Kentucky Cannabis & Hemp Industries 

IRC § 280E Analysis / R&D Tax Credit Eligibility
  • Does Section 280E Apply to state individual income tax?

    • N/A

  • Does Section 280E apply to state corporate income tax?

    • N/A

  • Are State R&D Tax Credits Potentially Eligible for "Plant Touching" (e.g. producers, cultivators, manufacturers, retailers) Cannabis Companies?

    • No, subject to 280E restrictions. 

  • Are State R&D Tax Credits Potentially Eligible for Industrial Hemp Companies & "Non-Plant Touching" Separate Trade or Businesses (e.g. testing laboratories)?

    • Yes​, subject to further 280E analysis regarding company activities, structure, and applicable state laws.

  • See Kentucky R&D Credit Summary​

State Law Background

(1) Hemp State Law Authority & Background​ 

  • Ky. Rev. Stat. Ann. § 260.850 to 260.869 (2016)

    • Creates an industrial hemp research program and a commercial licensing program to allow hemp cultivation for any legal purpose.

    • The commercial growers’ license shall only be allowed subject to the legalization of hemp under federal law.

    • Growers are required to use certified seeds and may import or resell certified seeds.

    • Mandates the University of Kentucky Agricultural Experiment Station oversee a five-year hemp research program.

    • Creates the Industrial Hemp Commission, attached to the Agricultural Experiment Station, to oversee, among other things, the licensing, testing and implementation of regulations and rules related to hemp.

(2) Medical Marijuana State Law Authority & Background - Limited Access Marijuana Product Laws (low THC/high CBD- cannabidiol)

  • Statutory Language (year) - SB 124 (2014) Clara Madeline Gilliam Act Exempt cannabidiol from the definition of marijuana and allows it to be administerd by a public university or school of medicine in Kentucky for clinical trial or expanded access program approved by the FDA.

    • Patient Registry or ID cards - No

    • Allows Dispensaries - Universities in Kentucky with medical schools that are able to get a research trial. Doesn't allow for in-state production of CBD product.

    • Specifies Conditions - Intractable seizure disorders

    • Recognizes Patients from other states - No

    • State Allows for Retail Sales/Adult Use - No, only "cannabidiol".

  • Are sales of medical marijuana subject to sales tax?

    • N/A.

  • Is medical marijuana subject to an excise tax?

    • N/A.

(3) Recreational Marijuana State Law Authority & Background​​​ - N/A​​

  • Are sales of recreational marijuana subject to sales tax?

    • N/A.

  • Is recreational marijuana subject to an excise tax?

    • N/A.

(4) Does the State impose a Stamp Tax or Controlled Substances Tax?

  • Yes. The Kentucky Marijuana and Controlled Substances Tax imposes a tax on producing, cultivating, manufacturing, importing, transporting, distributing, acquiring, purchasing, storing, selling, using or otherwise possessing in violation of KRS C. 218A, more than 5 marijuana plants with foliation, 42.5 grams of marijuana which has been detached from the plant on which it grew, 7 grams of any controlled substance, or 50 or more dosage units of any controlled substance, which is not sold by weight. See Ky. Rev. Stat. Ann. Sec. 138.870.

  • The tax rate is $1,000 per plant, whether growing or detached from the soil, on each marijuana plant with foliation; and $3.50 on each gram, or portion thereof, of marijuana which has been detached from the plant on which it grew.

  • Tax stamps, labels or other tax indicia required to be affixed to marijuana must be purchased from the Department of Revenue. See Ky. Rev. Stat. Ann. Sec. 138.874.

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