La Mota-influenced Fagan-era cannabis audit under fire

Secretary of State Griffin-Valade - the only person in Oregon who believes the audit may be legit - needs more time to conduct her own review.

La Mota co-founder Rosa Cazares was a friend, campaign donor and informal audit reviewer for former Secretary of State Shemia Fagan. (Photo courtesy Stoner Magazine)

The consultant hired by the Oregon Department of Justice to review the Shemia Fagan-era state cannabis regulation audit issued a report yesterday finding the auditors failed to take appropriate steps to safeguard the integrity of the audit following disclosure of Fagan’s employment with cannabis company La Mota. The audit was highly critical of the cannabis regulatory practices of the Oregon Liquor and Cannabis Commission (“OLCC”).

The consultant recommended new Secretary of State, LaVonne Griffin-Valade, take the audit down from the agency’s website until a further review and revisions are conducted. Griffin-Valade in a statement released yesterday seemed to decline to take down the audit, instead embarking on her own review of the audit. Griffin-Valade previously served as the longtime Portland city auditor. As of this morning, a link to the audit remains on the Audit Division’s website:

Governor Tina Kotek asked Attorney General Ellen Rosenblum to review the audit last spring following disclosure, by Willamette Week, that then-Secretary of State Fagan entered into a $10,000 per month consulting deal with La Mota, and involved the company’s co-founder, Rosa Cazares in scoping and editing the audit. Fagan resigned shortly after the disclosure. Kotek later appointed Griffin-Valade to serve the remainder of Fagan’s term.

The audit review found that even Fagan’s decision to perform the OLCC audit in the first place was suspect because it was made without using the required “risk assessment methodology” that is supposed to determine what the Audit Division audits:

Requirements that audit plans be based on risk, or a risk assessment methodology, provide assurances to stakeholders that audit topics are not only important and will add value, but also that the selection of audits is based on acceptable criteria and not self-interest motives.

The problems continued as the scope, or focus, of the audit changed following input from Cazares:

After the audit was started in January 2022, the audit team subsequently modified the audit objective in March 2022 based on the scoping and planning work performed by the audit team to the following: “Identify business equity challenges within Oregon's existing cannabis regulatory framework and how the state can address those challenges and determine how Oregon may address social equity issues within the Oregon Cannabis industry.”

Ultimately, once Fagan disclosed to the audit team that she had a conflict based on a relationship with a cannabis company, the Audit Division should have taken steps to ensure the independence of the audit, the review found:

Given the known threat to the independence of the audit organization (the Office of the Secretary of State) and the impact the perception of this threat has had on the OLCC audit report, we recommend that the SOS pull the audit report from the publicly accessible website and perform additional audit work. Specifically, the SOS’ Division of Audits should review how the work was scoped, planned, conducted, and reported on to determine that it considered a broad mix of stakeholders to ensure balanced perspectives; appropriately implemented audit procedures to ensure sufficient, reliable evidence was corroborated as warranted; and fairly considered and reflected views from officials in the audit work and report—including investigated contradicting evidence provided by auditees.

The “contradicting evidence” included comments on drafts of the audit by Business Oregon, the state’s economic development agency, and the OLCC itself, questioning the diversity of stakeholders interviewed by auditors, their reliance on verbal testimony, and one stakeholder’s claims to pay some $100,000 complying with an OLCC-enforced cannabis tagging requirement, a figure the OLCC told auditors could not have been true, as the maximum cost would have been $66,000. The $100,000 figure was included in the final audit, and remains on the Secretary of State’s website to this day.

In February 2023, while the audit was underway and shortly before Fagan signed her contract with La Mota, Kotek fired longtime OLCC director Steve Marks, who was responsible for implementing the cannabis regulations loathed by La Mota. By that time, La Mota and its owners and affiliates had contributed tens of thousands of dollars to Kotek’s and Fagan’s respective campaign committees. Marks has notified the State of Oregon he intends to sue Kotek and the state for firing him at the urging of La Mota and other cannabis industry members. Kotek has denied she fired Marks at La Mota’s request, saying only “it was time for a change” at the top of the agency.

The audit report was limited in its scope, focused only on the audit’s compliance with Oregon law and Generally Accepted Government Auditing Standards, the guidelines governing the work of professional government auditors. It did not evaluate the overall impact of La Mota’s giving and relationships on state cannabis policy, or the termination of Marks. The U.S. Attorney for Oregon has empaneled a grand jury that is reportedly looking into potential criminal charges arising from La Mota’s cozy, and influential, proximity to power.

Once one gets past the particulars of auditing guidelines, it is abundantly clear that Fagan’s relationship with team La Mota influenced the audit. The Oregonian reported that Cazares offered edits to Fagan in response to a draft of the audit, summarizing that the audit “will make recommendations for the structure and resources needed to ensure an effective licensing and compliance system that supports equitable business growth[.]”

Compare Cazares’ language to what ended up being the title of the audit:

Oregon Liquor and Cannabis Commission (OLCC): Oregon Needs to Modernize Cannabis Laws to Help Grow the State’s Economy and to Ensure Equitable Opportunities and Benefits for all Communities.

And to the modified scope of the audit:

Identify business equity challenges within Oregon's existing cannabis regulatory framework and how the state can address those challenges and determine how Oregon may address social equity issues within the Oregon Cannabis industry.

At Fagan’s request, the Audit Division included Cazares among the industry members it interviewed for the audit. The access to auditors, the unique opportunity to review audit drafts, the very existence of the audit outside the normal risk assessment process, and the degree to which the audit adheres to the “OLCC as over-regulator” theme all demonstrate La Mota’s and Cazares’ fingerprints are all over the audit. It is baffling that Griffin-Valade continues to showcase the tainted audit on her agency’s website.

Moreover, the audit is something of a side show - everyone with eyes to see knows it was the fruit of Fagan’s coupling with La Mota. The Oregon Government Ethics Commission is supposedly, at Kotek’s request, conducting a review of potential ethics violations by Fagen. The apparently still ongoing federal investigation, conduct outside the Salem power structure, holds the best chance to hold Fagan and other state officials, and perhaps Kotek herself, accountable for La Mota’s highly successful, if brief, foray into leveraging relationships and money to steer state policy.

The La Mota era in Salem is over, but fixing the damage is not. Take down the audit. Apologize to Oregonians who may have been misled by a private business commandeering the office of a statewide elected official who also happened to work for the private business. Investigate and, when appropriate, charge suspects with crimes, state and federal.

If trust can be rebuilt in state government, that’s how to start.