Mowing the Grass

New state rules make sure businesses structured like La Mota meet new tax compliance requirements for dispensaries.

The Oregon Liquor and Cannabis Commission approved temporary rules last week that require dispensaries and their owners to provide proof of tax compliance from the Oregon Department of Revenue when seeking a new license or annual renewal of an existing license.

The rules come on the heels of WW’s reporting on La Mota, the second-largest dispensary chain in the state, whose principals and affiliate companies have been issued more than $7 million in tax liens by state and federal agencies in recent years.

As they racked up liens for unpaid taxes, La Mota co-founder Aaron Mitchell bought dozens of properties in Oregon to turn into dispensaries—and the chain allegedly stiffed vendors, too. More than 30 La Mota dispensaries now operate across the state.

Gov. Tina Kotek, herself a recipient of the cannabis couple’s generous political giving, directed the DOR and the OLCC on May 16 to clamp down on tax-noncompliant dispensaries.

Last week, the two agencies provided details of the temporary tax compliance rules during a meeting of the OLCC board. The agencies will set permanent rules later this year. Here’s how the temporary rules will work.

THE RULES

Each person with a 20% or more ownership stake in a dispensary must obtain a certificate of tax compliance from the state and present it to the OLCC to obtain or renew a license, or to change the business’s ownership or structure. “Compliance” means the person or entity is paid up in full, is on a payment plan, or is in an active tax appeal.

If, for instance, four limited liability companies with a 20% ownership stake are listed, each LLC must obtain a certificate of tax compliance.

King, who was arrested in Bend late in 2022 (he kept a residence in Medford) and charged with trafficking $7 million in catalytic converters. Medford police said he was a “key player” who bought up the stolen car parts and, like Doyle, shipped them out of state. He now faces 22 scrap metal charges, as well as two counts of racketeering. Prosecutors have asked for an “enhanced” sentence given King’s lack of remorse for his alleged crimes. His trial in Jackson County is scheduled for September. He declined to comment through his attorney.

STREET-LEVEL RANDOS

The rest of the cases reviewed by WW appeared to involve street-level thieves who were caught with catalytic converters, sometimes red handed. Most were in Multnomah County. Generally, but not always, the scrap metal charges were attached to more serious felonies like first-degree theft or drug dealing.

In one typical example, police responded to reports of two men “slumped over” in an idling car parked at a McDonald’s along Northeast Halsey Street in the Gateway District last July. One had a meth pipe on the dashboard in front of him—and a sawed-off catalytic converter between his legs. Two other catalytic converters were in the car, as well as a baggie full of blue fentanyl pills. The driver, who had fallen asleep with his foot on the brake while the engine was still running, said one of the catalytic converters was taken from the very car he was driving, which he said his girlfriend had previously purchased from a dead man.

The car was registered to neither his girlfriend nor a man. He and the passenger were both charged with felony drug delivery and unlawful transport of metal property, a misdemeanor.

One of the men, Pavel Kuzik, is currently in prison after pleading guilty to a subsequent December hit-and-run in Washington County.

The other, Yuriy Zvozdetskiy, failed to show up to a court date in March. He has yet to be assigned an attorney. A warrant is now out for his arrest.

Additionally, if someone has a 90% ownership stake in one of the listed LLCs, and that LLC has a 25% ownership stake in the dispensary, then that person must also obtain a certificate of tax compliance.

To put it more simply, because the rules are written to include tax compliance by “nested” LLCs, it will be difficult for someone—Aaron Mitchell, for instance—to form several LLCs and thus avoid complying with the tax rules.

How The Rules Apply To La Mota

Mitchell and Cazares are the sole listed member and manager, respectively, of 60 active LLCs in Oregon. In a recent deposition for an ongoing court case, Cazares said Mitchell was the sole owner of 57 of the 60 La Mota companies registered with the state. If true, that means the new rules require Mitchell to be in personal tax compliance for each of the La Mota dispensary renewals.

One outstanding lien issued to Mitchell by the state in 2019 includes unpaid personal income taxes stretching back to 2015. At the time it was issued, Mitchell owed $600,000 in personal income taxes for 2017. The DOR declines to say if any particular taxpayer or taxpaying entity is on a payment plan.

More than two dozen LLCs controlled by Cazares and Mitchell have been listed on tax liens issued by the Internal Revenue Service and the DOR in recent years, suggesting the couple has unpaid taxes across dozens of their companies.

What Happens Next

The temporary rules are now in effect, but they kick in only for license renewal requests submitted after Sept. 1.

The Cannabis Industry Alliance of Oregon, the largest cannabis guild in the state, recently wrote its members that it had submitted “a large number of questions to the OLCC that are still unanswered at this time” about the new rules.

The tone of the email to members was anxious, with guild leaders warning that the commission had hastily cobbled together the rules after WW’s coverage of La Mota.

“This is a very fast-moving issue that is of great concern to the CIAO,” wrote executive director Jesse Bontecou. “That being said, we don’t have all the answers yet for how these rules will be implemented and what all the implications will be.”

At least one OLCC commissioner says the intent is to help law-abiding business owners succeed. “We want good business people. I do recognize that there is the ability for abuse with something like this, where we can get overkill,” commissioner Jennifer Currin said during last week’s rules hearing. “I’m hoping we can address a problem that we can easily identify.”

The rules already appear to be having an effect. The DOR says 18 marijuana tax customers were on a payment plan when Kotek announced the directive in May. Now, says spokesman Rudy Owens, 27 customers, who control 85 dispensaries altogether, are on payment plans. SOPHIE PEEL.