The Alphabet Dilemma

FBI, DEA, SEC and the DOJ are just some of the federal agencies taking more than a hard look at the cannabis industry.  They’re listening, investigating, suing and charging a host of industry players and public officials.  If you only consume marijuana or CBD rather than participate in the business, the corruption may have escaped you.  Get this Memo- the cannabis sector is not for the faint of heart.  It is not the neighborhood Boys & Girls Club.  You must be built to participate in it.  Battle tested and with strong mental fortitude.  With billions of dollars at stake the sector is ripe for corruption. Several west coast companies have faced the wrath of the Department of Justice.  More than 200 RICO charges (Racketeer Influenced & Corrupt Organizations) have been filed since 2019 alone.  RICO is a vital tool to dismantle the mafia.  The FBI has even launched a series of investigations and stings to identify reported organized crime ties to both public and privately owned cannabis companies.

U.S. Attorney General William Barr directed the Department of Justice to re-examine at least a dozen cannabis mergers and acquisitions for possible anti-trust violations among other charges. The Securities and Exchange Commission has sued several cannabis companies for alleged stock fraud, pump and dump and even a ponzi scheme.  The SEC has recently charged a California company with bilking investors out of $25 million dollars for a marijuana farm and extraction facility.  IRS audits are as common as a pre-roll or CBD vape pen.  While multiple states have engaged in protracted litigation to recoup delinquent taxes.  The cannabis sector is a sea of lawsuit after lawsuit. The sheer number of high-profile litigation between investors, staffers, partners and states is eye opening. The weed business is real on the streets. However, It’s also real in the offices too.  Like the days of alcohol and Al Capone- pot promises profits, but delivers its share of bribery, extortion and kickbacks!

A growing list of elected officials from Florida to Massachusetts to Michigan and California have been charged in public corruption cases involving bribery in exchange for licenses or other political favors.  Nevada’s former cannabis licensing director was removed from his post after allegations of improper conduct surfaced.  Now another disturbing scheme has taken root. Paying for shelf space.  That’s right. Some cannabis companies are paying dispensaries thousands of dollars each month to secure space for their products.  Remember when the FBI investigated record companies for paying radio stations to play their artist? Ole fashion payola is back!  The pay to play arrangement is geared to promote the brands and products from major companies at the expense of small and minority firms. You could have a great product and terrific marketing but can’t get it on the shelf without paying up.

The practice is called slotting fees or so-called merchandising fees, but I call it payola- plain and simple. Another form of bribery to get in the door.  People of color already have a hard-enough time getting in the industry. Now we have to come up with additional money each month just to get on the shelf.  That’s plain shady!  It also manipulates the consumer by directing them to certain brands vs an organic shopping experience.  Some dispensaries are getting paid on the front end for shelf space, and on the back end for driving sales to a particular brand.  Another tool to keep small companies and minority vendors from gaining entry.

The illegal Black market has its share of pitfalls, but the legal cannabis market can be downright sketchy too.  If we want to get our foot in the industry, it’s important to make sure we are built to meet the hustle head-on.  The weak need not apply!