Up in smoke: Audit shows some Sacramento dispensaries aren’t paying up

City probe completed before recreational marijuana sales begin

Sacramento Mayor Darrell Steinberg is hoping a new infusion of recreational marijuana tax money can help Sacramento survive its mounting pension debt; but an internal audit released this month suggests the city isn’t collecting the right amount of money from medical pot.

City Auditor Jorge Oseguera’s report indicates that some marijuana dispensaries aren’t sharing proper receipts, are filing vague or misleading financial statements, are missing membership information or, in one case, not cooperating with officials at all.

“Due to strict federal guidelines, medical marijuana dispensaries have limited access to banking services and, as a result, are cash-based businesses,” Oseguera wrote in his report, adding that the cash-intensive nature of the operations is leading to unreported sales and unpaid taxes.

Oseguera’s team randomly inspected six of the city’s 30 medical marijuana dispensaries. In five cases, the difference between income receipts and reported revenue was significant: Two of the dispensaries had a discrepancy of more than $20,000, and two others could not account for more than $120,000 in missing cash.

“I think it shows that the city needs a process to validate the information it’s receiving from the dispensaries,” Oseguera told SN&R this week.

Back in May, when the city council was updated by CalPERS representatives of their growing pension woes, Steinberg expressed hope that weed money could save the day. Specifically, the mayor asked Joe Devlin, head of the city’s Office of Cannabis Policy & Enforcement, how much extra taxes were expected from legalized recreational marijuana. Devlin told him a reasonable estimate would be $9 million annually, which would bolster the roughly $5 million annually the city nets from medicinal marijuana fees and taxes. Steinberg repeatedly told Devlin that number “sounds low” to him.

This week, reacting to the auditor’s report, Devlin acknowledged that trying to create an entirely new regulatory framework out of the thin air is hard, and that the issues are coming to light at the right moment—before his department starts dealing with recreational marijuana.

“Maybe from a PR standpoint it was bad timing, but from a regulator’s standpoint it was good timing,” Devlin said. “It gives us a road map for where we need to go, and at the end of the day, we want to get this right.”