The cannabis industry, like any other industry, is susceptible to fraud.
With the continued restrictions surrounding banking and the cannabis industry, most financial activities occur outside of the banking system. As a result, the cannabis industry still primarily operates on a cash-only system, which significantly elevates the risk due to the potential for fraud. Additionally, the products being sold and the accessibility to large volumes of cash help foster an environment ripe with opportunity for “bad actors,” such as a rogue employee.
Internal fraud risks:
Cash fraud
- Larceny – theft of cash already recorded on the books (e.g., taking cash from the register or reversing a cash transaction to attempt to hide the theft)
- Skimming – theft of cash not yet recorded on the books
Financial fraud
- Financial statement fraud – inflated revenues and unreported expenses
- Labor/payroll – undocumented workers, off-the-books labor
- Tax fraud – underreporting of revenue, 280E issues, etc.
Fraud can exist across many spectrums and is not limited to internal fraud:
Investment fraud
Fraudsters may try to use media overage about the legalization of marijuana to promote an investment scam. Look out for these signs of fraud:
- Unlicensed, unregistered sellers
- Guaranteed returns
- Unsolicited offers
Licensing fraud
Any potential investor, consultant or adviser who claims to have the ability to guarantee a license. This type of fraud also creates a significant criminal exposure related to commercial bribery and public corruption (e.g., the ability to fraudulently obtain licenses and permits.)
