Kentucky bill would change how alcohol, cannabis beverages are taxed

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.

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