LOUISVILLE, Ky. (WAVE) – Small business owners working in the hemp industry across Kentucky felt they had an expensive uphill battle to file applications in the hopes they’d get a license.

State Auditor Allison Ball said this and other complaints about influence from out-of-state companies compelled her to investigate the lottery process.

WAVE News asked Ball where her work stands, as the office of KY Gov. Andy Beshear questioned why she would comment on an ongoing investigation.

Ball points to Kentucky Administrative Regulation Title 915, which deals with applying for cannabis business licenses.

Section 3 (4) prevents companies from stacking applications — as Ball described it, creating fictitious companies with the goal of then writing out multiple requests.

“We do know that app stacking has occurred. We can say that we’re pretty confident that that’s happened,” she said.

Ball elaborated, saying her office knows of at least one larger out-of-state company, Dark Horse Cannabis, that she said filed 350 applications through LLCs; in essence, creating companies on paper.

In that potential situation, 350 applications filed with a $5,000 non-refundable fee attached, would equal a $1.75 million investment in lottery balls.

Based on Ball’s assessment, the company’s purported gamble paid off because it received all three types of licenses in Kentucky.

WAVE News reached out to Dark Horse Cannabis for a reply to the State Auditor’s on-the-record comments. The company had not sent a return message as of publishing this report.

“We do know of actually that same out-of-state Arkansas company — they have achieved vertical integration. They got cultivation and processing, and they have four dispensaries,” Ball said. “We know it happened once, and we’re going to review and see if this happened more than once.”

Ball said the lottery process to join the medical marijuana supply chain in Kentucky was supposed to be fair across the board.

“Especially,” she said, “(to) let small Kentucky farmers compete with big people out of state who have deep pockets.”

Entrepreneurs like Dee Dee Taylor saw that vision for their industry Dec. 16, 2024: a lottery with somewhat even odds for the chance to earn a license to sell, grow or process medical marijuana for Kentucky customers.

But Taylor said she and some of her peers couldn’t shake the feeling they never really had a chance. Soon, news reports started to pique the Auditor’s curiosity.

“We also were getting reports from farmers, from local businesses, essentially saying the same thing,” Ball said. “When that happens, when you get a lot at one time, then that’s, that’s a sign that you really do need to audit it. It’s worth looking into.”

“She needed to take a look at it,” Taylor, owner of 502 Hemp Wellness Center, said of Ball.

Taylor, like all other lottery applicants, had to pay a non-refundable $5,000 fee to participate. The roughly 5,000 entities that applied were competing for a pool of around 70 or 80 total licenses; the three license categories include ‘cultivator’, ‘processor’ and ‘dispensary.’

Taylor said she still feels it wasn’t as transparent a process as it could be — she shared with us a confirmation email with a short referral number. Taylor tells Wave News it was the only communication she received.

“In my thoughts, then, how do I know it was truly a fair process of… I don’t even know what my ball number was,” Taylor said.

Not long after the lottery ended, Taylor said a fellow applicant shared her number with the Auditor’s office and Ball called her. Taylor soon added her comments to a list of concerns.

“Applications themselves were nonrefundable and they were expensive,” Ball said.

“I have talked to farmers who spent, some of them tens of thousands of dollars, trying to get a shot at this and to know that somebody could come in and possibly not follow the rules and unfairly succeed in this is concerning, and something we’re definitely looking at.”

While the audit plays out, Ball also said she is unsure why state government and the Office of Medical Cannabis have yet to open the markets to sell medical marijuana.

“Why does it keep moving?” she said, referring to the timeline Gov. Beshear’s office had set.

“The General Assembly is the one that made the decision that this should be available in Kentucky for people that have medical needs, and once that decision was made, then there needs to be compliance with the law and it needs to be operational,” Ball said.

The Kentucky Legislature legalized consumption for state residents with chronic conditions in 2023. In checking the Office of Medical Cannabis’ website, no medical dispensaries are open as of May 29.

However, the governor’s office has recently touted a new directory map for people to find their closest approved location.

“I don’t want to slow that part down because I do care about the customers that need it,” Taylor said. “I just wish there was some integrity, because it seems like that’s what’s missing in this state in general.”

Ball said she did not want to prejudge or make conclusions about the final audit summary before her office feels it’s ready.

“When we are ready, will we release a report that documents what we have found and what we think needs to be done to fix anything, if anything needs to be fixed?” Ball said.

Not long after talking to Ball, WAVE News reached out to Gov. Beshear’s office for comment.

Communications director Crystal Staley sent a statement calling it ‘concerning’ that Ball talked to reporters about an ongoing investigation.

Staley provided a longer statement:

“Auditors have a duty to maintain confidentiality and avoid making public statements during the process or making premature findings. Making statements before the audit is complete will likely influence the outcome, leading to a distortion of the findings and calls into question the objectivity of the inquiry.”

Lawmakers provided the Office of Medical Cannabis with the authority to create a fair and transparent medical cannabis licensure process, including limiting who could apply for licenses in different categories. However, the law prohibits the office from limiting the sale of licenses to a buyer that meets the requirements of the law.”

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