Weedmaps Coughs up Records to Feds

Weedmaps, the online directory of cannabis-store menus and
locations that’s served alternately as a “little black book” for licensed weed
stores and a Craigslist for off-books and illicit marijuana sales, is now also
the federal Justice Department’s leading source for inside dirt on the California
cannabis industry.

Founded in 2008, Weedmaps quickly became the leading online
resource for curious cannabis buyers and weed merchants eager to sell them
cannabis. Until Jan. 1, Weedmaps allowed almost anyone to publish on its
website contact information and a menu of cannabis products — including, much
to the chagrin of California state cannabis regulators and struggling legal
businesses playing by the rules, unlicensed marijuana merchants, both delivery
services and storefronts.

The names of those merchants — and whatever they sold, and
to whom — now appear to be in the possession of prosecutors at the U.S. Justice
Department’s Eastern District of California, as
MarketWatch first reported on Monday.

Weedmaps’s parent company, Ghost Management Group, was
issued a grand jury subpoena on Sept. 19 of last year for “documents related to
cannabis businesses listed” on the website as well as records related to
cannabis orders, on top of records related to Weedmaps’s own business dealings,
including its investors and staff, MarketWatch reported.

The subpoena also sought information related to at least 30
cannabis brands operating in California, including Cannacraft, which markets
vape-cart cartridges under the AbsoluteXtracts and Care By Design Brands, and
publicly-traded Terra Tech, according to attorney Matt Kumin, who reviewed the
subpoena.

The company was given until Oct. 31 to comply, and appears
to have done so, according to a statement from a company spokesman.

No indictments or prosecutions have resulted yet, and Weedmaps, a “necessary evil” for cannabis businesses trying to find customers, in the words of one delivery operator, is still in business.

Under both the Obama and Trump administrations, the federal
Justice Department has steered clear of prosecuting state-legal cannabis
activity despite its violation of federal law, but with one caveat: Any
cannabis activity that also violated state law would be a priority for
prosecution. And what Weedmaps did was provide a very large and organized forum
for such conduct, attorneys and industry insiders told Cannabis Now.

“Weedmaps’s goose is cooked,” said Omar Figueroa, a Sonoma
County, California-based defense attorney and author of an annual handbook
outlining state cannabis laws. “The only reason why they’re allowed to exist
now is to be a honeypot for the feds and California law enforcement to pick off
unlicensed operators.”

A Weedmaps did not comment on the subpoena nor provide a copy to Cannabis Now. However, word of the subpoena has spread fast and will almost certainly damage Weedmaps’s reputation and trust within the cannabis industry even if the company is not prosecuted for abetting criminal behavior.

Founded in 2008, the company was raking in as much as $30 million a year in revenue by 2014 — cash flow that helped Weedmaps’s parent group donate $750,000 towards Proposition 64, California’s recreational legalization initiative, in 2016.

But since Prop. 64’s passage, Weedmaps has behaved as if the
nuances of legalization just didn’t matter that much. The company very
notoriously allowed unlicensed cannabis retail stores and delivery services to
advertise on the site, and was brought to heel only after thumbing its nose at
state regulators, including Bureau of Cannabis Control Chief Lori Ajax.

The company sometimes painted its actions as activism meant
to provide access to cannabis patients and customers living in jurisdictions
that chose not to permit legal weed businesses. But that likely does not matter
to the feds.

Weedmaps “said [the law] didn’t matter. They willfully said
they would do that until the end of 2019,” Figueroa noted. “I think that’s
going to be used by federal prosecutors to say that [activity on Weedmaps] was
not in compliance with state law and not entitled to protections” afforded to
medical-cannabis operators obeying state law, he added.

Technology companies like Facebook, Twitter, and Google
whose platforms are used for illegal conduct seek immunity for prosecution for
that conduct under Section 230 of the Communications Decency Act, which states
in part that companies can’t be held liable for how users abuse the platform.

“But that doesn’t protect content providers,” added
Figueroa, who argued that as soon as Weedmaps starting verifying listings and
products, it lost such protections.

Not only is Weedmaps liable for all the illegal cannabis
sales facilitated on the platform, it could also be prosecuted under federal
law for “aiding and abetting” illegal marijuana enterprises, he said.

As Marijuana Business Daily reported, even after Weedmaps self-policed and removed advertisers who lacked state-issued license numbers from its website, the company still allowed paid advertisers to “self-publish,” allowing for as many as 1,700 underground cannabis merchants to peddle their (untested) wares on the site. A Weedmaps spokesman disputed that allegation and said that as of January, Weedmaps staffers verified listings with state regulators before publishing — but by then, the feds already had records detailing the company’s earlier conduct.

In the years since legalization, the illicit market has far outpaced the legal, regulated, and heavily taxed (and therefore extremely expensive) market. By some estimates, the illegal market is eight times bigger than the legal market in California — and in some jurisdictions, legal sales have actually declined in recent months.

Exactly what triggered the Eastern District of California’s interest in Weedmaps remains unclear. The district is vast and runs from the Oregon border to Sacramento and south to Fresno. The timing of the subpoena, issued Sep. 19, coincides with the height of the vape-cart health scare when illicit cartridges likely contaminated with additives sickened and killed vape-users across the country, attorneys and insiders noted.

But for now, “we really don’t
know why these companies were targeted,” Kumin said.

It’s very hard to run around prosecuting someone slinging
dime bags, but it’s not very hard at all to find a central repository of
illegal listings and accuse the repository-holder of aiding and abetting
criminal activity.

Is this what the feds plan to do? Is Donald Trump busting
Weedmaps — and, along with it, anyone who used the website to move a few packs
here, a few boxes there off the books?

We don’t know, but we do know that if they were, last fall’s
subpoena is a logical first step. But even if it wasn’t, trust still matters in
cannabis and the damage to Weedmaps’s brand could take a long time to repair in
some circles.

TELL US, have you used Weedmaps?

The post Weedmaps Coughs up Records to Feds appeared first on Cannabis Now.

Read More: Weedmaps Coughs up Records to Feds