Welcome back to “California Cannabis: Scams and Schemes of the Week.” We are publishing this series to shed light on the unscrupulousness of certain attorneys, consultants, and operators in the California cannabis industry, with the goal of establishing a more ethical and regulated industry in the state. You can view Part 1 of this series here and Part 2 here.
Last week, I received many emails from readers regarding the scams and schemes they’ve experienced. It is frustrating, heartbreaking, and infuriating. I am hopeful that we will begin to see in California what we’ve seen in Oregon and Washington: Soon after robust regulations are implemented, many of the roaches and rodents scatter back to the dark corners from whence they came.
Scam # 1: Criminal Attorneys Advising Clients to Engage in Criminal Activity
I am not talking about criminal law attorneys. I mean attorneys who are criminals. Over the past two weeks, I’ve had some mind-blowing conversations with self-proclaimed “cannabis expert” attorneys. These attorneys are advising their clients to engage in blatantly criminal behavior, often resulting in irreparable disaster for all involved. MAUCRSA provides a regulatory regime under which all operators are licensed and regulated businesses; this is dramatically different from the previous regime where collectives and individuals were provided limited criminal immunities under the Compassionate Use Act. If your attorney’s recommended strategy involves breaking the law and preparing to assert defenses under the Compassionate Use Act, rather than leading you into a legitimate, licensed, regulated space, you need to find a new attorney.
Scam #2: Ship Your Cannabis Cash to a Caribbean Bank
Two new banking scams came to my attention this week. One involves a company claiming to run a Bahamian bank that is safe from government seizure. All you have to do is ship your cash to an address in the Bahamas! The company’s mass emails and website use all the right banking buzzwords and acronyms (FinCEN! KYC! AML! Due Diligence!), but if you read the fine print terms and conditions, the true nature of this scam reveals itself. Common sense should tell you that shipping bags of cash offshore is not a good idea.
Scam #3: Buy this Turnkey Dispensary (which is actually worthless and illegal)
We’ve already discussed the inability to purchase a nonprofit, and how most cannabis licenses are non-transferable. But we’ve seen another common scam by dispensary peddlers. Some folks are selling “turnkey” dispensaries that are operating in violation of local zoning codes and have received multiple citations, without disclosing as much to the buyer. In fact, these scammers often try to exclude zoning compliance from the representations and warranties in the deal. The unwitting buyer pays hundreds of thousands to millions of dollars for a worthless “dispensary,” and by the time the buyer discovers that the dispensary is unauthorized and the subject of a code enforcement action, the seller has absconded with the money. The buyer is left with a closed dispensary, fines, outstanding debts to vendors, and tax liabilities. Unsurprisingly, we are seeing the same bad attorneys working both sides of these deals, taking commissions, and completely bailing on the buyers once the truth is revealed. In every deal, DUE DILIGENCE IS KEY. Always verify zoning and outstanding code enforcement actions with the City before you close. Each party needs to retain their own, non-conflicted attorney.
We will be back with more next week. If you’ve come across a California cannabis industry scam, we would like to hear from you! Leave a comment below, or email us at email@example.com.
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Author: Julie Hamill