The Chronicles February 2018

State audit reveals inadequate marijuana monitoring, enforcement

OLCC needs to beef up efforts, state officials say


The Oregon Liquor Control Commission lacks “robust” monitoring and enforcement controls to track the state’s $480 million marijuana industry, making illegal sales difficult to detect, a new audit concludes.

The Secretary of State’s review raises alarms about how effectively the agency oversees the flourishing marijuana market in Oregon.

The report comes as Oregon finds itself in the federal crosshairs for its role as an illegal exporter of cannabis to other states. Billy Williams, the U.S. attorney for Oregon, convened a summit earlier this month to discuss the illicit marijuana trade.

Gov. Kate Brown, a steadfast defender of the industry, told Williams and others at the summit that the state has focused on instituting “extensive safety and tracking measures.” In a letter last year to U.S. Attorney General Jeff Sessions, Brown highlighted the state’s tight regulation of the burgeoning market.

But the audit, made public this month, found that while the information systems themselves function well, monitoring and security are inadequate. The report cited a host of problems — from not enough inspectors to a reliance on marijuana businesses to report their own data.

Auditors, who also uncovered errors and outdated information in the agency’s tracking systems, made 17 recommendations for improvements and noted that the liquor commission “generally agreed” with the findings.

“Until these issues are resolved,” auditors noted, “the agency may not be able to detect noncompliance or illegal activity occurring in the recreational marijuana program.”

They questioned the agency’s practice of allowing Oregon’s nearly 1,700 licensed marijuana businesses to self-report highly detailed information, including the number of plants in a grow operation and the weight of each harvest.

In a letter to the state’s audits division, Steve Marks, the liquor commission’s executive director, said the agency is following up on “all aspects” of the audit.

Marks called the audit “very helpful” and said the state’s regulatory system for marijuana is “a work in progress.”

“It’s our highest value to stop black market diversion, to create a good consumer market,” Marks said, adding that the agency has so far referred to police about 100 cases of potential criminal violations by marijuana businesses. “Those are fundamental to our mission. We have been building out staff and systems to do that.”

The agency last year sought money to hire an information technology officer, but lawmakers denied the request. Marks said the agency will again ask the Legislature for $197,000 during the current session to fund the position.

In addition to identifying numerous technical problems, auditors concluded that the liquor commission doesn’t have enough inspectors to make occasional on-site visits to licensed cannabis businesses.

The agency has 23 inspector positions; 18 are filled. Auditors said Oregon fares poorly compared to Alaska and Nevada, where there’s one inspector for every 18 marijuana licenses. In Oregon, auditors estimated that the state has one inspector for every 83 pot businesses.

The Secretary of State’s Office identified a wide range of what it described as “significant weaknesses” in the agency’s security practices related to internet technology, including relying on a decade-old security plan and the failure to keep track of the hardware and software used by employees.

It also slapped the agency for failing to protect servers and workstations from viruses and malware, saying the lapse “significantly increases the risk that OLCC systems and its data could be compromised.”

Auditors also called out the liquor commission for failing to perform “due diligence” on companies it hired to help license marijuana businesses and track cannabis at various stages.

For instance, they noted that the liquor commission failed to confirm that one of the companies, Florida-based Franwell, meets minimum security standards.

The company helped develop a seed-to-sale system that tracks the movement of marijuana among growers, processors, wholesalers, testing labs and retailers. The process is intended to ensure marijuana isn’t diverted into the black market. Data about Oregon’s marijuana businesses – from plant counts to retail sales figures – are stored on Franwell’s servers.

Auditors said the lack of assurance that the data hosted by Franwell is safe from disclosure or changes is “particularly significant” because the information is essential to regulating the marijuana industry.

The audit points out that the liquor commission has a history of “ineffective action” in response to security problems with its computer systems. Auditors said two outside reviews and one internal audit identified numerous problems, most of which weren’t addressed.

“These long-standing issues significantly increase the risk that OLCC’s network, systems, and data could be compromised,” the audit notes. “While multiple individuals have responsibility for the IT systems and processes associated with these weaknesses, we found that OLCC lacks clear leadership and direction for its IT department.”

Embattled public figure rallies marijuana industry support

Former Oregon first lady cultivates cannabis-consultant image


Former Oregon first lady Cylvia Hayes bolstered her brand as a budding cannabis consultant this month, traveling to Colorado as a featured speaker at major marijuana industry event.

Hayes hosted the keynote session at the National Cannabis Industry Association’s Seed to Show conference in Denver. The conference panel over which she presided was called “Growing Your Business with Good in Mind: Corporate Social Responsibility.”

The appearance comes about a month after Oregon ethics officials issued a damning report that found she had misused her public position for personal financial gain as first lady.

