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For anyone who has traveled the cannabis industry for any length of time, the risks associated with getting in bed with the wrong partners are about as acute as they can get, and truth be told, almost no one escapes unscathed. As a result, no matter what side of the deal one is on, due diligence is an absolute necessity. This is true for every participant in the space, including the states that regulate the industry markets. As much as anyone in cannabis, they need to know exactly who they are working with and require the same of every company that receives a license from them to operate legally. It is a job easier said than done, of course, and one that is certainly best left to a professional outfit such as Creative Services, Inc. (CSI), a Massachusetts-based company whose founder brings over 45 years of PI experience to the table.
To gain a sense of the risks involved, and how they have evolved since CSI started working in cannabis ten years ago, Cannabis Business Executive spoke recently with founder Alan Sklar, who began his career as a private investigator in 1973, one year after this writer graduated high school. CSI offers its services to many industries, of course. From biotech to finance to health care, retail, higher ed, and pharmaceuticals, it offers background screening, security consulting, and risk management, all under the company tagline, “Not all background checks are created equal,” a maxim that certainly holds true for the cannabis industry, which CSI entered when Massachusetts came calling in 2014.
“After the vote went through for medical, the governor appointed someone at the Department of Public Health to launch medical cannabis licensing,” recalled Sklar. “They contacted us because we were well-known in Massachusetts for working with government agencies and municipalities in the regulated due diligence, background, and investigative space on a national level. We were actually doing some work for DPH at the time, and we went in and sat with them and just talked about what they were interested in from us from the investigative side, and what type of due diligence should be done for someone applying for a medical license in the Commonwealth. We explained the kinds of things we were doing in other regulated industries, with the key being the thing that Massachusetts was focused on, which was that they wanted to do it right. That was the theme. ‘We want to do this right. We’ve looked at California, we’ve looked at Colorado, and we want Massachusetts to be the gold standard so other states will look at us, but we want to protect our citizens.’”
With those marching orders, “We went in and provided recommendations for what you can do as long as the individual that’s applying for the license signs, consents, releases, and complies with federal and state laws,” said Sklar. “We provided them with different types of components of a background that could be available, and they also needed education, they needed our advice and recommendations. So, what does that mean? What do we get from doing that type of search? Obviously, the requirements were criminal record searches, and back then, we had the DCJIS in Massachusetts, the centralized repository for all criminal records in the Commonwealth, which would do what we called iCORIs, using the court system for people residing in Massachusetts. We were already engaged with DCJIS as a vetted vendor to utilize the system, so we could do the criminal record search.”
Cannabis’s Schedule I status did provide a challenge, however. “The beginning of the process was the criminal record, but then we expanded that,” explained Sklar. “The FBI had no interest in using FBI fingerprints as a way to run a criminal search that would be nationwide, so we modeled what we were doing for other regulatory businesses. And as we were talking to people in the industry, or writing regulations in other states, we would hear that the requirement is to do a local or statewide criminal search and then to do a national criminal search.
“But what is a national criminal search if you’re not doing FBI fingerprints,” he asked rhetorically. “A national criminal search was interpreted to be, can we identify where that individual has lived, worked, and gone to school in the last seven years? We use mechanisms such as Social Security traces, which provide the person’s social, and then a compilation of databases that will tell us that this is the person, these are their AKAs, and these are addresses they lived at. It was self-disclosure and utilizing what we were able to obtain from our own internal or external database partners to make sure that the information the applicant or candidate would provide was accurate. We went back seven years into where they worked and went to school, and we would search those jurisdictions on a statewide level if it was accessible to us and publicly available, or we would have people go directly to courthouses and look up court records at the highest courts and the lower courts to make sure that we’re doing the most comprehensive public record search that was available to us at the time.”
