By Ann C. Logue
When cannabis was illegal everywhere, the people who ran cannabis businesses were criminals—by definition. Now that it is legal in more and more places, some of those involved in the business are sticking to criminal ways. This week, the SEC charged CanaFarma Hemp Products and its founders with fraud. The Commission says that they raised $15 million from investors by misrepresenting the company’s capabilities, then misappropriating the money raised for personal use.
CanaFarma has offices in both Vancouver, BC and in New York City. Vancouver is an amazing, beautiful, and vibrant city, and yet, for whatever reason, the investment business there is sometimes less than legitimate. CanaFarma’s web site claims that it is a fully integrated hemp branding corporation. The company’s co-founders, Vitaly Fargesen and Igor Palatnik, told investors that CanaFarma was processing hemp from its own farm, implying that there were real assets in place. In reality, the company used hemp supplied by third parties. They then took at least $4 million of the money raised for personal use.
The SEC seems to nab one or two cannabis businesses a month for securities violations. In September, C3 International was charged with taking $2 million from investors, and the SEC filed suit against a crowdfunding venture related to marijuana offerings. CanaFarma is the first for October, but there are likely to be more.
People are trying to get in on the ground floor of something like Anheuser-Busch InBev (with the unironic ticker symbol BUD), but it’s not easy. Due diligence is complicated by the illegal status of marijuana in many jurisdictions. It’s unclear if the best play is in growing, creating branded products, or retailing. After all, agriculture, consumer packaged products, and food and beverage retail are already huge industries. Money is pouring into the pot market, but there may not be that many ways to invest at scale.
All that money attracts scammers. The SEC has been finding them. This week, CanaFarma received the subpoena. Who will get one next?