Brian Gwinn offered promising opportunities to invest in cannabis, according to Brian Gwinn. His firm, Greenview Investment Partners, was raising a lot of money, he told market-watchers as his company seemed to take off. Possibly as much as $125 million.
But Greenview was a scam, and Brian Gwinn’s real name is Michael Cone, according to court filings by the Securities and Exchange Commission. Doing business as Gwinn, Cone claimed to have profitably invested $100 million into cannabis businesses. He had not.
Greenview’s management team was also a ruse. Cone had invented “phony executives,” including a former DEA agent who helped with federal compliance, “using biographies he found online,” the SEC stated in court filings. The agency in September 2018 filed a lawsuit against Cone and his company, putting an abrupt halt to his double life as a cannabis dealmaker.
Cone is one of a handful of cannabis fraudsters whose schemes have been exposed in public documents. But talk to advocates and entrepreneurs in the cannabis space and you’ll find that several have known a company something like Greenview: a fly-by-night business that, promising riches, offers dubious services in cannabis investments and/or consulting. Typically, it is only a matter of time before someone realizes the company has no track record or credentials.
As cannabis shops and farms crop up across the United States, these companies (and especially the small ones) need lawyers and consultants to help them navigate the thorny financial and legal issues around cannabis. Investors, meanwhile, want well-informed industry insiders to help them spot golden opportunities. Unfortunately, the nature of these needs—people without expertise willing to pay those offering it—makes things all too easy for scammers with a website, a business address, and a good cover story.
Cannabis has become “the next big thing,” in the words of an advisory from California’s Department of Business Oversight. It isn’t a compliment, but a warning about the get-rich-quick hype that sometimes attaches itself to a rapidly growing multibillion dollar industry like this one. With little “specific data on historical trends,” cannabis investment plans can be “extremely speculative,” the advisory cautions—describing the industry as “highly volatile and only semi-legitimate.”
And, sometimes, one must contend with people like Michael Cone.
Cone’s Greenview used money from later investors to pay off earlier ones, according to the SEC. Meanwhile it wasted more than $3 million on “Cone’s lavish personal expenses” and used “deceptive sales pitches to lure investors into the fraud.” Cone settled before he went to trial, Janie Frank, an attorney with the SEC in Fort Worth who handled the civil complaint, told Cannabis Wire.
As legal cannabis spreads across the United States, the industry has seen an “uptick in fraud,” Farol Parco, an attorney with the Ft. Worth Regional Office of the Enforcement Division of the SEC, told Cannabis Wire. Since 2014, the SEC has put out two alerts about “marijuana-related investments” and has issued legal complaints, trading suspensions, and other “enforcement actions” against at least twenty-five cannabis-related businesses, including Greenview. FINRA, the company that works a bit like a mini-SEC for the New York Stock Exchange, has also warned of “marijuana stock scams.” Since last year, it’s suspended at least two cannabis investment brokers for, among other things, misleading investors. (In March, FINRA also took disciplinary action against a company that described itself as the “number one website for marijuana jobs on the internet” for failing to follow securities laws.)
State regulators are also chasing bad actors. The Colorado Division of Securities has shut down at least two brokers for selling unregistered securities. Massachusetts authorities in April accused a man of violating state securities laws for, among other things, allegedly raising funds for dispensaries that never opened. And in Oregon, a fake “green light” letter, ostensibly approving a dispensary, led to a dramatic legal showdown between the dispensary, a cannabis consulting firm, and state authorities.
Canada, where legal adult use cannabis sales went live in October 2018, has seen problems like these, as well. In September, Canadian regulators accused executives at the Canadian Cannabis Corporation (CCC) of siphoning off at least C$3 million in investor funds and lying about its business practices—including claiming CCC had acquired a grow-light company as part of its “core business” before CCC had even incorporated.
Investors “believe that they can earn a quick and profitable return for their investment in this industry,” the Ontario Securities Commission wrote in its statement of allegations, echoing concerns raised by US regulators. “These investments, however, can be highly speculative.”
