“Hemp Derived Headache”: Investor Faces $16M Loss After Flagging
New York
An investor involved in payment processing who purchased a large national merchant portfolio in 2021 tied to hemp-derived products. The portfolio later collapsed after processors flagged widespread non-compliance. He reports a ~$16M loss and is now in active litigation. The core issue: roughly 10,000 COAs, many expired or showing Delta-8/Delta-9 levels exceeding legal thresholds, potentially rendering the products federally illegal at the time of sale.
Core Problem: Lawyers need defensible proof that products were federally non-compliant—specifically:
Delta-9 THC above 0.3%
Presence of Delta-8 or converted cannabinoids
Expired COAs at time of underwriting
Timeline alignment with transaction dates
Why this keeps happening
Between 2019 and 2022, hemp-derived products exploded into the market faster than regulators, banks, labs, or processors could keep their footing. Everyone leaned hard on COAs as the safety net. If there was a PDF attached, deals moved forward. If the numbers looked clean at a glance, nobody asked deeper questions.
That worked—until it didn’t.
In this case, payment processors eventually did what they always do when risk spikes: they pulled the emergency brake. Once scrutiny increased, expired COAs, misreported Delta-9 levels, and chemically converted cannabinoids became impossible to ignore. At that point, the portfolio wasn’t just “risky.” It was radioactive.
The $16M loss didn’t come from one bad actor. It came from systemic assumptions:
That a COA equals compliance
That state-level tolerance protects against federal exposure
That Delta-8 vs Delta-9 distinctions would remain a gray area forever
That processors would keep looking the other way
COAs were treated like a hall pass. Now, those assumptions are no longer holding.
