What began as an attempt to help a struggling Colorado grow operation turned into something much more alarming. Justin Trouard, CEO of licensed outdoor cultivator Mammoth Farms, was reviewing the company’s records when he stumbled upon a pattern of transactions that didn’t make sense on paper, but made perfect sense if something shady was going on behind the scenes.
While digging through the company’s Metrc records, Trouard discovered that they had purchased 25 pounds of flower at a standard market price of $16,250. However, in the same record, the product was reportedly resold for just $20. That’s a massive loss on a single deal, and Trouard found that this wasn’t a one-off incident. The records showed repeated sales like this: $3.4 million in purchased flower, resold for only $70,000.
Trouard believes the numbers don’t reflect poor business decisions, but rather a deliberate scheme to move legally grown cannabis out of the regulated market and replace it with unlicensed hemp-derived THC oil. That oil was then allegedly funneled back into the regulated market in the form of vape cartridges.
This tactic is known in the industry as inversion. Unlike diversion, which involves taking legal cannabis and selling it illegally, inversion is the process of injecting unregulated cannabis products into the legal supply chain. It’s a growing concern among licensed operators who say the issue is being ignored by state regulators.
Despite this suspicious activity being fully logged in Metrc, Colorado’s Marijuana Enforcement Division didn’t step in, according to a lawsuit filed by Mammoth Farms on March 10. Trouard says this points to a much larger problem, not only in Colorado but across the country.
In states like New York, operators and regulators have voiced similar concerns. Former New York Cannabis Control Board member Jennifer Gilbert Jenkins called inversion the cannabis industry’s “dirty secret that everybody is talking about.”
Inversion doesn’t just threaten consumer safety and market trust, it hits state revenues too. Colorado imposes a 15% excise tax on cannabis when it’s transferred from a grow to a retailer or manufacturer. But sales between cultivators usually go untaxed. By reporting massive losses through cultivation-to-cultivation sales, the company in question may have helped avoid an estimated $500,000 in taxes. Trouard believes the broader cost to Colorado could be upwards of $100 million.
This case shines a light on a system that many believed was airtight. Seed-to-sale tracking systems were designed to prevent exactly this kind of behavior, but without active enforcement, they may not be enough.
For those of us who care about a fair and transparent cannabis industry, this story is a reminder that regulation without accountability only gives cover to bad actors.
Stay informed, stay skeptical, and keep supporting the brands doing it right.
Original reporting by MJBizDaily. Read the full article here.