Since that time, additional products have been developed. “Now we have something called the National Criminal Search, which is a huge database compiled by people that collect information from news media, arrest records, police logs, a compilation of a variety of different things, including sex offender registries,” noted Sklar. “As products became available, we enhanced and said, ‘This is what a criminal a national criminal search order criminal record search should look like.’ We included federal criminal records in that because the agency or regulator wasn’t receiving them from the FBI. But there would be the need to do federal criminal record searches – which we have access to – to see if the individual had any crimes where it would be the United States versus Tom, in lieu of the Commonwealth of Massachusetts versus Tom. We put together a very detailed methodology about how to do the most comprehensive search on the criminal side utilizing the resources that we had.”
Was the goal to compile as complete a criminal record as possible rather than look for something specific? “Our intent at that point was to look for any information that we could identify and then validate it, and the key issue is validation,” replied Sklar. “We could use various databases, but once we saw a possible hit we would go directly to the primary source of that information, the courthouse, police departments, law enforcement, and validate that it is in fact the individual, the date of birth matches, their Social Security matches, their address, identifiers that you need to validate something. And then we will pull the records from the courthouses and look at them to see what the case was about, we will look at police reports, and at the actual court transcripts, so we can identify what the charges were and what the dispositions were. As you know, people can be charged but they are innocent until proven guilty.”
An Impartial Investigator
“In addition to helping Massachusetts expand, we wanted to identify right from the beginning if the person that’s applying for the license is in fact that person,” said Sklar. “Because of our experience in the investigative world we were concerned about straw men. Follow the money. We were looking for any type of illegal money that was being funded by someone, whether it was a foreign national or local organized crime or whatever, to make sure that the investment is legitimate. And regulators have various requirements: you might have to be a 50 percent owner or a 75 percent owner.
“So, in addition to the criminal, as we fast forward into the broader medical and adult markets, and then all the ancillary businesses that evolved, we had to come up with standards that made sense for the industry,” he added. “That said, when we began doing Massachusetts background investigations, it was very comprehensive. We were obtaining people’s tax returns, things that could flesh out some of the money issues and those kinds of things, and we would do several records searches, not in criminal court but in civil court, to see if the individual was a plaintiff or defendant in civil action. In my world, there are certain cases where people are being charged on a criminal level, but they don’t meet the burden of the criminal statute, so they reduce it down to a civil case, and we see that in today’s world more than ever.”
There are boundaries, however. “The key to any investigation we either rolled out or provided guidance about what’s available and what they could do is based on state statute and regulations, and there is no standardization,” noted Sklar. “One of the things that we’ve looked at from the beginning in other industries is how do we standardize this? Since it’s not being overseen by the federal government, because they don’t have to, and it’s a state-by-state issue, how do we take what we’re doing in Massachusetts and translate it to another state that contacts us? Their regulations might say that they have automatic disqualifiers that if they were convicted of this and that, they are automatically disqualified, and we do see that. We would obtain information based on our investigation and the agreement between the state and CSI, and according to what federal and state statutes allowed us to provide, we would provide a report to the client with all the information that we obtained, and it is then up to the end-user – in this case the regulator – to adjudicate. They need to look at what we provide and decide if there is information in there that disqualifies [the applicant] to apply for a license based on the regulations.”
Over the years, CSI has also expanded its client base. “It grew based on us doing business in the regulated space and expanding into other states, but also if you were applying for a medical license, an adult license, or an ancillary license,” explained Sklar. “The state had guidelines and regulations as to the requirements for the licensees as they hire employees. There are certain conditions based on state statute or regulation as to the level of background investigation that needs to be done on the individual that you’re hiring. Because of our reputation in Massachusetts even before cannabis, as cannabis licenses were being issued, a lot of the licensees would come to us and say, ‘Under the regulations, we need to start a screening program for our employees,’ and they would retain us contractually to do the employees. That statute might also say they have to do them on an annual basis, so we would go back a year later based on statute or regulation to do or what we call a reinvestigation. In the regulated space, regulators have different annual requirements, or they have to go through another licensing process reinvestigation, so it varies.”
