Call to Order and Roll Call
The 6th meeting of the Interim Joint Committee on Licensing and Occupations was held on Friday, November 14, 2014, at 10:00 AM, in Room 129 of the Capitol Annex. Representative Dennis Keene, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator John Schickel, Co-Chair; Representative Dennis Keene, Co-Chair; Senators Tom Buford, Julian M. Carroll, Jimmy Higdon, Morgan McGarvey, R.J. Palmer II, and Damon Thayer; Representatives Tom Burch, Denver Butler, Larry Clark, Jeffery Donohue, David Floyd, Dennis Horlander, Joni L. Jenkins, Adam Koenig, Reginald Meeks, Charles Miller, Brad Montell, David Osborne, Arnold Simpson, Diane St. Onge, and Susan Westrom.
Guests: Jamie Montalvo, founder, Kentuckians for Medical Marijuana; Kristin Meadors, Kentucky Distillers Association; Bob Sparrow, Commissioner, Noelle Bailey, General Counsel, Marty Hammons, Former Commissioner, Department of Charitable Gaming; Johnathan Smith, Chief Operating Officer, Lancaster Bingo Company.
LRC Staff: Tom Hewlett, Bryce Amburgey, Jasmine Williams, Michel Sanderson, and Susan Cunningham
Medical Marijuana
Jamie Montalvo, founder of the non-profit Kentuckians for Medicinal Marijuana, said that his non-profit group wrote the “Cannabis Compassion Act” last year that became Senate Bill 43 and House Bill 350, neither of which passed their respective chambers. Currently, 23 states and Washington D.C. have legalized medical cannabis. Four states regulate medical marijuana with regulations so strict that they are not able to implement enacted legislation. Eighteen states have decimalized marijuana in some form.
Because medical marijuana is becoming a popular topic, there are numerous studies to support the advantages of its use. There is a US patent stating that cannabis is an antioxidant and neuroprotectant that is useful in the treatment of stroke, Alzheimer’s and Parkinson’s Disease. The National Cancer Institute states cannabinoids appear to kill cancer cells while protecting healthy cells from dying. Additionally, the Legislative Research Commission conducted a study that shows cannabis is effective for treating pain and chemotherapy related nausea. Other studies support cannabis use as effective in treating pain caused by injury and disease of the nervous system. Additionally, states with some legalization of marijuana show a significantly lower rate of opiate overdose mortality than in states that do not support legalization of marijuana use.
Qualifying conditions for safe access to medical cannabis are peripheral neuropathy, cancer, glaucoma, Acquired Immune Deficiency Syndrome, Amyotrophic Lateral Sclerosis, Muscular Dystrophy, Post-traumatic Stress Disorder, seizures and Multiple Sclerosis, as well as other debilitating diseases. Everyone connected with the use or distribution of medical cannabis will be required to be licensed including patients, caregivers, compassion centers and cultivation facilities and their agents. The compassion centers distribute cannabis to registered patients. Cultivation facilities only cultivate cannabis for compassion centers. Patients do not know where these cultivation facilities are located because there are cultivation agents that deliver the medical cannabis to the compassion centers. There are also safety compliance facilities and their agents that would be required to be licensed. These facilities test the medical cannabis for quality of the product to be free from mold or other contaminates. In order for a patient to be registered they must have written documentation from a “practitioner” as defined in KRS 218A.010 recommending that the patient may benefit from the use of cannabis. Currently a doctor cannot write a prescription for a product that the federal government views as illegal.
In response to a question from Senator Buford, Mr. Montalvo said he is meeting with the Attorney General, who has agreed to review this year’s bill. Currently, states that have tight regulations are not seeing intervention from the federal government. The bill would have accountability to the federal government for who is registered and who the distributors are for the product. The Obama administration has adopted the Cole Memo, which uses eight specific guidelines to limit federal government involvement in states where marijuana use has been authorized. This has been successful in keeping the product from being diverted in other states.
