Buyer Beware: Oregon’s First Marijuana Investor Fraud Scandal

Aug 1, 2016 at 4:20 PM

I can’t count the number of times I’ve warned potential investors that the cannabis industry is rife with fraud and bad behavior. With legalized cannabis still a relatively new industry and with states constantly changing their cannabis regulations, fraudsters can have a field day.


Cue the bizarre (though unsurprising) case of Portland-based dispensary,
Cannacea, and allegations of cannabis investor fraud swirling around it.I can’t count the number of times I’vewarned potential investors that the cannabis industry is rife with fraud and bad behavior. With legalized cannabis still a relatively new industry and with states constantly changing their cannabis regulations, fraudsters can have a field day.

Last week, as reported by The Oregonian, “[t]he Oregon Department of Consumer and Business Services [“Department”] ordered Tisha Siler, CEO of a Northeast Portland pot dispensary called Cannacea, to pay $40,000 in fines for multiple violations of state securities law, including selling securities without a license.” You can read the Department’s order against Cannacea and Siler here.

According to the order, in November 2014, Green Rush Consulting, a California cannabis consulting company which “worked with a felon previously convicted in a financial scam,” helped Cannacea and Siler come up with a private placement memorandum for potential investors of Cannacea. The Department found this PPM contained multiple misrepresentations, probably the most egregious of which was that “Oregon regulators contacted and specifically invited Siler to ‘open cannabis dispensaries in Oregon,’ and that ‘Oregon regulators stated they would ‘pre-approve’ or ‘green light’ up to six of Respondents’ medical cannabis dispensary applications, ‘ensuring [Siler] would sail smoothly through the application process.’ This ‘pre-approval’ or ‘green light’ was emphasized repeatedly throughout the PPM. In truth and in fact, no such statements were made by any Oregon regulator.” Out of all of the suspect PPMs the cannabis business lawyers in my firm have seen (which are many), this takes the cake as the most outrageous since no regulatory authority would ever make such a promise to anyone.

The facts get even more interesting:  In connection with the creation of the PPM, Siler provided Green Rush with a letter, dated October 16, 2014, that was purportedly from the Oregon Health Authority Medical Marijuana Dispensary Program (the “MMDP Letter”). The MMDP Letter represented that Cannacea had received a ‘green light’ from MMDP for six dispensary locations. In truth and in fact, the MMDP Letter was a fraudulent document. Specifically, the MMDP Letter: was created on letterhead that is not used by MMDP; contained fabricated statements, and; contained a forged signature of a regulator that did not even work in the MMDP. Upon information and belief, the MMDP Letter was created by Siler, or by another at her direction.

The result from all of this is that Cannacea and Siler cannot do any business in Oregon, and both Cannacea and Siler are jointly and severally responsible for $40,000 worth of civil penalties assessed against them by the Department. And while Green Rush Consulting is allowed to continue its consulting service in the state, Green Rush Consulting is “prohibited from engaging in any business activity related to securities in Oregon without permission from the Department of Consumer and Business Services.”

The foregoing is a cautionary tale for investors, marijuana businesses, and state regulators. Far too often, state regulators are too bogged down with satisfying current federal enforcement priorities to deal with the actual business of marijuana. So, I applaud the State of Oregon for setting an example for other states by actually taking relatively swift action here. As the industry matures in all states that seek to legalize, fraudster companies and at least some “cannabis consultants” will no doubt continue to take advantage of unwitting investors. In turn, state securities regulators should be setting their own guidelines for how to better prevent this kind of fraud. In the meantime, be careful out there and exercise caution when you receive a multimillion-dollar cannabis private placement.

 

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