Oregon Secretary of State Shemia Fagan announced on Monday that she had ended her contract working as a paid consultant for a cannabis company, which she had done while her office was preparing an audit of the state’s recreational cannabis industry. In a statement, Fagan issued a public apology and admitted exercising “poor judgment” for entering into the contract, while maintaining she “diligently followed” state ethics guidelines for private employment as a public official. The Willamette Week reported on Fagan’s paid consultancy work on the same day that the state audit was released which found that overly strict regulations are making it expensive for people to run cannabis businesses and preventing others from joining the industry. The disclosure prompted Oregon Governor and fellow Democrat Tina Kotek to announce the launch of an ethics investigation into Fagan’s actions, while Republican lawmakers called for Fagan to resign. OPB political reporter Dirk VanderHart joins us with an update.
The following transcript was created by a computer and edited by a volunteer:
Dave Miller: This is Think Out Loud on OPB. I’m Dave Miller. Oregon’s Democratic Secretary of State Shemia Fagan is in a fight for her political career. Last week her office released an audit of Oregon’s recreational cannabis system. The same day Willamette Week reported that Fagan has been working as a private consultant for an Oregon-based affiliate of a cannabis chain. Over the weekend, Democratic Governor Tina Kotek asked for investigations. Top Republicans are asking Fagan to resign. This morning, Fagan released the details of her contract with the cannabis company and put out a statement saying, quote, ‘I owe the people of Oregon an apology.’ She held a press conference about all of this just about an hour ago. OPB’s’ Dirk VanderHart has been reporting on this story and he joins us now. Dirk, welcome back.
Dirk VanderHart: Hey, good to be here, Dave.
Miller: It’s good to have you on. I want to start with the timeline. I’m thinking specifically about the work on the audit and Fagan’s meetings about it and the signing of the contract and the recusal. So, what’s the timeline?
VanderHart: Yes, it’s important to get this right. Fagan noted last week that she called for an audit of the OLCC’s regulations on recreational cannabis almost two years ago. She did so, she said, after hearing from people in the cannabis industry - a lot of people - that the OLCC was too strict and sort of creating barriers. What’s clear is that this audit was all but complete by February 15th, the day she recused herself. In fact, the OLCC submitted its initial response to auditors’ findings the day before that, on February 14th. So things were pretty well in hand. We should be clear though that the state’s audit director was adamant last week that while Fagan can dictate what is audited, it’s the state’s professional auditors that investigate and ultimately come to conclusions, not the secretary.
Miller: What has Fagan now explained, as of this morning, about what she actually did for the company?
VanderHart: So Fagan says that she had a conversation in February with Rosa Cazares, one of La Mota’s owners, also a campaign donor that Fagan had become close with. Fagan says she mentioned to Cazares that she was going to be doing some work teaching at Willamette University. She was looking to create some extra income and Cazares mentioned that her company was looking for a consultant to help it navigate the cannabis landscape around the country as it looked to expand.
Now, Fagan does not have a background in cannabis. She has a full time job, obviously as the Secretary of State. But she said today that she thought this was an ideal position for her because she says she’s an adept researcher. She could put in time outside of her official duties for the work. Here’s part of what she said:
[Fagan] : ‘To be clear, they have never asked me to do anything other than gather information on expanding their cannabis business to other states. But clearly, this contract raises questions and upon painful reflection, taking that contract was poor judgment. I made a mistake, and I own it, and I am sorry.’
So I was just gonna say, obviously, people are concerned that the secretary getting lucrative work, this is $10,000 a month, could be only about her official position. This is a very different tone than Fagan set on Friday when she sort of defended her actions.
Miller: A lot of folks maybe... I was surprised to learn that the Secretary of State, who runs auditing and elections and business licensing offices for the state, is also doing any kind of serious outside work. In this case, teaching and consulting work. How much of her time is spent on private business?
VanderHart: Fagan was actually asked that today. She said much of the work she had done under this contract with La Mota was tedious. She estimated she’d spent 15 hours a week on that contract and said she was sort of just researching things online to figure out what different state laws and landscapes were like. Like I said, she’s paid $10,000 a month for that. She also worked about four hours a week teaching that course for Willamette University in Salem. Fagan sort of explained this by saying frankly that the $77,000 the secretary’s job pays a year is not enough for her. She’s a single mom of two kids. She lives in Portland. She said it’s hard to make ends meet. But she also said she was not saying she didn’t love the job. Here’s part of that:
[Fagan] : ‘I want you to know that I am, excuse me. I apologize. I am deeply honored to serve as Oregon Secretary of State, regardless of the compensation.’
VanderHart: You know, you can hear the contrition there. This is a very different Shemia Fagan than we usually see, who’s always very confident and sort of energetic. She was not that today.
Miller: How did she explain the guidance that she got from the Oregon Government Ethics Commission about this private consulting?
VanderHart: So we know that Fagan had phone discussions with the Ethics Commission. Apparently she had sort of informal discussions where she was asking about the guidelines regarding doing private work as a public official. Ethics officials talked that through with Fagan. They sent along official opinions that Commissioners had issued to people like former governor, John Kitzhaber, in the past when he was considering some private work.
But Fagan, unlike some officials in the past, never got formal written advice or a formal opinion from the Ethics Commission. One notable thing about that is if she had done so, that would have ensured that the advice showed up on the website for the OGEC [ https://www.oregon.gov/ogec ] where the Commission posted it hands out. But because she didn’t seek that it… that was not available to the public. But she also just didn’t actually get informal advice either. Which is a thing a lot of elected officials will do.
