Nevada missed $500K in tax revenue from marijuana industry, audit shows

Poor record-keeping processes and a lack of state oversight of the legal marijuana industry cost the state at least $500,000 in missed tax revenue, according to an audit released this month.

The audit, which was presented Friday to an advisory panel working to create the Cannabis Compliance Board, analyzed tax returns for 10 cultivators and five dispensaries spanning a six-month period from January to June 2018. It found that the tracking system for the state and marijuana businesses is not being used properly.

Because of that, auditors found that more than 70 percent of the returns they looked at did not line up properly with the data in the system used to track seed-to-sale inventory and data, called the Marijuana Enforcement Tracking Reporting and Compliance.

And without accurate data in the system, the Department of Taxation is not able to verify tax collections properly, according to the audit.

“Because data in the system is not accurate and complete, it cannot be utilized to verify marijuana tax returns, which did not always appear to be correct,” the audit said.

The audit made 13 recommended changes for the department’s regulation of the marijuana industry, 11 of which were centered on the METRC system. The other two dealt with providing more guidance to license holders on how to record tax returns and security.

Tax Department Director Melanie Young, who was appointed after the audit was conducted, told the panel that the department agrees with the recommendations.

Compounding the issues found in the report was that the department was not forthcoming with data and documents regarding the businesses’ inventories.

Auditors requested documents relating to the inventories of 50 marijuana businesses for April and May to analyze those companies’ inventory against their respective tax returns.

But in a letter sent Aug. 3, former Tax Department Director Bill Anderson denied the request.

“The department is not aware of any authority for the legislative auditor to audit the accuracy of the returns filed with the department,” Anderson wrote.

“Cooperation was an issue with the audit,” legislative auditor Rocky Cooper told the panel Friday. “The department refused to help us determine the nature and extent of certain errors.”

But Cooper praised Young, who was appointed by Gov. Steve Sisolak in January, for her cooperation since taking over as the head of the agency.

Advisory panel member and state Sen. Yvanna Cancela, D-Las Vegas, said after the meeting that the audit shows “an industry in evolution.”

“We’re learning where we need to make improvements, where we need to do a better job to protect businesses that are up and running, protect consumers and also ensure that we have a gold standard for regulatory framework,” Cancela said.

And with Young saying that the department agrees with the recommendations and that it plans to make the changes, Cancela said that bodes well for the legal cannabis industry as it approaches nearly two years of existence.

“Having all the entities that are involved in both creating and then following the regulations communicating with each other is going to be really important moving forward,” Cancela said.

Contact Capital Bureau Chief Colton Lochhead at clochhead@reviewjournal.com or 775-461-3820. Follow @ColtonLochhead on Twitter.