Navigating Kentucky SB202: What Cannabis Beverage Businesses Need to Know

Big changes are here for cannabis-infused beverage (CIB) businesses in Kentucky. With the passage of Senate Bill 202 (SB 202), the Commonwealth introduced a sweeping new regulatory framework that treats CIBs much like alcoholic beverages, fundamentally altering how these products are licensed, manufactured, distributed, and sold.

As of June 1, 2025, SB 202 implements a three-tier system for CIBs, mirroring its alcohol regulations. Businesses may only operate within one tier—manufacturing, distribution, or retail—with limited self-distribution permitted for licensed manufacturers. Notably, the law does not include a license type for on-site consumption, though a temporary exception allows CIBs to be sold by the drink at fairs and festivals, but only through January 1, 2026. This means that CIBs can no longer be sold by the drink at bars or restaurants licensed by the Department of Alcoholic Beverage Control (ABC).

Under the new system, permitted manufacturers will provide product to licensed distributors, who will then provide product to licensed retailers.  Retailers may only sell CIBs by the package, for off-premise consumption, from a quota retail package license location. Direct-to-consumer shipping will be permitted by manufacturers holding CIB Shipping licenses.

This new legislation significantly alters the regulatory landscape for these products, and business owners need to understand how it impacts their operations, particularly regarding distribution and retail sales. 

What is a “Cannabis-Infused Beverage” Under SB202?

Understanding the definition of a “cannabis-infused beverage” is a crucial part of the law. SB202 defines it as “a properly permitted adult-use cannabinoid liquid product intended for human consumption that has intoxicating properties that change the function of the nervous system and results in alterations of perception, cognition, or behavior”. Critically, it “shall not contain more than five (5) milligrams of intoxicating adult-use cannabinoids per twelve (12) ounce serving“.

SB202 includes three specific carveouts from this definition:

1. Medical cannabis under KRS Chapter 218B.
2. Any type of “hemp tincture”.
3. Any product containing solely “nonintoxicating cannabinoids”.

SB202 does not define “hemp tincture” or “nonintoxicating cannabinoids” in detail, leaving some ambiguity about which products fall outside the CIB framework. Cabinet for Health and Family Services (CHFS) regulations define “nonintoxicating cannabinoids” as products without psychoactive properties, that is not changing nervous system function, perception, cognition, or behavior.   CHFS regulations further clarify that a “nonintoxicating cannabinoid product” must have a ratio of at least 15 nonintoxicating to 1 adult-use cannabinoid and contain 2.5 mg or less of adult-use cannabinoid per serving. However, products with low levels of intoxicating cannabinoids but high CBD content may or may not be regulated as CIBs, depending on future regulatory clarification.

The Big Shift: Moving to the Department of Alcoholic Beverage Control

The most significant change under SB202 is the transfer of licensing and distribution regulation for cannabis-infused beverages from the CHFS to the ABC. Manufacturing and testing will remain under the purview of CHFS.

The ABC is required to implement specific regulations for the law by July 1, 2026. Until then, the ABC will adopt and enforce the current CHFS administrative regulations concerning retail sales and distribution.

The New Three-Tier System: Manufacturing, Distribution, Retail

SB 202 establishes a three-tier system for CIBs, closely mirroring Kentucky’s alcohol regulatory model:

• Manufacturing: Manufacturers must be permitted by the Kentucky Department for Public Health within CHFS. Products may be permitted and registered here.

• Permitted manufacturers may self-distribute to retailers within certain quantity limits, mirroring the 5,000-gallon annual limit for small distilleries in alcohol law.
  • Direct-to-Consumer (DTC) shipping is permitted with a CIB Shipping License from the ABC.
• Distribution: Cannabis-infused beverages must be distributed by a licensed distributor. Distributors must obtain a CIB Distributor License from ABC once they are made available in the online licensing portal. 
  • Alcohol distributors can obtain a supplemental license to distribute cannabis beverages, or a non-alcohol distributor can get a standalone license.
  • Distributors can purchase from CHFS-approved manufacturers or other distributors and sell to other distributors or licensed retailers.
  • Distributors cannot simultaneously hold a retail license.
• Retail: Only quota retail package stores (i.e., liquor stores) with both an alcohol license and a supplemental CIB Package Retail License through ABC may sell CIBs by the package for off-premise consumption. Until the supplemental license is available through ABC, retailers must obtain a permit from CHFS.
  • The required license is the type held by liquor stores selling packaged liquor and wine for off-site consumption.
  • Retailers cannot obtain a standalone license just for cannabis beverages.
  • Retail sale of packaged cannabis beverages is only for off-site consumption.
  • Retail sales are limited to wet territories and consumers 21 years of age and older.

Implementation Timeline Highlights:

• After June 1, 2025: Only CIBs meeting the 5 mg per serving limit may be sold by ABC licensees, and only by the package for off-premise consumption (except at fairs/festivals until January 1, 2026).

• Beginning July 1, 2025: The ABC may begin revoking or suspending licenses of companies under its jurisdiction selling illegal cannabis-infused beverages.
• Until January 1, 2026: Licensed manufacturers, distributors, or retailers may sell and serve complimentary samples at fairs and festivals.
• July 1, 2026: The ABC must adopt its own regulations by this date, and the ABC will rely on existing CHFS regulations for cannabis-infused beverages until the earlier of such date or the adoption of the ABC’s regulations.

Kentucky’s SB 202 represents a significant shift in the regulation of cannabis-infused beverages, aligning them with the state’s robust alcohol control system.  While the new law opens the door for expanded legal sales, it also imposes strict limits and creates new compliance challenges.  Until ABC issues its own regulations by July 1, 2026, businesses must navigate a patchwork of CHFS rules enforced by ABC.

Businesses in the cannabis and hemp sectors should act now to understand their obligations, secure the necessary licenses, and position themselves for success in this rapidly changing market. The ABC issued FAQs that can be reviewed as a starting point for the ABC’s current positions, and it will be necessary to monitor developments with future rulemaking and licensing opportunities.

Given the complexity of the law and evolving regulatory landscape, consulting with legal counsel is highly recommended. For tailored legal guidance on Kentucky’s cannabis-infused beverage regulations, contact our team today.