This being a wild west industry, people have entered into business relationships that went really bad because they hadn’t vetted properly on either side of the deal. That right there would seem to be as much or greater of an incentive for people to seek out CSI-type services before they get too far down the line in a potentially disastrous partnership or deal. “Absolutely,” responded Sklar. “As the cannabis industry has emerged, it’s growing, and to me 10 years is not a long time for a brand-new industry to evolve. Obviously, it’s taken a little longer based on California and some of the other states that went before Massachusetts, but in just the past 10 years there are banks banking with cannabis-related companies, and the investment community has been involved in a lot of M&A activity. It’s just as important for an investor who’s going to invest in a license or help finance a licensee to make sure that two things happen. One is if I’m the licensee and I’m going to go to an investor, I want to make sure I’m going into an investment that’s legitimate. So, there’s a requirement on both sides that is normal due diligence when you’re doing business. Whether it’s the investor doing business with a licensee, the investor wants to know where they’re putting their money.
“We’ve been in that industry since way before cannabis,” he added. “We worked with wealth management companies, financial institutions, different types of investors, where if they’re going to give money to an organization to help them grow, they want to know who they’re investing in. That’s what we call due diligence from the investing side to make sure that you know who you’re investing in, the reputation of the company and the individuals you’re giving money to, who’s driving the boat. That’s a concept that we’ve been involved with for many, many years, and then you just take that concept, you move it to the cannabis industry, and you say, ‘Okay, we totally understand. You’re investing in this organization, so you want to know who they are.’ I always say, it’s all about reliability and trustworthiness. Those are two key areas that we look at. Are the people reliable and are they trustworthy?”
Needless to say, CSI has worked in environments where the opportunities for skullduggery was prevalent, as they are in cannabis. “Yeah, we worked in those arenas before cannabis,” said Sklar. “We’ve been doing this for 47 years, so we have a lot of experience exposing bad actors, and it didn’t matter what industry it was. Of course, in some industries we identify more bad actors than others, but because of the cannabis industry being new, and that wild, wild west thing … look, crime is everywhere, but we don’t treat the cannabis business any differently than we do any other type of client that has federal or state regulations. We are totally impartial.”
An Evolving Industry
“My organization is a 47-year-old investigative firm that in the last 30 years has focused on doing background investigations and due diligence, because we know from experience that what causes problems inside or outside has been people,” stressed Sklar, “and applying that practice to the cannabis industry made a lot of sense. We got into the cannabis industry, and we had cartels – we still have them – we had the illicit market – we still have it – we have foreign nationals, which are more prevalent today than they were 10 years ago, and we have straw men. It’s not going away, and it remains prevalent in the states that don’t have regulated industries. I do think that they’re trying to regulate the market in the states being regulated, and the intent is to keep it honest, but it is difficult to do when you’ve got cartels and organized crime and others that are fighting you.
“We have seen that the illicit market has been reduced in states that regulate,” he added, “but the illicit market is always going to find ways to get involved in businesses with a lot of money. Our role is to help CRBs, or any type of cannabis related business, and to assist them no differently than we’ve done in other corporate industries. You’re running a business, and one of the frustrations I had early on was when people jumped in to get a license like this is a gold rush. And now it’s matured, and I’m happy to see that. I feel like we helped drive some of that maturity that you’re running a business and you’ve got to run it like any other business. You’ve got to understand internal controls, audits, personnel security, and you’ve got to understand cybercrime. There are so many risks related to running a business today, and that applies to cannabis, because it is a business. With the M&A activity and the investors, there is a much more refined business model than I saw eight or 10 years ago, and the multi-state operators especially have realized as they’ve expanded into other states that they’ve got to have a layer of people in risk management, security, compliance, legal, and HR.
“In the beginning, you didn’t really have that,” he continued. “It was usually a business owner that either had their own family money, or money that came in from the outside, and in going through the licensing process and the costs for getting brick-and-mortar up and running plus all the compliance responsibilities, they invested a lot of money. Their goal was to start getting a return on investment, so they start selling to get money to get revenue and hopefully create profits. But I think what’s really important for the industry right now is to recognize that you are in a business, and you need to run this business, whether it’s small, medium, or large, like a business. But there is a distressed market out there now, and we totally get it. Five years ago, companies were opening, and they were making money, but with more states going into adult use, there are financial pressures that are going on for a lot of reasons.”
