



Many new faces have taken to the airwaves lately, claiming that their new stock in the cannabis industry is the one best poised to capitalize on a rapidly expanding market. Some of these faces are of honest businessmen and women with an exciting new product; but sadly, far too many of them are charlatans shilling audacious corporate scams. How are investors to tell the difference? In this ongoing series, the Leaf examines hot stocks of the day to determine whether they’re a well-priced business model or only a bunch of con artists, blowing smoke.

Part I: Kannaway – Possibly Sincere, Definitely Criminal

I have never met any of the leadership of Kannaway, LLC, a new multi-level marketing (MLM) company which has burst on the scene with a buzz-laden campaign to distribute, according to their website, “cannabidiol (CBD)-rich hemp oil products.”

Some have confided to me their belief that the Kannaway management are all true believers who sincerely believe they’re helping make the world a better place. For all I know, that could be true.

Others tell me that this MLM campaign, unlike others with names eerily similar to Kannaway, is not the kind of pyramid scheme which gave MLM a bad name. That may be true, too.

But in fact, these questions are irrelevant, because if you’re thinking of becoming a Kannaway distributor, there’s only one thing you need to know: everyone at the company is a federal felon. And if you join them, you will be one, too.

The reason is the CBD the company so proudly trumpets: no amount of glowing Sanjay Gupta coverage of the remarkable molecule will change the fact that hemp-derived cannabidiol is unequivocally Schedule I, making its distribution felonious under the federal Controlled Substances Act. Some have recently claimed otherwise, and the lack of any comprehensive list of scheduled substances easily available online may have contributed to the confusion. But make no mistake: this page on the DEA’s official website clearly lists CBD as Schedule I under the federal Controlled Substances Act (scroll 2/3 through or search for ‘cannabidiol’ in-page to see the listing), right next to ‘Marihuana.’ The FDA, by the way, confirms this reading of the law.

All of this is looking very bad for Kannaway. As traffickers in a Schedule I substance, their leadership are potentially looking at prosecutions under the so-called ‘kingpin statutes‘ of federal mandatory minimum sentencing policy. And unfortunately, the harsh legal penalties provided for under these laws are not reserved only for Kannaway’s CEO and upper management; theoretically, the laws apply to any drug trafficker who controls four or more suppliers and collects $75,000 or more per year, so even successful Kannaway distributors who are not anywhere near the top of the organization could still conceivably face harsh federal penalties.

That’s the bad news. The slightly better news is that a major federal crackdown on each and every Kannaway distributor nationwide is unlikely; such a move would be so politically unpopular that it could easily backfire on a trigger-happy administration. But as one who has worked on both sides of the criminal justice system, let me assure you that federal prosecutors have other options – the most likely of which is a simple note on DEA letterhead, sent to the company’s founders and declaring a mere intent to prosecute if the company does not voluntarily wind up operations (this was the tactic used with devastating effect against the Oakland City Council three years ago). And then there’s the doctrine of civil asset forfeiture: the feds don’t have to prove that you joined Kannaway with any criminal intent to use your membership in a drug trafficking organization as an excuse to steal your house.

So if you’ve recently joined Kannaway and all of the above talk about drug kingpin statutes has you sweating bullets, you can rest easy. You probably won’t go to federal prison for the rest of your life (although you might); it’s much more likely that you’ll just lose all your money.

About the Author

Jeremy Daw is the editor of the Leaf, Professor of Economics at Oaksterdam University, and a principal at ForteFive Consulting, a boutique San Francisco strategy consulting firm serving legal cannabis businesses nationwide. A 2008 graduate of Harvard Law School, he is also the author of Weed the People: From Founding Fiber to Forbidden Fruit (2012), a 400-year history of the American cannabis industry. He owns no financial interest in, nor has he ever been paid by, any company he profiles for this series.