Colorado medical marijuana program flunks state audit



Colorado’s Medical Marijuana Enforcement Division has been a colossal waste of money and has failed to meet the goals set for them in 2010. That’s the sum of an audit released earlier this week by the state that lambasts the agency for their ineptitude over the last two-plus years.

When the MMED – a division of the state Department of Revenue – formed, state officials “envisioned a heavily regulated system that would track medical marijuana from the time the seed for a marijuana plant goes into the ground to the time medical marijuana is cultivated, packaged, and stored,” according to Dianne Rey, head of the state auditor’s office. That program never happened, despite the agency dumping $1.1 million dollars into it before letting it fall by the wayside after the company implementing the system asked for an additional $400,000.
In fact, not much happened at all. It took an average of 23 months to complete a licensing application, and several of those licensed probably shouldn’t have been due to disqualifying information they submitted. Instead, they spent time and money — $2.3 million – on things like new office equipment, furniture (including $4,200 on four office chairs), and most notably a parking lot full of expensive SUVs – all while posting losses for 19 months straight.
The audit concluded that nobody was paying attention to the reckless spending: “Specifically, the Division did not use a competitive bidding process to outfit its four offices and instead purchased the bulk of its furniture from Colorado Correctional Industries.” As several people have pointed out, including state representatives: if this went on anywhere except with the government, everyone would have been fired by now.
The audit was the topic of discussion for Colorado legislators this week who are trying to iron out the laws surrounding Amendment 64, which legalized small amounts of marijuana for personal use and possession as well as paved the way for state-regulated marijuana shops. Though the bill was originally touted to regulate marijuana like alcohol, state officials say they want to mold the medical marijuana program to fit the recreational program. At least, that was until the audit came out.
Now the idea of handing over a new industry to the clearly incapable MMED doesn’t seem as prudent. “It’s tough for me to vote to give them one ounce more of regulatory responsibility,” said Rep. Brian DelGrosso, a member of the recreational marijuana rulemaking committee which met on Thursday.
At the same meeting, Department of Revenue chief Barbara Brohl said that many of the problems found in the audit have since been addressed since she took office in June 2011 and appointed a new MMED chief, Laura Harris, in November of that same year. Never mind that 2012 wasn’t any better of a year for the MMED and their operations (there are still some 650 dispensaries, grows and edibles kitchens waiting to be licensed), Brohl says things are under control. Brohl will again speak to the committee on April 4.
Despite the regulations not being followed by the regulators the industry hasn’t imploded completely. In fact, many dispensary owners follow the guidelines very strictly, despite the MMED clearly not caring all that much. As several online commenters over at our sister have said: this should prove that the extreme regulation envisioned isn’t necessarily needed.
Below are the highlights (or, better, low points) from the audit. You can read the entire report at the state website.

• The Division has taken an average of about 23 months to issue final licensing decisions on applications submitted by August 1, 2010, the effective date of a 2-year moratorium on new medical marijuana businesses. The shortest approval time was 436 days, while the longest approval time was 807 days.
• Of the original business license applications the Division received by August 1, 2010, 41 percent were still pending as of October 2012 and have not received final licensing decisions.
• For 13 (37 percent) of 35 new business application files we reviewed, we found evidence of potentially disqualifying information about the applicants. Ten licenses were issued, however four were questionable based on this evidence.
• At the time of our audit, the Division had not taken new occupational licensing appointments in the previous 6 months, which creates a burden because individuals cannot legally work at a medical marijuana business without a license.
• The envisioned “seed-to-sale” model for regulating Colorado’s medical marijuana industry does not currently exist. The Division planned to develop a marijuana plant tracking system, spent about $1.1 million in Fiscal Years 2011 and 2012, but was unable to pay the remaining $400,000 and implement the system due to financial difficulties. The Division reports that it will implement the system by the end of Calendar Year 2013.
• The Division does not use the prescribed statutory process when taking marijuana related to disciplinary actions against medical marijuana businesses. Additionally, the Division has inadequate controls to ensure that seized marijuana is destroyed properly.
• The Division has not developed a systematic process for setting fees that correspond to its costs of providing regulatory oversight.
• The Division laid off a majority of its staff in Fiscal Year 2012 due to revenue shortfalls. Specifically, in Fiscal Years 2011 and 2012, the Division experienced 19 consecutive months of net losses, including a loss of about $2.3 million in June 2011 because of large capital purchases, such as furniture, computer equipment, and software for a marijuana plant tracking system.
Weaknesses in the Division’s fee-setting, strategic planning, and expense controls contributed to its funding problems.
• The Department of Revenue did not identify all medical marijuana businesses in its sales tax system and underreported sales tax revenue generated by 56 dispensaries by about $760,000 for Fiscal Years 2011 and 2012 combined.