LEXINGTON, Ky. (WKYT) – A bill that would change how alcohol and cannabis-infused beverages are taxed is under consideration in Frankfort.

House Bill 9 would impose a 4% state retail regulatory license fee on all sales of alcoholic beverages and cannabis-infused beverages to consumers by retailers.

The bill would also establish state wholesale regulatory license fees on those same products and, for the first time, bring kratom, hemp-derived, and cannabinoid products into the formal tax structure.

How the tax would be calculated

Annie Rouse, CEO and founder of CannaBuzz, said the tax itself is not the problem, but how it is calculated could be.

“Right now it kind of seems like nickel and diming at every part of the supply chain,” Rouse said.

Rouse said the introduction of House Bill 9 means retailers may not be able to absorb the cost of supply chain and retail taxes, eventually passing those costs on to customers. She said the tax would be applied per milligram of THC in a product, rather than on the product’s value — a structure she said mirrors a similar shift happening in the alcohol industry.

“That is also happening with alcohol — they’re moving away from the value tax and moving it to a by-alcohol-volume tax,” Rouse said.

“So kind of taxed on multiple levels. There’s still some work that needs to be done to kind of maybe move some of those taxes around so it’s just one tax,” Rouse said.

Rouse said she is working with legislators to help them understand the best way for the state to earn tax revenue from the products without harming the industries.

“We need to find that sweet spot so that people aren’t going out of state and instead they’re staying here, they’re buying it here and then we’re continuing to support the economy,” Rouse said.

What customers say

Until the bill is passed, it is unclear how much of a financial impact the tax would have on customers. Customers told WKYT that because cannabis-infused drinks and alcohol are entertainment purchases, those products would be among the first cut from their budgets.

“It’s already an expensive product and, you know, I don’t want to spend an extra four dollars on my sleep gummies or my beer,” said Will Partain, a customer who buys products in both industries.

Partain said a price increase would stop him from shopping local. He said if local companies raise their prices, he would shift to major brands and buy less overall.

What else is in the bill

Beyond the new fee structure, House Bill 9 would repeal Kentucky’s existing excise and wholesale taxes on alcoholic and cannabis-infused beverages on July 1, 2027, replacing them with the new regulatory license fee system.

The bill would also direct 0.5% of collected state retail regulatory license fees to the Alcohol Wellness and Responsibility Education Fund and create new public health laboratory and testing standards for cannabis-infused beverages, kratom, hemp, and cannabinoid products.

Under the bill, local governments in moist or wet cities and counties would gain new authority to impose their own local regulatory license fees. Existing local fees would be required to drop to 3% within four years; future fees would be capped at 1%.

The bill also includes a permanent prohibition on retail licensees using a premises where alcohol was sold to minors three or more times within 24 months.

Timeline

The bill includes an emergency clause, meaning most provisions could take effect immediately if signed into law. The full tax overhaul — including the sunset of existing excise and wholesale taxes and the full implementation of the new regulatory license fee system — would not take effect until July 1, 2027.

Copyright 2026 WKYT. All rights reserved.

The legalization of fixed-odds wagering is part of a comprehensive gaming and wagering bill filed March 4 with the Kentucky House of Representatives. 

Rep. Matt Koch, a Republican from Paris, and Rep. Michael Meredith, a Republican from Oakland, are sponsors of HB 904, which creates a form of betting that sets the payout odds at the time a wager is placed and those odds do not change.

Wagering on horse racing in Kentucky is now only pari-mutuel, the traditional form for the sport in which gamblers bet against each other and odds are determined based on how much is wagered on a specific bet—for example, win, place, or show—compared with the total money in the wagering pool.

With pari-mutuel wagering, the odds change as money enters the pool and has become a sore spot with many gamblers because these changes can be dramatic due to the introduction of computer-assisted wagering. CAW betting is a form of wagering that uses computer algorithms to formulate selections and then push those bets through to pari-mutuel pools, up to six bets per second in the final minute before pools are closed. This last-minute deluge of wagers can cause a horse’s odds to fall, for example, from 8-1 as they are loading into the gate to 3-1 as the race unfolds and the tote system catches up with calculating the late wagers.

Offering fixed odds is seen as one solution and has already been adopted in New Jersey, Colorado, and in West Virginia last April.

“This basically puts it in hands of the tracks to test the waters,” said Koch, who is the co-founder of Shawhan Place in Bourbon County. “As the gambling market continues to expand, we’re exploring ways to give tracks the flexibility to introduce new and engaging products. For many who enjoy wagering, consistency is key. They want the confidence of knowing a horse’s odds will remain steady throughout the race, allowing them to enjoy the experience to the fullest. However, we recognize the uncertainty that a new product brings and want to be particularly mindful of its potential impact.”

As part of the legalization of fixed-odds wagering, the bill creates a “purse stabilization fund” that will be supported by excise taxes and fees from fixed-odds wagering. Licensed tracks would pay 15% on the adjusted gross revenue of fixed-odds wagers placed on-track and via advance-deposit wagering websites and mobile applications. This fund will be used to supplement purses at live horse racing meets annually at an amount not to exceed 10% of the fund.

“This is similar to how other states manage the revenue from fixed odds and protects the traditional purse pools,” Koch said.

Additionally, Koch said having outdated totalizator networks contributes to the frustration with CAW, so HB 904 includes a provision for licensed totalizator companies and licensed racetracks to accelerate the adoption of improved technologies for wagering systems and provide “commercially reasonable access to the betting odds for retail bettors by April 1, 2027.”

“Some of these totes are only updating every 30 seconds and that is contributing to the perception and frustration,” he said, referring to bettors seeing late odds changes. “Doing our research, we realize there are things we can do for tracks to update their totes and have those updated odds in seconds. We need to stay on top of the IT and that needs to be an ongoing deal.”

The bill also includes a prohibition against any track or association licensed to conduct horse racing, sports wagering, or fantasy sports being affiliated with or benefiting from any entity that offers prediction market contracts. 

Prediction market operators are a growing concern for the gambling industry because they have expanded from taking wagers on the outcome of future events, such as elections or new events, and are now including sporting events, such as horse racing. The prediction markets defend their business by claiming to take “contracts” and not “wagers.”

The threat of the prediction markets was addressed by Churchill Downs Inc. CEO Bill Carstanjen during a Feb. 26 conference call with investors and analysts and is the subject of a panel discussion this week during the National Horsemen’s Benevolent and Protective Association’s annual conference being held at Oaklawn Park.

READ: Prediction Markets Have the Racing Industry’s Attention

Other provisions of HB 904 include:

• After Nov. 1 of a calendar year, the Kentucky Horse Racing and Gaming Corporation may authorize additional racing dates or make changes to racing dates awarded if requested by a licensed association, supported by the applicable horsemen’s group and “deemed in the best interest of racing.”
• Creates a new section that legalizes and puts the regulation of fantasy contests under the authority of the Kentucky Horse Racing and Gaming Corporation. Fantasy contests are simulated games or contests with an entry fee and awards or prizes established prior to the contest. Participants compete against each other and manage a fictional roster of actual athletes and obtain scores based on real-life performances. If adopted, all fantasy contest operators must be licensed by the state and adhere to regulations that include preventing fraud and money laundering, prevent underage participation, verify customers are geographically located in jurisdictions allowing fantasy contest participation, and comply with state audits and any complaints or allegations of prohibited conduct.
• Sets the legal age to participate in sports betting, fantasy contests, and charitable gaming at 21 but keeps the legal age for betting on horse racing at 18.