Some Sacramento City Council members say they will not allow medical marijuana dispensaries to sell recreational pot until they take care of problems identified in a recent audit.
The City Council is expected to discuss how to regulate sales of marijuana for recreational use on Nov. 28, about a month before such commerce becomes legal in California. State voters in November 2016 legalized recreational marijuana for adults, but local governments can decide if and how the drug can be sold in their jurisdictions.
Council members on Tuesday night discussed a critical report from the Office of the City Auditor. The audit examined the city’s 30 medical marijuana dispensaries and found instances of under-reporting of tax revenue and failures to comply with city operational regulations. Violations included smoking marijuana on site and selling more plants than allowed. Auditors also had trouble obtaining financial information from dispensaries that the businesses are required to supply.
Three council members said the audit highlighted existing concerns they had about the medical marijuana industry and upcoming changes associated with the legalization of recreational cannabis. Other council members said they shared the concerns.
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“Until we have protocols and procedures in place where we can be certain that we collect taxes and we can have auditors gain access, we have no business increasing the amount of product that can be procured by the medical dispensaries,” said Councilman Jeff Harris. “We simply can’t give free rein.”
Councilman Eric Guerra said the lack of regulation of dispensaries is a “serious problem.”
“We should demand that we have the highest quality industry,” he said.
The city’s pot czar, Joe Devlin, said he welcomed the audit as it helps identify areas for improvement as the city moves to regulate recreational sales. But Devlin, whose Office of Cannabis Policy and Enforcement was created in June, cautioned that it won’t be easy imposing rules on an industry that long operated in the shadows.
“The regulation of an industry that has been illegal for more than 100 years is a significant challenge,” Devlin said.
Devlin and the city audit also note that some of the financial reporting problems of the dispensaries are the result of being cash-based businesses. Because marijuana still is illegal under federal law, many dispensaries have limited access to banking services.
Devlin said some dispensaries have helped their cause by hiring a local restaurant owner, Matt Haines, who recently joined a company called Capitol Compliance Management, to address operational problems, including those identified in the audit.
Capitol Compliance Management represents nine Sacramento dispensaries, with the “goal of making them 100 percent compliant,” Haines told the council. That includes making sure that “taxes are paid in full, and paid on time.”