Earlier this month, an Oregon state agency ordered a Happy Valley fraudster named Todd C. Grange to pay $60,000 in fines for violating state securities law. For all the seamy details, check out Noelle Crombie’s excellent Oregonian coverage here. This case was the second recent fraud where state regulators stepped in to smack down a bad local actor who had lured investment with promises of big returns in marijuana. You can get our take on the first case, which had pretty fun facts, here and also here.
The fact that state-legal cannabis is so new in Oregon (and everywhere) makes the industry perilous for unsophisticated investors. The investor Mr. Grange snagged appears to have been especially credulous: Mr. Grange did not even bother to register his sham company, THC Pharmaceutical, on the state’s publicly searchable database, let alone observe any required formality in investment solicitation. Instead, he simply set up a website promising big returns in weed– if you would only send him a check. THC Pharmaceutical, you see, was going to “merge” with a publicly traded company. Despite this lazy and ridiculous approach, Mr. Grange caught a fish.
In the past, we have explained that there are a few different ways to invest in private marijuana companies, and there are investment opportunities in publicly traded weed ventures, as well. As far as investment mechanics, it is helpful to remember that under Oregon law the issuance of a minority interest in a company or partnership will often constitute the issuance of a security. It is an open question whether issuance of a note will do the same. Whether you are on the offering or receiving end of a cannabis investment solicitation, these types of transactions must be approached carefully given the strictures of securities laws. Of course, when the fundraiser’s goal is simply to grab the money and run, as with Mr. Grange, it’s a different issue entirely.
Our Oregon corporate cannabis attorneys are always vetting deals and putting them together, on behalf of investor clients and pot businesses themselves. The overwhelming majority of people we meet are well-intentioned folk on either side of the equation, trying to make a go of it. Sometimes, though, clients come to us after they have taken or handed over money without much thought. In those cases, we need to talk frankly about business risk, legal exposure, and sometimes, options for repair.
We expect to see more cannabis fraud cases in Oregon’s near future, for two reasons. First, dishonest people will seek to capitalize on the green rush (and the Oregon recreational marijuana program is blossoming as we speak). Second, with the state’s abolishment of residency requirements for cannabis investors and pot business owners, Oregon is a prime staging ground for this type of activity. Some of these cases will be privately contested; others will be publicly prosecuted by state watchdog agencies, like the one with Mr. Grange.
Before taking or receiving money, the best bet is to step back, vet the situation and nail the approach. Otherwise, you could end up in the newspapers.
EDITOR’S NOTE: Speaking of the cannabis gold rush, tomorrow, three of our California cannabis lawyers (Tiffany Wu, Alison Malsbury and Hilary Bricken) will be putting on a FREE webinar moderated by our lead cannabis corporate lawyer (Robert McVay). This webinar will focus on what you should be doing now to prepare your existing or future cannabis business for California’s soon to be legalized landscape. Go here on Eventbrite to sign up to attend. Get your free tickets now!