In response to a question from Representative Floyd, Mr. Montalvo responded that the current legislation allows for use of all forms of cannabis. Representative Floyd commented that some of the symptoms could be faked and the definitions should be tighter. Also, limit the medical cannabis to ingestible and prescribed by a physician only might garner more legislative support.
In response to a question from Representative Montell, Mr. Montalvo said there has to be an established relationship with a physician. The amount allowed to be purchased is established by the compassion center. The maximum amount would be three ounces every two weeks. The patient’s condition would dictate the amount used.
Representative Burch commented the use of medical marijuana has been passed in many states and that Kentucky needs to move ahead and pass a bill to take care of people who really need this particular drug.
Economic Impact of the Distilling Industry in Kentucky
Kristin Meadors, Director of Governmental and Regulatory Affairs for the Kentucky Distillery Association (KDA), said the industry is growing dramatically. Kentucky produces 95 percent of the world’s Bourbon. Kentucky has 31 distillers in the state; however, other states are passing laws to attract distillers. The distilling industry has created over 15,000 jobs with an annual payroll $707 million in Kentucky. Bourbon production has increased 150 percent since 1999, with more than five million barrels of Bourbon aging in Kentucky. This is the highest inventory in 40 years. Kentucky Bourbon was exported to 126 countries in 2013 for $1 billion.
Distilleries are spending over $1.3 billion in capital projects; $400 million in the last five years and an additional $630 million planned over the next five years. The number of craft distilleries is also growing in Kentucky. These smaller distilleries have invested $30 million since 2008, and expect to invest another $30 million over the next five years. Distillers in Kentucky purchase 40 percent of the grain used from Kentucky farmers which provide jobs and revenue for farmers. KDA is currently in negotiations with the Governor’s Office of Ag Policy to purchase more corn. Craft distillers want to use local products.
The Kentucky Bourbon Trail was started 15 years ago. In the last five years 2.5 million visitors have toured the Kentucky Bourbon Trail. There are nine distilleries on the Kentucky Bourbon Craft Tour. A concern for tourist on the Bourbon Trail is that they cannot purchase a drink at the distilleries. Distilleries would like to be able to acquire a license to allow them to sell by the drink at their location. Also, distilleries presently can only sell three liters per day, per consumer. They would like to be able to sell larger volumes, such as cases. The KDA is considering bringing legislation to change this restriction.
Representative Floyd stated that he appreciated the General Assembly passing a Bourbon barrel ad valorem tax credit which keeps money at the local level.
Senator Higdon said there are 600,000 barrels of Bourbon stored in Marion County. The Kentucky Bourbon Trail tourist business has been incredible and across Central Kentucky the success stories are endless. Ms. Meadors added that each tourist spends almost $1,000 when traveling to Kentucky.
In response to a question from Senator McGarvey, Ms. Meadors said New York has relaxed alcohol privileges, allowing visitors to purchase a drink at distilleries as if at a restaurant, and the amount of product to purchase is not limited. New York’s licensing fee is $100 for a distillery whereas Kentucky’s is $3,000 for a class A license and $1,000 for a craft distiller’s license. Regarding taxes, the tax credit was helpful on the production side. However, in Kentucky a bottle of Bourbon is taxed seven different times from manufacture to consumer sale. Some local communities also have an alcohol consumption tax.
Charitable Gaming Clean-Up Legislation
Noelle Bailey, General Counsel and Legislative Liaison for the Department of Charitable Gaming, said that there have been only minor changes to the department’s statutes since it originated in 1994. Challenges in the gaming industry need to be addressed, and while the department does not have legislation drafted for today’s discussion, it will present changes that will be presented in the coming session.
The department is proposing to change the definition of “facility.” Currently, the definition requires that a location with more than one organization gaming must have a facility license. Veterans organizations often allow other organizations to game at their locations, so changing the definition allows for this without charging duplicate license fees. Also, the department would like to add a definition for “electronic gaming device.” This allows for new technology to be implemented.
