A 2018 Investigation Set La Mota’s Co-Founder Against State Regulators

In hindsight, the 2018 case still reverberates across Oregon’s political landscape.

On Feb. 7, 2018, a state inspector walked into a 60,000-square-foot building in the Southern Oregon town of White City, about 40 miles from the California border.

What he found, according to his report, were 49 cardboard U-Haul boxes filled with weed material stacked along a warehouse wall. None of the weed was properly labeled, he alleged—and the inspector, Marty Rowley, thought that could mean only one thing.

“This 148 pounds could have or was going to be diverted,” Rowley wrote in his report. By “diverted,” Rowley meant shipped from a licensed cannabis business to the illicit market. Some of the boxes, he noted, had the words “lost child” neatly written on them in Sharpie.

The company operating out of the warehouse was cheekily named Black Market Distribution LLC. And its controlling partners were Rosa Cazares and Aaron Mitchell, co-founders of the now-embattled cannabis dispensary chain La Mota.

For La Mota’s founders, such an accusation threatened their ambitions for statewide and national expansion. After all, diversion to the black market is the gravest allegation the Oregon Liquor and Cannabis Commission can make against a licensee.

That’s because cannabis remains federally prohibited and diversion would have put La Mota in the crosshairs of law enforcement, and also because the Oregon cannabis industry looked far different in 2018 than it does today. Institutional investors were clambering to enter the state market, and oversupply had not yet sent prices spiraling earthward.

So Cazares and Mitchell fought.

They waged a two-year battle with the OLCC to refute the allegation of diversion and retain their warehouse license. Most observers would say the young couple won—the case ended with a $16,335 fine in early 2020 for other violations relating to inadequate camera footage, a mere slap on the wrist compared to the possible penalties they faced.

But in hindsight, the 2018 case still reverberates across the Oregon political landscape.

It’s not clear what role it played in the couple’s entry into politics. But it was shortly before resolving this threat to their business that Cazares and Mitchell began contributing to the election campaigns of Oregon’s top Democratic Party leaders. Taking a page from the books of tech entrepreneurs like Mark Zuckerberg, they responded to regulation with robust political action, seeking to influence the state’s top policymakers.

Records show, too, that Cazares’ dissatisfaction with her treatment at the hands of the OLCC would eventually influence a state audit of the commission overseen by then-Secretary of State Shemia Fagan, a rising political star who had bet her career on La Mota.

In the wake of Fagan’s resignation May 2, WW returned to an investigation that embittered Cazares and Mitchell against the state. We found that at the heart of their troubles—and Fagan’s demise—is the tension that all of Oregon’s cannabis businesses face: how to build toward national legalization while in the meantime staving off financial ruin.

Oregon cannabis companies long to export bud to other states. But that’s not legally possible while it remains a Schedule I narcotic under federal law. So the temptation to divert a little product under the table and across the border remains—especially since legal-market prices are so unstable.

In 2022, Oregon law enforcement agencies seized 210,000 pounds of black market weed, according to the Oregon-Idaho High Intensity Drug Trafficking Area task force. And that’s just the illegal weed that authorities sniffed out. Figures from a recent report by Whitney Economics estimate that 3.5 million pounds of Oregon weed is diverted to the illicit market each year; an estimated 550,000 pounds annually is sold through the legal market.

The OLCC has long seen its role as preventing a federal crackdown on Oregon’s legal cannabis market. So it tracks all cannabis grown by licensed farms in an online system from seed to sale to prevent diversion.

When Rowley found 49 boxes of weed that he said had never been entered into the state tracking system, as well as a warehouse with inadequate camera footage to track what had happened, OLCC staff proposed the most severe penalty possible for Black Market Distribution: canceling its license.

Much of the cannabis from the couple’s farms was supposed to be stored in that warehouse, Cazares and Mitchell’s attorney said at the time. “That has wreaked an exceedingly real and painful economic cost on this licensee,” their lawyer said. (It appears, according to documents, they also operated an indoor grow and a processing facility in the building.)

Cazares and Mitchell, at that point running more than 20 stores across the state, mimicked the strategy of other startups encountering zealous regulators: They showed up in full battle gear.

