Bitter Sweet: Denver Shuts Down 11 Dispensaries for Double-Dealing Weed
“Looping” cannabis sales is a problem, and some say the tech behind Bitcoin can prevent it.
Published on December 20, 2017

All photos by Taryn Nation

On Thursday, Dec. 14, the Denver Police Department shut down 26 cannabis operations licensed under Sweet Leaf, one of Colorado’s largest dispensary chains. The raids led to the arrests of 13 budtenders, who were charged with allegedly “looping” weed sales in violation of state law. Looping is selling marijuana to customers beyond allotted limits.

The owners of Sweet Leaf weren’t mentioned in Denver P.D.’s arrest records, nor were they mentioned in the department’s public statements released last Friday, according to The Cannabist.

As of press time, all 11 of Sweet Leaf’s dispensary locations in Colorado are temporarily closed, and the company’s cultivation and processing facilities are suspended while the investigation (and pending audit from the state’s Marijuana Enforcement Division — MED) is underway.

Sweet Leaf location on W 38th Ave. in Denver, CO; closed for business.

WTF Happened?

In Colorado, recreational weed customers may purchase up to 1 oz. of flower (or, for edibles and concentrates, the equivalent in THC-milligrams) per transaction. State law limits adults 21 and over to possessing only 1 oz. of bud at a time.

Under Amendment 64, anyone legally in possession of weed can give it away to another adult 21 or over, so long as the transfer doesn’t involve trading cash. In theory, a person could walk into a dispensary, buy 1 oz. of weed, take it outside, give it to their buddy, then walk back into the store and purchase another ounce.

Some pot shops have assumed that a “transaction” resets once the customer leaves the store. If the customer returns to the store, even that same day, they’ve initiated a new transaction. A new transaction permits the sale of another ounce, and so on and so on. What a so-called looper did with the ounce was on the looper, not the seller.

In Sweet Leaf’s case, an undercover cop returned to the store that same day and bought more, often from the same budtender, multiple times. According to Denver P.D., the sting operation against Sweet Leaf took place over the span of a year, and they claim an undercover detective returned as many as 16 times to a single location in a day. Some budtenders allegedly made multiple 1 oz. sales to the same customer two or more times a day.

But Is Looping Illegal?

Warren Edson, a cannabis attorney based in Wheat Ridge, CO, has been closely following this “what is a transaction?” issue. During a phone call with MERRY JANE, he cited a position statement from the Marijuana Enforcement Division dated May 22. The statement was made in response to an attorney’s inquiry requesting a clear definition for “a single transaction”:

The Division will seek administrative action against licensees attempting to circumvent the statutory and rule requirement imposing the limitation of one ounce per transaction of Retail Marijuana. Sales that are structured as multiple, stand-alone transactions may be viewed by the Division as an attempt to evade quantity limitations on the sale of Retail Marijuana, resulting in recommendation for administrative action. [Ed. Note: emphasis added]

“It’s really confusing, because [MED] just changed the regulations again,” says Edson, referring to revisions that were adopted in November. “Both sets of rules are pretty ambiguous. If you’re just a poor budtender, how’re you supposed to know?”

The rule change regards section R402.C of the retail marijuana regulations. The original rule reads:

A Retail Marijuana Store and its employees are prohibited from selling more than one ounce of Retail Marijuana flower or its equivalent… in a single sales transaction.

Yet changes to the rule, adopted Nov. 17, 2017, made an addendum to the original:

A single transaction includes multiple Transfers to the same consumer during the same business day where the Retail Marijuana Store employee knows or reasonably should know that such Transfer would result in that consumer possessing more than one ounce of marijuana.

This is where confusion arises: until recently, pot shops had only the MED’s posted rules to go by, which state 1 oz. caps per sales transaction. MED’s position statement regarding “a single transaction” came nearly six months after Denver P.D.’s first visit to Sweet Leaf, which took place in early December 2016. The addendum wasn’t adopted by the MED until a month after Denver P.D.’s final undercover visit to Sweet Leaf, which the department’s affidavit lists as Oct. 5, 2017.

MED’s updated rules, which go into effect January 1st, 2018, include a narrower definition of “single transaction” and the weight limits, but Edson says the newest regulation is still somewhat vague.

Which begs the question: were budtenders and their supervisors aware of what the MED considered a transaction – and, therefore, knowingly looping – prior to November?

Elizabeth, whose real name has been changed to protect her identity, worked as a budtender for another chain dispensary in Colorado from 2014 to 2015. She claims the industry was fully aware of what constituted looping since recreational weed sales began in January 2014.

