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Missteps by Michigan's leaders helped conceal marijuana corruption

A provision in a state law that launched Michigan's marijuana industry attempted to prevent corruption, but then-Gov. Rick Snyder's office failed to enforce it, and the public was kept in the dark as a key appointee took bribes, according to a Detroit News investigation.

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The 2016 medical marijuana law required that members of the licensing board submit — under oath — financial disclosures about their debts and business interests annually. There's no remaining documented proof that marijuana licensing board chairman Rick Johnson's disclosure was submitted before his appointment or while he served in the role.

If the law had been followed and required annual disclosures were made, Snyder's office could have had a chance to detect money flowing from lobbyists to business entities controlled by Johnson and monthly payments to Johnson's wife by a businessman seeking marijuana licenses from Johnson's board.

In one instance, a business that federal prosecutors say was used as a vehicle to funnel bribes to

Johnson appears to have been concealed in 2018 because the governor's office didn't request financial records that year from members of the board as required by law, according to three board members.

Even if a disclosure was submitted, state policy directed the reports to the governor's office, which is not subject to Michigan's open records law, meaning the documents would remain secret out of public scrutiny.

The apparent missteps by elected officials helped Johnson, a GOP former state House speaker, become chairman of the Medical Marihuana Licensing Board in 2017, wield power for his own benefit and keep his financial entanglements secret.

Johnson's lawyer and another board member didn't respond to requests for comment about their disclosures.

In recent weeks, three of the five medical marijuana board members told The News they were only required to file personal financial disclosures once while they served on the panel from May 2017 through April 2019. Under the law, there should have been at least two rounds of annual disclosures, though the law doesn't specify when.

Johnson pleaded guilty in April to taking bribes through companies he controlled. His disclosures should have listed the companies, including VM Enterprises, an entity for which a lobbyist for marijuana businesses filed paperwork with the state to organize on Feb. 8, 2018. The filing, signed by lobbyist

Manny Lentine, listed Johnson's wife, Janice Maria Johnson, as the company's resident agent. Rick Johnson used VM Enterprises to accept bribes while he chaired the marijuana licensing board, according to federal prosecutors.

Lentine rented office space to Johnson in 2018 while Johnson was chairman of the licensing board, according to a public disclosure. He did not return a phone call seeking comment.

Former state Rep. Mike Callton, a Republican from Barry County who sponsored the 2016 law that created the licensing board, said lawmakers worked to add checks and balances and transparency requirements in an attempt to stop wrongdoing from occurring in the burgeoning industry.

"We were trying to create something that was not breakable," Callton said, "although Rick Johnson broke it.”

Under Johnson's leadership from May 2017 to April 2019, the licensing board approved about 150 licenses to grow, sell and transport medical marijuana in Michigan. The panel also pre-qualified companies for future licenses, including Windsor Township OG and Sozo Health, which had hired Lentine as their lobbyist, according to lobbying reports.

On April 6, about four years after the board was disbanded by Democratic Gov. Gretchen Whitmer, prosecutors announced felony charges against Johnson, lobbyists Brian Pierce and Vincent Brown, and businessman John Dalaly, revealing the largest public corruption scandal in the state’s capital in 30 years.

Weeks later, Johnson pleaded guilty to accepting more than $110,000 in cash payments and other benefits from representatives of companies who were seeking licenses from the board he led. Johnson also admitted he provided lobbyists inside information about the state's marijuana regulations.

The marijuana industry had become a "modern-day gold rush," Grand Rapids U.S. Attorney Mark Totten said at a press conference in downtown Lansing.

Donald Bailey, Nichole Cover and David LaMontaine, three of the five members of the state's Medical Marihuana Licensing Board, said Snyder's office didn't follow the law as it was written. The governor's office only required them to submit disclosures about their income, assets and financial liabilities once at the beginning of their tenures on the board, which had the power to decide who could get into the cannabis market, the board members said.

The medical marijuana law specifically required board members to submit the disclosures annually, a standard that could have allowed the governor's office to detect inconsistencies and changes in assets over time, new income sources and new debts. While Johnson's conflicts of interest played out in secret, the state's medical marijuana law — if enforced — featured provisions that aimed to combat them.

Across 2017, 2018 and 2019, money flowed from lobbyists to obscure business entities Johnson controlled. Under the disclosure law, board members were supposed to report annually their sources of income and business interests.

Likewise, Dalaly said in court in April that he hired Johnson's wife as a consultant at a rate of $4,000 a month as he represented a company seeking licenses from the board Johnson led. Under the disclosure law, the income of a board member's spouse was supposed to be reported each year.

A real estate firm focused on marijuana firms has also acknowledged loaning Johnson $75,000, weeks after the licensing board was disbanded. Johnson's debts would have been disclosed annually under the disclosure law.

Allison Scott, a spokeswoman for Snyder, and Dick Posthumus, Snyder's former chief of staff, didn't have explanations for why the disclosures weren't made annually by board members. The records weren't sent to the State Archives, Scott said, so she wouldn't be able to provide "any details."

