A potentially explosive announcement came out this week that Weedmaps, the website and app used by millions to locate dispensaries and delivery services, has been subpoenaed by the Feds to share information about how, and with whom, they do business. This seemingly is being done by the Feds to take action against California’s multimillion-dollar “unregulated marketplace.” What this might mean for Weedmaps, and the thousands of unregulated players with which they have worked, is the subject of widespread concern and speculation.
A longtime competitor and contemporary of Leafly, Weedmaps provides information about the effects of products and strains, as well as product reviews, but it's primarily used as a GPS based app to find someplace near you that sells cannabis, provided you're in a regulated medical or adult use state. While Weedmaps isn’t going to help you find “a guy” in Texas, it will show you listings of places that can legally sell you cannabis in states with regulated programs.
Except for California, the world’s largest adult use cannabis market. I’ve written numerous times about the large number of unregulated dispensaries, primarily in Southern California. They’ve flourished despite regulators' enforcement efforts, helping fuel the stark reality that for every $1 spent in the regulated marketplace, $3 is being spent “elsewhere.” And there are those who have blamed Weedmaps for helping develop and support the unregulated cannabis industry.
Marketwatch explains how the situation unfolded:
Criminal prosecutors in the U.S. attorney’s office for the Eastern District of California ordered the production of records from Ghost Management Group LLC, which owns a subsidiary called Weedmaps that provides an online directory of cannabis retailers. Weedmaps’ online services allow pot consumers to rate and compare stores, find deals and place orders for delivery. The subpoena covers documents related to cannabis businesses listed on Weedmaps, and records related to its ordering service. The government also sought documents and other records kept by Weedmaps related to its own staff, investors and accounting, according to the subpoena issued late last year.
Weedmaps has faced scrutiny from California regulators in the past because it listed dispensaries that did not follow state rules...The subpoena includes a demand to produce records related to Weedmaps’ statement that it would stop advertising unlicensed cannabis activity and customer records.
That past scrutiny from regulators was based in part from complaints by legal dispensaries complaining about Weedmaps accepting ads from the illegal ones. Last year, Wired looked into the way Weedmaps operated, taking payments for a more favorable listing position on their site.
Payments for one Santa Ana dispensary totaled $20,000 per month. After a while, the dispensary owner wasn’t seeing the return on investment he once had, and asked the Weedmaps sales rep if they planned to continue listing and marketing illegal dispensaries, and the rep confirmed they were. By one estimation, Weedmaps had listed approximately 2,000 dispensaries and delivery services in Southern California. Yet the total number of licensed stores and delivery services was about 260.
In 2018, Leafly announced they would cease listing unregulated stores and delivery services. Weedmaps, not so much. That moved the Bureau of Cannabis Control (BCC) to send a cease and desist letter to Weedmaps, which Wired described as saying “the company was violating state law and aiding and abetting illegal activity by advertising unlicensed businesses.”
Weedmaps response was a stiff upraised middle finger to the BCC, claiming they had broad protection under Section 230 of the Communications Decency Act. Passed in 1996, the law offers legal protection for platforms such as Weedmaps, Facebook, and Yelp against third party content posted to their sites. In other words, the site isn’t responsible for what people post on it.
This wasn’t a popular response with the BCC, and within a few months, Weedmaps announced a change in course. As of January 1 of this year, they effectively purged thousands of illicit businesses from their site. California-based cannabis industry analyst Jackie McGown told MJ Business Daily that more than 2,700 illegal stores and delivery services were dropped from the site.
That may have been too little, too late for the Feds, whose actions have analysts pondering the potential fallout. If—and it’s a big if—Weedmaps opts to become a federal informant in the case, they arguably have more information on illicit producers and sellers than anyone else in the state. That’s not good news for those producers and sellers.
It could also have serious consequences for Weedmaps' announced plans of an IPO. The removal of the illicit listings was a financial blow, resulting in a 20 percent layoff of staff late last year. A federal investigation could seriously chill investor interest until the matter is settled, which can take many months.
There's also the matter of fines. As Cannabis.net writes:
The California Cannabis Association then issued a warning that Weedmaps could face fines of over $5 billion, yes, with a "B”, if found guilty of allowing illegal advertising on their sites, since fines could be retroactive to include the past 10 years of listings.