Anne van Leynseele
Since I began in legalized marijuana I commonly refer to the divide in the individual and company approach to compliance. My experience with companies shows that one-third are genuine entrepreneurs, excited and eager to dive into and comply with the regulatory schema to build one licensed operation or a marijuana empire. The middle third tends to be former black market or medical marijuana growers and suppliers who struggle within the rigid structure but attempt to conform with the new standards in order to pursue their enthusiasm for this industry.
This article explores the bottom third, former criminals, who learn to adapt and thrive within the legalized system. They use their licensed companies as shell corporations for their illicit, illegal, and often violent criminal activities. Gaming the system in this way is contrary to the principles that advocates for legalization, state regulators, and federal law enforcement put forward to the public as positive outcomes for legalization of marijuana. The harsh reality is that this bottom third use the resources and income from their illegal activities to slowly but surely kill off the good players, and in time could dominate the industry. It is easy to win when you break all the rules.
The sweep of legalizing medical and recreational marijuana in the United States prompted the former Department of Justice Deputy Attorney General, James M. Cole to issue guidance on basic requirements for States electing to create regulations regarding the cultivation and sale of marijuana. Two relevant standards are: (1) preventing the diversion of marijuana from states where it is legal under state law, in some form, to other states; and (2) preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity.
Three areas of crime prevalent in legalized marijuana today, include:
- Informal Economy – the illicit trade in goods and services all of which are outside state regulation and whose economic relationships are marred by violence.
- Marijuana Diversion – the illicit exportation of marijuana from states where the substance has been legalized to other states.
- Marijuana Laundering – the process by which illegal marijuana products and financial proceeds are channeled through the legal marketplace to conceal their origin and/or destination.
The International Monetary Fund identifies the informal economy as the illicit trade in goods and services all of which are outside state regulation and whose economic relationships are marred by violence. In marijuana the informal economy tends to be identified as “illegal”, “underground”, “black market” or “grey market”. Advocates of marijuana legalization argue that legalization reduces crime by shifting marijuana production and sale from the black market to legal venues. However, my experience shows that this shift is incomplete because the regulatory schema imposes high tax rates and significant regulation, which keeps substantial amounts of marijuana commerce in semi‐legal or underground markets. This undermines the proposition that legalization will reduce crime. I routinely see an unforeseen catch-22 is that the legalized system, supported by opportunistic CPAs and unethical lawyers, sheltering the criminals. Government agencies that regulate state marijuana licenses struggle to identify the licensed parties operating illegally and terminate their license or licenses. The problem is that criminals, knowing that they risk detection, carefully cover their tracks assisted by hired professionals all too happy to represent the licensed company as a cover. These accomplices their client “partners-in-crime” run a parallel industry under the cover of state sanctioned legal marijuana.
In 2017, Oregon published a report that focused the cannabis industry’s attention on the concomitant problems of overproduction of legally grown marijuana and diversion of legally grown marijuana into the black market. In what it termed a “baseline study”, Oregon published findings on this issue. The findings were then followed-up with an Audit Report defining the need for tighter regulations to better mitigate the diversion problem. From first-hand experience, this dormant problem still exists in Oregon and is rampant in many states. I find no articles on this topic since early 2019, but conferring with numerous lawyers, the problem persists.
A recent Maryland case highlights how illegal marijuana is being packaged to look like licensed product. In one case, Jose and Beatriz Valenzuela used their package shipping businesses to ship marijuana from Arizona to Maryland. Antonio Hill, Jr., coordinated the shipment of drugs from Arizona to Maryland and managed the laundering of the proceeds to the suppliers in Arizona, with the assistance from his brother, Erico Hill, who coordinated the distribution of the marijuana in Maryland. According to their plea agreements, Jose and Beatriz Valenzuela arranged for Hill and other conspirators to deposit the proceeds of the conspiracy into bank accounts they controlled, with each transaction being less than $10,000. This was to evade IRS filing requirements for transactions involving more than $10,000 dollars in cash and conceal from the government large cash transactions by narcotics dealers. Some of those accounts were in the names of third parties.
Few industries today present more complex legal issues than the rapidly growing legal cannabis industry, which encompasses both the medical and adult use of marijuana and the expanding cannabidiol (CBD) oil and hemp industries. Whether it is because the regulatory agencies fear public repercussions or due to their lack of recognition of the rampant criminal faction that is growing side-by-side with the legal marijuana industry, concealed under the guise of legitimacy. Either way, the legalized industry is suffering in many ways from the presence of criminals owning companies and the unethical professionals that support and obscure the full nature of these illegal enterprises. The hands-off stance taken by federal and local law enforcement in all aspects of the State-run marijuana industries needs to change and prosecution of these criminals hiding among the legitimate licensees must happen immediately.
 Marijuana is any of the preparations of the flowering tops or other parts of the cannabis plant, which include the psychoactive compound tetrahydrocannabinol (THC), this does not include “Industrial Hemp” as defined in 7 U.S. Code § 1639o.
 Cole, James M. 2014. “Guidance Regarding Marijuana Financial Crimes.” U.S. Department of Justice. February 14. Accessed September 26, 2016. https://www.justice.gov/sites/default/files/usao wdwa/legacy/2014/02/14/DAG%20Memo%20%20Guidance%20Regarding%20Marijuana%20Related%20Financial% 20Crimes%202%2014%2014%20%282%29.pdf.