Pubdate: Thu, 28 Mar 2013
Source: Wall Street Journal (US)
Copyright: 2013 Dow Jones & Company, Inc.
Author: Nathan Koppel


As Colorado lawmakers craft rules to govern the newly authorized 
recreational-pot businesses, a state audit has raised questions about 
regulatory oversight of the state's existing medical-marijuana 
industry. A committee of Colorado House and Senate legislators holds 
its final scheduled meeting Thursday as the legislature seeks to meet 
a May deadline to finalize laws covering recreational-pot sales, 
which were approved by state voters last year and are set to go into 
effect in 2014. The recreational-pot industry is expected to be 
larger than its medical counterpart.

One challenge will be to adequately fund the undertaking. An audit 
released Tuesday said the Colorado Department of Revenue's Medical 
Marijuana Enforcement Division, which oversees the state's roughly 
1,400 businesses that sell pot for medical use, hasn't generated 
enough revenue from fees to hire the staff it needs to closely track sales.

The agency was forced to lay off a majority of its staff in 2012 
owing to revenue shortfalls, a problem compounded by large 
expenditures on furniture, computers and other items, according to the audit.

It noted that the agency blamed declining revenue on a state 
moratorium on new medical-marijuana businesses from August 2010 to 
July 2012. The agency receives revenue primarily from application and 
licensing fees paid by medical-marijuana businesses.

Other problems the report cited include the division's recommendation 
that licenses be granted to applicants who potentially failed to 
satisfy the state's "good moral character" requirements because they 
had prior felony arrests or had participated in alcohol and 
drug-treatment classes. The Medical Marijuana Enforcement Division 
declined to comment. State Democratic Rep. Dan Pabon, chairman of the 
joint legislative committee on recreational-pot rules, said the audit 
underscores the need to adequately fund oversight.

Lawmakers, he said, would consider asking voters later this year to 
approve a special recreational-marijuana sales tax, in addition to 
the state's normal 2.9% sales levy. "We need to make sure we have the 
resources to properly protect public safety," Mr. Pabon said. Michael 
Elliott, executive director of Colorado's Medical Marijuana Industry 
Group, agrees the state needs to better fund regulation. But it 
should do so, he said, by charging higher licensing fees to marijuana 
businesses, not by raising sales taxes, which would be passed to 
customers through higher prices, spurring more black-market 
purchases. "We need to transition all black-market sales to legal 
sales, which is the best way to bring in additional state revenue," 
Mr. Elliot said.

Rachel Gillette, a Colorado attorney who represents medical-marijuana 
businesses, said that despite failings identified by the audit, the 
vast majority of marijuana dispensaries strictly comply with state 
and local rules. "There is self-regulation in the industry," she 
said. "It is not the Wild West."
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MAP posted-by: Jay Bergstrom