Cannabis businesses that are hoping to expand across state lines should absolutely be aware of the triggering levels for regulatory background checks in different states. Just because an investor is a minority owner doesn’t mean they can avoid regulatory scrutiny.
...Christopher R. Esposito, 49, of Topsfield, raised more than $550,000 from investors in 2011 and 2012 in his Lionshare Ventures. He allegedly used the majority of the funds for unauthorized personal expenses, such as groceries and pet care, and then spent $75,000 to secretly take control of Cannabiz Mobile Inc. without disclosing that to investors.
(The Boston Globe, May 2016)
When it comes to investment decisions, investigative due diligence beats a background check every time.
It wouldn't show up in an average background check, but a search of Financial Industry Regulatory Authority records would have found the following information about Esposito:
That was just one of the three disclosure events on his record, but none of these red flags would have appeared in a typical background check.
Some frauds are harder to identify than others. Investors should always conduct due diligence before pursuing an investment, especially in an emerging industry like cannabis.