Another proposed change would allow for administrative violations for illegal gambling. Currently, statutes do not clearly state that conducting illegal gambling is a violation of charitable gaming. This will allow for fining or revocation of the charity’s license if it is found to conduct illegal gambling during a charitable gaming session.
The department also proposes to ask for an increase in licensing fees for manufacturers and distributors. The current license fee is $1,000. Surrounding states charge significantly higher fees for manufactures and distributors. Ohio charges $5,000 to each entity. The department is proposing an increase of $3,500 for manufacturers and $2,500 for distributors.
Another change proposed is for the organization’s filing of annual reports. Currently, the financial report is due by December 31st of each year. This filing renews the organizations license. Because most organizations game on New Year’s Eve they are unable to meet the filing deadline. The proposed change would move the filing deadline to January 31st.
Finally, the department would ask to change the language regarding the storage of gaming supplies. Most organizations store supplies at the facilities where they game. There is an issue with supplies being inaccessible. The change would allow supplies and equipment to be accessible at reasonable times, upon request.
In response to a question from Senator Higdon, Ms. Bailey said there are no exact figures; however, there has been a financial shortfall and the ability to send compliance officers and auditors out around the state is limited. Regarding pull-tabs, the department issues a daily license.
Representative James Kay stated that the changes the department is asking for should not be regarded as an expansion of gaming rather is it giving charitable organizations the ability to continue gaming with modern technology.
In response to a question from Senator Buford, Marty Hammons, former commissioner of the department, said the Department for Charitable Gaming is a 100 percent restricted fund agency. The last time funds were swept from the department was in 2007. Because receipts continue to decline from year to year the carry forward is very small, around $200,000. Bob Sparrow, commissioner of the department, added that the changes were intended to take the burden off of charities. Ms. Bailey added that the department has been in contact with manufactures and distributors. There has been no opposition to any change in fees. In states where manufactures and distributors are charged higher licenses fees the charitable receipts are actually higher.
In response to a question from Representative Osborne, Mr. Hammons said receipts were $365 million based on the calendar year 2013. The highest year was $608 million in 2002. Mr. Sparrow added that in 2013 there were 49 facilities gaming. This does not include special limited games.
Electronic Pull Tabs
Johnathan Smith, Chief Operating Officer for Lancaster Bingo Company, said that his company operates in four surrounding states and Pennsylvania and Maryland. In Kentucky, his company employs 15 people at a location in Louisville. Lancaster Bingo Company supplies over 300 charities and clubs in the state. Since 2009, however, the industry has seen a decline due to competition, changing demographics and the economy.
Electronic pull tabs bring an opportunity to reverse the declining trend, although the device is currently not authorized by Kentucky statute. Draft legislation proposes to allow for charities to play electronic pull tabs that have been approved by the Department of Charitable Gaming. Electronic pull tabs are not slot machines, but are rather a version of the paper pull tab being played on a machine similar to the electronic bingo device currently used by many charities. The choice to use these electronic devices is left up to the charity. Advantages of electronic pull tabs include improved integrity, easier accounting, reporting accuracy, and an opportunity to draw new players.
Games would be designed by a manufacturer and sent to a lab to review for compliance with regulatory requirements. Once the game has been reviewed the lab notifies the department that it is compliant and ready for distribution for play in Kentucky. This process protects the integrity of the games. In November of 2012 Virginia changed its gaming statute to allow for electronic gaming. In September of 2014 gross receipts for electronic pull tabs through August was $134 million from 167 locations using 632 devices. An electronic pull tab demonstration has been set up in an adjoining room, including point of sale, the way a game is played, and how the winner would redeem a winning pull tab.
In response to a question from Representative Floyd, Mr. Smith, said there are other electronic pull tab manufacturers.
Senator Schickel commented that the interim had been a positive experience. Representative Keene agreed and said that he appreciated the bi-partisan teamwork and moving things forward.
There being no further business to come before the committee, the meeting was adjourned at 11:13 AM