Just as most of the businesses that won 26 medical marijuana cultivator and processor licenses in Kentucky’s first lottery in October were formed by out-of-state residents, so too were the 36 applicants who won dispensary licenses in the November lottery.
A Kentucky Public Radio review of the medical cannabis applications of dispensary license winners found that 33 were made up of individuals who are not residents of the state and had not owned or worked for a business there.
Just two of the businesses to win a dispensary license listed a Kentucky resident as an owner, including one that had a single Kentuckian among the six listed owners on its application. Another company indicated in its application that its owner lived in Florida, but worked for a company based in Kentucky.
At least half of the 36 dispensary license winners listed executives that own, are employed by or are affiliated with marijuana companies that operate in other states. This includes four winners who were organized by an executive of Arkansas marijuana company Dark Horse Cannabis. Companies formed by the same executive previously won a cultivator and processor license in the October lottery.
This continues the trend from the first license lottery of the Kentucky Office of Medical Cannabis in October, in which a majority of cultivator and processor license winners had ties to out-of-state marijuana companies. Kentucky hemp farmers were particularly aggrieved, as they were shut out from winning any of the cultivator licenses and claimed deep-pocketed companies were able to rig the process with a flood of expensive applications.
Gov. Andy Beshear has defended the lottery process and said it was the fairest and most transparent way to award medical cannabis licenses. He said a competitive scoring system that favored in-state applicants likely would have drawn litigation from companies and delayed the new program, which has happened in several other states.
The Nov. 25 lottery awarded four dispensary licenses in each of nine regions. The final dispensary license lottery took place after the publication of this story Monday, with 12 applicants selected in the Louisville and Lexington regions. The owners of these winners will not be known until the state turns over their applications, presumably next week.
Two businesses to win dispensary licenses in November listed their owners as executives of Mango Cannabis, a marijuana company with medical cannabis dispensaries in Oklahoma.
Two other dispensary license winners in Bowling Green were formed by the attorney of Canna Zoned MLS — a Michigan-based firm that helps cannabis companies with real estate across the country — and listed their owners as a realtor of that company and the wife of its owner. Both applications listed the same address for where their dispensaries would be located.
More dark horse lottery winners
Another similarity in the Nov. 25 dispensary lottery was the success of companies formed by an executive of Dark Horse Cannabis, an Arkansas marijuana company.
Sean Clarkson, the co-founder and chief financial officer of Dark Horse Cannabis, organized at least 350 new companies in Kentucky ahead of the application deadline this summer. Those companies submitted more than 100 cultivator and processor applications and ended up winning one of each in the October lottery.
The dispensary lottery for the first nine regions yielded even better results for these companies.
According to a list of dispensary applicants — turned over by the cannabis office, after initially denying an open records request for it — 50 companies formed by Clarkson submitted nearly 250 applications in these regions, winning four dispensary licenses. These 50 companies each submitted an application in the Pennyrile region of western Kentucky, winning three dispensary licenses to operate at the same address in Eddyville.
The odds of these companies formed by Clarkson winning even more dispensary licenses in the final lottery were good, according to the same state records, though they ended up winning none.
Though the state attempted to redact the names of more than 1,200 dispensary applicants for the final lottery in the last two regions — arguing they were preliminary records until the lottery took place — it did not properly do so and the applicants’ names were visible by copying and pasting. The records show these same 50 businesses formed by Clarkson submitted one application each in the Bluegrass region surrounding Lexington, all in Franklin County. However, none of those businesses came up as a winner in the random drawing of four applicants there.
Altogether, the cost of the fees for all of the applications submitted by companies created by Clarkson is more than $2.5 million.
Some hemp farm owners in Kentucky who were hoping to get cultivator licenses believed that out-of-state companies like Dark Horse were able to game the application and lottery process in their favor, but Gov. Andy Beshear dismissed such criticism after the Nov. 25 lottery.
Asked about the license winners with ties to Dark Horse Cannabis, Beshear said the companies had properly followed state regulations, as their applications listed their owner as an individual separate from the company.
As Kentucky Public Radio first reported, the applications of the businesses Clarkson formed that won a cultivator license and processor license have many similarities. They both list their principal office address and email address as that of Dark Horse Cannabis, while naming Clarkson, Dark Horse CEO Casey Flippo and Dark Horse chief scientist Adrian Haley as principal officers and board members.
The company that won the largest tier of cultivator licenses also changed its name to Dark Horse Cannabis - Kentucky after it won the lottery.
Additionally, Kentucky Public Radio obtained an investment pitch deck for Arkanna Investments, which billed itself as the parent company of both Dark Horse Cannabis and the “Kentucky vertical” — stating it already had one cultivator license, one processor license and an expected 2-3 dispensary licenses after the final two lotteries. It listed Clarkson and Flippo as their executives and co-founders.
