The City and County of Denver is doing a better job of ensuring it is collecting medical marijuana-related sales and use tax revenue, the Independent Audit Committee was told Thursday.

A follow up report to a 2014 audit of the city treasury department’s collection of marijuana revenue found all four recommendations in the audit had been implemented.

The report also found audits of 29 medical marijuana, or MMJ, businesses since 2014 had resulted in the recovery of $1.1 million due to the city, said audit supervisor Katja Freeman.

“There are unique challenges with medical marijuana, since it’s a cash-intensive industry,” she told the committee.

Freeman said another 39 MMJ tax audits were assigned to audit staff in 2015, to be completed as resources allow.

City Treasurer Steve Ellington said most of the $1.1 million in recovered revenue was from use tax on large equipment used in MMJ grow operations, not sales taxes.

“I think that amount is about normal compared to other use tax revenue we find in other audits,” Ellington said. “We usually find it in heavier industrial businesses, so I’d say the $1.1 million was not something that struck us as a huge concern.”

Ellington said his staff now has 31 MMJ audits underway in the city.

“The industry understands they have a microscope on them on things like this,” he added. “They know they can lose their (state) business license” if they do not comply with local taxing regulations.

Treasury staff visits each new marijuana operation as they open, Ellington stated, and then schedules them for regular audits with other cash heavy businesses.

The 2014 audit found department staff had conducted just three audits of city MMJ outlets, which had begun opening for business in 2010 and 2011, Freeman noted.

The original audit also found that the citywide marijuana policy did not address tax collection and the importance of compliance enforcement. Specifically, the treasury department had not:

? Gathered enough data through completion of its audits of MMJ business to make sure its tax compliance program was ensuring tax compliance by the MMJ industry;? Enhanced its taxpayer education efforts to make sure MMJ businesses had information they needed to comply with tax regulations; and? Worked with other jurisdictions to assess its MMJ tax collection and enforcement.

Freeman’s follow-up report noted that although the percentage of tax money from MMJ is small compared to the total of all the city’s tax revenue streams, the percentage will only grow as the retail marijuana industry becomes more established.

Freeman also noted a significant public relations risk to the city due to “the nascent and controversial nature of marijuana sales.” The treasury department should use its experience with the MMJ industry to make sure it is ready to carry out its responsibilities for ensuring tax compliance by the retail marijuana industry, she stated.

Other steps taken by the treasury department included publishing a MMJ tax guide that is available on the department’s website and was provided to MMJ businesses in October 2014. The department also continues to coordinate with the Office of Marijuana Policy, the Colorado Department of Revenue and other jurisdictions.

Chaired by Denver Auditor Timothy O’Brien, the audit committee helps with O’Brien’s oversight responsibilities regarding the integrity of the city’s finances and operations and independent oversight of city operations.

*Updated on Sept. 26 to change “cash only” to “cash-intensive” and correct the number of audits from 38 to 39 assigned to audit staff in 2015.