A former Colorado policeman turned pot regulator is at the heart of a conflict-of-interest dispute that threatens to delay the rollout of adult-use marijuana sales in Maine.
Lewis Koski has two jobs. He is a partner in Freedman & Koski, the Colorado firm that initially lost and then won a $189,000 consulting contract to write Maine’s marijuana regulations that map out how the state will oversee key marijuana issues, such as a track-and-trace inventory system. Koski also is employed as an executive at Franwell Inc., a Florida company that signed, lost and is now rebidding for a $150,000 state track-and-trace system contract.
His two employers and the Department of Administrative and Financial Services, the state agency in charge of procuring these contracts, say there is no conflict of interest. Neither of Koski’s employers was involved in picking the other for a state contract and neither has the authority to send more state cannabis work, or taxpayer dollars, the other one’s way, state officials said.
“Given the modest size of the regulated marijuana market nationwide, it is not unusual or surprising that participants would have overlapping business relationships,” David Heidrich, the director of communications and a senior policy adviser for the Department of Administrative and Financial Services, or DAFS, said in an email sent Friday hours before the state canceled a three-year contract with Franwell for its METRC track-and-trace system.
BOTEC Analysis, the California company that lost the state consulting job to Freedman & Koski, disagrees. In December, Maine awarded the consulting job to BOTEC, but Freedman & Koski appealed, claiming the state had unfairly scored the contract and failed to give it credit for partnering with a local firm. In response, DAFS pulled the plug on that deal in January and rebid the deal, deciding last month to hire Freedman & Koski as its marijuana consultant.
But on Monday, BOTEC Analysis asked the state to stay the award of that contract and give it time to appeal, filing paperwork that said the state had unfairly scored BOTEC’s proposal in the second round. BOTEC also formalized an accusation that has been circulating for a week: that Freedman & Koski had failed to disclose “a very substantial and utterly obvious” disqualifying conflict of interest in its application for the consulting contract.
“Mr. Koski’s business relationship with METRC and this conflict of interest clearly required disclosure,” wrote attorneys Charles Dingman and Michael Smith of Preti Flaherty, which is representing BOTEC in its appeal. “If F&K has a contract to provide rulemaking consultant services to the state, then its co-founder, Lewis Koski, will be in a position to drive funds to a firm, METRC, from which he also derives income.”
CAN’T YET PREDICT EFFECT ON ROLLOUT
The no-bid contract that DAFS had signed with METRC included a line item of $21,762 a year that METRC can charge the state if customizations are necessary to the software, BOTEC’s lawyers note. Erik Gundersen, the head of DAFS’ newly created Office of Marijuana Policy and one of the people who evaluated the F&K bid, noted the importance of picking a track-and-trace system that allowed for customization if deemed necessary during the rulemaking process.
BOTEC filed a request for a stay because it claimed it needed more time, and more information, to file an informed appeal of F&K’s consulting award. Although the state awarded Freedman & Koski the consulting job on Feb. 22, DAFS did not release the company’s bid proposal until Monday, more than a week after making its selection, making it difficult for BOTEC to decide whether it should challenge the award within the 15-day appeal window.
The state has until Monday to respond to BOTEC’s request for a stay. Until the state decides whether to grant the request, and how it would handle a BOTEC appeal, it’s impossible to say how the rollout of Maine’s recreational marijuana sales will be affected, Heidrich said. The department had asked those bidding on the consulting job to have recreational marijuana rules ready for legislative consideration before lawmakers break for the summer, paving the way for sales by the end of the year.
Maine voters approved recreational marijuana legalization at referendum in November 2016, but the path to commercial licensing and sales has faced a number of legislative and gubernatorial hurdles, including a legislative overhaul and two vetoes by Gov. Paul LePage, an opponent of legalization. His successor, Janet Mills, hired Gundersen to oversee a timely rollout, but so far, the state has awarded and subsequently pulled out of two cannabis contracts.
PROFESSOR: ‘IT’S ETHICS 101’
Neither of these contracts represents high-value deals for Freedman & Koski, BOTEC or Franwell, who are all big players in the North American cannabis market. Franwell could earn as much as $60 million over two years from its 2017 track-and-trace deal with California, for example. But inking a modest deal with Maine can help a contractor land the next state job in a more lucrative market on the verge of legalization, like New York, New Jersey or Illinois.
As one of the first dozen states to legalize adult-use sales in the high-dollar marijuana market, Maine must take steps to hold government contractors to the highest possible ethical standards, said Richard Painter, a University of Minnesota Law School professor who served as chief White House ethics lawyer under President George W. Bush. It should write stringent conflict of interest clauses into all of its rulemaking consulting contracts, he said.
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“There is just no way to know this situation can work,” Painter said of Koski’s dual employment. “It’s ethics 101. You can’t have someone writing regulations that will benefit themselves, or their family or friend or a company they work for, directly or indirectly. Even if that person does the best job in the world, you’d never know if he were working in the best interest of the state or himself.”
