Kentucky is at the forefront of regulating the fast-growing market for THC and hemp-derived beverages, with the passage of Senate Bill 202 (SB 202) in early 2025. For cannabis business owners, investors, and compliance professionals, understanding the state's new three-tier distribution model and the risks of a regulatory moratorium is essential for success in 2025 and beyond.
The Three-Tier System: Modeled After Alcohol Regulation
With SB 202’s signature, Kentucky has adopted a three-tier distribution structure for cannabis-infused beverages (CIBs), closely mirroring its alcohol laws. The model is designed to curb vertical integration, prevent monopolies, and ensure robust oversight.
Key facts about the three-tier system:
- Tier 1: Producers – Licensed facilities that manufacture cannabis or hemp beverages.
- Tier 2: Distributors – Wholesale entities transporting product from producers to retailers. Distributors may not produce or sell directly to consumers.
- Tier 3: Retailers – Licensed outlets (liquor stores, specialty shops, some licensed bars/restaurants) who sell THC drinks to adults over 21.
Crucial restriction: You must pick a single tier—vertical integration is expressly prohibited. This means a company cannot own or control multiple tiers (e.g., a producer can't double as a distributor or retailer).
For the original bill text and current regulatory bulletins, consult the Kentucky Legislative Research Commission.
Licensing Process and Application Windows (2025–2026)
SB 202’s compliance structure went into effect on June 1, 2025, immediately restricting sales to properly licensed businesses. Licensing is handled by the Kentucky Department of Alcoholic Beverage Control (ABC), which will accept applications for each tier. Here’s what we know:
- Deadline to Apply: License applications for each tier opened June 1, 2025. Initial compliance grace periods are expected to close by October 31, 2025.
- License Types:
- “Producer” (on-site manufacturing)
- “Distributor” (wholesale only)
- “Retailer” (final sale to consumers)
- Background checks, financial records, and premises inspections are mandatory for applicants.
- Tax and fee structure will mirror Kentucky’s alcohol excise rates, though final fee schedules are pending as of Q3 2025.
All THC beverage businesses must review additional regulatory guidance from the Kentucky ABC, including evolving packaging, labeling, and permitted operations.
Moratoriums and Rulemaking Delays: What to Watch
One of the biggest risks for new entrants and existing brands is the possibility of a temporary moratorium. The intent is to allow state agencies time to issue detailed rules and licensing processes—akin to what happened during the rollout of Kentucky’s alcohol licensing regime.
Key Moratorium Details:
- While an outright ban on hemp beverages was considered, the legislature chose a more moderate approach: temporary pauses or restrictions may occur—especially if market abuse, public health incidents, or enforcement confusion emerges.
- Most rulemaking and rule delays are expected between June–October 2025. Businesses without a valid license after the grace period cannot operate legally.
- State agencies (especially the ABC and the Department for Public Health) are periodically issuing bulletins and updates on new moratorium threats and compliance checkpoints.
Takeaway: Any business sourcing product or planning launches should track evolving state guidance and be prepared for possible interruptions in the summer–fall of 2025.
Potency Caps and Product Standards
One of the most debated issues in SB 202’s drafting was THC potency. As of September 2025:
- Serving limit: Most products are capped at 25 mg THC per 12 oz serving (with discussions ongoing about lowering to 5–10 mg per serving for certain venues or packaging types).
- Age 21+ restriction: All retail sales and consumption are limited to adults aged 21 and over—mirroring alcohol laws.
- No resale or transfer to minors is permitted. Penalties for violation are severe, including license revocation and criminal sanctions.
- Labeling: Required to state total THC content, serving size, intoxication risk, compliant batch codes, mandatory health warnings, and a prohibition against mixing with alcohol.
For more about packaging and potency compliance, review the SB 202 summary from industry counsel.
Packaging, Labeling, and Marketing Compliance
Under SB 202, THC beverages must adhere to alcohol-style packaging rules—and in some respects, even stricter standards:
- Opaque, child-resistant packaging is required.
- No health claims or marketing to minors. No cartoon branding or athletic performance claims.
- Prominent health, dosage, and intoxication warnings must appear on all containers.
- Serving separations, such as single-dosage tabs or clear graduated markings, are required if a multi-serve package is used.
- Retail display restrictions: Similar to tobacco and alcohol, CIBs must only be visible in 21+ retail environments or behind the counter.
The Kentucky ABC’s FAQ guidance expands on these critical compliance points in more detail (source).
On-Premise Service and Evolving Rules for Bars
Bars and restaurants may apply for specific on-premise consumption licenses (subject to county and city opt-in/opt-out provisions). These pilot programs anticipate several key operational rules:
- Per-person serving limits (often 25 mg or less in total per customer per night are recommended; subject to future rulemaking)
- Mandatory server training: Similar to alcohol seller training—but focused specifically on THC effects and consumer warnings
- No mixing with alcohol (strict separation required)
Local ordinances and final state rules will determine the rollout pace of on-site THC beverage sales.
Cross-Border Shipments and Out-of-State Fulfillment
A major concern is how Kentucky’s three-tier model will treat beverage shipments from national or out-of-state producers:
- Direct-to-consumer shipping is prohibited—including from online sellers.
- Out-of-state producers must contract with a licensed Kentucky distributor to reach state-licensed retailers.
- Businesses must ensure products are compliant before shipment into Kentucky; unauthorized cross-border shipments are subject to seizure and steep fines.
Check for the latest guidance from the Kentucky Legislative Research Commission and public ABC bulletins.
Enforcement and Penalties
Penalties for non-compliance with SB 202 are serious:
- Civil fines: Can exceed $10,000 per violation for unlicensed production or sale.
- License revocation: Immediate for egregious or repeated breaches.
- Product seizure and destruction: For non-compliant, misbranded, or untaxed beverages.
The Kentucky ABC, public health authorities, and local law enforcement have authority over enforcement—a key distinction from states with cannabis-only agencies.
Key Takeaways for Cannabis Businesses & Investors
- Choose your tier—producer, distributor, or retailer—carefully; you cannot do more than one.
- Be ready for delayed implementation due to rulemaking or temporary moratoriums—do not risk operating without a license after October 2025.
- Watch for potency cap changes, packaging rules, and on-premise service pilot program updates into 2026.
- Contracts with out-of-state partners should explicitly address three-tier restrictions and Kentucky-only compliance.
- Check official bulletins and CannabisRegulations.ai for the latest updates.
Stay Ahead of Kentucky’s Cannabis Beverage Regulations
Kentucky’s SB 202 rollout is a watershed for THC beverage regulation in the U.S. By understanding licensing rules, compliance deadlines, and enforcement risks, you can strategically position your business for compliant growth in 2025 and 2026. As new state guidance and local ordinances are published, consult CannabisRegulations.ai for real-time updates, insights, and tools to keep your cannabis beverage business safe and competitive.
