BC's Oversight of Cannabis Stores Is Falling Short

British Columbia government auditors found the provincial branch responsible for ensuring licensed cannabis retail stores follow the law is understaffed and lacks key tools to do the job.

Inspectors aren’t focusing on the highest risk areas and are likely underestimating how often stores are breaking rules intended to protect public health and reduce crime, the Finance Ministry’s internal audit division of the comptroller general’s office found.

“Due to a lack of assessment, monitoring and specialized capacity, the branch is unable to confirm that legal requirements are upheld or quantify the risks on an industry level,” the auditors’ report said, noting that instead of proactively monitoring risks, enforcement has mainly taken a “reactive approach” driven by complaints.

The Liquor and Cannabis Regulation Branch in the Ministry of Public Safety and Solicitor General was given responsibility for overseeing regulation and licensing of cannabis retail stores in B.C. after the federal government legalized non-medical cannabis across the country in 2018.

The 26-page report, "Compliance and Enforcement of Cannabis Retail Stores," made 14 recommendations the in-house government auditors said would improve the program and make it more efficient and effective.

The report recognized what has gone well with the program, noting that the branch has skilled staff who work together across the province. It gave credit to the branch for establishing an enforcement framework that “includes key elements such as policies and guidance, routine inspections [and] a complaints process.”

At the same time it said the branch would need “a modern and sophisticated program” that could quickly adapt to a changing industry and identified ways to strengthen the program and make its processes more efficient and effective.

Inspection procedures lack the ability to detect whether illicit cannabis is being sold in the licensed stores and the branch is conducting limited activity to monitor whether minors are accessing cannabis either at stores or via online sales, it said.

“If LCRB is not sufficiently monitoring areas of higher risk, its activities will not identify related non-compliance,” the report said. “For instance, the monitoring related to minors accessing cannabis and illicit activities in [cannabis retail stores] is limited and may not be detecting areas of non-compliance.”

It recommended extending to cannabis stores the minors as agents program that has for many years employed young people as secret shoppers to test whether liquor stores are following rules.

The federal government’s main goals for cannabis legalization were protecting public health, reducing crime and preventing youth access to cannabis.

In B.C. the provincial government chose to have a mix of public and private retail outlets and by 2021 licensed stores had an estimated $554 million in sales, said the report, which does not cover public stores the BC Liquor Distribution Branch operates or illegal ones.

There are some 500 legal private cannabis retail stores in B.C. and the government branch that handles compliance and enforcement for them also covers 10,000 liquor licences and permits for about 30,000 special events a year.

The audit report is dated November 2022 and the fieldwork for it was completed last August. At the time, more than a quarter of the positions for inspectors were vacant. “Optimal inspector workloads are calculated based on a full complement of staff,” the report said. “During the audit, however, there were up to 10 inspector vacancies out of 37 total positions. This resulted in nearly half of the inspectors being assigned more than the target number of inspections.”

The staff are based in regional offices in Vancouver, Surrey, Victoria and Kelowna, plus eight satellite offices in smaller communities.

After a retailer receives a licence, it’s supposed to get inspected after 30 days, six months and 12 months, then once a year after that. “Overall, we found inspections were not consistently completed in accordance with the inspection frequency policy due to a variety of factors such as large inspection workloads and staff vacancies,” the auditors said.

Only 24 of the 40 licencees the auditors looked at, or a little more than half, had had all of their inspections conducted on time.

Despite the shortfall, there will soon be even more demand on investigators’ time, the auditors noted. Farm-gate sales were introduced in 2020 and starting last November eligible federally licensed producers could apply to sell from stores at their cultivation site, meaning inspectors would have more sites to monitor.

The system for enforcement and compliance would need to evolve as the non-medical retail cannabis market changes and new trends emerge, they said. “Over the past few years, there have been substantial program changes including cannabis home delivery, online sales and farm-gate sales. These program changes introduce new risks and challenges for the LCRB.”

The staffing shortage could in part be relieved by taking risk into consideration when deciding which retailers to focus on, they said, observing that the inspection model “is based on a fixed frequency with identical procedures across all retailers.”

The LCRB “conducts limited planning activities” for compliance and enforcement, the report said. “It has not established a forward-looking plan that is linked to its key risks. While we noted that the LCRB has identified public safety risks, such as service to minors and illicit sales, it has not completed a comprehensive risk assessment to help define the scope of these risks and clearly articulate a plan to address them.”

They suggested that in planning inspections the branch should take into consideration different retailers’ compliance history, regional differences and “broader industry compliance risks” which they did not specify.

When inspections did happen, inspectors lacked key tools and software needed to do their work effectively and efficiently.

The report gave the example of scan guns that the Canada Revenue Agency provides “in limited quantities” not being available to all inspectors. Inspectors use the scan guns to read the excise stamps that are on cannabis products for which the appropriate taxes have been paid, a way to ensure they were grown by federally approved suppliers and are part of the legal market.

“LCRB should consider requesting more scan guns or develop a process to ensure they are available to inspectors when needed, in order to ensure all CRSs are subject to this procedure,” the report said.

The auditors also found that the Microsoft Dynamics software the LCRB uses was “not adequately supporting staff to execute their activities efficiently and effectively.” In particular there was no mobile access to the system that would allow inspectors to use it while they were in the field, though the branch was pursuing the option. “If inspectors were able to digitally record the results in real-time, it would increase their efficiency and improve the accuracy of documentation.”

There were also issues with “data integrity weaknesses” that the auditors attributed to “limited training and review, as well as the design and usability of the IT system.” It said the branch was aware of the issues and working on them.

To better assess its own performance, the auditors said, the branch needs to look at more than just the number of inspections completed by each inspector.

“Measuring the total number of inspections, while reasonable, may create a pressure on the volume of inspections rather than emphasizing their quality,” it said. “LCRB should consider adding more [key performance indicators] to round out their evaluation process and heighten documentation and quality expectations.”

The auditors required that “The LCRB will develop and submit an action plan in response to the recommendations provided, including the timeframe for implementation.”

Asked Monday what the government has done since receiving the audit, Minister of Public Safety and Solicitor General Mike Farnworth said it has been “working on the recommendations.”

“They’ve been under review and we are constantly looking at ways we can improve.”

Farnworth acknowledged the high number of investigator vacancies and said work is under way to fill them.

He also cited the work of the community safety unit, which carries out compliance and enforcement activities against unlicensed cannabis retailers and producers, noting its efforts had led to some significant seizures.

“There will be more changes in the future,” Farnworth said.