Cannabis Industry – Risks, Predictions, Fraud & KYC/AML Obligations
The ever-growing industries across the world are opening gates for numerous opportunities to greet entrepreneurs. Emerging trends and advanced technology have hidden benefits that are yet to be explored. The cannabis industry is an ideal example that fits the situation. Previously, merchants could not enter the industry due to several legal restrictions, and smuggling and other illegal activities increased. Over time, there have been massive developments and medical uses have compelled many people to enter the marijuana industry. The cannabis industry has faced some interesting turn of events in the past few years. The legal requirements have become more stringent, but there’s good news for newbies. The industry is now open for business in many regions of the world.
The global cannabis sector has the potential for tremendous growth and reports estimate that the global cannabis market is expected to be worth $73.6 million by the end of 2027. Everything has its bright and dark sides, and so does the legalisation of the cannabis industry. Want to know the rising risk, fraud, and legal restrictions in this industry? Read this blog to find out all the information you need.
Risks for the Cannabis Merchants
First things first, legalisation is good news for people interested in entering the sector but it also welcomes numerous risks for merchants either newbies or pros of the game. Here are some of the risks that businesses faced in 2020, and 2021 is expecting more complexity in the same.
Diverse Customer Base
Customers are the boss and your bosses are well-educated now. The consumers know about the legalisation of the sector. Moreover, they are familiar with its uses as well. Dealing with customers demands extra efforts.
Amid the diverse customer base, there is also a need for identifying the products to offer. Research on marijuana has resulted in its numerous medicinal uses and recreational use is already known to many. Tackling knowledgeable customers across the world will not be a bed of roses.
Development in the Industry
In addition to well-aware customers, businesses also have to deal with constant research and innovation in the sector. After legalising its use, the R&D department is in action across the world, and with new use comes more responsibilities. Offering products and identifying your customers is a little blurry now.
Increase in Regulations
Everything comes at a price and high legal restrictions are the biggest price that companies have to pay for smooth operations in the cannabis sector. Marijuana has always been used as a drug and the majority of its use was illegal. Regulatory authorities have permitted its growth and use, but the legal requirements are tough to tackle. Complying with these laws and regulations is a tough call for new merchants as well as experienced ones.
The Rise in Fraud
Fraudsters never sit back and relax. Once, the sector itself needed fraudsters and now, it is figuring out ways to prevent them. After the cannabis industry was legalised in different regions of the world, serious laws were enforced which encouraged them to kick criminals out of the picture. However, advanced technology has made it convenient for illegitimate people to achieve their malicious goals.
With the advent of technology, cyberattacks have not only increased in the major sectors but the emerging cannabis sector is another target. If you have a website for your cannabis business, make sure its database is secure. Add as many security measures as possible, otherwise, get ready for data breach and ransomware attacks. Artificial Intelligence and Machine Learning algorithms are not helping you to secure your business, but fraudsters are also benefiting from them.
A vendor data breach is another rising threat for many industries where third-parties or vendors of a company do not take robust security measures and customer information is breached. Unauthorised vendors are hard to identify and the challenges for cannabis merchants are increasing. These vendors can be money launderers who might be planning to launder their illegally earned money using your legal marijuana company as a money mule. Moreover, activities of the unauthorised vendors bring a lot of hassles for the businesses and complying with the robust aws may not be possible. Verifying vendors is, therefore, essential before completing any transactions.
Read more about money mules: Jobs in the frame for money laundering
Fraud in the Marijuana Sector
Fraud in the cannabis sector is increasing. Here are the most common scams that every merchant falls for:
- Unregistered vendors
- A high rate of return
- Insulation from risk
- Cyberattacks especially data breach
How to Secure the Industry?
The modern era is not free from criminals and protecting all sectors is vital. Preventing fraudsters from fulfilling their evil intent is crucial for the cannabis sector. However, there is a fantastic solution to the problem. Businesses in this industry must add know your customer verification (KYC) for customer onboarding. The regulatory authorities have hefty fines for firms that do not verify customers.
Apart from customer verification, being operational in this sector also forces you to verify your suppliers. AML/KYC compliance is now stricter than ever and an inability to comply with the regulations will result in hefty fines. If you are planning to add robust authentication measures, consider video verification. Video KYC is a new way of verification that enables you to combat spoof attacks, deep fakes, and other cyberattacks. Every company in this industry can prevent fraudsters from data breaches or ransomware through digital customer verification.
KYC/AML Obligations of the Cannabis Industry
Legal requirements are stringent and all the business owners must have a clean background to operate in this sector. Moreover, companies have to verify customers, suppliers, or anyone who wants to be a part of the business. The countries legalising cannabis production and sales have separate regulatory authorities who provide guidelines for legal operations. The authorities of the state have to follow recommendations from the FATF to prevent money laundering and terrorist financing. Here are some of the prominent regulatory bodies of different states that guide cannabis merchants.
- In the United States, the Marijuana Opportunity and Reinvestment (MORE) Act, the Marijuana Justice Act, the Realizing Equitable & Sustainable Participation in Emerging Cannabis Trade (RESPECT) Resolution, and the Marijuana Freedom and Opportunity Act regulate the sector.
- The Federal region in Canada regulates under Cannabis Act (Police Enforcement) Regulations Cannabis Act Regulations Industrial Hemp Regulations Qualifications for Designation as Analyst Regulations (Cannabis).
- In the United Kingdom, the following regulations and statutes regulate cannabis:
- Misuse of Drugs Act 1971 c. 38 (as amended)
- The Proceeds of Crime Act 2002 (Money Laundering: Exceptions to Overseas Conduct Defence) Order 2006
- UN Single Convention on Narcotic Drugs, 1961
Amid these states and their regulations, different countries have statutes that ensure the security of all the merchants and the clients.
Predictions for 2021
The coronavirus pandemic has changed the outlook for many sectors and the marijuana sector is also expecting some challenges in 2021. Let’s have a look at the analysts’ predictions for this sector in the coming year.
Sales are Expected to Increase
With more research and a well-aware audience for the companies, this industry can expect a high sales volume in the coming year. The introduction of new products and uses of marijuana in food, medicine, and skincare products can help businesses in achieving higher profit margins in 2021.
Believe it or not, the competition in the sector will increase next year. Many countries of the world have legalised its medicinal and recreational use; therefore, there is a potential for new investors to target people. From skincare products with CBD oil to the use of hemp in beverages, there is a lot that can be done to survive in the emerging market.
As said earlier, the laws for the industry are becoming stricter every day. In the next year, all companies can expect amendments in the regulations, and some new laws may be introduced as well. Furthermore, the sixth AMLD will not be easy to comply with in 2021.
Learn more about AMLD6: 6AMLD of EU – A detailed insight
The cannabis industry is growing at a faster pace ever since its use is legalised in different sectors of the world. The US, Germany, Canada, Mexico, and the UK will be the top five countries generating revenue in this emerging sector by 2024. However, the legal restrictions are tougher for the marijuana industry than any other. The regulatory authorities are in full swing for taking care of the fraudsters in the industry. Nevertheless, criminals pave their way at any cost, and with the betterments in technology, Artificial Intelligence algorithms are helping them out. Complying with KYC/AML regulations is necessary for all the businesses in the sector before hefty fines hit you hard. For effectively fulfilling the requirements of legal survival in the sector, businesses must opt for digital verification to verify all the suppliers as well as customers.
Need more information about compliance and verification? Get in touch with us.