Oregon Marijuana Investor Fraud Nipped in the Bud

cannabis business lawyers
Don’t be a sucker/dum-dum. Do your due diligence.

I can’t count the number of times I’ve warned potential investors about the cannabis industry being 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. As reported by The Oregonian, “[t]he Oregon Department of Consumer and Business Services 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 itself, in November 2014, Green Rush Consulting, a California cannabis consulting company (which is not associated or affiliated with Portland-based Green Rush Advisory Group) which had “worked with a felon previously convicted in a financial scam,” helped Cannacea and Siler with a private placement memorandum for potential investors of Cannacea.  The Department found this  private placement memo contained multiple misrepresentations, including 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.” The cannabis business lawyers in my firm have seen many sketchy private placement memoranda, but this statement takes the cake as the most implausible since no regulatory authority would ever make such a promise to anyone.

In connection creating the PPM, Siler provided Green Rush with a letter that purported to be from the Oregon Health Authority Medical Marijuana Dispensary Program (the “MMDP Letter”). The MMDP Letter represented that Cannacea had received MMDP approval for six dispensary locations. The MMDP Letter was created on letterhead not used by MMDP, and it contained fabricated statements, and a forged signature of a regulator who did not even work with the Oregon Health Authority’s Medical Marijuana Dispensary Program.

The result from all of this is that Cannacea and Siler are blocked from doing business in Oregon and are required to pay $40,000 in civil penalties. Green Rush Consulting may continue providing consulting services in Oregon, but it is “prohibited from engaging in any business activity related to securities in Oregon without permission from the Department of Consumer and Business Services.”

This case should be 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 taking relatively swift action here. As the industry matures 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.

Most importantly, conduct your due diligence before you get do business with pretty much anyone, and bring on experienced people to assist you. Based on the publicly available facts regarding this case, I find it unbelievable that nobody realized the fraud until it was too late.