News, OREGON, Salem

Secretary of State’s office cannabis audit released amid questions about consulting job

This story originally appeared in the Oregon Capital Chronicle and is republished here under a CC BY-NC-ND 4.0 license. Read more stories at oregoncapitalchronicle.com.

The Oregon Secretary of State’s office released an audit of the state’s regulation of the cannabis industry on Friday morning on the heels of revelations that the agency’s head, Shemia Fagan, accepted a side job as consultant to a cannabis company in February. 

Fagan’s consulting work with Veriede Holding LLC, an affiliate of La Mota cannabis dispensary chain, was first reported by Willamette Week on Thursday. The next day, Secretary of State officials released the audit and took steps to distance Fagan from the analysis as much as possible.

Fagan recused herself on Feb. 15 from the audit process after calling the Oregon Government Ethics Commission about the consulting work, public records show. They show Fagan contacted ethics officials in February, when the audit was only a little more than two months away from release – and much work was already underway. Her work with the company began shortly after her recusal.

No one is accusing Fagan of breaking any laws. And her Secretary of State staffers say Fagan’s recusal exceeded what’s legally required because any action stemming from her office’s audit of the Oregon Liquor and Cannabis Commission, which regulates cannabis, would come from the Legislature or the commission, not her office. 

“Secretary Fagan recused herself because in her private life, she has a limited consulting contract with a company that’s regulated by OLCC,” Deputy Secretary of State Cheryl Myers said in a press conference about the audit’s release. “While a conflict of interest technically doesn’t exist, the secretary voluntarily imposed the most restrictive limitation on herself because she respects ethics rules as a floor, not a ceiling.”

Nevertheless, the Republican leaders in the Legislature said Fagan should resign, and Gov. Tina Kotek called for an ethics investigation into the issue.

“It’s critical that Oregonians trust their government,” Kotek said in a statement. “That is why I am urging the Oregon Government Ethics Commission to immediately investigate this situation. Additionally, I am requesting that the Oregon Department of Justice examine the Secretary of State’s recently released audit of the Oregon Liquor and Cannabis Commission  and its cannabis program.”

Fagan was not at the press conference, and she was not available for an interview. Her office released a statement from Fagan Friday night that said she holds herself to the highest ethical standards. She said she’s working with the company gathering information on the cannabis industry outside of Oregon.

“The company contracted with me and others to review the landscape for expanding their operations outside of Oregon,” the statement said.  “The nature of the contract and the work does not create a conflict of interest under Oregon law or ethics rules.  However, as soon as I contemplated the contract and learned that recusal was an option (it is not for legislators), I recused myself from my only work as a public official that touches the cannabis industry, the OLCC audit.”

She said she requested the cannabis audit two years ago because she had heard concerns from the industry.

“I welcome Governor Kotek’s request to DOJ to review the audit because it will simply highlight the professional work of Oregon’s auditors,” she said.

State audits director stresses independence

Kip Memmott, the office’s audits director, stressed the role of professional auditing staff in the analysis.

“All audit work, all conclusions or methodologies or recommendations are all generated and done by the professional audit team,” he said. “The final call on all of our audit reports is me…. I make all decisions on what is in our final audit reports and they are approved under my issuance.”

Before Fagan’s Feb. 15 recusal, Fagan asked in a December 2021 meeting with audit staff if the team had interviewed Rosa Cazares, the chief executive officer of La Mota, the Willamette Week reported. The next year, audit staff interviewed her, among others. 

Asked about the report, Ben Morris, a Secretary of State spokesman, told the Capital Chronicle: “Cazares was one of two dozen interviews conducted by auditors during the scoping process, which is the standard process for conducting an audit. The ultimate decision about the scope of the report was made by the auditors. No decision is ever based on one single source.”

Memmott said the Secretary of State can tell him what to audit, and auditing staff map out the plan and present it to Fagan.

“She does not approve that plan,” Memmott said. “She does not weigh in on that plan. That is again our internal management approval, but she is informed.”

Fagan was involved in two meetings about the audit before she recused herself, Memmott said.

“The secretary was not involved in the reporting process, reviewing the report, providing feedback on the report – on any of the conclusions at all,” Memmott said.

Fagan, who’s paid $77,0000 annually, is an outlier in state government. Oregon’s Attorney General, Treasurer and the directors or administrators of the Oregon Health Authority, Department of Human Services, Business Oregon, Department of Environmental Quality, Employment Department, Oregon Occupational Health and Safety, Oregon Parks and Recreation, Department of Consumer and Business Affairs, Department of Revenue, Department of Transportation, Department of Administrative Services, Department of Forestry, Water Resources Department, Department of Corrections, Aviation Department and the Oregon Lottery do not have any side jobs. 

Colt Gill, outgoing director of the Department of Education, taught some classes at the University of Oregon on his own time in 2018, 2019 and 2020, according to Marc Siegel, a spokesman. He currently doesn’t have any side jobs.

Morris, Fagan’s spokesperson, said she has no other clients besides this one and is paid as an independent contractor. She also teaches a class at Willamette University, Morris said.

“Secretary Fagan prioritizes her public service and completes any work for her private contracts during her free time,” Morris said.

He declined to answer a question about how much she is being paid as a consultant, saying it was outside the scope of his job. Fagan did not respond to a question about her pay, either.

The news prompted Republican legislative leaders on Friday to release a statement, calling on Fagan to step down.

“She must resign,” Senate Republican Leader Tim Knopp and House Republican Leader Vikki Breese-Iverson said in a joint statement. “This appears to be an ethics violation and if it isn’t then Oregon’s ethics laws are broken. An elected official cannot take funds for personal use from someone they regulate.”

Audit results

The audit found the Oregon Liquor and Cannabis Commission, which oversees the cannabis industry, should consider changes to better serve the state and prepare for federal approval of marijuana, which is currently ranked as a Schedule 1 substance. That means federal authorities consider it has no medical value and has a serious potential for abuse. 

But it only remains completely illegal in three U.S. states. 

Its federal status poses various challenges, however, the audit found. There is a moratorium on new licenses and federal restrictions on interstate commerce, and companies are barred from many banks. 

That impacts Oregon. For example, Business Oregon, the state’s economic development agency, won’t work with cannabis businesses because of concerns about losing its federal funding, auditors found. 

Auditors also are concerned that the commission’s licensing system cannot track demographic data, making it difficult to track efforts to help communities of color disproportionately impacted by the war on drugs

Auditor recommendations include: 

  • Reconsider regulations that require steel doors and 24-hour video surveillance at cannabis businesses.
  • Start to obtain demographic data and reports when the commission replaces its licensing system. Auditors found more data is needed to ensure diverse communities are included in the state’s efforts and have access.
  • Complete an assessment of how the moratorium on new licensees has impacted the state. 

Some of Oregon’s congressional delegation have long been concerned about barriers to the industry, especially Democratic Rep. Earl Blumenauer, a member of the Congressional Cannabis Caucus. Last year, the U.S. House passed a bill removing marijuana from the controlled substances list. The bill died in the U.S. Senate.

U.S. lawmakers in the House have proposed more reforms in the current Congress. One of Oregon’s recently elected U.S. representatives, Republican Lori Chavez-DeRemer, who represents the Fifth District, broke ranks with some in her party to co-sponsor federal cannabis reform, the Oregon Capital Insider reported.

Oregon Capital Chronicle Editor-in-chief Lynne Terry contributed to this report.

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