Critics of Johnson's 2017 appointment to lead the licensing board, such as former state Sen. Rick Jones, a Republican from Grand Ledge, had voiced concerns about his background as a lobbyist and conflicts of interest from the moment Snyder picked him for the job.

Jones said he wasn't surprised by the developments that played out in federal court this spring.

“I stand by the law that was passed," said Jones, a former Eaton County sheriff. "Everybody should have followed it. It would have been a much better program.”

Posthumus was one of the high-ranking members of the Snyder administration who said they never saw Johnson's disclosure. The document was handled by the governor's appointments division, the former chief of staff said.

Former Senate Majority Leader Arlan Meekhof, R-Grand Haven, nominated Johnson for the marijuana licensing board.

Posthumus has said there were concerns about Johnson's background as a lobbyist before Snyder selected him to chair the licensing board so the Michigan State Police conducted a "deep dive" investigation into him that raised no issues.

Shanon Banner, spokeswoman for the Michigan State Police, said last week, that she could find no one within the agency with knowledge of such a review taking place.

Brian Breslin, who directed appointments for Snyder in 2017, didn't respond to multiple requests for comment. But Breslin previously told The News he had been questioned by the FBI.

The financial disclosures were meant to ensure that board members didn't have ties to applicants for medical marijuana licenses. It's unclear how the governor's office would have checked for those connections, when the Michigan Department of Licensing and Regulatory Affairs controlled information about medical marijuana applications.

Like Posthumus, Shelly Edgerton, who led the licensing department in 2017, said she didn't see Johnson's disclosure. The disclosure process was "driven" by the governor's office, Edgerton said.

Three of the five medical marijuana board members said they had to submit hard copies of the disclosure documents because the paperwork had to be notarized, meaning it's unclear if digital copies were ever made.

"My husband said we completed it and had to bring (a) hard copy back to them," said Cover, one of the five board members.

Two other board members, Bailey and LaMontaine, shared similar stories: They turned in printed copies of their forms.

Snyder, the Department of Licensing and Regulatory Affairs and Whitmer's office all said they don't have copies of the board members' financial disclosures on hand six years later. The three board members interviewed by The News also said they no longer had copies of their own forms.

Multiple former Snyder administration officials said a sensitive document like personal financial records for the marijuana licensing board members could have been handled by the governor's attorneys. Travis Weber, who was chief legal counsel to the governor in 2017 and 2018, died in February 2019.

Adam Sandoval, who was Snyder’s deputy legal counsel and now a deputy director of the Department of Licensing and Regulatory Affairs, declined a request for an interview. At the licensing department, Sandoval oversees the Cannabis Regulatory Agency that succeeded the board Johnson chaired.

It's unclear whether Vivian Pickard, another former licensing board member, and Johnson turned in financial disclosures. Pickard didn't respond to a request for comment. Johnson's lawyer, Nicholas Dondzila, also didn't reply to a request for comment.

Seven former Snyder administration officials contacted by The News said they never saw the financial disclosure forms for Johnson or didn't know who did.

When lawmakers crafted the medical marijuana law, they specifically wrote the disclosures had to be filed with the governor's office while employees of the state's marijuana bureau had to file disclosures with the licensing department. The distinction was significant because the governor's office is exempt from open records requests under the Freedom of Information Act, but the department has to provide records when they're sought by the public.

The difference has kept Johnson's financial disclosure private despite his high level position, the importance of his decisions and the guilty plea in federal court. Asked about sending the disclosures to Snyder's office, former state Sen. Jones said lawmakers were trying to pass the best bill they could at the time.

"Should things have been more open? Absolutely," Jones said.

The medical marijuana law should have made Johnson's financial disclosures public from the beginning, said Mark Brewer, an election lawyer and former chairman of the Michigan Democratic Party.

“Disclosure is good," Brewer said. "But if disclosure is made to an entity that doesn’t have to make it public, that’s not disclosure at all. It’s camouflage.”

Currently, Michigan is one of two states that don't require lawmakers themselves to file any type of personal financial disclosure to screen for conflicts of interest. That will soon change after voters approved a financial disclosure requirement in the November election.

Edgerton, who was the state's licensing director from July 2016 until the end of Snyder's second term in December 2018, said it would have taken officials a lot of time to comb through the board members' financial disclosures to find potential conflicts.

In retrospect, Edgerton said it would have been better for lawmakers to have the department itself and its employees vet license applications and decide who met the legal qualifications for licenses instead of creating an appointed board.

“Obviously, the board created a lot of havoc early on in the beginning," said Edgerton, who went on to work as a lobbyist for the marijuana industry. "I think it was stressful enough to get into a regulated market."

Whitmer reached a similar conclusion in 2019, after Michigan voters approved recreational marijuana, when she disbanded the medical marijuana licensing board.

Jones, the former lawmaker who left office at the end of 2018, said he continues to believe Rick Johnson was simply not the right person to be the chairman of the licensing panel.

"Today, I am very sure I was right," Jones said.

The Detroit News


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