Weedmaps is once again under fire for promoting illegal or unlicensed dispensaries and brands, mainly in California. Several businesses have reported the issue to the California Department of Cannabis Control (DCC) and the U.S. Securities and Exchange Commission (SEC), claiming that Weedmaps is “allowing vast amounts of black-market activity through their website, and they know about it but won’t do anything about it.”
Although this has long been a problem in California, business owners who put in the money and effort to operate legally aren’t too pleased about their unlicensed competitors getting a leg up in advertising. Among the many comments made, the general opinion on the matter is that Weedmaps is completely eroding the fabric of the legal cannabis marketplace.
What’s the story?
I personally noticed the issue after shopping at Riverside County dispensary that I found on Weedmaps a couple of weeks ago. I very quickly realized the store was not operating legally when I got there and they had no type of check-in process, whatsoever – they didn’t even ask for my ID. I knew this had been an ongoing issue with Weedmaps in the past, but they did make some attempts to remedy the situation and clean up their appearance back in 2020.
However, that all seemed to change (at least on a noticeable) late last year. The most recent complaints were filed in May of this year by Canex Delivery out of Los Angeles. In their statement, Canex claims that they made numerous attempts to contact Weedmaps regarding the issue, but nothing was resolved. At that point, CEO Jim Damask and CFO Joseph Bitzer decided to take legal action against the advertising giant. Using documents and screenshots to make their case, they filed a lawsuit claiming that their company “suffered significant losses due to Weedmaps – quite possibly into the tens of millions (of dollars).”
The court documents also stated that “by allowing illegal operators to advertise on their site they are misleading investors by unethically increasing their revenue, which is being reported as legitimate in quarterly reports.” In response, Weedmaps simply went on the record with MJBizDaily as saying “We have not received any communications from the DCC or SEC regarding complaints made by Jim Damask and/or (Joseph) Bitzer of Canex Delivery.”
In addition to promoting illegal storefronts and delivery services, Weedmaps has also been pushing illegal products; for example, 1,000 milligram brownies and gummies (when the legal limit in California and all other adult-use markets is 10 mg per serving). They also have dispensaries with operating hours that are out the legal range, like some that offer delivery past midnight or 24 hours. Legally, cannabis retailers in California between the hours of 6am and 10pm.
Despite repeated attempts for clarification from MJBizDaily and other media sources, Weedmaps declined to provide and additional information. Regardless, numerous sources have been able to confirm that as late as June 28th, Weedmaps had multiple listings for illegal for retailers, brands, and products. It’s hard to say exactly what kind of monetary effects these advertisements had on other dispensaries in the area, but it’s quite likely that at least some legal businesses were impacted.
A DCC spokesperson stated that this is still an “open investigation,” adding that, “Those dealing with unlicensed activity are immediately referred to our law enforcement division. DCC provides publicly accessible data, available to private companies like Weedmaps, so it is simple to follow the law by verifying whether a cannabis company is licensed in California.”
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Why would Weedmaps take the risk?
Honestly, the answer seems pretty simple to me: The industry is struggling and they need money. Why else would they put themselves on the line to jeopardize their reputation and entire website like that? I assume it’s because they were making a decent profit from these illegal ads.
But now, if they are found guilty (which based on the evidence, it seems highly likely that they will be), they will get hit with some huge fines would could be very damaging to the already struggling company. Not to mention, this is a publicly traded company, so getting charged with illegally boosting revenue could be a problem for investors. I honestly wouldn’t be surprised if some have already started to sell their shares.
Four years ago, the company landed in hot water for similar issues, but after repeated warnings and legal threats, they removed all the illegal ads from their site in 2020, before their parent company went public. It’s unclear whether removing the ads will be enough to help them, but as of now, they still have illegal products and dispensaries listed on their site. So it doesn’t appear that they are even making the same kind of effort to get things back on the level like they did a few years prior.
The future of Weedmaps
Obviously, a bit of what happens in their future hinges on how this lawsuit fares for them. Having said that, Weedmaps seems to be on a bit of a downward spiral anyway. Weedmaps’ parent company announced recently that they will be laying off roughly 25% of their staff, adding up to about 175 employees. “This decision was based on cost-reduction initiatives intended to reduce operating expenses and sharpen the company’s focus on key growth priorities,” WM Technology disclosed in a Nov. 29 regulatory filing.
Sadly, many are not surprised by all this. In my opinion, Weedmaps’ entire business model only thrives in a prohibition environment. Sure, Weedmaps has been incredibly useful and convenient, and it’s been around, helping us find pot for years now. But once weed is federally legal, that opens up many doors in the advertising sector and Weedmaps will be forced to complete with some of the world’s largest tech and marketing companies… and it may not go well for them.
The reason I mention this is because, a lot of times, it simply does not work as advertised. Pricing, strain, availability, much is it is inaccurate as listed online. You can go to a store’s menu, pick and choose a bunch of items, then go to checkout only to be informed what you ordered is out of stock. Or even worse, you get to the dispensary and then they tell you that what you ordered is not available.
Final thoughts
Honestly, doing illegal things is not really basis for turning on a company, especially not in this industry, because, let’s face it, if it weren’t for people who are willing to bend some rules, the cannabis market wouldn’t even exist as it does today. That said, based on everything that’s been going on with Weedmaps lately, it’s hard to imagine their stock will succeed in the long run if they keep deceiving investors and running illegal business schemes.
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