The Cannabis industry is coming under increasing scrutiny as law enforcement and regulators grow concerned about criminal activity, fraud and corruption and as hackers target businesses in this emerging industry.

The FBI last year announced that it was seeing increased fraudulent activity and bribery of public officials and the U.S.

Securities and Exchange Commission issued a similar call, warning about Ponzi schemes and other types of securities fraud.

Meanwhile, the industry is also being targeted by cyber criminals, who are looking to exploit weaknesses in the cyber security of cannabis-related businesses.

Below is wrap-up of what’s ailing the industry.


In August 2019, the FBI released a podcast on fraud in the cannabis industry, outlining its ongoing efforts to root out corruptionin the cannabis trade, particularly as it relates to bribing government
officials for licenses, and urged public cooperation in rooting out corruption.

On the podcast, FBI spokeswoman Mollie Halpern said: “As an increasing number of states change their marijuana legislation, the FBI is seeing a public corruption threat emerge in the expanding cannabis industry. States require licenses to grow and sell the drug,
opening the possibility for public officials to become susceptible to bribes in exchange for those licenses.”

Late last year, the Sacramento Bee reported that the FBI was investigating whether Sacramento-area marijuana businesses had made payoffs to public officials in the region in exchange for favorable treatment and license approval.

And in March of last year, the Sheriff of Siskiyou County called the FBI after he received envelopes stuffed with thousands of dollars in cash from a mystery stranger who had asked him to keep deputies away from some illegal cannabis farms. The FBI investigated and eventually arrested and charge two men for attempting to bribe the elected sheriff.

Before that, in 2013, the then-mayor of the city of Cudahy was sentenced to a year in federal prison for taking bribes in exchange for supporting the opening of a medical marijuana shop in the city.

Securities fraud

In 2018, the SEC Office of Investor Education and Advocacy warned investors about false promises of high returns with low risks for investment schemes involving marijuana-related companies.

One of the most high-profile cases that the SEC pursued involved a Colorado stock promoter who was investigated for fraud. He and two of his companies agreed to pay $4.2 million in December
2019 to settle the charges for fraudulently promoting and trading a cannabis stock.

And in January, the SEC filed a lawsuit against a California and a Washington man, accusing them of operating a pyramid scheme that raised $4.85 million to fund a licensed Washington cannabis business that didn’t exist.

Cyber attacks

In its 2020 Data Breach Industry Forecast report Experian predicted that cannabis retailers could become prime targets for cyber criminals since they may not fully invest in protective cyber security measures. “While any retailer is always a target for cyber criminals, cannabis retailers present a bigger target due to the nature of their business,” Experian wrote.

In January, there was a significant data breach involving software that is widely used by cannabis dispensaries. The breach involved an unsecured and unencrypted database containing approximately 85,000 files that included sensitive medical data and was left exposed to anyone who came across it on the internet.

Data of about 30,000 people was exposed in that hack on THSuite, a cannabis point-of-sale provider, including photo IDs, addresses and protected health information.

The takeaway

The FBI attributes the illicit activity to the fact that cannabis is a new industry, which makes it ripe for abuse by fraudsters as well as bribery by unscrupulous business owners trying to receive approval to operate.

Likewise, as the industry is in its infancy, companies are typicaly small and do not have resources to protect against hackers and cyber attacks.

Get a Quote

If you’re looking for a team of specialists who can help your cannabis business navigate state laws and regulations like this, contact Cannabis Connect today for a free quote.