The Colorado Marijuana Enforcement Agency’s top regulator acknowledged in a private meeting with industry representatives that the amount of chemically converted cannabis illegally sold as marijuana is far greater than the agency has disclosed.
The statement confirmed tests by the Denver Gazette and ProPublica that found signs of hemp in marijuana vapes sold at dispensaries, as well as reporting that regulators found some hemp-derived vapes were contaminated with toxic chemicals.
The virtual meeting, an audio recording of which was reviewed by news outlets, was convened in March by members of Colorado Leeds, a marijuana industry trade group, to discuss issues they say have “metastasized” and now pose an “existential threat” to the nation’s first legal recreational marijuana market.
During the meeting, Kyle Lambert, deputy senior director of enforcement, said the number of hemp-derived products is “more than can be quantified.” He said officials are concerned that the proliferation of prohibited cannabis is driving down the price of marijuana in the state, making it easier for high-grade marijuana to be diverted from Colorado to the black market in other states.
Describing the anomalies in the system the state uses to track marijuana production and sales, Lambert told industry officials that the extent of suspicious transactions in the system would “probably be mind-blowing.”
Two weeks after the meeting, the department sent a bulletin to the industry saying it plans to crack down on companies that illegally sell cheap and potentially dangerous hemp products as marijuana and will pursue emergency regulations.
But that hasn’t happened yet, and other reform efforts have failed during this year’s legislative session. Despite concerns from regulators, the Colorado Legislature failed to meet in March and abandoned a bill that would have allowed voters to decide whether to overhaul how marijuana products are tested for contaminants. (A Denver Gazette/ProPublica investigation found other states have also adopted stronger safety measures.)
Dominic Mendiola, senior director of the Marijuana Enforcement Agency, said in a statement that the agency “has consistently been aggressive in pursuing the rules, laws, and authorities necessary to combat this problem.”
“Nominal dollar transactions are not conclusive evidence of non-compliance, so Mr. Lambert spoke up to emphasize the scale and complexity of the problem,” Mendiola said. He added that investigating such transactions requires significant resources and can take a significant amount of time.
The issue with companies substituting marijuana for cannabis dates back to 2018, when Congress legalized cannabis, a relative of cannabis that contains only trace amounts of THC, the psychoactive compound that gets people high. Federal lawmakers wanted to help farmers while satisfying advocates who believe hemp’s high concentrations of CBD, a non-intoxicating compound, can help treat seizures, pain and sleep.
However, hemp manufacturers quickly discovered ways to convert the CBD found in hemp into THC through a process that used toxic solvents, creating products that sometimes contained harmful chemicals and could be more potent than products made from marijuana.
Colorado became one of the first states to ban the chemical conversion process and ban the sale of addictive hemp products to its residents.
But manufacturers are allowed to produce cannabis products for export to other states, and some companies continue to rely on marijuana in Colorado because it’s cheaper than using marijuana to make the honey-colored THC distillate used in e-cigarettes and edibles, industry officials say.
“This is pervasive, like half the market,” Jordan Wellington, a marijuana industry lobbyist and consultant, said during a meeting with Lambert and a four-person investigative team that handles marijuana authorities’ most difficult cases. “We’re beyond stage 1 cancer. It’s one cancer. It’s fully metastasized.”
He said the “rampant” use of cannabis and other illegal materials was putting pressure on honest manufacturers to cut corners to survive.
“This may be the most significant and existential threat we have ever faced as an industry,” Wellington said.
When the state legalized recreational marijuana in 2012, it promised to establish a “seed-to-sale” system to track cannabis from the first planting to the purchase of pot, e-cigarettes and other products at dispensaries. Advocates promised that close tracking would prevent marijuana grown in Colorado from being diverted to states where it remains illegal. Tracking was also intended to ensure consumers were purchasing safe, high-quality products.
But Colorado regulators told industry lobbyists in a video conference in March that the tools to root out fraud aren’t working.
“There’s a lot of really crappy data out there, and it’s hard for us to proactively take action,” Lambert said of the tracking system.
Massive fraud in sales transaction reporting likely means the state has lost millions of dollars in marijuana excise tax revenue, while law-abiding companies are paying more than their fair share in taxes, industry officials argue.
Lambert said raw cannabis typically fetches more than $600 per pound on the open market, depending on the category, but manufacturers often report unrealistic nominal sales figures to state tracking systems, often as low as a penny or $1 per pound.
When pressed by regulators, Lambert said, companies typically defend these valuations by claiming they submitted placeholder numbers while negotiating product prices.
The department employs 26 investigators to monitor about 2,100 cannabis businesses, but doesn’t have the resources to properly investigate every case, he said.
“We want to set up surveillance everywhere and track vehicles to see where they are coming from,” he said. “Did they come from the hemp plants? Did they come from here? Where did they go? We don’t have the resources or equipment to do that kind of research.”
In April, state Sen. Kyle Mullica (D-Thornton) and Rep. Mark Snyder (D-Colorado Springs) introduced the Cannabis Consumer Protection Act, which they planned to put on the ballot this fall to overhaul how marijuana products are tested for contaminants and bring Colorado in line with other states.
The ballot measure would put private labs in charge of collecting cannabis samples for necessary testing before products reach dispensaries. Manufacturers can now choose their own samples. Regulators have caught companies abusing the system by substituting samples other than those sold in stores or treating samples with chemicals.
The legislation would also shift safety and testing oversight from the Marijuana Enforcement Agency to the Colorado Department of Public Health and Environment, and would fund a program in which regulators would randomly collect marijuana products from dispensaries and test them for contaminants.
However, the bill fell apart as various sectors of the marijuana industry clashed over a provision in the bill that increased taxes on products with high THC content. Manufacturers of high-concentration THC products argued that the proposed potency tax would cut costs for manufacturers of edibles such as gummies, while cutting into their own profits. Consumer safety groups weren’t satisfied either, calling for the bill to be tougher and to impose stricter limits on its effectiveness, as in Vermont.
In the end, major industry groups opposed it, and Gov. Jared Polis, through his press secretary, expressed concern that the bill would lead to overregulation.
Although the bill failed, Snyder, a co-sponsor of Senate Bill 26-161, said he would revisit the issue in the 2027 session.
Snyder said he wants to give regulators more tools to combat fraud.
“One of the problems with going as early as Colorado to legalize marijuana is that you have to learn the hard way about all the unintended consequences and unforeseen consequences,” he said.
