Green’s Dictionary of Slang

(a) to adulterate alcohol, typically of bootleggers making illicit liquor; thus cutting plant n., a place where the adulteration takes place.

1927		B. Cormack Racket Act I: (He drinks the rest of the whiskey) [...] pratt: You’d better cut that stuff. miller: It’s cut plenty before I get it.
1928		Phila. Eve. Bulletin 5 Oct. 40/3: Here are a few more terms and definitions from the ‘Racket’ vocabulary: [...] ‘cut,’ to dilute [...] ‘cutting plant,’ a place where moonshine liquor or redistilled alcohol is diluted with water and colored with burnt sugar.
1931		C.S. Montanye ‘Tight Spot’ in Complete Stories 15 Sept. 🌐 This place [...] was being used as a plant for ‘cutting.’ Here, in other words, bootleg booze was taken, adulterated, rebottled and relabeled.
1940		S. Longstreet Decade 312: Alki cutting with Nails Flowers’ mob, they say. [...] It stinks, this alki. It burns holes in the guts – but what the hell. Re-cook it, flavour it with tar extract, print the phony labels.
1949		A.I. Bezzerides Thieves’ Market 152: She poured it [bourbon] straight, not cutting it with water.
1967		(con. 1950s) McAleer & Dickson Unit Pride (1981) 336: If you guys had half a brain, you’d’ve appropriated some juice outa the kitchen to cut this with.
1988		J. Healy Grass Arena (1990) 125: We’d cut the jake with pisshole water.

(b) (drugs, also cut down) to dilute a drug with some adulterant; thus cutting house n., a place where the adulteration of drugs takes place.

1937		B. Dai Opium Addiction in Chicago 198: Cut them. To dilute drugs. Morphine cannot be cut as it comes in cube form, but heroin, being a powder, is cut by using sugar or milk. Cocaine can be cut; that is, flake cocaine can, but crystal cocaine cannot.
1949		Monteleone Criminal Sl. (rev. edn).
1952		(con. 1948) G. Mandel Flee the Angry Strangers 303: ‘Here’s a few caps,’ [he] dropped six pegs of Horse cut with sugar into her hand.
1965		C. Brown Manchild in the Promised Land (1969) 150: A lot of cats knew how to cut drugs. They knew how much sugar to put with heroin to make a cap or bag.
1977		A. Hoffman Property Of (1978) 243: We got to cut the shit and then bag it into dimes.
1985		N. Pileggi Wiseguy (2001) 195: I used her place to store and cut the stuff.
1992		S.L. Hills Tragic Magic 67: Alvin and I used to [...] pick up the dope and go down to Manhattan to some of the cutting houses.
1996		P. Howard The Joy (2015) [ebook] [I]t’s obvious this gear I’m after getting is more Shake ’n’ Vac than smack. I curse the bastard who cut it.
1999		K. Sampson Powder 84: It’s the best cocaine in London – hasn’t even been cut yet.
2000		J.J. Connolly Layer Cake 3: This particular half-key is just pure bunce cos it’s the result of us chopping and cutting a little bit more than usual over the last couple of weeks.
2001		(con. 1990s) in J. Miller One of the Guys 145: ‘He’ll have it already wrapped up [...] and give it them and they have to go cut they own stuff down’.
2010		(con. 1973) C. Stella Johnny Porno 31: Louis couldn’t cut his weed with any more oregano than he already had.
2017		A. Parks Bloody January 267: ‘Janey [...] cannae get enough of it, sort of a guinea pig, see how much we need to cut it’.
2018-20		T. Thorne (ed.) ‘Drill Slang Glossary’ at Forensic Linguistic Databank 🌐 Cuttin’ - mixing or adulterating illicit drugs.

(c) (US gambling) in ‘numbers’ gambling, to reduce the payoff on a certain outcome to shield the operation from loss.

1969

U. Hannerz Soulside 141: [A] certain number becomes very popular, so that a hit on that number would cause the bankers a significant loss. To prevent this, the agent may declare that the number has to be ‘cut"—this would bring down the payoff on a hit.