The situation creates its own problems and opportunities. “For a lot of these smaller, independent owners, survival is about cash flow now,” said Sklar, “but I believe that there’s a place for small business operators to still hang in there and be able to grow their business because of brands. I don’t know a lot about the different types of brands, but I know in talking to people that the real cannabis consumer is getting more educated on brands. And if people can get a niche of growers for different brands, they’re either going to get interest from outside investors or they’re going to get bigger companies trying to acquire their brands, no different than we’ve seen in business over the years. You get expansion, and then you get retraction based on mergers and acquisitions. I do agree that we’re going to see more mergers, because if I get two or three licenses in a state and I’m still struggling, I might want to talk to a colleague in the state that is going through the same thing, and sometimes two heads are better than one if we merge our businesses and look at how we can eliminate duplication of efforts, streamline, and cut back on costs.”
I noted a rise in the number of law firms with dedicated cannabis departments. Are they clients of CSI as well? “Anytime there’s a new industry and there are new opportunities,” replied Sklar, “any type of professional service will say, ‘We can do business with these people. What can we offer?’ The law firms have done a great job in expanding and the bigger law firms now have practices that they’ve established focusing on cannabis, specifically to become subject matter experts. You’ve got to understand the industry to be able to apply the law and regulatory requirements to the industry, and they really assist these companies in applying for the licenses and getting them through the licensing period, or even afterwards assisting them in compliance.
“We have law firms that are clients that submit licenses on their clients’ behalf or help facilitate that,” he added. “The big national firms are heavily engaged in this, and there are small regional law firms that also see the opportunity. It’s a business, and business needs lawyers. If it’s a litigation matter, they’re going to go to a litigator, and if it’s a regulatory matter, they’re going to find someone that handles regulation. The cannabis market has done the same, and law firms have taken the opportunity to expand and open cannabis practices. I think it’s great that the cannabis licensees, and even the investors, utilize law firms to help manage them through an investment, merger, or acquisition.”
Does CSI also have MSOs as well as small businesses as clients? What is the breadth of its clientele? “Our clientele for cannabis is broken down into regulators, who we assist in doing due diligence or background investigation for applicants for licensing purposes, and then the reinvestigations and that stuff, and also CRBs, cannabis related businesses, which includes adult and medical dispensaries and all the ancillary services. We have smaller businesses with one, two, or three locations that we help with employee screening, and that’s our business: employee screening. We also look at the regulations, and make sure that they’re in compliance with state regulations. Then we also have the multistate operators. We’ve been in this space since before the multistate operators were around, but we’ve seen their evolution as they’ve gotten bigger and going into other states. We might start with an operator in one state, and then, when they’re expanding into a second state and a third and fourth state, becoming a multistate operator, they’ll take us with them to assist in the background investigations for their new hires and even some vendor due diligence.”
Who Are You In Bed With
Indeed, the need to know would seem to be paramount in cannabis. “They want to make sure we do background checks for pre-employment purposes, for reinvestigation purposes, and for what we call extended workforce, which could be vendors, contractors, staffing companies, anybody that’s going to associate with that business and provide services,” said Sklar. “Everyone needs to be checked. You need to know who you’re doing business with, no different than what we’ve modeled in any of our industries, whether in healthcare, financial services, or even public utilities.
“We were recognized as providers that don’t just do background checks but offer risk mitigation services as well as education and guidance to our clients about the risks out there related to internal or external threats,” he added. “We cover things like workplace violence, cybersecurity, internal fraud, theft, whether it’s collusion between the inside people and the outside people, diversion of product. All those kinds of things apply in the cannabis industry as well as all the industries we work in, so when we talk about risk mitigation and security consulting, companies will come to us because this is what we do. Again, regulators have compliance, and when they go out on inspections they have a checklist of things to make sure that the licensee, the MSO, or the ancillary service, are following all the regulations.
