Reefer Madness: Medical Marijuana and Fraud

Medical Marijuana Fraud

Medical Marijuana. It’s reefer madness, and we’re talking fraud. Pot, ganja, marijuana, maryjane, cannabis. There are hundreds of names for the drug but whatever term you use, there’s no mistaking that careers (some legal… but mostly illegal) have been created thanks to folks interest in smoking the wacky weed.

Cheech and Chong launched successful comedy careers in the 70’s out of making movies about smoking pot with classic comedy bits like “Dave’s Not Here!” (1971) and movies like “Up in Smoke” (1978).

Then, a former U.S. President created comedic fodder when he claimed to have experimented with the drug while in college but “didn’t inhale.”

Apparently, many others are now finding legitimate new cannabis careers thanks to the medical marijuana industry. While vacationing recently in the Pacific Northwest, I happened to read an article online about a couple of former Drug Enforcement Agency (DEA) agents who left the agency for greener pastures in the fledgling medical marijuana industry.

Certainly, for companies entering this field, there’s no one better to advise you about federal drug regulation than those previously tasked with enforcing it for the government. Getting former federal law enforcement agents involved is also a strategy designed to lend an air of credibility to an industry that’s always been shady, illegal, dangerous and disreputable.

According to the article, one of the former agents is overseeing risk for a private equity firm funding new companies entering the medical marijuana industry — and there’s certainly no shortage of risk involved. What the article doesn’t talk about, however, are what the specific risks associated with the medical marijuana industry are.

As a thought leader in the fraud profession, I will: Fraud. Certainly, fraud won’t be the only risk, but it will definitely come into play. I’m always thinking about new ways that fraud and risk are going to affect industries and thanks to some recent legislation, medical marijuana is now a cottage industry. Hence, the venture capital firms who’ve jumped in to back it. Let’s face it, venture capital firms wouldn’t be looking for companies to invest in if there wasn’t a profit to be made from it.

Fraud Touches All New Products and Services — Even Drugs

Where there’s money to be made, there’s fraud. So, the question is, how soon will fraud find the medical marijuana industry? If history is any indication, fraud will find this industry sooner rather than later. Fraud finds all new products and services. Oftentimes, it doesn’t even take months or years but just days or weeks after the new business, product, or service goes live.

The medical marijuana industry will be no exception, considering that some people can now get the drug legally by playing the medical marijuana card in the states that have legalized it for that purpose. Those that are faced with buying it illegally, and facing criminal consequences when they get caught, will want in on the legal action.

So, this is not a matter of if there will be fraud but when.

Collusion from Medical Professionals

Drawing a fraud analogy from another industry, healthcare, which is plagued with fraud right now, we know that a significant amount of healthcare fraud is what’s known as provider fraud.

Provider fraud involves healthcare industry professionals (doctors, chiropractors, dentists etc.) who understand how the insurance companies billing systems work and manipulate the system for their own financial gain.

Applying this to the medical marijuana industry, it’s inevitable that the same thing is going to happen here. Greed will tempt people in the system to write bogus prescriptions or document phantom conditions for a price. Why? Because there’s money to be made, there’s a demand, it’s big industry, and it’s inevitable.

If you think that’s farfetched, just Google healthcare fraud and read the stories about medical professionals who are spending the next 20 years of their lives behind bars.

Black Market Medical Marijuana Cards

A medical marijuana card is a commodity, and there will be no shortage of people who want one so that they can light up openly and without fear of criminal consequences. So, if it takes documentation to get a card, medical documentation will be fraudulently obtained, as will the cards themselves.

For example, getting drivers licenses and social security cards are completely legal but there are illegal (counterfeit) cards being produced. Why? There’s a need, and history from other types of illegal activities has taught us there will be a need for these cards and documentation as well.

Why? It’s a simple supply and demand economic model. Illegal entities will rise up to meet consumer demand for the support documentation necessary to obtain the newly legalized product.

History often repeats itself, and there will be an entire underworld economy (or, black market) that ramps up to meet the demands of this new industry just like there was when it was illegal for the same users in those states.

Product Misrepresentation

Governments will regulate the industry, but where there’s regulation, there’s fraud. Regulation and fraud go hand in hand. There’s quite a few ways this is going to manifest itself.

Whenever someone is selling a product (illegal or legal), there’s always instances of product misrepresentation. This is known as consumer misrepresentation, and it happens when the product isn’t what the manufacturer advertised; the product is unsafe; or the contents aren’t equal to the represented amounts (a weights and measures issue).

Did I mention lawsuits? Before anyone laughs about how ridiculous that sounds, I offer the following: cigarette smoking is also legal but that hasn’t stopped these types of “big dollar” lawsuits from occurring.

There will also be misrepresentation to regulators and government agencies. Why? Records have to appear to be legitimate, and in order, to meet city, state or federal compliance standards. So, like other industries plagued with problems we’ll likely see some doctored records over time.

Predictions for Medical Marijuana Fraud in 2014

It’s the first full week of 2014, and the time when many people make predictions for the current year. So, here’s a professional prediction of mine: fraud will find the medical marijuana industry and come in a variety of shapes, forms and sizes.

While a former U.S. President allegedly may not have inhaled, many others are, and the legalization of marijuana in some places for medicinal (and sometimes, recreational) purposes will not prevent a plethora of fraudulent activity associated with the new business model.

Why? Because there’s money to be made, there’s a demand, it’s big industry, and it’s inevitable. There’s no business, product or service that’s immune from fraud, and the medical marijuana industry will be no different no matter how heavily it’s regulated or what former federal agents are involved.