Matthew Price, part owner and operator of Portland and Eugene medical marijuana dispensaries called Cannabliss, was sentenced Monday to seven months in prison, marking what a prosecutor called the country's first federal sentencing of a legal marijuana business owner for tax crimes.

Price, 32, pleaded guilty to four counts of willfully failing to file income tax returns, a misdemeanor. He was ordered to pay $262,776 in restitution to the Internal Revenue Service for the tax loss.

Price must turn himself in on Nov. 1.

The court must address a unique question in the case: Can Price continue working in his marijuana business until his surrender or after he completes his prison term? A hearing is set Friday to decide.

The matter arises because using or selling marijuana remains prohibited under federal law and is a standard prohibition during federal supervision.

As he was cheating on his taxes, Price was advising the Oregon Liquor Control Commission on appropriate rules for the state's recreational marijuana businesses, said Assistant U.S. Attorney Seth Uram.

Oregon lawmakers approved a medical marijuana dispensary registry system in 2012, regulating an already-robust retail market for medical cannabis. Two years later, Oregon voters said yes to recreational marijuana, allowing anyone 21 and older to possess and grow marijuana and creating a taxed and regulated system for retail sales. Oregon issued its first licenses to recreational cannabis retailers in the fall of 2016.

With almost 1,000 new retail marijuana businesses in Oregon "ripe for tax cheating,'' the prosecutor urged the judge to send Price to prison for a year and one day to foster tax compliance. A sentence of probation would encourage similar tax cheating in a lightly regulated industry, Uram argued.

"Cash-intensive businesses of all kinds are notoriously susceptible to tax cheating, and Oregon's retail marijuana businesses are no different,'' he wrote in a sentencing memo. "The court should not forego an opportunity to deter tax cheating by state-legal marijuana business owners who are going to wake up the day after Price's sentencing hearing, read an article about his sentence, and decide what to do next April 15.''

Price failed to report nearly $1 million of income and disregarded advice from three different certified public accountants who for years warned him not to use his business money to pay personal expenses, the prosecutor said.

But Price did anyway, spending $67,000 in cash on a sports car, $15,000 in cash on a Rolex watch and other income on tropical vacations, expensive homes and season tickets to the Portland Trail Blazers, Uram said.

"He essentially treated his business as a personal piggy bank,'' he said.

Price's defense lawyer, Whitney Boise, urged a sentence of probation. He said Price has no prior criminal record and has accepted responsibility for his stupid mistake.

Price has nearly paid off the $262,776 in restitution and already has suffered substantially, Boise said. Price wasn't sure what could or couldn't be deducted from his taxable income, was unorganized and wasn't comfortable with the advice he received from his accountants, the defense lawyer said.

Boise said his client's taxes essentially will double through penalties and interest owed. He and his business have endured negative publicity due to the criminal case and he's spent money to hire lawyers and accountants to "clean up the mess he created.''

"I just want to apologize to everyone ... you, my family, my friends. It was never my intent to end up in a place like this, but I did,'' Price said, standing before U.S. District Judge Michael W. Mosman in federal court in downtown Portland. "I take full responsibility for my actions.''

Mosman dismissed the government's plea to send a message to the marijuana industry through Price's sentence.

"The fact that the product involved here is marijuana is utterly meaningless to me in passing a sentence,'' the judge said. "It's a tax case to me.''

Mosman said he didn't fully accept the defense's explanation that Price didn't comprehend his tax obligations.

"It's true you didn't walk into this with an MBA,'' Mosman said, but it's also clear Price has the intelligence to understand "one of the most basic obligations of running a business.''

Citing Price's lack of a prior criminal record and his extraordinary efforts to pay off his restitution, the judge arrived at the seven-month prison term.

Price, seated beside his lawyer at the defense table, sat quietly holding his head in his hands, after court was adjourned.

The investigation into Price began after the IRS discovered he hadn't paid employment taxes for his Cannabliss employees. Undercover IRS agents posed as prospective employees and Price shared with the agents his scheme, complained that he was "getting ripped'' on taxes, how he used company money for personal payments and knew it wasn't legal.

He later claimed to the IRS and his business partner that one of his accountants had died, which wasn't true.

Price admitted that he didn't file individual tax returns from 2011 through 2014 for income received from the operation of the dispensaries. During those years, he failed to report to the IRS of $976,349 in gross income. His income ballooned from $42,000 in 2011 to $590,000 in 2014.

In 2011, 2012 and until August 2013, Price partly owned and operated a legal marijuana farmers' market under the name Cannabliss in the Portland metropolitan area, according to prosecutors. After August 2013, he and his partner closed the market and opened a legal marijuana dispensary at the same location under the same name.

In 2014, they opened two additional locations, one in Portland and one in Eugene, across the street from the University of Oregon.

Uram said there was a tax-related prosecution 12 years ago in Detroit of a "back-door''-type marijuana dispensary, but not a legal business such as the one Price ran.

It would fall to the Oregon Liquor Control Commission to evaluate Price's conviction to see if it provides grounds for revoking his state marijuana license. The commission would do its own inquiry and make a determination, said Mark Pettinger, spokesman for the commission's recreational marijuana program.

Under state statute, violating a federal law if the conviction is "substantially related to the fitness and ability of the applicant'' to lawfully carry out activities under the license would be grounds for revocation, suspension or restriction of a license.

Oregonian Staff Writer Noelle Crombie contributed to this story.

-- Maxine Bernstein

mbernstein@oregonian.com

503-221-8212

@maxoregonian