Arizona DHS Still Hasn’t Fixed All Medical Marijuana Fund Issues

The Arizona Department of Health Services’ Medical Marijuana Program performance audit in June 2019 found that the Department did not timely, consistently, or adequately perform several medical marijuana regulatory activities and misallocated some Medical Marijuana Fund monies. And as of a 36-month followup, the Department had implemented all 9 recommendations from Findings 1 through 5 that address the timely revocation of registry identification cards, as well as medical marijuana facility inspections, complaints, and noncompliance.

However, the Department had not fully implemented the 4 recommendations from Finding 6 related to assessing and setting medical marijuana fees to ensure they reflect Program costs, including determining direct and indirect costs for providing the Program, periodically evaluating its fees, and if appropriate, modifying its fees. For example, although the Department developed a Department-wide policy for establishing user fees, including medical marijuana registry identification card fees, the Department has not yet completed a documented analysis of its Program costs. 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 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 (see Tables 2 and 3, pages 5 through 9, for more information on required transfers).

Finally, the Department had not fully implemented the 1 outstanding recommendation from Finding 7 regarding the use of Fund monies (see page 10 for additional information). Specifically, we found that the Department paid some employee salaries from the Fund even though they worked on non-Program responsibilities during at least 1 of the pay periods we reviewed. Although 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.

We will conduct further followup on the Department’s efforts to implement the remaining recommendations at 42 months.

View the full performance audit here.