There may be additional risk issues to consider depending on the physical location of the commercial cannabis business, their vendors, and their business customers.

Many jurisdictions, law enforcement, or government departments will identify drug trafficking areas of concern. The commercial cannabis business should consider when geographic locations lend themselves to drug-related crimes specific to the commercial cannabis industry. The identification of these areas can aid the commercial cannabis business with their risk-based approach to geographic risk.

Risk Factors

High intensity drug trafficking areas are designated as such primarily because the jurisdiction is a major area for illegal drug production, manufacturing, importation, or distribution; drug-related activities within the area are having a significant harmful impact; and significant resources have been committed to responding to the drug trafficking problem in the area (DEA.gov).

Commercial cannabis businesses are at a higher risk of being exposed to illicit cannabis market risk when their business locations, vendors, and customers are located near illicit cannabis markets. While any commercial cannabis business could be at risk, those in geographic areas known for drug-related crimes are more likely to be compromised by illicit cannabis or organized crime operators. The red flags for the geographic locations risk driver will elevate illicit cannabis market risk where issues are present in the business processes and third parties, customers, and employees risk drivers.

Red Flags

The following should be considered red flags with regard to high intensity drug trafficking areas

• Crudely packaged flower product with no defining origination markings or production information
• Packaging for any product category that lacks license and testing information for traceability purposes
• A facility address used for any purpose that is not indicated on the license
• Cannabis product introduced to a licensed facility that is not in the track and trace system
• Employees or vendors exhibiting a lavish lifestyle that cannot be supported by their salary
• Employees that have a significant interest in business processes that they are not responsible for performing or have any need to understand
• Transactions with no logical economic purpose

Risk Mitigation

Vendor Management

Commercial cannabis businesses should establish or enhance control activities and training for vendor management to control and monitor higher-risk relationships in high intensity drug trafficking areas.

• Establish procedures to assess vendors in high intensity drug trafficking areas, conduct initial due diligence, and conduct ongoing monitoring. These may include the following:
  • Evaluate vendors based on adverse public news or complaints
  • Determine a risk-based approach to review owners and controllers for adverse public news or complaints based on location in high intensity drug trafficking areas
• Require contract terms and conditions based on the risk associated with vendors in high intensity drug trafficking areas
  • Require documentation to verify that the vendor has a well-designed risk-based compliance program that includes monitoring for illicit cannabis market risk

Ethics and Whistleblowing

Commercial cannabis businesses should establish or enhance training for effective ethics and whistleblowing control activities.

• Provide employees training on how to detect and report unusual activity associated with high intensity drug trafficking areas