a site plan and a timeline of steps and estimated time to commence operations.

A property without a plan won’t meet licensing requirements.

Once this timeline is submitted to regulators, any subsequent changes must be disclosed and approved by the regulator.

Applicants also will be required to demonstrate proof of sufficient capital (set at a regulatory minimum threshold) for each application submitted.

Moreover, applicants are required to have intended plans of operation, akin to narratives, often required in other competitive-application states.

These are meant to demonstrate an applicant’s understanding of the complex regulatory infrastructure and an anticipated plan to implement these regulatory controls.

The components of those plans include:

• Employee qualifications, supervision and training.
• Transportation of medical marijuana.
• Storage and labeling of MMJ.
• Inventory management.
• Preventing unlawful diversion of MMJ.
• Workforce development and job creation.

In short, though a “lottery,” the price of admission is substantially more than just the cost of the ticket.

It behooves applicants to understand the complex regulatory infrastructure – and to be able to weave together the intended plans of operations and unique details and assessments of the individual site proposed.

They also must be able to connect it all with the required timeline to commence operations, knowing that, if selected, regulators will seek to hold applicants to those submittals.

Limited-license market

The other noteworthy facets of Kentucky’s medical marijuana rollout are limits on the total number of licenses and who can hold what permits at what time.

Each application must contain a separate and distinct physical address where the cannabis businesses propose to operate.

Cultivators may submit one application per cultivation tier.

Dispensary applicants may submit only one application per medical cannabis region.

However, applicants may not apply for more than one type of MMJ business license.

And winning applicants may not acquire a different type of license or additional permits to achieve vertical integration after application approval.

Kentucky also has decided to limit the total number of production licenses while distributing retail licenses across the state.

The production licensing scheme is:

• Tier I Cultivation (2,500 square feet): 10 licenses.
• Tier II Cultivation (10,000 square feet): 4 licenses.
• Tier III Cultivation (25,000 square feet): 2 licenses.
• Processor: 10 licenses.

Altogether, coming out of this application round, Kentucky will have a max canopy of 115,000 square feet, assuming each licensee hits its cap.

Cannabis dispensary licenses

On the retail side, the program is soliciting 48 licenses statewide.

How those licenses are issued will depend on geographic distribution.

But the stated goal of the program is to ensure that no Kentuckian must drive more than 60 minutes to access a dispensary.

The program established 11 regions with at least four dispensaries per region.

This includes six designated for the Bluegrass region and six designated for Kentuckiana.

Notably, applicants for retail may submit only one application per region, meaning a retail hopeful can submit up to 11 applications.

Some regions have populations as low as 215,000 (Green River); others have populations of more than 1 million (Bluegrass).

The program will not authorize more than one dispensary per county in a state with 120 counties.

Businesses set up for success

In short, Kentucky is more than just a lottery.

With a conservative rollout in the number of licenses – and guardrails for whom may hold how many of each – Kentucky offers a promising economic opportunity for operators looking to establish and build out operations in the state.

However, with many focused on applying for these limited numbers of licenses, applicants must act expeditiously – both to get a head start on what promises to be an active real estate competition as well as to understand and provide all materials sought by the program.

Jesse Alderman and Mike McQueeny are partners and co-chairs of the cannabis practice at Boston-headquartered Foley Hoag.

Alderman, based in Boston, can be reached at jalderman@foleyhoag.com; McQueeny, based in New York, can be reached at mmcqueeny@foleyhoag.com.