2% Of IDs Presented At Dispensaries Might Be Fake — The Compliance Implications For The Cannabis Industry

We monitored ID scans across our entire customer base for one month, amounting to more than 8,000,000 scanned IDs. The results, published in the inaugural IDScan.net Fake ID Report were shocking. 

Although across all industries, roughly 0.52% of IDs were flagged as suspicious, amongst dispensaries, that number climbed to between 2% and 5%. 

Broadly, studies have shown that dispensaries largely perform some type of age verification, there is no standard for exactly what the age verification process must entail. Only three states require ID scanning, so for the rest of the cannabis retail market, visual inspection of ID meets regulatory thresholds. But is it enough when as many as 1 in 20 customers at busy cannabis retailers could be using fraudulent identification? 

Why age verification matters for dispensaries

Fines and penalties for failing to properly verify age are simply much more expensive and devastating for cannabis businesses than for other types of age-restricted businesses such as casinos or bars. Because cannabis remains federally illegal, and because of cultural perceptions around cannabis consumption, regulatory bodies and state legislatures have created a much more punitive regulatory environment which provides little room for retailer error when it comes to age verification. 

A few state laws highlight the stark difference in penalties for underage sales of alcohol and underage sales of cannabis. 

If each dispensary is serving just 100 customers every 24 hours, that represents between 2 and 5 potential sales to customers who are using false identification to complete their purchase each day. With dispensaries operating on increasingly thin profit margins, the fines from a single underage sale can be crippling. 2nd and 3rd offenses are even more expensive and often come with license suspensions or revocations. Age verification and avoidance of penalties is critical.

How do dispensaries perform age verification?

In more than 20 states, visual inspection of an ID meets regulatory standards for age verification. This means that in order to be considered compliant, a bouncer, security personnel, or budtender simply needs to visually check the ID. However, with the growing sophistication of fake IDs, most fake IDs currently in circulation cannot be detected visually. These IDs look and feel exactly like legitimate identity documents. The only way the majority of fake IDs can be detected is by using a combination of white/ultraviolet/infrared light scanning, and checking the ID against hologram, watermark, and document format libraries.  This process is known as ID authentication.

4 states: Nevada, Illinois, New Jersey, and Missouri require ID scanning using an electronic ID scanner as part of their age verification workflow, with additional states such as Oregon, Virginia, and Massachusetts having language in-process. However, only one (Nevada) outlines a standard that could be considered ID authentication. The others speak to “digital ID scanning” which is a poorly defined term that can include basic ID parsing, which does nothing to actually catch fake IDs and simply reads the data stored inside the 2D barcode on the back of the ID. 

Undercover studies of dispensaries confirm that while 95% are performing age verification, there is no nationwide standard for how age verification is performed. Based on our familiarity with high-quality fake IDs, we know that visual document inspection, or ID parsing with a low-quality scanning product, is not catching the vast majority of fakes. This means that age verification is not matching the true intent of regulatory frameworks, and is leaving wide compliance gaps that expose dispensaries to potential fines for selling to minors.

How dispensaries can avoid fines associated with sales to minors

If dispensaries want to avoid onerous fines they will need to implement a system that is capable of consistently catching fake IDs. At minimum, the system should have the following capabilities:

• An ID scanner capable of white/infrared/ultraviolet light scanning
• An ID scanner capable of simultaneous dual-sided image capture
• Age verification software that checks IDs against hologram and watermark libraries
• 2D barcode analysis that checks barcode data against known formats

A system with the above features will be capable of detecting 95% of fake IDs, as even expensive fakes are typically not capable of passing the hundreds of algorithmic checks that will be performed by a powerful fake detection system. 

Additional benefits to integrated ID scanning

Integrating ID scanning into dispensary workflows has additional benefits beyond compliance and avoiding fines. Using IDs to help track the customer journey through an integrated eCommerce and brick-and-mortar experience can help dispensaries more easily align revenue streams. 

ID data can be validated and then instantly parsed into the dispensary’s POS or track-and-trace system, to provide clean customer data with no risk of typos. This data can be used for audit purposes, law enforcement investigations, the creation of loyalty programs, and demographic reporting. 

As more states look to implement significant age restrictions and define age verification processes, dispensaries that onboard ID scanning solutions today will be ahead of the compliance curve, and benefit from an integrated experience with government-issued IDs at the center. 

This post was authored by an external contributor and does not represent Benzinga's opinions and has not been edited for content. This content contains sponsored advertising content and is for informational purposes only and not intended to be investing advice.