City audit finds many medical marijuana shops are unlicensed; city doesn't know number of businesses

Audit finds licensing process ineffective

DENVER - An audit of Denver’s medical marijuana licensing program found that practices are inefficient and ineffective.

The audit, released on Thursday, describes problems with record keeping, oversight and staffing.

“The (Excise & License) Department’s lack of follow-up on license applications, and in conjunction with state law, has allowed some medical marijuana businesses to operate without a valid city license,” the report said.

“It’s pretty serious,” said Denis Berckefeldt, director of communications for the Denver Auditor’s Office. “That’s the bad news. The good news is that the problems are being fixed or are able to be fixed.”

Berckefeldt said some of the problems in Denver are the state’s fault.

“The state didn’t do a very good job of getting into the business of regulating medical marijuana to begin with,” he said. “They kept changing, and that impacted how Denver did some things.”

Berckefeldt said there is a disconnect on how many medical marijuana facilities there are in Denver.  The state says there are 676.  The city says there are 739.

“That’s because the data bases were all screwed up,” he said. “They’re not reconciling with one another.”

Berckefeldt said the other serious problem is a resources and staffing issue.

There are a number of dispensaries, infused product makers and grow operations in Denver,” Berckefeldt said. “We had one person handling all that stuff (at Excise).”

He said the workload was too much, and it was difficult for that person to keep up.

Berckefeldt said the audit highlighted another problem in that regard.

“Medical marijuana is a cash business,” he said. “The transactions for licenses and taxes are done in cash. There was one person taking the cash.”

The communications director said they had no reason to believe there was any fraud or malfeasance going on, “but you just don’t have that,” he said. “You don’t have one set of eyes doing everything, taking the money in, saying this is what I’m putting in the bank.  There were no checks and balances.”

When asked if there were medical marijuana grow operations that the city didn’t know about, Berckefeldt replied, “We don’t know.”

And when asked about inspections, Berckefeldt said some businesses were not inspected in a timely fashion, in part because they had been grandfathered in.

“One of the problems was the grandfathering in,” he said. “Some businesses had a state license, but not a city license.”

When asked if the city was missing out on tax money because of that, he said, “We don’t know what we don’t know.”

Berckefeldt did say that there is going to be a date certain, July 1, 2014 where anybody who is currently doing business and has not established full licensure “will be out of business, done.”

The audit found 7 major problems:

The City’s medical marijuana records and data are incomplete, inaccurate and at time inaccessible

  •  The Department lacks formal policies and procedures to govern the medical marijuana business licensing process
  • The coordination between the City and the state for dual medical marijuana licensure has been poor
  •  Deadlines are either not established or not enforced for key

steps in the medical marijuana licensure process

  •  The medical marijuana licensure process lacks management

oversight, adequate staffing, and proper segregation of duties

  •  The medical marijuana licensure fee was established arbitrarily
  •  Key information has not been kept up-to-date as medical marijuana policies have evolved
     

Berckefeldt said the audit also highlighted a problem with inspections.

Last May, Denver firefighters were surprised to find razor wire, cinderblocked windows and difficult locks on two doors when they responded to a fire at an industrial site in northeast Denver. They said it was a marijuana grow operation they didn’t know about.

When asked if there are others like that in Denver, Berckefeldt said, “That’s our concern.”

He said that’s not an Excise and License issue, but it is a city issue.

“If you make a change, if you put in walls, or change wiring, that’s supposed to be reported,” he said. “But what was happening is that owners were simply saying, ‘oh, we didn’t make any changes.’ And there was no verification. So one of the things we noted is that you  need to do that. You can’t rely on someone telling you we didn’t make changes. You need to actually verify that. That means a physical inspection.”

Berckefeldt said the audit outlined 20 recommendations to the Dept. of Excise and License and that the dept. head agreed with all of them.

"He's following up on 15 of them right now," Berckefeldt said.

Denver Mayor Michael Hancock issued a statement late Thursday which said the city is working hard to resolve the issues.

“As a regulatory framework for medical marijuana was unprecedented at the time of initiation, we are learning lessons and turning them into opportunities to create a better, more efficient system moving forward,” the mayor said.  “In the coming months, we will:

  • Fix a loophole in state regulations so that all dispensaries operating in Denver must have a Denver license, which will allow us to effectively oversee and regulate them.
  • Improve coordination and communication between the state and the city.
  • Eliminate inefficiencies and streamline processes to create responsible and effective regulations.
  • Seek sufficient funding through fees and a proposed sales tax to ensure adequate staffing  and  technology.

 

With the marijuana industry expanding to include recreational sales, it is imperative that we leverage lessons learned to create a better regulatory and enforcement system that will best protect our children and the integrity of our neighborhoods moving forward.”

A spokeswoman for a local organization concerned about the rapid growth of the marijuana industry told 7NEWS that until the problems are remedied, “the City Council should place a moratorium on retail marijuana.”

Rachel O’Bryan of Smart Colorado said, “Unlike the State, which is bound by Amendment 64 to proceed at a feverish, unrealistic pace to allow retail marijuana to become operational, cities and counties have been granted the option to say ‘slow down.’ We ask council members to heed warning signs of impending disaster.”

“We knew it was going to be bad,” said Denver City Councilman Charlie Brown.  “Now we have a clear direction on which to improve, and improve we must.”

Brown said city council members will meet July 29 to discuss an additional tax on marijuana.  He noted that half the council is term limited.

“Whether we like it or not,” Brown said, “marijuana will be our legacy.  And that’s how we need to approach it. We have to get it right.”