“So, we can also do pre-audits to assist them, especially on the personnel security assurance programs,” he continued. “As they do their compliance audits, they want to know their physical security, they want to know their internal controls, they want to know seed-to-sale, they want to know about shrink, they want to know about hiring and check the files to demonstrate that you’re doing the right type of HR and background checks that are required. It’s a proactive process with risk mitigation instead of reactive. I mean, we do react, and we get calls all the time: ‘We have a problem.’ ‘What’s your problem?’ We’re missing product,’ or ‘We have a cyber issue,’ or ‘We think we have a dishonest employee, what do we do to flush that out?’ First of all, we listen to what they think the problem is, and then we give them recommendations based on our years of experience about how they can look at the problem and resolve it.”
The problems never seem to go away completely. “We’re trying to come up with problem solving, which we do based on risk, security, and people, but risk also evolves,” noted Sklar. “The risk of 10 years ago was shoplifting, outsiders coming in and taking things. Certainly, the cannabis industry has that problem, which doesn’t go away, but the insider threat is something that we really concentrate on, and that’s why we’re such a true believer. When we talk to cannabis businesses, they tell us, ‘The state says all we have to do is have the individual apply to the state police.’ So, they go in, they get fingerprinted, the state gives a report back, and the applicant either meets the guidelines or they do not.
“But what we say is, when you’re hiring people, what about their employment history,” he added pointedly. “It’s not in the regulation that you should check someone’s employment history, but I totally disagree. We want to run this like other businesses, and we want to know their criminal history, we want to know their civil history, and we want to know their financial activities related to judgments and liens and fraud and those kinds of things. We want to look at social media, and we want to look at their electronic footprint to see if there’s something that’s out there on social media that could cause harm to an organization if you hire them.
“We look at background checks like people providing information applying for a job,” he continued. “Why shouldn’t the cannabis industry do the same thing other industries do, where they have us check employment to validate that they worked at these places, identify gaps in employment or places that have gone out of business, or if they’re self-employed, ask for 1099s. So, we check employment, education, driving records, we check criminal, we check civil. In the medical field, there are healthcare sanctions, so when you’re talking medical cannabis, we’ve got to make sure they’re doing research to make sure these people have never been disbarred or had disciplinary actions taken against them in healthcare. That’s true with all regulatory businesses, whatever the industry.”
The CSI Difference
CSI currently works with three state regulators, and is in discussions with many others, per Sklar. “We’re going to expand in the regulated market, because the regulators need us, and I’ll tell you why,” he said. “A lot of them are currently doing these investigations in-house, which we totally understand, and they use other agencies that they have in-house to do it. That’s fine, but there are a couple of reasons why outsourcing to subject-matter experts makes sense. This is what we do for a living, and we understand the red flags, we know how to turn a stone, and if the stone points us in another direction, we’re going to follow that lead and either determine we’ve got a problem, or we don’t have a problem.”
As far as the competition goes, “Our industry is very large,” noted Sklar. “We’re called consumer reporting agencies under federal law, but the way we separate ourselves from all these others is we’re a deep-dive company, we turn that extra stone, we work primarily in the regulated space to make sure that you’re compliant with federal and state regulations. We also work with publicly traded companies, where you want to protect the shareholders, and in the private space, where you want to protect your investment. We have investors contact us to say they’re putting money in, and what can we do to help make sure that the company they’re investing in is doing the right things internally? They will even assist us by putting money in to expand the level of due diligence or background investigations on the employees, because they don’t want to put money in and then have issues and the media, which is all over this industry. We’re under a microscope because of the federal government and how they’re looking at us, as well as state governments, and we don’t want a black eye. I preach to the cannabis industry that the worst thing that can happen is bad press, and we’ve seen around the country where someone might hire someone or been appointed by somebody, and it didn’t turn out.”
I observed that there have also been many instances of corruption between cannabis businesses or operators and public officials. Does any of that fall under what CSI is tasked with reporting on or identifying? “When we’re working for a government agency, whether it be local, state, or federal, I like to get the federal agency to at least look at us as an alternative way,” replied Sklar. “Some federal agencies require employees to go through the Office of Personnel Management, and they have to have clearances, which I totally get, but there isn’t any reason why a state regulator wouldn’t look at us and say, ‘When we hire our own employees, maybe we should be using CSI so that it’s consistent, and they’re going to do the complete due diligence.’ So yeah, we advocate that whether you’re a regulator, whether you’re using a third party, or whether you’re hiring employees, anywhere we can help mitigate the risk is where we should do investigations.”
