Weedmaps, a cannabis advertising giant based in California, once again lists illegal or unlicensed marijuana products and retailers on its website.
Complaints filed with the California Department of Cannabis Control (DCC) and the U.S Securities and Exchange Commission (SEC) in May and June alleged that Weedmaps’s leadership is “allowing vast amounts of black market activity through their website, and they are aware of the illegal activity taking place, yet won’t do anything about it.”
The “black market activity” is directly harming licensed and legal businesses, the complaints contend, by giving underground operators a competitive edge due to the size of Weedmaps’ advertising platform.
Complaints state that the advertisements undercut the same legal marketplace that Weedmaps aims to serve.
Industry experts mentioned that the company could face hefty fines if Weedmaps is found guilty of the allegations.
History Repeats Itself For Weedmaps
This is not the first time Weedmaps has seen complaints about illegal ads, as the company was in trouble back in 2018.
State regulators sent the company a cease-and-desist order for illegal ads. At the time, the company refused to comply with the state’s ruling. However, two years later, on New Year’s Day. 2022, the company began to require state license numbers for all cannabis retail ads.
According to MJBiz, “the California-based technology company took steps to remove illegal ads from its website in 2020, before its parent company went public on the Nasdaq in 2021.”
Executives filed the complaints at licensed Los Angeles cannabis company Canex Delivery. Canex Delivery CEO Jim Damask and CFO Joseph Bitzer gave regulators scores of documents and screenshots to back up their allegations against Weedmaps.
Bitzer and Damask stated in their allegations that the ads promote the illicit market and undercut delivery operations and sales. They wrote in the SEC complaint that their Canex Delivery had “suffered significant losses due to Weedmaps – the losses could have possibly been tens of millions of dollars”.
Damask and Bitzer further allege that Weedmaps is misleading investors by selling the ads to illegitimate operations. It may look good on their quarterly reports, but the unethical revenue increase is being reported as legitimate revenue.
A spokesperson for Weedmaps declined to comment directly about the allegations. However, they did state that the company has not received any communications from the DCC or SEC regarding the complaints made by the executives from Canex Delivery.
A spokesperson for the DCC said its California regulators are investigating the matter.
The SEC declined to comment.
A spokesperson for Nasdaq, where Weedmaps’ parent company WM Technology trades as MAPS, also declined to comment.
The Ads In Question
The ads identified by Canex were primarily on behalf of Southern California delivery companies.
All the businesses listed on Weedmaps’ site appeared to violate either California state law or Weedmaps’ policies.
According to MJBiz, the ads in question
- “Touted illegally potent marijuana edibles, including 1,000mg THC brownies and gummies;
- Displayed state license numbers that didn’t belong to the businesses posting the advertisements;
- Failed to display a company’s state license number, a requirement Weedmaps established in January 2020;
- Advertised illegal operating hours, such as deliveries available until midnight or later.”
Damask and Bitzer said they’re considering all options, including filing a civil suit against Weedmaps. They emphasized they only wanted to get the illegal ads removed.
Consequences For Weedmaps If Found Guilty
At this time, it is unlikely that the DCC will take action against Weedmaps as the California authorities declined to take action after the 2018 cease-and-desist order.
However, suppose the DCC does find violations. In that case, the company could face millions of dollars in fines from law enforcement, states Jerred Kiloh, the president of L.A.-based United Cannabis Business Association (UCBA), who has previously clashed with Weedmaps over its advertising practices.
Matt Karnes, founder of New York-based cannabis financial consultancy GreenWave Advisors, also commented that it is uncertain whether the SEC will investigate the complaint made by Canex Delivery.
“It’s also unclear how the SEC views the burgeoning cannabis market, although the SEC has cracked down on marijuana industry-related schemes,” stated Karnes.
Karnes explained that everything is uncharted territory with the federal government and the marijuana sector. It is hard to say how the federal government prioritizes cannabis.
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