Pubdate: Wed, 27 Mar 2013
Source: Denver Post (CO)
Copyright: 2013 The Denver Post Corp
Contact:  http://www.denverpost.com/
Details: http://www.mapinc.org/media/122
Author: Eric Gorski
Page: 1A

AUDIT FINDS COLORADO'S OVERSIGHT INADEQUATE

Regulators Fall Short on Tracking Inventory and Managing Their Budget.

State regulators charged with watching over Colorado's medical 
marijuana industry have fallen short on everything from tracking 
inventory and managing their budget to keeping potential bad actors 
out of the business, a state audit released Tuesday found.

Often lauded as a national model, Colorado's so-called seed-to-sale 
system of regulating medical marijuana does not exist, auditors found.

The findings are a blow to the state Medical Marijuana Enforcement 
Division as it prepares to take on the additional task of regulating 
recreational marijuana legalized by Amendment 64

The division, part of the Department of Revenue, has agreed to 
several steps to improve oversight of Colorado's 1,440 dispensaries, 
grow centers and marijuana infused-product businesses.

The enforcement division has been beleaguered by budget problems 
since revenue from business applications did not come in as 
anticipated, but the audit found problems that run deeper than that.

Auditors say the division has not adequately identified its proper 
role or done a sufficient job managing its programs and finances.

"We agree there are some lessons learned with the implementation of 
medical marijuana enforcement," Department of Revenue executive 
director Barbara Brohl said at a Legislative Audit Committee 
hearing."We understand there are some concerns, but we can't move 
forward unless we have a baseline. We have a baseline now."

Under Colorado law, medical marijuana business owners must clear many 
hurdles, including undergoing background checks to root out felons, 
opening their financial books, installing expensive surveillance 
cameras and accounting for their product.

The state isn't holding up its part of the bargain, auditors found.

For instance, a Florida company was paid $1.1 million to develop a 
seed-to-sale inventory tracking system, but the division was unable 
to come up with another $400,000 to put it in place. Auditors also 
noted that the division doesn't review a dozen separate tracking 
forms it requires businesses to submit, including travel manifests 
showing when medical marijuana plants or products are transported.

"It seems to me we have a dysfunctional system of tracking the 
marijuana," said state Sen. Steve King, R- Grand Junction.

Tracking is "critical"

Auditors suggested such a "micro-level" approach to tracking pot may 
not be necessary now that any adult can grow and possess it under Amendment 64.

But Ron Kammerzell, the division's acting senior enforcement 
director, said the division is working to put the tracking system in 
place by year's end at little or no additional cost. He called 
inventory tracking "critical" to preventing medical marijuana from 
being diverted out of the system, including out of state.

Meanwhile, more than 40 percent of businesses who met a deadline to 
file license applications in the summer of 2010 have yet to be fully 
processed. Those businesses were grand fathered in - allowed to stay 
open even though the division has yet to license them.

And auditors questioned why some licenses were approved.

In 13 of 35 new business applications reviewed by auditors, evidence 
was found "of potentially disqualifying information." Auditors 
flagged five files for concerns about past felony arrests, possible 
financial assistance coming from a "potentially unsuitable person" 
from out of state, and involvement in drug or alcohol-treatment classes.

Ten applications in that pool received licensing, and auditors 
questioned whether four of them deserved it.

Auditors also found evidence of businesses located within 1,000 feet 
of schools, which is barred by state law.

Worker-licensing flawed

A program to license employees at medical marijuana businesses is 
flawed, as well, auditors found. Although applicants must be of "good 
moral character," a review of 25 randomly chosen applications found a 
license was issued for 22 before the division had received the 
results of a fingerprint-based criminal-history check.

Seven of the applications included documentation of past arrests, 
including one case in which the person had been arrested for felony 
aggravated robbery and felony menacing with a deadly weapon.

The auditor's office suggested dropping the occupational licensing 
requirement and, instead, require businesses to subject their 
employees to criminal background checks. Division director Laura 
Harris, however, said law enforcement strongly supports the 
licensing. The audit also found:  Seizures of marijuana from 
businesses that are not fully explained and "weak controls" over its 
destruction, including insufficient documentation and a storage 
facility that features weaker security features than those required 
of medical marijuana businesses.

Questionable spending, including purchases for furniture, BlackBerry 
phones and a fleet of vehicles. The division racked up 19 straight 
months of net losses, including a loss of about $2.3 million in June 
2011 because of large capital purchases.

A failure to identify all medical marijuana businesses in the sales 
tax system, underreporting sales tax revenue generated by 56 
dispensaries by about $760,000 in fiscal years 2011 and 2012.

The division agreed to a number of recommendations, including steps 
to improve the application process, monitoring, expense controls, and 
seizure and destruction policies.

Michael Elliott, executive director of the Medical Marijuana Industry 
Group, said the state's regulation works but needs funding. Although 
the state might lack oversight, he said, "the vast majority of 
business owners are staying in strict compliance with state law."

The enforcement division says it had to stretch one year of operating 
expenses over two because of a moratorium on new business 
applications, a key source of its funding.

Last year, it closed three satellite offices and trimmed its staff 
from 37 to 15.

The legislative committee will meet again Wednesday to complete its 
review of the audit.
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MAP posted-by: Jay Bergstrom