Drug Policy

The Illusion of Effective Marijuana Regulation in Colorado


Jacob Sullum

"We need to maintain the edifice of what continues to work in Colorado," declared Norton Arbelaez of the Medical Marijuana Industry Group at a January 24 meeting of the Amendment 64 Implementation Task Force's Regulatory Framework Working Group. Crucial to that system, explained Meg Sanders of Gaia Plant-Based Medicine, is "seed-to-sale production tracking," because "we need to make sure we are accountable for what we're producing until it reaches the consumer." The alternative, Arbelaez warned, is California-style chaos, which he presented as "a cautionary tale" of "cannabis run amok." The problem in California, he said, is that "the lack of a statewide seed-to-sale regulatory framework has made controlling diversion and effective regulation a near impossibility."

Arbelaez, Sanders, and their allies in the medical marijuana industry, who stand to benefit from rules that impede new competitors, argued that the state's strict regulations explain why the Justice Department has been relatively light-handed in Colorado, allowing hundreds of dispensaries to continue operating. They said preserving that system, including a rule requiring marijuana retailers to grow at least 70 percent of what they sell, would discourage federal interference with the new recreational market. And in the end, as I noted last month, their views were reflected in the task force's recommendations to the state legislature, based on the premise that, as Erica Freeman of Choice Organics put it, "you have a regulatory system in front of you that works very well." 

But as a state audit issued this week confirms, that system never really existed. Sure, there was an impressive-looking, 220-page book of Colorado Medical Marijuana Statutes and Regulations, and there was a Medical Marijuana Enforcement Division (MMED) within the state Department of Revenue. But Colorado's vaunted "seed-to-sale" monitoring system, which was supposed to include electronic plant tags, 24-hour video surveillance, and records of every marijuana transfer, was never actually implemented. "The envisioned seed-to-sale model does not currently exist in Colorado," reports State Auditor Dianne Ray, and in any case "may not make sense," especially now that the legal marijuana market is expanding to include recreational users. As a result of inadequate manpower, funding shortages, and poor financial management, Ray says, the MMED not only has failed to create the high-tech tracking system it envisioned; it does not even "review forms designed to track medical marijuana activities and inventories and ensure that medical marijuana is not being diverted from the system." That's right: Although medical marijuana businesses are required to file forms whenever they move any of their product, no one ever looks at them.

Furthermore, state inspectors visit medical marijuana businesses during the application process but generally do not check in again after they are up and running, so it is hard to say how many of 1,440 or so operations officially overseen by the MMED (including producers of cannabis edibles as well as dispensaries) are actually complying with regulations such as the 70 percent rule or the limit of six plants per patient. MMED Director Laura Harris tells me enforcement is "complaint-driven," although "we have to prioritize our complaints because we have a limited number of investigators whose primary mission at this point has to be conducting pre-licensing inspections." The auditor's report recommends discontinuing those inspections in favor of "risk-based on-site inspections of the licensed businesses as part of a comprehensive monitoring program."

The report estimates that pre-approval inspections of all 2,400 applicants who sought state licenses prior to a two-year moratorium that began in August 2010 "would take about 12,300 hours,  which equals the work of six full-time equivalent staff in a year." It adds that "the number of Division staff available to perform these on-site inspections has been as high as 19 but has been reduced to 10 as of February 2013." You can start to see why it takes so long to obtain a license. According to the audit, "The shortest approval time was 436 days, while the longest approval time was 807 days." The average was about two years. "Out of about 2,400 pre-moratorium applications," the report says, "the Division has approved or denied only 622, or about 26 percent [as of last October]. The rest of the applications were still pending (41 percent) or were voluntarily withdrawn by the applicant (33 percent)." Pre-moratorium cannabis businesses are allowed to continue operating in the meantime.

The extra time spent processing applications does not necessarily translate into extra care. In a a sample of 35 applicants, the audit found "potentially disqualifying information" about 13 (37 percent), including four out of the 10 who had received licenses. The audit likewise found that the occupational licensing required for employees of cannabis businesses "is not an efficient and effective method for determining eligibility to work in the medical marijuana industry." It does not reliably screen out people with disqualifying criminal records, for example, largely because the MMED typically issues employee licenses before it sees the results of background checks.

Other problems noted in the audit include "weaknesses in the Division's fee-setting, strategic planning, and expense controls" that have contributed to chronic revenue shortfalls, which led the MMED to lay off most of its staff last year. The audit questions the wisdom of "large capital purchases, such as furniture, computer equipment, and software for a marijuana plant tracking system" (the one that still does not exist). Meanwhile, the MMED "underreported sales tax revenue generated by 56 dispensaries by about $760,000 for Fiscal Years 2011 and 2012 combined."