California Polytechnic State University Professor Steve Mintz didn’t buy Heidrich’s small-world defense of Koski’s dual employment, arguing size should not matter.
“Good ethics is good ethics and rationalizing it may not meet all the standards because of size or otherwise misses the point that businesses should be aboveboard in their operations,” said Mintz, who lectures and writes on business and accounting ethics. “Having a principal of a firm that is writing the rules also being a full-time employee of the firm that will develop the tracking system, no less write the rules for that system, is just too much crossover for my tastes.”
‘IT MAY LOOK LIKE THERE’S SMOKE HERE’
In its request for a stay, BOTEC said the scoring penalty resulting from Freedman & Koski’s failure to disclose Koski’s dual employment, as well as several scoring improprieties, would have overcome the seven points separating the two companies’ state scores and tipped the balance in BOTEC’s favor. For example, the team that scored the proposal called BOTEC’s eight-week timeline unrealistic, but applauded Freedman & Koski for its shorter six-week delivery date.
Initially, Freedman & Koski told the Press Herald that it had disclosed Koski’s ties to METRC in its state bid. But Koski’s partner, Andrew Freedman, who was Colorado’s first cabinet-level marijuana czar, later said the disclosure had been inadvertently left out of the second-round bid, with the Franwell reference that would have spelled out Koski’s ties to METRC exchanged for a recommendation from a California regulator that might appeal more to a Maine evaluator.
Although the connection was left out of the winning application, Freedman insists it was included in the first-round application, which neither DAFS nor Freedman & Koski has released. That wasn’t the only time that Freedman & Koski had disclosed the connection, he said. He recalls the subject coming up in conversations with agency staff. After all, Freedman & Koski has been working for Maine for several months, helping it to write its marijuana testing lab rules, he said.
“I get that it may look like there’s smoke here, but there’s no fire,” Freedman said in a phone call.
POT REGULATOR’S JOB CHANGING
Although not outlined in the winning proposal, Freedman detailed his agency’s financial relationship with Franwell’s METRC division in a follow-up email. As an F&K partner, Koski has provided regulatory subject matter expertise to help Franwell, an F&K client, carry out METRC track-and-trace contracts in Massachusetts and California. Franwell paid F&K for those services out of Massachusetts and California state funds it received for those track-and-trace contracts.
In both those states, only Franwell had a contract to provide consulting work, Freedman said. Freedman & Koski’s only work in those states was as a subject matter expert for Franwell in the provision of its METRC track-and-trace contract, Freedman said. During the year that the two companies have worked together, Koski has never worked as both a state-contracted consultant under the F&K banner and as a METRC executive, Freedman said.
That wouldn’t have happened in Maine, either, Freedman said. Unlike in Massachusetts, where Koski is serving as a full-time METRC executive who earns $169 an hour as the project manager, Koski would have only been wearing his Freedman & Koski hat, not his METRC hat, when working in Maine, Freedman said. Koski is not listed among the key METRC personnel cited in the track-and-trace contract that DAFS scuttled on Friday.
But Koski’s role at METRC soon could be changing. After taking the extra job at METRC in January, Koski is now in talks to take on an expanded role there as an executive while staying on at Freedman & Koski as an adviser, company officials confirm. The details are still being worked out, but during this transition, while there is no contract, Koski has been serving as a METRC employee, as he is listed in the Massachusetts Cannabis Control Commission contract with METRC.
‘A NET POSITIVE FOR THE STATE’
The rule work that Freedman & Koski will do for Maine, if BOTEC’s challenge is rebuffed, would have some seed-to-sale components, Freedman said, like deciding how the state can use the system to effectively monitor the inventories of marijuana license holders, but it will not require Freedman & Koski to evaluate the system. Freedman & Koski have not bid on state contracts that have asked for track-and-trace system evaluations, like Colorado recently advertised.
Executives at METRC note the two contracts were being evaluated at the same time, so there was no conflict to discuss at the time the Koski’s two employers sent their proposals to Maine, but the company’s president, Jeff Wells, said it doesn’t see a conflict between the seed-to-sale contract and the rulemaking work. He said the relationship between the two companies could actually benefit Maine.
In his email, Wells made it clear that METRC would definitely be submitting another proposal to sell its track-and-trace system to Maine. In its announcement of the cancellation, DAFS did not mention any concerns about Koski’s dual employment – instead, it cited concerns about using an Alaska track-and-trace procurement to find a medical marijuana tracking system instead of bidding out its own medical and recreational inventory system.
“Our experience would suggest that a combination of METRC and Freedman & Koski would result in a net positive for the state,” Wells said.
Penelope Overton can be contacted at 791-6364 or at:
poverton@pressherald.com
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