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Different strains of marijuana are displayed during the grand opening of the Seattle location of the Northwest Cannabis Market, for sales of medical marijuana products.

(Photo by Elaine Thompson / Associated Press [file])

BOSTON -- The state's medical marijuana program is projected to run a $1.17 million deficit in fiscal year 2015 despite a state law requiring the program to pay for itself, according to the program's annual report.

Nichole Snow, deputy director of Massachusetts Patient Advocacy Alliance, a medical marijuana patient advocacy group, said the deficit "shows that the people who were in charge originally really didn't put enough thought into it."

Scott Zoback, a spokesman for the Massachusetts Department of Public Health, said, "The administration is in the process of revamping a poorly functioning medical marijuana program it inherited in order to best serve patients safely and ensure the system is living up to the law passed by Massachusetts voters."

According to projections in a report released March 1, the fund that operates the medical marijuana program is expected to take in $1.74 million this fiscal year, which includes a surplus from last year. The money comes primarily from registration and renewal fees from dispensaries and patients. Dispensaries must pay $50,000 a year to operate, while patients pay $50 annually.

Expenses, however, are expected to be $2.9 million, with the bulk of that going to information technology and staff salaries.

The annual report attributes the deficit to several factors. First, the department originally gave provisional approval to 20 dispensaries, but after problems emerged with some applications, it narrowed that number down to 15. So, the registration fees were lower than expected. The original budget had not accounted for one-time startup costs associated with creating a new industry. Additionally, the development of an online registration system cost far more than originally anticipated.

Cheryl Bartlett, the Department of Public Health commissioner under former governor Deval Patrick, who implemented the state's medical marijuana licensing program, resigned in October and now works at Cape Cod Healthcare. A spokesman for Cape Cod Healthcare said Bartlett was unavailable for comment.

Voters legalized medical marijuana in a 2012 ballot initiative. State law requires there to be a separate fund to administer the medical marijuana program, with program expenses being paid by fees generated from the dispensaries and from patient registration.

In fiscal year 2014, which ended in June, the fund had a surplus of approximately $400,000, which rolled over into 2015. That year, the program raised $3.8 million, mostly from application fees, while recording expenses of $3.4 million. Most of that spending went to outside consultants for things like background checks and application scoring and to building an online registration system to track patients and caregivers.

The Massachusetts Patient Advocacy Alliance has been critical of how long the medical marijuana licensing process has taken, and Snow said the deficit is another consequence of a process that was too stringent.

"They were spending money on God knows what, and it wasn't to make any progress," Snow said. "They spent money that just wasn't there."

A spokesman for a trade association representing several of the state's licensed dispensaries declined to comment.

The projected deficit is only the latest setback for a program that has been beset by problems. There have been lawsuits by unsuccessful medical marijuana companies, though judges have generally found in favor of the state. Applications that were provisionally approved were found to have problems, such as overstated levels of local support or officers who had trouble running dispensaries in other states. But when the state put the licensing process on hold to do additional checks, patient advocates complained of delays.

Department of Public Health Commissioner Monica Bharel, who was appointed by Gov. Charlie Baker, announced recently that the administration is revamping the licensing process. The new process will allow dispensaries to apply for licenses on a rolling basis, and each one will be scored individually. Previously, the state set deadlines for applications, then analyzed the entire group simultaneously.

Those familiar with the process say this could increase revenue in the coming years, since there could be more potential licensees submitting applications, and each application comes with a fee.

The report, written before the change, said the program is expected to cover its costs in 2016.

Over the past two years, the Department of Public Health has reviewed 181 applications for dispensaries and conducted 600 background checks. So far, just two organizations have received the final approvals needed to grow marijuana. A Salem-based dispensary could open this spring and a Northampton-based dispensary is slated to open this fall.

So far, there are 14,000 certified patients, 7,100 of whom have registered with the state. Registration is required to legally possess medical marijuana.

State Sen. Jason Lewis, D-Winchester, has been appointed to chair a special committee to examine issues surrounding marijuana, in light of a ballot campaign to legalize the drug in 2016. Lewis, through a spokesman, declined to comment on the deficit.

Nationally, states with medical marijuana programs have generally raised enough money to cover expenses, and in some cases have generated surpluses, according to a report by the pro-marijuana Marijuana Policy Project. However, many of the states do not rely only on fees, but also impose a sales tax on medical marijuana. The Massachusetts program does not include a sales tax.