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.
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.
Jordan said that because the state will only issue a limited number of licenses, demand is strong. Early movers in the state have the chance to capture a large market share.
The state is home to 4.5 million residents and neighbors Indiana and Tennessee, which do not allow for legal cannabis sales. In addition, many states use a medical program to test the water for a legal cannabis market before eventually expanding to adult use. Those wanting to get in the door now are likely employing a long-term vision to the investment.
420property is already listing four active Kentucky licenses for sale, ranging in price from $250,000 to $4.9 million. CannDev advertised that it had exclusive access to more than a dozen medical retail and cultivation licenses in the state that are available for acquisition.
“Sellers often price their licenses based on future potential, with some asking for $5-6 million or more, especially in higher-demand areas like Louisville or near state borders. On the other hand, buyers seem to be willing to pay $2-3 million, especially for areas that are less desirable or have low demand,” CannDev said on its website. “This is not an unusual pricing discrepancy in new markets. Sellers are generally pricing based on speculative future growth, while buyers are more focused on current market conditions, demand, and perceived risks.”
Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master’s degree in Business Journalism from New York University.
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Crain Communications Inc © 2017 – . All rights reserved.