DENVER - The state government has badly flubbed its attempt to regulate medical marijuana, according to an audit released Tuesday.
The audit came out just as legislators are preparing a bill that would use medical marijuana regulations as a model for what's expected to be a much bigger recreational pot industry.
The Medical Marijuana Enforcement Division nearly ran out of money last spring and had to lay off a majority of its staff. It has been slow to license marijuana businesses and often grants licenses to people who might not be eligible because of criminal records, the State Auditor's Office found.
Auditors also said a strict "seed to sale" tracking system of marijuana plants that the Legislature set up is not working.
"We found the seed-to-sale regulation that Colorado is widely thought to have does not exist," said Nina Frant of the State Auditor's Office.
"And we're not sure that it should exist," she added.
Such micro-level monitoring might not be appropriate after the passage of Amendment 64, which legalized marijuana for adults, the audit said.
Regulators ran out of money to pay the contractor they hired to set up software for the seed-to-sale tracking, and they do not have a video monitoring system in place to let inspectors watch grow houses and retail stores.
A better approach would be to focus their inspections on businesses with a poor record of following the rules, the auditors recommended.
Barbara Brohl, director of the Department of Revenue, oversees the medical marijuana division. She agreed with most of the criticisms by the auditors.
"We agree that there's some lessons to be learned with the implementation of the medical marijuana enforcement. The entire leadership of that division has been changed," Brohl said.
But state legislators, who designed the system just three years ago, were livid.
"It just seems like a pattern that whenever things occur that are not up to snuff, it's an excuse that we had a change in personnel. It's not an excuse," said Sen. Lois Tochtrop, D-Thornton.
At the same moment that the Legislative Audit Committee was listening to the takedown of the state's medical marijuana regulations, other legislators on a separate committee were drafting a bill to give the task of recreational marijuana regulation to the Department of Revenue.
Legislators are considering hefty taxes on recreational pot in order to pay for the regulatory structure. Experts of Gov. John Hickenlooper's pot task force have warned that it's hard to predict the size of the marijuana market.
That's exactly the problem that trapped medical marijuana regulators.
After an initial rush of application fees, the division's revenue dried up, and it is down to 15 staff members after being budgeted for 55.
The remaining staff has a large backlog of licenses to approve and makes mistakes on the licenses it has managed to approve.
About 2,400 businesses applied for a medical marijuana license, but more than 900 withdrew their applications or were denied. The state has approved just 478 licenses, but another 960 businesses were operating because they were grandfathered in while they wait for the state to issue a license.
The division licenses both businesses and employees, in an attempt to keep criminals out of the industry. But auditors found that it often gave out employee licenses without waiting for the results of a fingerprint-based criminal background check. It granted one license to a person with felony arrests for aggravated robbery and menacing with a deadly weapon.
Despite the cash crunch, the audit uncovered frivolous expenses. The division paid $250,000 for furniture, including $4,200 for four office chairs. It also bought more Blackberry phones and tablet computers than it needed.
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