Colorado’s legal marijuana industry was built on a promise: strict regulation would protect businesses and consumers, while tax revenue would support schools, roads and public programs. But one of the state’s largest cannabis cultivators says that promise is beginning to break down.

A recently released recording of a private meeting between state regulators and industry leaders sheds light on concerns about tax collection, oversight and compliance within Colorado’s marijuana industry.

Justin Trouard, CEO of Mammoth Farms, says many people dismiss the issue because they do not consume marijuana. But he argues the consequences extend far beyond cannabis users.

“You see the tax revenue drop year after year after year,” Trouard said. “Personally, I don’t think marijuana has ever fully contributed its potential.”

At Mammoth Farms, cannabis is cultivated, harvested and processed into oil products. Trouard, a former Army intelligence officer, says he invested his life savings into building the operation.

“This is something that is part of my entire being, my entire life,” Trouard said. “There’s a lot at stake for us.”

Trouard alleges some operators are profiting by manipulating wholesale transactions to reduce their tax obligations. He claims one of the state’s largest vape manufacturers contacted him and explained how businesses could structure transfers to avoid paying taxes.

Trouard has published his allegations and supporting documents on a website, MedFraud.org. He has also filed a class-action lawsuit alleging state regulators have known about questionable pricing practices but failed to adequately address them.

“The operators understand that the Marijuana Enforcement Division is not capable of addressing these things,” Trouard said.

 Audio from the private meeting between members of Colorado’s Marijuana Enforcement Division and industry representatives suggests regulators are also concerned about the scale of the problem.

In the recording, a division official describes the issue as “the most important and existential threat we’ve ever faced as an industry.”

Officials also discuss large numbers of transactions reported at values of just $1 or a few cents.

The transactions are recorded in METRC, Colorado’s seed-to-sale cannabis tracking system. Businesses are required to report wholesale sales, and those reported values help determine tax obligations.

According to the Marijuana Enforcement Division, thousands of suspicious entries appear in the system each month.

“It’s a reporting tool and not a compliance tool,” said Dominique Mendiola, director of the Marijuana Enforcement Division. “The system doesn’t put walls up that would prevent a licensee from entering something in the system, even if it’s inaccurate.”

Mendiola said many unusual entries have legitimate explanations. Those that cannot be explained may be referred to tax auditors for further review.

When asked how much tax revenue the state may have lost because of inaccurate reporting, Mendiola said that question falls more directly within the authority of the Colorado Department of Revenue’s taxation division.

State Sen. Mark Snyder, who has sponsored several cannabis reform bills, said the industry’s regulatory framework has become increasingly reactive rather than proactive.

“It tells me that we’ve lost control of the regulatory system,” Snyder said.

Still, Snyder believes Colorado can restore confidence in the market.

“It’s going to take a lot of political will. It’s going to be a Herculean task to get back to a fully regulated and properly taxed market.”

Snyder noted marijuana tax revenue helps fund programs that benefit all Coloradans, regardless of whether they use cannabis.

For Trouard, the issue is about more than policy. He says it is about whether businesses that follow the rules can survive in a marketplace where they believe others are not held accountable.

“Could you have looked the other way?” CBS Colorado reporter Karen Morfitt asked.

“Of course I could have.” Trouard said. “The way you stay in this is to cheat the rules.”

The Marijuana Enforcement Division said it relies on additional data analysis and on-site inspections to determine which suspicious entries warrant further investigation. The agency declined to disclose to CBS Colorado how many referrals have been made to tax auditors or how many investigations are currently underway.