The cannabis industry presents ample opportunities for legitimate investors. There are lots of ways to make money in cannabis, and “budding marijuana business ventures are becoming more prevalent,” in the words of another state advisory, this one from Colorado. On the market right now are cannabis stocks that could become the Budweiser of cannabis. But “scammers are using the media buzz” to convince people to hand over money, the advisory goes on to say. “Risky or outright fraudulent marijuana ventures…go up in smoke, along with investors’ money.”
Most states with legal cannabis impose strict regulations on companies that sell cannabis products. Some states even cap the number of providers. Texas, where Greenview operated, is one example. It allows just three companies to produce and sell medical cannabis products across the state.
But companies selling services to cannabis companies don’t face the same scrutiny. It isn’t even clear how many such companies exist. There are no official databases of companies that service the cannabis industry, nor any state or federal agency in place to regulate them directly—though many do fall in the purview of other regulatory agencies, as with Greenview and the SEC. And while some have prefixes like “canna-” in their name, that’s hardly an accurate way to count the myriad lawyers, consultants, and investment brokers who cater specifically to the cannabis industry.
To be clear, many of these entities are legitimate players in the cannabis industry. And when it comes to fraud, cannabis is hardly the integral part of any scheme, said Jill Sarmo, the investor education and public affairs coordinator for the Colorado Division of Securities.
“These are tried-and-true investment schemes we’ve seen for years, but cannabis is the hook,” Sarmo told Cannabis Wire. “It’s the shiny object.”
The cannabis industry is filled with excitable but “unsophisticated” investors, said Tatiana Logan, a California-based attorney with Harris Bricken who handles cannabis cases. “Where do fraudsters go? Where they’re likely to find victims,” Logan told Cannabis Wire. “Where are they likely to find victims? Where there’s something exciting happening.”
Compounding this problem, she says, is the fact that even some well-intentioned cannabis entrepreneurs might not know about disclosure requirements and other financial regulations and considerations. Maybe “they’re very knowledgeable about weed, but not so knowledgeable about making the right [profit] projections,” she said. Their optimism might not be in “bad faith,” but it can still end in “failed projections and unhappy investors.”
Andrew Freedman—the former “pot czar” in Colorado who worked with then Governor John Hickenlooper to set up the state’s adult use market, and is now a partner in the cannabis consulting firm Freedman & Koski—predicted that bad business practices would diminish as the industry matured. “Over time,” he told Cannabis Wire, “snake oil salesmen will be called out as such.”
Still, the fact that the industry remains federally illegal, even as more states consider legalization, likely does not help matters. This massive legal gray area scares away some mainstream investors and financial institutions that could help standardize the industry.
Hilary Bricken, a California attorney focused on cannabis, notes that strict federal cannabis laws don’t preclude federal regulators from tackling cannabis investment crime and other issues. She points to the National Labor Relations Board, which in 2013 issued a memo asserting labor standards in the federally illegal industry. She wishes more federal agencies would take the NLRB’s approach.
“I would love to see guidance saying: ‘Hey cannabis businesses, even though you’re violating the CSA’”—the Controlled Substances Act—“‘if you know of fraudulent brokers or white-collar criminal actors or fraudsters, please report them,’” she said.
Still, Bricken worries the legal gray area around cannabis keeps victims from seeking justice in court. “Federal law can be used as such a tool to hustle people,” she said. “People don’t want to go into court because they have lives. They have employers that are maybe not okay with their investment or their participation, and they don’t want it in the public record.”
In the rags-to-riches-to-dumpster-fire tale of Greenview, one episode stands out. It was August 2017, about a year before SEC filed its complaint. Dallas Business Journal gave the local company a shout-out as part of its “Form D Friday”—a reference to paperwork filed by investment firms.
Greenview was “raising a lot of green,” the Journal crowed. Michael Cone (still going by Brian Gwinn) stressed to the Journal that cannabis investment firms aren’t bound by the same rules as actual cannabis companies and therefore can operate in states that haven’t legalized. “It doesn’t matter where we’re at,” he said, claiming that Greenview had lended in thirty states.
Cone/Gwinn was right: Investment firms aren’t bound by the same strictures as growers or shops. Ancillary cannabis businesses can indeed exist outside legal states. But Cone, it’s worth mentioning, wasn’t running a business at all.
“We could do this from anywhere,” he told the Journal. “We don’t touch the plant.”