Miller: In an email in February, Fagan wrote this:
[Fagan] : ‘I do not believe a real conflict exists because any action required in response to the audit would be taken by the legislature or OLCC and any benefit could flow to all cannabis companies in Oregon, not this specific company.’
I should say that she reiterated a version of that last part, today, in the press conference. I’m just confused by that line. Is there some ethics guideline that if an entire sector could benefit, as opposed to just one company that a public official has a relationship to, then you don’t need to worry about a conflict of interest?
VanderHart: Sort of and some times. So Fagan’s language is… you’re right, very much reflecting state conflict of interest and ethics rules which say it’s a potential conflict of interest. If you’re a public official, you take an official action and that action would benefit a business you’re associated with. There is a possible exception to that, if the Ethics Commission determines that the benefit that would extend to the business official, an official is affiliated with, would also extend to a larger class of similar businesses. But this is a determination that Fagan sounds like she made on her own. The commission is pretty clear that it has to make its own formal determination on a case by case basis about whether or not the class in this case would have seen the same benefits all across the board. Fagan didn’t ask for that and instead she seems to be saying, the audit did not amount to an official action that could benefit the business on her part.
Miller: And one of the details there is that first part. Because we are not an agency that’s making changes ourselves. We’re just getting the lay of the land of regulation here and then any changes would be put in place by the agency or by lawmakers.
VanderHart: That’s right. That I have to say is a position that does seem to sort of skirt the fact that when the Secretary of State’s Office issues audits, people take them very seriously. Lawmakers often react to those audits with changes. So they are seen as very influential documents. It’s not just sort of a passive thing always.
Miller: There’s another big piece of this, which is that the cannabis companies in question have actually been in the news a lot recently. And again, I should give a big hat tip to reporting by Sophie Peel in Willamette Week, who have been in the lead here in recent weeks. What should folks know about La Mota and Verity Holding LLC?
VanderHart: Yeah, these are two affiliated companies, they’re owned by the same people – I mentioned Rosa Cazares, the other is Aaron Mitchell. They are a couple. It’s not entirely clear to me what Verity Holdings does, but La Mota is potentially familiar to listeners. It’s a large chain of cannabis dispensers in the state. And you’re right, this is a couple that has been the subject of numerous stories by Willamette Week that detail the history of the couple failing to pay millions of dollars in federal and state taxes but also being sued by their vendors for just not paying their bills. And then at the same time becoming fairly prolific contributors to some of the state’s most influential Democrats that includes Fagan, Governor Tina Kotek, and Senate President Rob Wagner. All three of those folks have now said they will be giving away or making donations in the amount that the La Mota founders donated to them.
Miller: I want to turn to the audit and question that we very well could have devoted a conversation to even if it hadn’t been for these sort of explosive political questions. What were the audit’s big findings?
VanderHart: So this was a look at, as I said up top, the OLCC’s regulations on cannabis and whether or not it was hampering business and equity actually, and auditors wound up concluding that Oregon does do that. I mean, one of the issues here is this is an audit that really would look to many cannabis business owners like a very positive thing. Because auditors said Oregon needs to look at its regulations of the industry. They argued many of those regulations might have made sense when we first legalized cannabis in 2014 but that the federal landscape had changed, the national landscape had changed.
They made the case that the OLCC just needs to look at this stuff and essentially ease restrictions. Things like, necessary 24 hour surveillance footage and certain security requirements for doors. There’s concerns that the system that tracks seeds to the point they are cannabis flower is too expensive. The auditor said this could really be hampering business and business people in Oregon. Let’s look at maybe relaxing some of this stuff.
Miller: Governor Tina Kotek, as I mentioned at the beginning, has called for investigations, plural. What have you heard of anything about where that stands?
VanderHart: We think these are going forward. So Kotek on Friday called on the Ethics Commission to launch an investigation into Fagan’s actions, essentially. She also called on the Department of Justice to look into the actual findings of that audit just to see if they were credible and not sort of influenced by the secretary. Those both appear to be moving forward. The Ethics Commission has received at least two complaints about Fagan that it could investigate. The DOJ said today it does expect to do the inquiry that Kotek requested.
Miller: Meanwhile, in the bigger picture, a number of top Democrats including, but in addition to Tina Kotek, have voiced some concern in careful ways and top Republicans have called for Fagan to simply step down. Where does this leave her? Someone who, we have to note, has really been seen as a rising star in the State Democratic Party and someone who would surprise no political watchers here if she were to run for governor someday.
VanderHart: Right. I will be frank with you, I think that remains to be seen. Fagan today seemed, obviously contrite, but to remain very confident that the official inquiries into this are going to find her blameless and that she obeyed the rules. She clearly hopes that the apology is going to be enough for voters. But I think this is so fresh that we’re waiting for all of this to set in, does she maintain a positive image with voters? Will her backers in the labor community still stand behind her after this? Will she lose cachet in the Democratic Party? This is very early days. Things seem to be changing a lot on an hour to hour basis, almost. I think we are just waiting to see, Dave.
Miller: Dirk. Thanks very much.
VanderHart: Yeah, my pleasure.
Miller: Dirk VanderHart is a member of OPB’s political reporting team.
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