It certainly sounded as though regulators are going to continue to need CSI-type it, whether they realize it now or not, and so will businesses, which means there is a growth trajectory in this new industry for those services. “Yes, that’s correct,” said Sklar. “Right now, because of the financial situation, they still need us, but for the cannabis licensees that pay bills, it’s becoming a little more problematic because they need funding. We’ll get past this, but I wonder where we’ll be five years from now when we see what the industry looks like and how it gets out of this.
“There is going to be a need for more sophistication, better technology, and outsourcing, which is a less expensive way than trying to do things yourself, because you’re not paying payroll, you’re not paying payroll taxes, you know what the fees are, and you can put budgets together and understand what the expense is so you can control it,” he added. “Plus, you’re using subject matter experts and using them when you need to use them instead of continuing to employ people. It’s a matter of the outsourcing concept and that continues to grow. We see it in our other industries where companies used to do it in-house, and then said, ‘Let’s use CSI.’ Even if it’s for projects we haven’t done before, they know we have an understanding concept of their business, and we can create workflows on how to do things. We’ve done social equity workflows that have been very successful, and we hope are going to be modeled across the country.
“Of course, the landscape will change because of the financial pressures, and it’s sad,” he said. “I personally know some of these business owners that took family funds 6-7-8 years ago and put $5 million together to open a dispensary. Some of them lost a lot of money, and some of them got out in time where they opened two or three locations and were acquired and got all their money back. So, just the way we positioned ourselves in the real estate collapse of ‘89 and ‘90 when the market just fell apart, it was based on corruption, with the banks, the lenders, and the appraisers all in bed with each other making deals to try to fund housing and build, and then there was a collapse because some of these buildings didn’t even exist. And what happened? The FDIC came to us, and said, ‘You guys are really good at investigations, and would you take a look at hundreds of our portfolios, and go through them to see if in fact the property exists?’ We never even thought of that, but they came to us to say they were in trouble, and it’s the same thing here. We’re strategic.”
Sklar was equally candid about CSI’s work in cannabis, noting. “It’s not much different to us. The thing that separates us from other companies is that we immerse ourselves in the industry that we’re servicing, and we like to get ahead of what’s happening. If they have regulations, what do the regulations say today, and what’s going on in Washington that might change them? We got involved in cannabis the same way we did in nuclear, public utilities, and financial services, by getting engaged in the associations that help regulate, and the organizations that assess these companies, and we are very engaged in the cannabis regulatory space from the perspective of the Cannabis Financial Industry Group (CFIG).
Better Banking
It says on CFIG.org that the role of the organization is to coalesce financial institutions and leading risk management services providers serving the regulated US cannabis industry. I asked Sklar why it was necessary to create such a body and what the main risks are that need to be coalesced? “We started to think about CFIG in 2020 and then took a couple of years to work on it with Saphira Galoob, who is also the executive director of the National Cannabis Roundtable (NCR),” he said. “CFIG and NCR are going to try to work closer together. They drive federal and state policy in a lot of different areas, and there are a lot of areas where we want to roll in the same direction.“
I asked how the two groups differ. “The primary purpose of CFIG is to work on the hill with Congress and the Senate to keep them educated on the state of cannabis. No one disagrees that the industry needs money, and it needs legitimate money. People get desperate, and desperation can cause problems. If you put your life savings into something, and all of a sudden you see it going down the tubes, and someone approaches you and says,’ I’ll give you money,’ it can be dangerous, because they’re not doing what they should do about knowing where this money is coming from. So, I think the feds could have a role in cannabis, and my sense is they’re going to allow the states to do the work they are currently doing.