Black Market hired Alex Tinker, an aggressive lawyer at one of Portland’s leading law firms, Tonkon Torp, to fight the license revocation. The case dragged on for nearly two years through multiple venues, including the state’s Office of Administrative Hearings, before landing back with the OLCC board in December 2019.

Tinker mounted a relentless, hourlong defense to the board that day. Tinker said the boxes labeled “lost child” contained “material that had fallen on the floor during the process of breaking down hundreds of plants over the season.

“Licensee, rather than throwing those away or into the bin to be trimmed up with the rest, carefully set aside in separate boxes because it wanted to track every scrap and crumb of the thousands of pounds of material that had come through the warehouse that year,” Tinker said. “Not one crumb or leaf entered or exited this warehouse without proper tracking.”

A month later, the OLCC and Black Market Distribution reached a deal: a 99-day suspension or $16,335 fine, and destruction of the 49 boxes of weed.

Many would say La Mota got off easy with a fine it could pay. Other, smaller enterprises, without money to fight OLCC penalties, have had their businesses destroyed by minor violations.

“When I learned the outcome of that case,” says Matt Goldberg, La Mota’s attorney until the couple dropped him for Tinker, “I thought it was a good result for the licensee.”

Less than a month before the parties reached their settlement, in December 2019, Cazares and Mitchell made their first political contributions.

They gave to then-House Speaker and now-Gov. Tina Kotek. They gave to now-retired House Majority Leader Barbara Smith Warner. They gave to Multnomah County District Attorney Mike Schmidt. According to elections records, it was the first time the couple had opened their purse strings to politicians.

“It’s a tried and true effort to create a line of communication to get either favorable treatment or at least to make your pitch for more favorable treatment,” says Ben Gaskins, a professor of political science at Lewis & Clark College. “What you’re really paying for is attention and access. You want to be able to have powerful regulators and politicians know you and feel positively disposed toward you.”

Following the first contributions in 2019, the couple would give hundreds of thousands more to top Democrats, including $45,000 to Fagan starting in the fall of 2020.

A spokesman for La Mota said Mitchell and Cazares were not available for comment by press deadline.

Two years after the investigation, Cazares would direct the attention of state auditors to how the OLCC had handled the White City case.

When Fagan took office in January 2021, one of her first directives was to audit cannabis regulation at the OLCC. As previously reported by WW, records show Fagan pressed auditors in her first month on the job to speak with Cazares, well before the audit began, to help inform the scope of the probe.

And when auditors interviewed Cazares in 2022, she waved the 2018 case as an example of injustice by the OLCC. She said the agency tried to make “an example” of her and Mitchell. She said they were “treated with zero respect.”

Cazares called the agency sexist, ageist and unsupportive of people of color. She said the agency treated her like a criminal, and that Rowley called her on the day of the inspection, right after she had given birth to her first child, to tell her, as she recalled, “Your day is about to get really bad.”

Cazares claimed La Mota lost $20 million because of the case and that attorney costs amounted to $400,000.

“It’s this crazy power trip. They see our sales and how much money we have or shouldn’t have,” Cazares said to the interviewer. “They see us go from one store to 30, and maybe they feel like we shouldn’t have that. They make me feel like I’m a criminal.” Cazares also mentioned her political connections: “She spoke with the speaker of the House about how big cannabis can be and said it’s an undervalued and underutilized industry.” At the time, Kotek was speaker.

Cazares’ criticisms came up in subsequent interviews with top OLCC regulators.

Jason Hanson, the agency’s compliance director, was asked about Cazares’ feeling like a criminal in his interview months later. “Rosa is the only person he’s heard who said something like that,” the interviewer wrote Hanson responded. “She’s used the term on multiple occasions and probably testified like that in hearings.”

The audit, released last month, concluded the agency was stifling the industry by overregulating. The Secretary of State’s Office insisted Cazares had no impact on the ultimate findings.

By then, Fagan had admitted to WW that she’d taken a job moonlighting for Cazares and Mitchell. A week later, she resigned from office.

Cazares and Mitchell hired Fagan to help La Mota go national—the same ambition that underlay their fight with the OLCC in 2018. Mitchell had made such ambitions clear in a 2017 interview with Marijuana Venture.

“I’m aiming to have the most retail stores in the world,” he told the magazine. “And I want to have that title for a while.”

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