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Legalization of marijuana burdens the States with the responsibility of (a) monitoring the physical flows of marijuana through the supply chain (making sure the marijuana does not enter inter-state commerce; making sure it stays out of the hands of minors, etc.), and (b) monitoring the fiscal flows (making sure the proceeds of marijuana production do not end up in criminal hands).

The type of controls favored by the states are track and trace (TAT), or seed-to-sale (STS) systems. These systems are reasonably complex, as well as technology-intensive. Nevertheless, there are questions about whether they are adequate to the enforcement needs. Neither TAT nor STS fully satisfy the enforcement needs of the State. Simply stated, these systems leak at both ends, and in the middle. There are four basic fraud vectors open to criminal organizations seeking to exploit the standard marijuana supply chain. They are: • Front-end frauds – exploiting openings at point; • Cyber-attacks on the main commercial chain; • Sales suppression fraud; and • Back-end frauds.

We will develop these frauds and explore their prevention in sequence. This part considers the front-end frauds. This is the only section where the fraud prevention mechanisms are not derived primarily from VAT regimes.

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