Under Kentucky regulations, medical marijuana licensees cannot hold licences in different categories at the same time, such as cultivator, processor and dispensary licenses. Entities — including companies that are owned by the same parent entity — are also prohibited from applying for licenses in more than one category. Holding licenses in different categories is commonly referred to as vertical integration, with several attorneys in the cannabis field telling clients that the regulations prohibit such a business arrangement.
Among the four businesses formed by Clarkson to win a dispensary license in the November lottery, one listed Jeremy Davis as the owner on its application. Davis’ LinkedIn page lists him as assistant general manager of Dark Horse Medicinals in Arkansas, whose CEO is also Flippo.
Dark Horse executive says rules have been followed
Despite the statements in the investment pitch deck, Clarkson says that no rules have been broken by him or Dark Horse Cannabis.
In a statement to Kentucky Public Radio, Clarkson wrote that he is a spokesperson for “various winning license entities,” which he represents “in my capacity as an officer of Gold Leaf Management, LLC.”
“Gold Leaf is a cannabis related management and operations company which has contracted with certain license winning entities to oversee and manage day-to-day cannabis operations of the license winners,” Clarkson wrote. “The management service agreement(s) existing between Gold Leaf and various license winning entities were provided to the Office of Medical Cannabis (“OMC”) as part of the application process.”
The Office of Medical Cannabis did not turn over a management service agreement in its response to an open records request for companies’ applications. In Clarkson’s resumes that were submitted in license applications, he mentioned his role with Dark Horse Cannabis, but did not mention Gold Leaf.
Gold Leaf is not registered with the Kentucky secretary of state’s office. It was registered in Arkansas in 2022, though it has no online footprint.
Clarkson wrote that in his capacity as an officer of Gold Leaf, he “assisted a number of separate Kentucky applicant entities in connection with the application process. Each applicant entity which Gold Leaf assisted submitted an application which was compliant with all legal requirements, which was confirmed when the applications were placed into the lottery pool following the strict scrutiny of the OMC.”
Clarkson added that neither Dark Horse Cannabis nor Arkanna Investments have an ownership interest in or serve as a parent company for any license-winning applicant. He added that “if either Dark Horse or Arkanna desires to acquire ownership in a Kentucky license holder, such ownership transfer is required to be submitted to the OMC for approval (just as all transfers of ownership must be submitted to the OMC for prior approval).”
“To the best of my knowledge, each of the license winning entities that have contracted with Gold Leaf intend to become operational in Kentucky,” Clarkson wrote. “Gold Leaf looks forward to being at the forefront of creating a robust, free market in the Commonwealth to effectively, safely, and satisfactorily serve qualifying patients.”
Clarkson’s statement added that “certain false conclusions” have been drawn about the involvement of him and Dark Horse in the Kentucky application process, suggesting the criticism was spurred by “false reporting.” His statement did not specify what was false in previous reporting.
Clarkson did not respond to questions asking if the Arkanna Investments pitch deck was accurate in describing itself as the parent company of the Kentucky vertical.
Beshear responds again to criticism
After the final dispensary lottery on Monday, Beshear was asked several times about Dark Horse Cannabis, including the pitch deck in which it described itself as the parent company of Kentucky licensees that were vertically integrated.
“Well, the companies don't have ownership of these specific Kentucky (LLCs),” Beshear said. “Either they're wrong, or a false ultimate application was submitted.”
Sam Flynn, the executive director of the Office of Medical Cannabis, added that the pitch deck in question “specifically spells out that they have acquired management services agreements and contracts with these businesses” and “they have clarified that they do not own any of these licensees.”
The pitch deck specifies that Arkanna Investments is “the parent company” for Dark Horse Cannabis operations, brands, and assets and that this “parent-structure” allows them “the
flexibility to acquire and deploy timely capital resources that align with opportunities
to maximize corporate value through premium pricing, client loyalty, and consumer
satisfaction.”
The pitch deck does not specifically refer to a “management services agreement,” but does say that in October it acquired “management rights to a Processor and Tier 3 Cultivation Facility in Kentucky” and will manage licensees in the “Kentucky vertical.” It also states that operations in Kentucky will yield $155 million in revenue over the next three years.
In the press conference after Monday’s lottery, Beshear again emphasized that a lottery is the fastest way to get the medical marijuana program off the ground next year, as other options could have led to delays of two to four years with litigation.
“I guess the criticism that's been brought up is about the idea that a management company could potentially team with and or ultimately contract with a number of different owners,” Beshear said. “Now you could say that's problematic. You could also say that they bring significant experience that may get this to the market and get it faster.”
While Kentucky’s new medical marijuana program technically launches Jan. 1, medicine is unlikely to be in stores for months, as cultivators still have to grow crops from seedlings before medicine can advance to the new processors and dispensaries. Beshear did not give a specific timeline for when he expected medical cannabis to be available for customers.
This story has been updated to include details on the Dec. 16 lottery
State government and politics reporting is supported in part by the Corporation for Public Broadcasting.