“It was kind of bad,” she says. “I had heard before I got on board that the looping had no limit. Lots of people came in and out to buy ounces.” Initially, her dispensary encouraged its employees to loop as a way to maximize sales, but the managers eventually banned the practice a year into her employment.

“It was pitched as a ‘don’t ask, don’t tell’ thing,” she recounts. The incentive for budtenders to loop were bigger tips, which she says could fetch as much as $8 per looped ounce.

“When you have a dispensary with multiple budtenders,” says Edson, “how are you supposed to keep track? You’re not supposed to keep track” of sales to specific customers. Amendment 64 only requires presentation of an ID to prove a customer’s age; weed stores are not required to record personal information about a customer.

Notice of suspension from city of Denver at Sweet Leaf location.

Blockchain May Offer a Solution

Blockchain, the encrypted technology that powers cryptocurrencies like Bitcoin, may provide a solution to looping. For years, cannabis companies have eyed blockchains as a way to store value (read: money), since many national and state banks refuse to manage accounts for still federally illegal marijuana businesses. Besides storing and tracking monetary transactions, blockchain can act as a digital chain-of-custody system for marijuana inventories, too.

Conventional seed-to-sale tracking systems like METRC in Colorado allow authorities to trace the movement of weed products within the industry. However, METRC tracking stops at the point-of-sale, when the weed enters a customer’s hands and leaves the dispensary. The customer’s name isn’t attached to the sale. Vetting customers is the responsibility of budtenders and ID checkers at the door.

Besides, if someone really wanted to circumvent the rules, they could simply buy an ounce at Dispensary A, then drive over to Dispensary B across town and buy another ounce. There’s no system in place to trace who buys what, when, or where.

Michael Kramer believes blockchains could prevent looping while taking the burden of memorizing everyone’s IDs off budtenders. Kramer is CEO of 420 Blockchain, a cannabis tracking system company based in Boca Raton, Florida. 420 Blockchain is based on Augusta High-Tech’s Framework Hyperledger running on the Google platform, and they just launched beta tests in California and Rhode Island, with Kramer expecting the full-fledged system to go online sometime in the next month.

“Blockchain is an irrefutable ledger,” Kramer told MERRY JANE by phone. “It can never be changed. It can never be hacked.”

He says blockchain technology can prevent shady pot shop employees from scoring quick, dirty kickbacks. “We can put in provisions that prevent looping,” he explains. Transactions on 420 Blockchain can follow “permissions,” which set specific parameters for purchases or transport of weed products. Permissions don’t require human guidance; they’re guided and ensured by the blockchain itself.

For example, a driver’s license would be scanned at the dispensary, recording the customer’s name and purchase amount. Permissions could automatically assess weight limits based on the types of products sold (flower, concentrate, edible, topical, etc.), then approve or decline the sale. Additionally, the blockchain would lock into a statewide (or hypothetically, even a nationwide) network, so a customer would not only be capped from looping at one dispensary location, but any and all dispensary locations for the day.

“The blockchain will know if I go into any other [dispensary], that I already bought my allotted amount,” Kramer continues.

“The fact that legacy ERPs” — or enterprise resource planners, like METRC — “aren’t tracking [customer purchases with blockchain].... I just don’t understand that,” says Kramer. He sees 420 Blockchain eventually coordinating with legislators and regulators to balance the concerns of protecting customer privacy while ensuring weed products aren’t diverted to black markets or across state lines.

“We can trace down every penny to every gram,” he says. “Every transaction is recorded.”

The Debate Continues

On social media, members of Colorado’s cannabis community have taken sides, either in support of Sweet Leaf and its employees under the “ounce-per-transaction” interpretation, or others backing the busts under the “ounce-per-day” banner.

Regardless of which position Coloradans sympathize with, some feel that slapping felony charges with potential jail time on Sweet Leaf’s budtenders is too extreme, even if they did break the law. A fundraiser and gift drive will take place Saturday, December 23 to support the hundreds of Sweet Leaf employees and their families in lieu of the company's state-enforced shutdown just before Christmas. A separate GoFundMe campaign was also started to assist with the budtenders’ attorney fees.

Randy Robinson
Based in Denver, Randy studied cannabinoid science while getting a degree in molecular biology at the University of Colorado. When not writing about cannabis, science, politics, or LGBT issues, they can be found exploring nature somewhere in the Rocky Mountains. Catch Randy on Twitter and Instagram @randieseljay
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