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Kaya Shack, a vertically integrated cannabis operator in Oregon, will sell its Salem dispensary by Feb. 1, 2023, as part of a sale-surrender settlement for two violations stemming from 2019, according to the Oregon Liquor and Cannabis Commission (OLCC).

Kaya Shack is owned and operated by Kaya Holdings Inc., the first fully reporting public company to own and operate a seed-to-sale legal cannabis business.

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For roughly a year—from February 2019 to February 2020—Kaya Shack allegedly sold adulterated prerolls and cannabis flower to consumers or transferred to other licensees. The products were exposed to broken glass from dropped jars, which the retailer “more likely than not had attempted to sift out,” according to an OLCC investigation. 

Kaya Shack issued a response statement to those allegations: “The company had previously confirmed with the OLCC the appropriate procedures for destroying and disposing of glass contaminated product and subsequently documented the company’s compliance with these procedures (including video and pictures of said disposal).”

In a second violation, OLCC officials allege that on multiple occasions from approximately February 2019 to May 2020, Kaya Shack Chairman and CEO Craig Frank and Senior VP of Operations Chad Craig (“and/or licensee’s employees, agents, or representatives”) asked or encouraged employees to conceal potential evidence of state violations “by telling them not to speak directly to the OLCC and/or by threatening employees with termination or lawsuits if they were to report issues of concern” to state regulators.

In addition, Kaya management had employees sign a non-disclosure agreement stating they could be subject to a fine if they made any negative comments about the business, according to the OLCC.

According to the statement from Kaya, company officials forwarded their employment agreement to the OLCC.

“[The agreement] requires employees to confirm their understanding of how to address any compliance concerns that any employee may have (pursuant to guidelines written by the OLCC which stipulate that the employees are supposed to first address them with the licensee),” the statement reads. “Accordingly, the company had filed an answer denying the allegations and requesting a hearing for the matter.” 

Cannabis Business Times reached out to Frank, who confirmed the settlement only affects Kaya Shack’s Salem location but did not offer any further comments beyond the company’s statement. Kaya Shack also has a dispensary in Portland. Both retail locations held active OLCC licenses as of Oct. 19, 2022.

CBT also reached out to an OLCC spokesperson asking for clarity on the settlement, but that spokesperson wasn’t immediately available.

Instead of allegedly selling the usable cannabis to consumers and/or other licensees, Kaya Shack could have sent it for processing into extract (which would get all glass out), according to OLCC.

“The evidence in this case was complex and contested, relying in part on four prior employee anonymous complainants and an OLCC visit at the premises where an inspector was told about and saw the sifting process,” a synopsis of the stipulated settlement agreement states.

There were no known consumer complaints regarding the glass, according to OLCC officials, who also noted that 65% of the publicly traded company is owned by pure investors with no part in the wrongdoing.

After OLCC charged Kaya Shack with the two violations in a Jan. 25, 2022, notice, commission staffers proposed the cancellation of Kaya’s license, and the seizure and destruction of the company’s cannabis items. However, the licensee requested a hearing and expressed wishes to enter into a settlement agreement, according to the OLCC.

“Staff determined that this would be an appropriate case to accept a sale-surrender settlement,” according to the synopsis.

While Kaya Shack license holders believe the allegation are without merit, according to the company statement, they since have elected to enter into the sale-surrender agreement “to resolve the matter without the further expense of time and legal fees as it is [in] the process of decreasing its Oregon footprint in favor of overseas projects in Greece and Israel.”

The statement added that Kaya Shack plans to expand its Portland retail footprint to offset the loss of the Salem location.