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The legal recreational marijuana industry is in its infancy in Michigan, but so far it appears to be a booming business. In the first two weeks of December 2019 just a few licensed retail shops grossed more than $3 million in sales and the projections by state budget officials have the recreational marijuana industry reaching nearly $1.5 billion by the end of 2021.1

As with any new industry where projected profits are high, scams are emerging and the U.S. Securities and Exchange Commission (SEC) is working to educate investors and prosecute fraudsters.

Just recently, on January 21, 2020, the SEC filed charges against two men and the three companies they controlled alleging that they defrauded 25 investors, who thought they were purchasing interests in a Washington state licensed recreational cannabis company, out of about $4.85 million dollars.2 The SEC complaint alleges that between August 2015 and December 2017, one of the defendants, Guy S. Griffithe, used Renewable Technologies Solution, Inc., an entity he controlled, to sell investors purported ownership interest in SMRB LLC, a company owned by Robert W. Russell, the second defendant in the case.3 SMRB LLC did have a license to grow marijuana in Washington state.

The investors were led to believe that their investment in Renewable Technologies would be used to improve SMRB’s licensed marijuana production and processing enterprise. Investors would then get a proportionate share of SMRB’s resulting profits on a quarterly basis. That assertion proved to be false. The securities that investors purchased did not convey any legitimate interests in SMRB and were essentially worthless according to the SEC.

As often happens in fraudulent investment cases, the defendants are also charged with spending investor funds on personal items. In this case, Griffithe was alleged to have spent approximately $1.8 million of investors’ money on personal expenses including luxury cars and a yacht for his co-defendant, Russell. He also allegedly deposited approximately $1.7 million into Russell and his wife, Sonja Russell’s, personal bank accounts. Griffithe also allegedly perpetrated a Ponzi scheme to pay profit distributions to some investors, using funds from other investors to do so.

There is no doubt that the marijuana business is lucrative and will continue to grow. The economic impact in the United States is estimated to reach as high as $77 billion by 2022.4 To assist investors in navigating this emerging industry, the SEC has published an Investor Alert: Marijuana Investments and Fraud.5

The Investor Alert discusses the exploitation of investors in this hot new industry through false promises of high returns and assurances of low risk and relates that the alert was issued due to the regularity of complaints the SEC receives about marijuana-related investments. The alert urges investors to do their research.

This includes checking into the background of the principals offering the investment, including registration or license status, using the Investor.gov search tool. The alert also cautions investors to be wary of offers of a high rate of return on investment and zero or limited risk. An offer that was unsolicited should also be closely scrutinized. Market manipulation is also discussed in the Alert, as is the fact that the marijuana industry is in a phase where there are still legal challenges to its existence. Criminal prosecutions can occur and these legal proceedings can directly impact the value of an investment in this industry.

If you have questions about your financial investments or think you have been a victim of a financial scheme, The Law Offices of Peter C. Rageas can help. With over 20 years’ experience, our Michigan based Securities Law Firm is prepared to fight for your investor rights and recover your losses. We are a full-service Securities Law Firm that handles all aspects of Investment Fraud and Securities Fraud matters including broker misconduct, broker negligence, Ponzi Schemes and more. Call today for a case evaluation!

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1 Michigan’s Recreational Marijuana Industry Poised to Grow Exponentially in 2020, mlive.com, 12/27/2019
Link: https://www.mlive.com/public-interest/2019/12/michigans-recreational-marijuana-industry-poised-to-grow-exponentially-in-2020.html

2 Complaint, U.S. Securities and Exchange Commission Case 8:20-cv-00124, Filed 1/21/2020
Link: https://www.sec.gov/litigation/complaints/2020/comp-pr2020-14.pdf

3 SEC Files Charges Against Scheme to Sell Fictitious Interests in Marijuana Company, U.S. Securities and Exchange Commission, 1/21/2020
Link: https://www.sec.gov/news/press-release/2020-14

4 8 Incredible Facts About the Booming U.S. Marijuana Industry, Pat Evens, 5/7/2019
Link: https://markets.businessinsider.com/news/stocks/weed-us-marijuana-industry-facts-2019-5-1028177375#the-marijuana-industry-could-soon-be-worth-more-than-the-gdp-of-9-us-states1

5 Investor Alert: Marijuana Investments and Fraud, U.S. Securities and Exchange Commission, 9/5/2018
Link: https://markets.businessinsider.com/news/stocks/weed-us-marijuana-industry-facts-2019-5-1028177375#the-marijuana-industry-could-soon-be-worth-more-than-the-gdp-of-9-us-states1