A Game of Cat and Mouse: Looping for Diversion

As the commercial cannabis industry becomes more entwined in the economy, it is of utmost importance to defend the business against bad actors.
Brion Nazzaro
CCCE, CAMS, CRCM, CFE, President of the Association of Certified Commercial Cannabis Experts (ACCCE). ACCCE is dedicated to advancing the professional knowledge and skills of those committed to commercial cannabis risk management. 

As with many other industries, commercial cannabis has its offenders that, undeterred, could cause significant loss of reputation to the commercial cannabis industry and brands through their actions.

 

By cultivating a culture of compliance starting with the top, risk officers can significantly reduce the potential risks of looping by utilizing the Cannabis Risk Management Framework and implementing a risk based approach. Cannabis products continue to have a large demand on the black market, and it is the risk professional’s responsibility to guard against diversion. To prevent diversion, jurisdictions commonly have limits on the amount of cannabis a consumer is able to purchase in a single transaction. To get around the limit, a criminal or group of criminals may practice looping.

staff member moving cannabis from jar to scales in dispensary

Looping and Sweetleaf 

Looping is the practice of evading the legal cannabis purchase limits by buying cannabis products at or below the legal limit repeatedly during a limited time period to obtain an illegal amount of cannabis product. The name comes quite literally from people going into the dispensary to purchase the maximum amount of cannabis, taking it to their car, and looping back around to the dispensary to repeat the process multiple times within the same day or even the same hour.

The looping case against Sweetleaf in 2019 was a first of its kind and many people involved, including the budtenders, managers, and owners received hefty fines or jail sentences. The courts wanted to be sure to send a message to other dispensaries that wanted to attempt to find looping holes in legislation. The Denver Police Department was initially tipped off after a neighboring retail location noticed seeing several people making multiple trips each day to and from their parked vehicles, to the store, continuing these loops for several hours at a time, according to officials.

It is not always as straight forward to catch looping. Looping can involve a single consumer, multiple consumers working together, inside collusion, and multiple stores. In order to manage the risk of looping, risk officers need to implement risk-based controls to keep their consumer sales locations safe from looping schemes and tactics. 

How to Reduce Looping Risk

The risk officer should help the commercial cannabis business owners or board craft a policy to prevent diversion. It is important for the owners or board to set the tone and establish the business’s intent to control diversion to enable the risk officer to effectively mitigate looping risks. The intention of the policy is to demonstrate to employees and vendors the commercial cannabis business’s reasonable efforts to control their points of diversion.

The risk officer should conduct a risk assessment that indicates the likely looping schemes to which the commercial cannabis business is or may be exposed. For example, a customer base that routinely buys near the legal limit may increase the chance that loopers are hiding in legitimate transactions. Similarly, in judging your geographic risk, being near a jurisdictional border may increase the likelihood that out of state loopers have access to your location. The risk assessment allows the risk officer to focus efforts on the most likely looping scenarios first and has the most effect on reducing overall looping risk.

Having identified the highest looping risks, the risk officer will then need to engage all staff to determine the control activities that will mitigate the inherent risks of looping identified in the risk assessment. Each commercial cannabis business will have a different looping risk profile, but there are standard controls across consumer sales that create a strong foundation. Creating a process for employees to raise looping concerns directly with the risk officer allows the commercial cannabis business to react quickly to poor controls or changes in their risk profile. Monitoring cannabis product transactions that are close to or at the maximum purchase limit throughout all locations is an effective means of identifying potential looping schemes.

To effectively manage looping risk, the risk officer should create reports that help management and the board understand the effect of their work and present the results periodically. Standard reports should be created to assist management in understanding the scale and scope of looping risk. This should allow management to make appropriate risk-based decisions that consider this risk. For example, the level of looping risk at a commercial cannabis business may inform the extent of dual control expected at a store location. 

A comprehensive risk program also includes risk-based training.  Depending on the risk level of looping, the frequency of training may be more or less; however, it is common practice to have all consumer facing employees trained to spot consumers exhibiting suspicious behaviors. Risk-based training should include how to spot red flags of looping with a focus on the looping schemes that were identified as highest risk in the risk assessment. Training should also include how to report suspicious activity to the risk officer.

Conclusion

Looping will always be a risk for commercial cannabis businesses. To make sure anti-looping mitigation remains effective and efficient over time, the risk officer should consider periodic assurance activities. Some common assurance activities include hiring a secret shopper to visit store fronts to test controls, monitoring the number of suspected or confirmed looping attempts over time for increases, or conducting periodic independent audit of controls. These activities will assist the risk officer in balancing the cost of mitigation with the risk the business faces.

An effective risk-based approach to control looping will reduce the chances that a commercial cannabis business will be targeted by organized criminals attempting to divert product to the black market. A legal commercial cannabis business found complicit in looping could cause a loss of reputation or even your commercial cannabis license. Not every looper can be stopped, but implementing an effective cannabis risk management framework can reduce the likelihood that a commercial cannabis business is found complicit in looping activity.

The views and opinions expressed in this article are those of the author and do not reflect the official policy or position of the author’s affiliated institutions.

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