MJBizMag April 2021 - 65

How Regulators Uncovered a Pattern of Looping
At the time of the Sweet Leaf
raids, Philip Martin managed the
data analysis unit for the Colorado
Marijuana Enforcement Division
(MED). He worked in the regulator's
office from June 2017 to December
2018. Martin testified in the
administrative hearing that revoked
Sweet Leaf's business licenses in
Denver.
In an interview with Marijuana
Business Magazine, Martin said Sweet
Leaf landed on MED's radar when
neighbors started complaining that
people were parking on the street,
going into a store, coming back to the
car to drop off a package and then
going back in. In some cases, he said,
this would go on all day.
Martin said it was obvious to neighbors
that Sweet Leaf's business practices
were " questionable if not illegal. "
This raised a flag with the investigating agencies, he
added. " It's not every day that some person a block or two
down from a store puts in a complaint about compliance
practices, " Martin said.
In addition, internet threads on websites such as Reddit
contained information about looping-buying the legal
maximum in a single purchase, then buying the same
amount again the same day.
" Sweet Leaf (outlets were) known as the stores that you
could go to and do it all day long, " Martin said of looping
practices.
The Denver prosecutors later said some consumers
" looped " up to 40 times per day, leading to almost 2.5 tons
of marijuana diverted to the illicit market.
CONNECTING THE DOTS
Martin said he wasn't told which company he was
investigating until the day of the raids in late 2017. At
first, he was just analyzing seed-to-sale data, or aggregate
package sales from Metrc, which provides marijuana trackand-trace
software for the state of Colorado.
Hitting the limit: When regulators received point-of-sale
data from the business, it became much more obvious that
Sweet Leaf was selling an unusual number of full-ounce
purchases per day, Martin said.
" Sweet Leaf was moving a lot of weight through their
stores, " in terms of flower, according to Martin. At times,
upward of 80% of the company's sales were in the form of
1 ounce of flower at a time.
Change of ownership: Another indication that something
was off at Sweet Leaf, Martin said, came in analyzing
the Metrc data at two retail locations that the company
purchased in 2017. Immediately after the sale, those two
stores started reporting the same proportion of out-ofPhilip
Martin
state,
1-ounce flower sales as other
Sweet Leaf outlets.
Diverse wholesale suppliers:
When he analyzed the wholesale
data, Martin saw that Sweet Leaf
was buying from 50-60 wholesale
providers, whereas most businesses
bought from three or four
wholesalers. He estimates Sweet
Leaf's purchasing accounted for
around 10%-20% of Colorado's
wholesale market at the retailer's
peak.
MMJ paper trail: On the medical
marijuana side, Martin said the
regulators could see exactly what
Sweet Leaf was doing. " It was right in
your face, " he said.
A patient number was associated with
every transaction, and the regulators
could identify that the same person
came back to the same store repeatedly. Individual MMJ
patients were leaving the store with thousands of dollars of
product each day.
From February 2017 to the end of 2017, Martin estimates
$10 million of medical marijuana had been " looped. " Some
patients spent a half-million dollars in eight months buying
medical cannabis.
The regulators found that, at three locations, 5,555 pounds
of medical marijuana were sold in looping transactions
between June 1, 2016, and Dec. 13, 2017, with gross sales
revenue totaling $6.8 million.
Then, in late May 2017, after a request from a cannabis
attorney on behalf of Sweet Leaf to the MED about the
rules regarding looping, all the stores stopped recording
that data, according to Martin.
LETTER OF THE LAW
VERSUS SPIRIT OF THE LAW
The other point of contention at the time was that the
law wasn't explicit in its language around looping. In fact,
regulators opted to clarify the law after Sweet Leaf was
shut down.
Sweet Leaf's defense was always that the company was
within the code and letter of the law, but, Martin said,
cannabis companies were still expected to follow the
" spirit of law. "
According to Martin, the pattern of sales behavior showed
a business practice rather than just a budtender failing to
recognize the same person coming back repeatedly.
" We understand that you might not be able to stop all
loopers-they could just go to another store-but it is clear
that you shouldn't be selling ounces over and over again to
the same customer, " he said.
- Bart Schaneman
April 2021 | mjbizdaily.com 65
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MJBizMag April 2021

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