This is the same agency that the Amendment 64 task force wants to entrust with regulation of the recreational market. Some state legislators are skeptical. "If they couldn't handle the little piece they have now," says Rep. Brian DelGrosso (R-Loveland) "there's no way we can trust them to handle more." But The Denver Post reports that supporters of the current system are undeterred:

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."

I don't know if that's true or not, and it really doesn't matter to me whether the current marijuana businesses are complying with the state's arbitrary rules. But Elliott and other advocates of strict control have sold those rules as the key to preventing massive diversion of marijuana to other states, which they warn would provoke a federal crackdown. It may well be the case that the appearance of careful, comprehensive regulation has helped keep the feds out, and it may also have reassured some of the voters who supported Amendment 64. But we should not confuse appearances with reality.

"There are folks in this industry [who] are interested in maintaining that status quo," says Harris, who as head of the MMED should know a thing or two about the reality of marijuana regulation in Colorado. "What you will hear from many in industry is that this works. Well, I'm not as optimistic about it working. If it worked, we would be able to present evidence of how the model works toward good enforcement….I'm not as optimistic that the theoretical model works as well as I think they hoped it would."

NEXT: VA Ranks Highly For Economic Freedom, But Poorly for Personal Liberty

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  1. This is going to be just like legalized gambling. We don’t have legalized gambling in this country. We have state sanctioned and enforced gambling monopolies. There is a big difference.

    And the people who are content to let the government enforce their monopoly by throwing their competitors in jail are a special breed of scum. Fuck the marijuana growers and send them to same hell as the “gaming industry”.

    1. Oh, I dunno. Do state gambling laws apply to church bingo night, or a group of friends playing poker? I am not sure to be honest, but personal grows and informal markets for marijuana will shoot up like weeds, if you’ll excuse the pun. IMO they’ll be hard to stop from operating in a legal to consume state, and will be cheap enough that you won’t have to go far from Craigslist to find what you want.

      1. Do state gambling laws apply to church bingo night, or a group of friends playing poker?

        Yes they do. Start running a high stakes poker game out of your house and the cops will be kicking in the door and shooting your dog. And churches have to get special permission.

      2. this one was local for me. guy made some bets at the bar. ended up dead.


        doesn’t even have to be out of your house.

        1. And since casinos are legal, at that point what are the cops doing other than just acting as armed thugs enforcing the monopoly?

          1. Eating donuts.

      3. Do state gambling laws apply to church bingo night, or a group of friends playing poker?


        1. I mean, c’mon Trouser… this is reason, you didn’t think we could find a story about a SWAT raid on six guys eating pastrami sandwiches and playing poker while the wife grumbles about the cigar smell for the rest of the weekend?

    2. We have state sanctioned and enforced gambling monopolies.

      I predict food trucks go the same way. I can’t wait for the industry to rail against “outlaw” food trucks and demand a medallion system to “protect the public”.

    3. Here is some text from the CO law, “The adult-use marijuana industry should be required to have common ownership from seed to sale. This vertical integration regulatory model means that cultivation, processing and manufacturing, and retail sales must be under common ownership.”

      Not just a monopoly, but a vertically integrated monopoly.

      Good thing pot is a simple product to produce. Image if auto makers were required to own the mines, mills, farms, textile plants, etc, etc, etc that it took to produce and sell a car.

      Pure statist stupidity.

  2. I have been assured by many a Seattle Times commenter, that Washington’s seed-to-store regulatory system is being put together by very smart people.

    I’ve now read half a dozen articles about “finding the right price” for marijuana.

    Maybe I’m too much of a libertarian to wrap my head around that concept, but what is the ‘right price’ for anything, besides the price agreed upon by buyer and seller?

    I got a ‘thank you’ email back from Scott S. whom I sent todays Times article about how Washington’s “smart people” are still trying to figure out that right price, so I won’t OT it here… if Scott S posts it in his next 24/7 offering.

  3. But Colorado’s vaunted “seed-to-sale” monitoring system, which was supposed to include electronic plant tags, 24-hour video surveillance, and records of every marijuana transfer, was never actually implemented.

    I’m guessing “was never actually feasible” would be much closer to the truth.

    1. It’s the thought that counts.

  4. Dude, I never thought about it liek that before.


  5. I think they should NOT be Trusted with the “KEYS TO THE KINGDOM” of Amendment 64 enforcement having done such a “SMOKE & MIRRORS” Job with a non-existent ‘Seed to Sale’ Monitoring. with less than 15 enforcement field professionals for the MMED, with the Hundreds and Hundreds of Operations Statewide, NOBODY has the time to check surveillance video footage to address those unscrupulous business owners who have turned off the cameras for a short period, thereby Erasing record of allegedly illegal activities at supposedly legal state sanctioned establishments. Has the Industry, through MMIG influence, been given Most Favored status, due to a minority of owners having and acquiring multiple locations? NO Transparency here!! Time for MAJOR Changes!!

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