Marijuana: A New Industry with New Challenges

Fueled by a deluge of pro-cannabis legislation, the medical marijuana industry has inarguably become one of the fastest growing sectors of the global commercial landscape, with an unprecedented 30% growth in sales and revenues exceeding $6.6 billion in 2016.

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H32B - Red Flags for Credit Card Fraud in the Marijuana Industry But with such rapid reward there undoubtedly comes risk, and for a budding medical marijuana industry that grows more legitimate every day the harbinger of that risk is credit card fraud, a black market trade responsible for global losses of $21.84 billion in 2015. To protect themselves against such daunting statistics, marijuana dispensary owners must work dutifully not only to recognize and react quickly to various signs of fraud, but also to identify and minimize the risk factors inherent to the marijuana industry. They must educate themselves so as to ensure the security of their customers and themselves. If medical marijuana wishes to take its rightful place among the titans of commercial industry, it must learn to battle the beast of credit card fraud head-on.

Effective risk management is more important now than ever before, as banks and credit card processors begin to embrace the marijuana industry more fully. Credit card fraud generally occurs when credit card information, obtained illegally and without the card owner’s permission, is used to purchase goods that are then sold for cash. Their versatility and lack of identification required for use has long made gift cards and pre-paid credit cards the most common targets of credit card criminals, but medical marijuana may be poised to become the credit card scammer’s next go-to. Marijuana’s widespread popularity and somewhat vague legal standing make it a highly viable target for credit card fraud, as it can quickly be consumed or sold for cash on the black market, with no traces left behind. The many risks associated with credit card fraud do not outweigh the commercial benefits of accepting credit cards as a means of payment, they simply necessitate vigilance, awareness, and preparation.

Five Red Flags for Marijuana Dispensary Credit Card Fraud

The following are five red-flag scenarios indicative of potentially fraudulent credit card activity. While separately any one of these signs may not be a clear indicator of credit card fraud, the presence of more than one during a single transaction should warrant scrutiny and review.

1) When it Comes to Fraud, Speed is Key

For most credit card scams to work, the individual committing the fraud will need to obtain the illicit good almost immediately after the transaction is purchased, so as to quickly turn it for a cash profit on the black market. The sooner they can acquire their product, the sooner they can liquidate and move on to their next scam. If someone is willing to pay an excessive amount for expedited delivery, or if they have an elaborately detailed situation requiring faster-than-usual shipping, it may be a transaction worth examining more closely.

2) Several Failed Transactions Before a Successful One

Standard operating procedure among credit card scammers is the purchasing of batches of credit card information en masse, then working through the list in a clinical fashion. When monitoring credit card transactions, several different card numbers being used unsuccessfully for a single order before a successful transaction is achieved is indicative of this fraudulent strategy and should raise a red flag and warrant review. However, a single card being used unsuccessfully several times before a different one is used with success might simply indicate that the customer forgot a billing address or had insufficient funds available.

3) Pre-Paid Credit Cards

Verifying both the security code and billing address of a credit card before accepting and processing a transaction is standard, but as pre-paid credit cards do not have a set billing address, it is important to review your credit card processor’s options for credit cards that do not verify an address. Is the transaction rejected, or does it approve without address verification? If available to you, it is always wise to activate the anti-fraud tools and security features that are included with your credit card processor. It may even be a good idea to purchase several pre-paid credit cards yourself, so as to test and familiarize yourself with your processor’s anti-fraud capabilities.

4) Too Good To Be True

It’s been a long, slow day at the shop and you’re about to close up when suddenly a $900 order comes through from a first time patient; this should be a big red flag. Now, some people are more trusting than others, but most would agree that a first time purchase near $1000 dollars seems too good to be true. Most pre-paid credit cards that can be acquired quickly have a limit of $1000, so any outlying purchase nearing that amount should be heavily scrutinized. While it is possible that an eccentric millionaire has decided to shower your business with several hundred dollars just because s/he can, it is much more likely that someone is committing credit card fraud and trying to turn $900 dollars of your product into $500 cash in their pocket.

5) “Please Help…It’s an Emergency!”

Regrettably, scammers will often capitalize on the compassion and decency of others to ensure the success of their schemes. One common theme in fraudulent credit card transactions is an extreme extenuating circumstance that necessitates immediate action and/or excessive leniency, “just this one time”. There is obviously a fine line to be walked here, as the medical marijuana industry exists to help those who are in excessive amounts of pain and discomfort, or who are not long for this world and are seeking non-opioid pain management options. Extenuating circumstances may very well be inherent to the industry, so this may not be a telltale sign of fraud, but the scammers know this too and will use it to their advantage, so combined with any of the other red flags it should warrant serious review.

It is important to remember that these are not steadfast rules for identifying fraud with 100% accuracy. These points are designed to help those in the medical marijuana industry navigate the ever-evolving landscape of cyber-security. Understanding how credit card fraud is committed and how it can be prevented it is the first and most effective step they can take toward managing their risk and protecting themselves, their collective, and their patients from criminal acts perpetrated online.

Sources: Nilson Report 2016, Forbes, Arcview Market Research

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