Harris Bricken: The Real OLCC Scandal Is There Are Two Sets of Rules

We have been working with the Oregon Liquor and Cannabis Commission incessantly since 2015, when rulemaking commenced for the adult use program. Over the years, we’ve dealt with many, many compliance-related issues, including Notices of Proposed License Cancellation to licensee clients from OLCC. We’ve also seen the Commission change its position and philosophy drastically on enforcement.

In the early days, OLCC emphasized “teaching compliance” and working with licensees who made mistakes—honestly or otherwise. We later saw a transition toward heavy-handed enforcement, as the Commission worked with the legislature in an effort to cull licenses.

The problem is, OLCC treats small businesses much differently than bigger outfits. We’ve been saying this on the blog for a while now (see here and here for example). And when I say “OLCC” please note that I am not talking about specific OLCC personnel. There are some great people at the Commission who are smart, work hard, and really care. This post is not for them.

Recent OLCC liquor and cannabis scandals

This year, OLCC and the cannabis industry are at a nadir with two-bit scandals. Things kicked off with reports of a shady land deal and escalated with revelations that the Executive Director, legislators and others were hoarding rare bottles of bourbon for themselves. The latter felt especially small-time and chumpy.

More recently, Sophie Peel of the Willamette Week has led a barrage of investigative reporting of La Mota, Oregon’s second-largest dispensary chain. OLCC continued to issue licenses to that rogue retailer despite the fact that La Mota had been: a) saddled with millions of dollars in state tax liens, b) sued more than 30 times by unpaid vendors, mistreated employees and others, and c) charged with attempted diversion of 148 pounds of cannabis inventory, among other serious no-nos, in a case that settled in early 2020.

OLCC and the big cannabis retailers, going back

The La Mota “diversion” case went on for a couple of years. We had clients watching closely, including one larger outfit that was ready to pounce. A general assumption was that, given the nature of the charges and evidence, La Mota was cooked and those stores would be up for grabs. It didn’t turn out that way, of course: La Mota paid some fines and returned to business as usual. Over that same period, OLCC revoked the licenses of many smaller outfits, often for lesser charges. Some of them couldn’t afford to fight.

During all of that, we settled one particularly interesting case with OLCC. Our licensee client was known as Rose City Buds & Flowers. It was a small store owned by a woman who had agreed to sell to Nectar, the state’s largest retailer. Prior to seeking OLCC permission, as required, Nectar effectively bought the store but refused to share profits with Rose City. Nectar then committed a series of further OLCC violations at the store that accrued to our client’s license. The Commission decided to license Nectar and approve the transaction regardless, throwing the book at our client on the way out the door. (Nectar subsequently refused to pay Rose City for the store; our client was forced to sue.)

Ironically, the published settlement between Rose City and OLCC ran alongside stipulated settlements between OLCC and Nectar for other violations, elsewhere, including a series of Category I, II and III violations. And those were not one-off allegations or slap-on-the-wrist settlements between OLCC and the chain. A year later, the Commission and Nectar settled an avalanche of 28 new charges where again, many industry watchers thought a prominent chain would be cooked. These violations occurred up and down the Nectar supply chain from things like delivering cannabis to unlicensed residences (“diversion”; perhaps the strictest no-no), to not keeping required surveillance at licensed premises. The charges mostly arose from a “routine traffic stop” by police, which turned out to be an unmarked, un-manifested U-Haul truck, running Nectar cannabis.

The most recent settlements occurred in May of 2020. Since then, OLCC has been talking tough about “bad actors” (their words), but using its cudgel to beat down small operators. No big outfit has had a license revoked. A beatdown may come in a variety of ways: often, a Notice of Proposed License Cancellation is enough, as many in the struggling industry don’t have the wherewithal to fight.

We’ve also seen OLCC bend and break its own purported “policies” around infractions and settlement. In one particularly frustrating case, our client self-reported a violation of providing literally one marijuana item, off-site, to a minor. This was wrongful behavior to be sure, but nothing in comparison to the aforementioned cases. OLCC doggedly attempted to cancel his licenses before we helped the client reach a settlement which allowed him to sell his farm and store. OLCC then went dark during the buyer approval process, for many months, effectively killing the sale.

Ultimately, the Commission cited a “policy” around financial interests during settlement to justify the outcome. Not only was this position contrary to the spirit of the settlement; it was inconsistent with the Commission’s “policy” actions on matters my law firm had recently handled. But the client here was finished. He was not a large chain like La Mota, diverting taxpayer money to fight the process. And he went belly up.

Two sets of OLCC cannabis rules and policies

Oregon cannabis is a mess right now. It’s sad. We have great clients who are exasperated with the La Mota story in particular. That rogue outfit moved in down the street from one of them recently, in a smaller community. The client asked me in a call: “How can we compete with that? We pay our vendors. We pay our taxes. We give our employees health insurance and all the rest… La Mota doesn’t pay anyone. They are going to drag prices down to $2/gram next door, and we’ll get killed.”

Nectar, too, is up to its old tricks. We were involved in a sale that closed last year where Nectar again used its “services agreement on steroids” maneuver to effectively purchase a store prior to OLCC approval. Why sellers continue to fall for this sort of thing is very confusing (to wit, not a penny of profit was ever paid by Nectar during the “services” period.) To be fair, it’s possible that OLCC wasn’t aware of what had happened in that particular deal. But when you see the bigger chains operate consistently with impunity, it’s easy to get cynical.

All of this is exacerbated by the fact that the OLCC is under media scrutiny and seems to be in a state of constant personnel flux. Prior to the Executive Director resigning under scandal, other high-ranking positions on the cannabis side – e.g. Director of Licensing and Director of Compliance – have turned over repeatedly in recent years. Sometimes, these and other key roles have also gone unfilled. The organization is off-track in composition and orientation.

From my chair, when I hear the phrase “OLCC policy”, that’s simply code for “what we want to do here.” When I hear the phrase “for all licensees” that means “for all licensees except big licensees.” So I guess I’m glad I’m not a licensee– especially a smaller one. And while I would like to see the rash of scandals subside, I would also like to see this highlighted and fixed. We need one set of rules and policies for everyone in Oregon cannabis.

 

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The Real OLCC Scandal Is There Are Two Sets of Rules

Vince Sliwoski