Colorado’s fledgling medical marijuana industry — up and running since 2010 under detailed state regulations that purport to monitor every cannabis plant from seed to sale — is hamstrung by an understaffed state agency crippled by funding trouble and a seemingly insurmountable workload, according to a state audit released Tuesday.
The audit shows that the state Department of Revenue, which oversees medical marijuana dispensaries, growing operations and cannabis-infused product manufacturing, is performing miserably at one of its primary tasks: licensing marijuana businesses and the people who work for them.
Some businesses that applied for a state license as long ago as August 2010 have yet to receive them as of October 2012, when the audit was conducted. The average wait for a license is 23 months, with the longest approval time stretching to 807 days.
The licensing process is arduous, subjecting prospective business owners to a level of financial and personal scrutiny not found in other industries. Licenses are only granted to those deemed to be of “good moral character” who pass a criminal background check, are current on their taxes and child support payments, and who can prove that their financing doesn’t come from out-of-state or otherwise questionable sources.
Lawmakers originally proposed this microscopic level of examination in order to keep the industry free of unsavory characters and to help ensure that marijuana wouldn’t be diverted to the criminal black market. But the audit found that some licenses have been granted to businesses and employees that appear to be ineligible for them, or that licenses were granted before all the background checks were completed.
In one case, a license was approved for an applicant who had been arrested for felony aggravated robbery and felony menacing with a deadly weapon.
Licensing fees, which can total thousands of dollars depending on the type of license and the size of the business, are collected up front to fund the Revenue Department’s Medical Marijuana Enforcement Division (MMED).
But a two-year moratorium on new applications that went into effect on Aug. 1, 2010 — which was meant to allow the MMED to cope with a glut of applicants as well as a slate of complex new regulations adopted just a few months before — effectively cut off the division’s funding, because no application fees were being collected.
As a result, the division’s revenue dropped 56 percent from fiscal years 2011-2012, while expenditures on such things as furniture (including $4,200 for four office chairs) and equipment (including unused cellphones that cost the division an estimated $10,000 per year) increased 11 percent.
Funding shortfalls led to massive layoffs. At one time, the division had 37 employees. Now there are only 15, and they have oversight responsibility for 1,400 medical marijuana businesses and nearly 1,000 outstanding license applications — almost all of which are more than two years old.
When the audit was being presented to the Legislative Audit Committee, committee member Sen. Lois Tochtrop said high turnover “is no excuse” for the division’s poor performance.
“You have guidelines,” she said, “in statute and in rule, and they should be followed.”
The division is also not delivering on its promise to carefully monitor marijuana as it makes its way from the growing room to the retail counter to the hands of customers, the audit found. Regulations originally called for video surveillance to monitor every step of the seed-to-sale process, but after spending $1.1 million on equipment, the MMED couldn’t pay the final $400,000 to implement the system.
Division staffers also don’t review paperwork required of medical marijuana businesses to account for their inventory and their sales.
“We found that the envisioned seed-to-sale model does not currently exist in Colorado,” the auditors concluded.
The Revenue Department can’t even properly track the amount of sales tax medical marijuana generates. It has underreported tax revenue from 56 businesses to the tune of $760,000. Auditors also found that some dispensaries don’t even have sales tax licenses, and that 12 percent of all dispensaries didn’t pay any sales tax in 2011 or 2012.
Problems at the MMED are so widespread that the committee will continue to study the audit on Wednesday.
Meanwhile, another group of lawmakers is looking at the recommendations of a special task force for regulating recreational marijuana, which was approved by voters in November. Those committee members will vote on Thursday on a package of proposed rules to bring to the legislature as a whole.
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