Identifying Fraud In The Medical Marijuana Industry

In recent years, a growing number of states have legalized cannabis and its compounds as a medical treatment, with 33 states and Washington, D.C. authorizing its use. Unsurprisingly, then, most people are now convinced that its use is here to stay; a few insurance companies new consider medical marijuana an extended health benefit and dispensaries have clear regulations and specializations to protect patients. At least, most of them do. Like any popular, new industry, those with bad intentions have found their way into the medical marijuana world, and fraud is a growing problem.

A Target Industry

Securities fraud is common in major growth industry, a well-recognized pattern that led the U.S. Securities and Exchange Commission (SEC) to issue the following warning in September 2018. Appearing under the heading “Investor Alert: Marijuana Investments and Fraud,” the Office of Investor Education and Advocacy addressed investors, informing them that “Fraudsters may try to use media coverage about the legalization of marijuana to promote an investment scam.” This is as true of medical marijuana as that legalized for adult use in individual states, and it can take many forms.

Fraud Allegations Abound

As reported by the Willamette Weekly, in 2017 the dispensary Serra, which had branches in both Portland and Eugene, OR, faced a major lawsuit after two employees were fired. These employees were whistleblowers who were attempting to stop the sale of untracked cannabis. In another case, a Colorado marijuana investment adviser admitted to securities fraud for failing to disclose certain facts to potential investors.  

Anyone who works for a medical or recreational marijuana business should be aware that whistleblowers are legally protected and, in the case of securities fraud, they can even be awarded funds under the Dodd-Frank Act’s SEC Whistleblower Reward Program if they can provide original information on SEC law violations, include insider trading and accounting and auditing fraud.

Keeping Patients Safe

Who is looking out for patients besides whistleblowers? Because it cannot be regulated by the FDA, patients rely largely on a loose network of patient advocacy groups and state legislatures. In Oklahoma City, for example, a bipartisan group sets lab testing rules and regulatory priorities, while the state has also had to manage food handling and production licenses for edible marijuana products. Meanwhile, many doctors are concerned about growing loopholes. Between a growing list of qualifying conditions and legalization of recreational marijuana, patients who may not benefit from its use may have easy, unnecessary, and even harmful access to marijuana without appropriate medical oversite. Combined with doctors who have earned a reputation as being “marijuana card mills,” an equivalent to the pill mills of the opioid crisis, there seems to be little control over the industry.

Lacking proper federal oversight, quality control, and inspection of growing operations, vulnerable patients will remain at risk. Other medications are tested, studied, and subject to varying kinds of quality control. Medical marijuana, on the other hand, inspires bad actors at every level. From investors and dispensaries to improper prescribing practices, cases of both legal fraud and patient victimization are widespread and make this industry a treacherous one for sick, vulnerable individuals.