Businessman pleads guilty to bribing Michigan medical marijuana licensing board chairman

Grand Rapids — Oakland County businessman John Dawood Dalaly pleaded guilty Friday to providing bribes to Rick Johnson, the chairman of Michigan's medical marijuana licensing board, and told a federal judge he hired Johnson's wife as a consultant at a rate of $4,000 a month.

Dalaly now faces up to 10 years in federal prison and became the first person to plead guilty in court as part of a wide-ranging corruption probe, examining Michigan government's awarding of licenses to sell and grow medical marijuana.

After the court hearing, Dalaly's lawyer, Raymond Cassar, told reporters his client was working on behalf of the company Pharmaco and had hired Jan Johnson to help him fill out application forms. That paperwork would eventually go before the Medical Marihuana Licensing Board that Rick Johnson chaired.

“Johnson said, 'Talk to my wife,'" Cassar said. "And she was obviously the conduit.”

Dalaly pleaded guilty in front of U.S. Magistrate Judge Phillip Green in federal court in Grand Rapids, 15 days after authorities announced charges against him, lobbyists Brian Pierce and Vincent Brown and Rick Johnson, a Republican former House speaker who was chairman of the licensing board from May 2017 through April 2019.

All four have agreed to plead guilty and to cooperate with investigators going forward.

The probe is ongoing, but so far, the FBI and Grand Rapids U.S. Attorney's Office have said Johnson received more than $100,000 in bribes aimed at influencing his actions as the panel's leader. Johnson, who worked as a lobbyist after leaving the state House, is scheduled to plead guilty Tuesday.

Dalaly, 70, previously agreed to plead guilty to paying a bribe to Johnson. The maximum penalty under federal law is 10 years of imprisonment, three years of supervised release and a fine of $250,000. He was released after Friday's court hearing on an unsecured bond of $25,000.

His sentencing will be Sept. 14.

"We have been answering all of the questions from the government," Cassar told reporters. "He wanted to do the right thing. Obviously, he made a bad decision. It was a bad choice. But today, he cleared the air.”

While seeking licenses from Rick Johnson, Dalaly gave at least $68,200 in cash payments and other benefits to Johnson through his companies, including paying for Johnson to travel on two private chartered flights from Michigan to Canada, where some individuals involved in Pharmaco were located.

Dalaly had the understanding that the expenditures benefiting Johnson "were offered and given to influence or reward Johnson," according to his plea agreement.

Johnson, who state law barred from having unofficial communications with applicants, conveyed to Dalaly that he would provide Dalaly with information to assist his company and would expedite the review of its applications for licenses, according to federal prosecutors.

Dalaly was a "facilitator" for the cannabis company Pharmaco, Cassar said. In October 2018, the licensing board voted to "pre-qualify" Pharmaco for licensing, an initial step in the state's licensing process.

Then, in February and April 2019, the licensing board voted in favor of giving Pharmaco five provisioning center licenses, according to minutes from the meetings. Three of the licenses came at the April 25, 2019, meeting, which was the final session before the board disbanded.

Rick Johnson was one of three members of the five-person board who supported licensing Pharmaco in April 2019, according to the minutes. As part of Rick Johnson's plea agreement, federal authorities have agreed not to charge his wife, Jan Johnson, for her role in the bribery scheme, according to the deal.

In September 2019, after the licensing board's duties were moved to a regulatory agency, Pharmaco registered to lobby Michigan officials and hired the multi-client Lansing lobbying firm Governmental Consultant Services Inc. On its lobbying registration, Pharmaco listed an address in Farmington Hills that has also been used by Dalaly on campaign contributions and by his business, DJK Group.

Orlene Hawks, the director of the Department of Licensing and Regulatory Affairs, is married to Mike Hawks, CEO and co-owner of Governmental Consultant Services Inc. The licensing department includes the state's Cannabis Regulatory Agency, previously known as the Marijuana Regulatory Agency, which took control of licensing marijuana businesses after Democratic Gov. Gretchen Whitmer disbanded the board Johnson chaired in April 2019.

Bill Nowling, a spokesman for GCSI, said the lobbying firm "played no role in helping Pharmaco obtain" approval from the now-defunct marijuana licensing board.

"In fact, the Cannabis Regulatory Agency subsequently revoked Pharmaco’s license for numerous violations," Nowling said Friday in a statement. "GCSI CEO Mike Hawks did not work on this account and does not represent clients before the Michigan Department of Licensing and Regulatory Affairs."

Pharmaco terminated its lobbying registration with GCSI on Dec. 31, 2021, state records show.

“GCSI has always followed the law and reports all lobbying activities as required by Michigan law — always has and always will," Mike Hawks said in a statement to The Detroit News.

In a consent order from February 2022, the state's marijuana regulatory agency fined Pharmaco $40,000 for a series of legal violations and required four individuals and a business entity involved in the company to sell their interest, state records show.

Pharmaco's violations included operating businesses that were not authorized to operate, according to a December 2020 complaint from the Marijuana Regulatory Agency.

Red White & Bloom Brands Inc., a Toronto-based cannabis company that's traded on the Canadian Stock Exchange, acquired Pharmaco and its 21 medical and recreational marijuana licenses in February 2022, according to a company news release.

A spokesperson for Red White & Bloom did not respond to messages Friday afternoon seeking comment.

Johnson due in court next week

The interactions between Rick Johnson and Dalaly came as regulators were laying the groundwork for Michigan's marijuana industry.

State lawmakers approved policies for medical marijuana businesses and created the licensing board in 2016. Then-Senate Majority Leader Arlan Meekhof, a Republican from Grand Haven, nominated Johnson for the panel, and then-Gov. Rick Snyder, a Republican, appointed Johnson to lead it on May 26, 2017.

More:Rick Johnson to plead guilty Tuesday in Lansing political corruption scandal

In 2018, Michigan voters approved a constitutional amendment to legalize recreational marijuana, so businesses that got into the medical market early reaped financial advantages. In 2022, Michigan reported about $2 billion in marijuana sales.

The News first reported the federal investigation into Johnson on Feb. 1.

Pierce and Brown, the two lobbyists who have agreed to plead guilty to conspiracy to commit bribery, will make their court appearances later next week. They both face a felony conviction punishable by up to five years in federal prison and a $250,000 fine. Prosecutors have said Pierce and Brown are cooperating with their corruption investigation as part of the plea bargain.

More:Meet the four men charged in Michigan's marijuana bribery scandal

In 2015, Dalaly was CEO of Michigan Green Technologies and touted in a press release his work with legislators in updating the state medical marijuana laws.

“The participants will flourish under proper legal protection that law enforcement can embrace, and the state of Michigan and its citizens will benefit substantially," Dalaly said, according to the 2015 press release.

Dalaly had spent the previous 28 years providing hospital management services to dozens of hospitals worldwide, according to the release.

Dalaly emigrated at age 11 from Iraq in 1963 and got his start in business working with relatives in area supermarkets, according to a 1996 Crain's Detroit Business article.

cmauger@detroitnews.com