The usage is confirmed as sense 8 of the adjectival cut per the OED - see below. However no etymology is given.
- slang. Drunk, intoxicated. 1673 R. Head Canting Acad. 171 He is flaw'd, fluster'd, Cup shot, cut in the leg or back. 1699 B. E. New Dict. Canting Crew Cut, Drunk; Deep Cut..Cut in the Leg or Back, very drunk. 1760 C. Johnstone Chrysal I. ii. i. 137 Your excellency was a little cut, but you broke up much the strongest of the company. 1823 J. G. Lockhart Reginald Dalton I. i. vii. 73 I'm sure we had not much more than a bottle a-piece..I was not cut. 1848
Thackeray Bk. Snobs xli. 160 I was so cut last night.