A longtime business consultant focused on green energy, Hayes publicly branched out into the marijuana industry last summer with the launch of a sustainable cannabis email newsletter and a pitch to help weed companies “make money in an environmentally sound and socially beneficial manner.”

In a bio for the Denver event, which organizers said drew 3,000 industry professionals from around the country, Hayes billed herself as chief sustainability officer for Deschutes Growery, a recreational pot company based in Bend. A recent article published in the Bend Bulletin reported that the company retained her several months ago as it set a goal to become carbon-neutral.

While it’s unclear how much experience Hayes has in the cannabis industry, she previously acknowledged she had lived at a planned marijuana grow site in a remote area of Washington nearly two decades ago — before the state legalized medical or recreational pot.

Hayes, who became first lady after fiance John Kitzhaber was elected governor in 2010, earned more than $200,000 during his term from private groups that paid her to advocate for green energy, ocean protection and economic policies.

Those were the same policies she pursued as first lady and an unpaid but official policy adviser to the governor. That overlap — between Hayes’ role in the governor’s office and her consulting contracts with groups that wanted to influence Oregon’s environmental and economic policies — sparked state and federal criminal investigations.

In a report published in January, the Oregon Government Ethics Commission said it found Hayes had broken ethics laws 22 times. The commission’s staff found that Hayes was able to obtain private advocacy jobs only because of her status as first lady and unique access to the governor and his staff.

Commissioners could eventually impose penalties of up to $5,000 per violation, for a total of $110,000.

Legal cannabis market brings economic growth

New study points to positive nationwide impact

Legal cannabis within the next three years will generate $39.6 billion in overall economic impact, 414.000 jobs, and more than $4 billion in tax receipts, according to recent data.

The report by Arcview Market Research in partnership with BDS Analytics indicates 150-percent growth in the total economic output from legal cannabis, from $16 billion in 2017 to $40 billion by 2021.

Arcview cites economic multiplier effects through which U.S. consumer spending on legal cannabis in 2021 of $20.8 billion will generate $39.6 billion in overall economic impact, 414.000 jobs, and more than $4 billion in tax receipts.

Arcview also estimates that the legalization of adult-use (recreational) sales in California, will lead to the creation of nearly 99,000 industry jobs in the state by 2021, about a third of all cannabis jobs nationwide. Starting in January the state of California launched legal sales of cannabis products for recreational use.

Tom Adams, editor in chief at Arcview Market Research and Principal Analyst at BDS Analytics explained, “Our data shows positive indicators across the board for the legal cannabis industry, in North America and around the globe. The passage of the 2016 ballot initiatives and continued maturation of the existing adult-use markets are the primary drivers of the growth this year. That’s nothing compared to what we can expect in 2018 and beyond from Nevada’s tourism, and California and Canada planning to launch adult-use sales in 2018.”

OLCC stiffens penalties for underage sales of marijuana

Increase fines, suspensions follow lack of compliance

A temporary rule increasing the penalties for selling marijuana to minors is on the books. The Oregon Liquor Control Commission’s approval includes a provision to revoke an individual’s marijuana worker permit if the permittee intentionally sells marijuana to a minor.

For a first-time offense of the unintentional sale of marijuana to a minor, a retail licensee’s penalty increases to a 30-day license suspension or a fine of $4,950. Previously, the penalty was a 10-day license suspension or a $1,650 fine.

The Commission re-evaluated penalties after reviewing recent compliance reports on minor decoy operations.

“There’s no margin for error on making sure that marijuana doesn’t get in the hands of minors — period,” said Paul Rosenbaum, OLCC commission chairman. “The integrity of Oregon’s regulated system depends on industry compliance across the board.”

The temporary rule took effect Jan. 26; OLCC staff will review compliance activity during the 180-day period the rule is in place. After the sixth-month period, based on that compliance record, and recommendations by staff, the commission will consider options for permanent rulemaking.

Under the new sanction, penalties for multiple violations also increase. Two violations in a two-year period would result in an automatic 30-day license suspension; three violations in a two-year period would result in a license revocation.

The previous penalties were a 10-day license suspension, and a 30-day license suspension respectively. Under the previous rule, a retail license would be revoked after a fourth violation in two years.

The commission already has the authority to suspend or revoke a marijuana worker permit if a permittee violates any laws or rules applicable to a licensee. An intentional sale of marijuana by a marijuana worker permittee could include a retail employee selling to a friend known to be younger than 21.

“It’s our core mission at the OLCC to prevent the sale of marijuana to minors,” said Steve Marks, OLCC executive director. “The early results are unacceptable, and we’ll keep holding retailers and their employees accountable until they get it right.”