PORTLAND, Ore. — The Oregon Legislature has generated a lot of attention within the past few months, thanks to a long session now stalled by the Senate Republican walkout. That's stolen some of the limelight from another arm of state government: the Oregon Liquor and Cannabis Commission.
The OLCC regulates the state's alcohol and marijuana industries, and it has generated its share of headlines over the past year.
It all started with "Bourbongate," the scandal involving OLCC officials who set aside bottles of highly-regulated rare liquor for themselves. That saw the OLCC's director and the board chair step down.
Then there was the scandal surrounding then-Secretary of State Shemia Fagan, who took a job moonlighting as a consultant for a subsidiary of influential cannabis company La Mota. Fagan first ended her contract after news about the job broke, then announced her resignation days later.
Fagan's work with La Mota was problematic for a number of reasons, but particularly because her office was overseeing an OLCC audit at the time. While Fagan did recuse herself from the audit in order to take on the lucrative contract, the vast majority of the work on the audit had already been completed by that point.
The audit of Oregon's cannabis industry came at Fagan's request two years ago, after she said she'd heard concerns from people in the industry.
Living la vida mota
Another issue surrounding La Mota came up even prior to the controversy involving Fagan. It had to do with the company's taxes — the fact that they weren't paying them.
Willamette Week was first to report that the Oregon Department of Revenue and the federal Internal Revenue Service had filed more than $7 million in liens against La Mota's owners, Rosa Cazares and Aaron Mitchell, as well as the companies they control, for failing to pay their taxes.
The couple was also behind on a number of bills from their vendors, Willamette Week reported — while at the same time donating buckets of money to the campaigns of Oregon Democrats, including Fagan and soon-to-be Gov. Tina Kotek.
Kotek returned those donations after the news about Fagan came to light. Last week, she ordered a crackdown on cannabis businesses who are behind on their taxes.
The governor has ordered the OLCC and Department of Revenue to require that anyone getting a retail cannabis license prove they're in compliance with the state's tax laws and get a certificate showing as much. It'll now be part of the licensing renewal process.
Data from the Department of Revenue shows that about 9% of cannabis retailers are out of compliance. That's higher than other programs regulated by the department, which average about 3%.
If a business is out of compliance after failing to pay taxes, they can set up a payment plan with the state in order to get back into compliance and qualify for renewal.
In 2021, Oregon recreational cannabis sales hit a record high of $1.18 billion. It's a huge business in Oregon, generating $311 million in tax revenue during the 2019-21 biennium.
Even though it's still illegal at the federal level, cannabis is a big business across the country. There are only three states where it's still completely illegal, and the total economic impact of cannabis sales in 2022 alone is expected to reach $99 billion nationwide. According to trade publication Marijuana Business Daily, it's expected to grow upwards of $155 billion by 2026.
Taking the reins
The Story spoke Thursday with an attorney from the law firm Harris Bricken in Portland. Vince Sliwoski is a business lawyer who's been representing cannabis companies since just about the beginning of legalization. Despite the size of the industry, Sliwoski said that cannabis businesses in Oregon are struggling right now — it's highly competitive, and prices are as low as they've ever been.
There are some other big challenges for these businesses that have been around since the beginning. Marijuana's illegality at the federal level is part of the reason it's difficult for some of these business to pay taxes, Sliwoski said — at least when paired with a certain amount of fiscal irresponsibility.
"I think what happens a lot there is people just tend to not do a good job of not commingling money, right? So they'll do a simple sale, say it's a $20 sale," the attorney said. "Three of those dollars are the state's dollars, but they won't set it aside, right? They're kind of in a lean spot anyway. They could use that money. Anyway, they've been almost using it like a loan, a lot of them, and they just have been in arrears on taxes."
"The issue was highlighted by one sort of spectacular tax non-compliance incident of this La Mota chain, which has been in the news a lot. I can't remember how far in arrears they were, hundreds of thousands of dollars and going back to 2016," Sliwoski continued. "And Governor Kotek got fed up with that and she issued a directive to the Oregon Liquor and Cannabis Commission and said, 'I want a rule in place such that you guys are not issuing licenses to people that are out of compliance with respect to their tax obligations.'"
The Oregon Department of Revenue said that they've been discussing the issue for several years ago, but they didn't get anything done on it until recently. The reporting on La Mota brought the issue into the public eye.
Meanwhile, the OLCC has a new leader who will be tasked with putting the change into effect.
"With me coming in, it's a new opportunity, new leadership, I have a new Chair," said Craig Prins, interim director at the OLCC. "We wanted to work with (the Department of Revenue) once we realized this was possible through our existing rulemaking, we really felt like we could take action. And so I think that's why I'm here, frankly, is to look at things with new eyes."
The OLCC said that it is still working out the new process that licensees are going to have to follow. A temporary rule will be introduced at the board's next meeting on June 15. A permanent rule, with input from people in the industry, will come along this fall.