Arizona Medical Marijuana Regulators Must Revise Fee Policies, Auditor’s Review Says

“What happens when there is a lack of transparency is that it affects our ability to set our legislative agenda.”

By David Abbott, Arizona Mirror

The Arizona Department of Health Services has yet to enact needed changes to how it manages the state’s medical marijuana fund that state auditors recommended three years ago, the auditors said in a report released last month.

The Arizona auditor general issued an update to its 2019 audit of ADHS’s management of the medical marijuana fund, and found ADHS has been slow to enact changes that would address the misallocation of funds that were used to pay some salaries in the department.

While ADHS has followed most of the recommendations laid out in 2019—such as addressing timely revocation of medical marijuana certifications for patients who violated the 2010 Arizona Medical Marijuana Act (AMMA); performing medical marijuana facility inspections, and addressing complaints and noncompliance issues—the department has yet to adequately audit its fee structure and address funding allocations for specific uses outlined in cannabis legislation.

The audit found that, under the leadership of former Director Cara Christ, ADHS had not developed sufficient written policies and procedures that could “help determine whether an expenditure is allowable and whether it should be allocated to the fund,” and ensure employees documented time spent on tasks related to its management.

“The Department paid some employee salaries from the Fund even though they worked on non-Program responsibilities during at least one of the pay periods we reviewed,” the auditors reported. “The extent and impact of payroll expenditures being incorrectly allocated to the Fund is not known, incorrectly allocating expenditures further decreases available monies in the Fund for Program operations and other statutorily required or permitted uses, such as for statutorily authorized clinical trials and proficiency testing, which the Department has not yet allocated nor spent Fund monies on in fiscal year 2022.”

ADHS also has not assessed or adjusted its fee structure since the AMMA was implemented in 2011.

“Without this analysis, the Department does not have the information it would need to set its fees at amounts that would allow it to recover its costs for operating the Program and not accumulate unnecessary fund balances,” the report states. “The Department also reported that it does not yet have enough information to determine whether Program fees should be modified due to recent changes that impact the Fund’s balance, such as the legalization of recreational marijuana and statutory requirements that have required the Department to transfer monies from the Fund for various purposes.”

The AMMA, which legalized the use of medical marijuana in Arizona, was passed by voters in 2010. Since it was a voter initiative, money in the medical marijuana fund is protected and can only be used for purposes outlined in the AMMA. The funds are provided mainly by medical certification and dispensary licensing fees, as well as civil penalties imposed and donations, according to the statute.

In 2020, voters approved Proposition 207, legalizing adult-use of cannabis. But that added further strain on the medical marijuana fund by shifting $45 million to various state agencies, from law enforcement to teachers’ grants to public safety. That money was largely aimed at implementing the adult-use program.

According to the report, the fiscal year-end balance in the marijuana fund increased each year between fiscal years 2016 and 2020, peaking at more than $91.7 million at the end of fiscal year 2020.

Since then, it has decreased to an estimated $48.2 million for the fiscal year that ended on June 30. Due to expenditures and transfers, that number is expected to drop to about $22 million.

“A combination of declining revenues; outflows, consisting of expenditures and required transfers to other agencies or funds, exceeding revenues; and recent statutory changes that restrict the use of some Fund monies to specific purposes have led to a decrease in Fund monies available for the (AMMA’s) purposes,” the report states.

Fiscal Year 2022 revenues are estimated to total about $12.4 million, but projections for Fiscal Year 2023 decline to $10 million. According to ADHS reports, the number of qualifying patients in the medical marijuana program decreased from 299,054 in January 2021 to 191,682 in May 2022.

In mid-2020, ADHS implemented a rule extending the life of medical marijuana cards to two years in order to reduce costs to patients, and that has also had an effect on the amount of money in the fund.

Another potentially large strain on the fund is a 2021 law devoting $25 million over five years to marijuana research on the efficacy of cannabis to treat pain and a myriad of other ailments.

Problems with the medical marijuana fund can have adverse effects on consumers and cannabis advocates working to enact policy that benefits adult cannabis users and patients.

Arizona National Organization for the Reform of Marijuana Laws (AZNORML) Executive Director Mike Robinette says a “lack of transparency” can affect the organization’s legislative agenda when it is not clear how much is in the fund.

“What happens when there is a lack of transparency is that it affects our ability to set our legislative agenda,” he told the Arizona Mirror. “One of the big things we tried to do this year was reduce card fees, but not knowing (how much is in) the fund makes it impossible.”

As an example, Robinette pointed to the most recent legislative session, where AZNORML advocated for legislation that would have done away with certification fees for Arizona’s veterans, which failed in the final minutes of the session.

It also could potentially affect the future of research in Arizona.

“Since HB 2298 contained $5 million in annual funding for legitimate clinical trials, we have to ask the question, is that an unfunded mandate?” he said, referring to the 2021 law allocating $25 million for research. “We didn’t know where the fund was, so we didn’t know if 2298 was funded.”

In a statement to the Mirror, ADHS spokesman Tom Hermann wrote, “We are completing the implementation of the Auditor General’s recommendations and we will be working with the Auditor General to ensure that our Department is satisfying points mentioned in the report.”

The auditor general’s office will conduct another follow-up on the department’s progress in six months.