“I don’t think the federal government wants to regulate the cannabis industry,” he added. “I think what they want to do is to create a safe banking process, because the feds regulate the banks to provide funding to the cannabis industry and allow them to get loans, borrow money, and make deposits. We know there are banks that are doing that now, but there are many bankers I talk to that would like to get into the cannabis industry, but the decision by the board internally is that it’s still against federal law, so at this point they’re not going to do it until the feds say it’s okay.
“That means we need some type of safe banking passed, and there have been various bills,” he continued. “We worked very closely with Congressman Perlmutter on it because he was the first to introduce a bill. I do believe that there will be some type of safe banking that’s going to pass, but I don’t know if we’re going to see it until after the election. I don’t want to get into politics, but we know that there are problems in Washington, and there’s not a lot getting done at this point in time. But there are banking bills that are sitting in Congress, and there are senators that are advocating for them because they see the need. And safe banking is also going to assist in keeping some of the bad actors out of the industry. So, if I can go to the bank and get money and pay X amount of interest, my preference is to do that than to go to an investor who’s going to charge me X amount of interest or want a certain amount of my business.”
Business as usual is the ultimate goal. “I think we need to allow the cannabis industry the same opportunities that other industries have,” noted Sklar. “With CFIG, our goal is to assist and educate Washington on what’s going on in the industry, and also to work with the banks – our members, our banks – that are currently doing some banking with cannabis, or a couple that are looking to get into it but don’t want to jump into it until there’s more regulation or the feds get involved, so we work together talking about risk mitigation in that area.”
We started this conversation by talking about the desperation out there when legal companies find themselves up against the wall. But over the past few years, many legal companies have had one foot in legal and one foot in illicit in order to survive. How does CSI deal with that dynamic?
“Listen we’ve been doing this long enough on the due diligence, M&A side, as well as on the regulator side, and we’ve identified foreign nationals, we’ve identified straw men and percent-of-ownership problems. Follow the money. Where’s the money coming from? We’ve identified organized crime and cartels, but the reason why we’re very good at this is because we’ve seen this in other industries for a long time. Where there’s money, there’s organized crime, and we understand how they operate, and how the cartels operate and what they’re looking to do. What makes us valuable to the industry is that we have 10 years of experience doing this, but then we also have 37 years doing it prior to that.”
Is there a difference between the really bad sort – the cartels and organized crime – and the vestiges of the legacy industry, and even bigger companies, allegedly sending cannabis out the back door to New York and making money that might keep them afloat? Admittedly, I put them in a lesser category, but they would have to clean up their game because it’s not sustainable.
“I agree,” replied Sklar, “but I work on the side of honesty. The issue is, if you’re selling stuff out the back door, or you’re bringing product in through the back door, or you’re a grower and you’re not supposed to cross state lines and you are, we’ve got to stop that. Let’s go back to what I said initially. We’ve solved crimes over the last 47 years in corporate America, for fraud and those kinds of things. We go in and investigate, and some of these people just got desperate. I’ve seen every story, medical bills they had to pay for, or they got involved in gambling or drugs. There are different motivations for different people, but desperation causes problems. We know that.”
Cannabis currently amounts to about 3 percent of CSI’s total business, but Sklar expects that number to climb. “We actually saw a little drop off last year because we had some cannabis clients go out of business,” he said, “but we are the number one player out there in the cannabis sector for due diligence, for conducting background investigations, and for providing education and guidance. We have national recognition, we’re engaged in industry groups, and I’m a founding director of CFIG. As the industry expands, so will we, but I won’t play with bad actors. We’ve had to turn some business down because I knew who was behind it. and I said nope.”
Ever the realist, Sklar knows the future of cannabis in the US is unclear, but he also is clear about what he would like to see happen. “I’m not sure how it’s going to play out five or 10 years from now,” he said, “but what I’d like to see is that there are big players, and the MSOs are there, but I would also like to see small business owners have an opportunity to play in the industry. So, we’ve got to come up with ways that allow them to be profitable and still do that.”
To that end, Sklar and his team are available to commiserate and more. “We get calls all the time,” he said. “I’m happy to have discussions with people. Just call me and ask me questions. I want to be the trusted advisor for the cannabis industry in the lane that we operate in.”
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