The Blue Grass state (USA) (8)

I believe the answer is:

kentucky

(Other definitions for kentucky that I've seen before include "Producer of Bourbon" , "US Bluegrass State" , "Derby area" , "In USA it is know as the Bluegrass State" , "Bluegrass State, famous for breeding horses" .)

I've seen this clue in the Sydney Morning Herald.

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