Cannabis advertising giant Weedmaps is again carrying listings on its website for illegal or unlicensed marijuana retailers and products in California, according to complaints filed with state and federal regulators.

The complaints, filed in May and June with the California Department of Cannabis Control (DCC) and the U.S. Securities and Exchange Commission (SEC), allege that Weedmaps’ leadership is “allowing vast amounts of black market activity through their website, and they know about it but won’t do anything about it.”

That alleged “black market activity” is directly harming licensed and legal businesses, the complaints contend, by giving underground operators a competitive edge with Weedmaps’ advertising platform.

That undercuts the same legal marketplace that Weedmaps aims to serve, the complaints said.

If regulators determine the allegations have merit, Weedmaps could face hefty fines, industry experts said, which would be notable for one of the most prominent U.S. cannabis companies to trade on a major stock exchange.

But such a determination is far from assured.

Weedmaps last landed in hot water over illegal ads more than four years ago.

The California-based technology company eventually took steps to remove such advertising from its website in 2020, before its parent company went public on the Nasdaq in 2021.

The complaints were filed by executives at licensed Los Angeles marijuana company Canex Delivery. The executives say they have complained directly to Weedmaps but the business has mostly taken no action.

Canex, led by CEO Jim Damask and Chief Financial Officer Joseph Bitzer, gave regulators scores of documents and screenshots to back up its allegations.

Damask and Bitzer said the ads promote the illicit market and undercut legal delivery operations and sales.

The executives wrote in the SEC complaint that their company alone had “suffered significant losses due to Weedmaps – quite possibly into the tens of millions (of dollars).”

They also allege that Weedmaps is selling the ads to bolster its own bottom line and noted in the complaint 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 a statement, a Weedmaps spokesperson declined to comment directly about the allegations, other than 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.”

The company declined to provide further comment, despite repeated requests from MJBizDaily.

A spokesperson for the DCC said California regulators are investigating the matter.

The SEC declined to comment.

A spokesperson for the Nasdaq – on which Weedmaps’ parent company, California-based WM Technology, trades as MAPS – declined to comment for this story.

MJBizDaily has confirmed several of the Canex allegations, including that, as of June 28, Weedmaps had live web pages advertising for multiple illegal retailers and products.

The ads identified by Canex were primarily on behalf of Southern California delivery companies.

All the businesses appeared to violate California state law or Weedmaps’ own policies.

For example, the ads:

• Touted illegally potent marijuana edibles, including 1,000-milligram THC brownies and gummies.
• Failed to display a company’s state license number, a requirement Weedmaps established in January 2020.
• Displayed state license numbers that didn’t belong to the businesses posting the ads.
• Advertised illegal operating hours, such as deliveries available until midnight or later.

WM Technology CEO Chris Beals told MJBizDaily in March the company has a “trust and safety team that reviews all business listings.”

Weedmaps “firmly puts itself … front and center of vetting who is on the marketplace,” Beals said.

But the Canex executives told MJBizDaily they’ve been unable to reach anyone from the Weedmaps trust and safety team, and they wrote in the SEC complaint that they have tried repeatedly to discuss their allegations with Weedmaps officials.

The complaint referred to the trust and safety team as a “front to claim plausible deniability,” and the Canex executives told MJBizDaily they aren’t even sure the trust and safety team exists.

Damask and Bitzer said they’re considering all options, including filing a civil suit against Weedmaps.

But they emphasized they want only the ads from underground operators removed.

“What we really want is for Weedmaps to just do the right thing, before suing anyone,” Bitzer said.

“And if they can do the right thing, then we’re happy.”

History repeats itself?

Weedmaps came under fire in California in 2018 when state regulators sent the company a cease-and-desist letter for similar advertising practices.

At the time, the company rejected the state’s demands that it drop unlicensed cannabis dealers, saying it was protected under federal law as an online platform much like Yelp or Craigslist.

Nearly two years later, Weedmaps appeared to reform its ways and, on New Year’s Day 2020, began requiring state license numbers for all cannabis retail ads.

Almost 12 months later, WM Technology announced plans to go public on the Nasdaq, and the company debuted on the exchange in June 2021.

But the apparent break with the unlicensed side of the California marijuana market – which is estimated to be multiple times the size of the legal market – didn’t last, according to the Canex executives.

“It’s back to business as usual. The heat’s off of them. They want to show increased revenue, and … they don’t care about the legal guy,” said Bitzer, who added his company has been paying Weedmaps roughly $1 million a year to advertise on the site.

Bitzer alleged that Weedmaps’ motives now are to show solid performance as a publicly traded company.

“They are intentionally accepting black-market revenue and using that to report – falsely – the revenue that they are making, to mislead their investors,” Bitzer said.

Weedmaps declined to comment on that allegation.

WM Technology generated revenue of $57.5 million in its first quarter ended March 31, a 40% increase over revenue of $41.2 million for the same period in 2021.

But the company posted a $31.2 million loss in the quarter, compared with a $7.7 million profit in the first quarter of 2021.

The situation

Canex’s Bitzer and Damask filed the complaints with the California Department of Cannabis Control in late May and with the SEC on June 4.

A DCC spokesperson said the matter is part of an “open investigation.”

“Those dealing with unlicensed activity are immediately referred to our law enforcement division,” the DCC spokesperson told MJBizDaily via email.

“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,” the spokesperson noted.

According to the spokesperson, retailers – both storefront and delivery – are required to have a QR code “that can be scanned to determine licensure status,” a copy of which must be carried by all legal marijuana delivery drivers.

It’s unclear whether the DCC will take any action since California authorities declined to take action after the 2018 cease-and-desist letter.

But if the DCC does find violations, Weedmaps could face millions of dollars in fines from law enforcement, said Jerred Kiloh, the president of the L.A.-based United Cannabis Business Association (UCBA), which has clashed with Weedmaps over its advertising practices. 

It’s also uncertain whether the SEC will investigate the complaint, said Matt Karnes, a principal at New York-based cannabis financial consultancy GreenWave Advisors.

“I think they have bigger fish to fry,” he said.

It’s also unclear, Karnes said, how the SEC views the burgeoning cannabis market – although the agency has cracked down on marijuana industry-related schemes.

“Everything is uncharted territory” with the federal government and the marijuana sector, Karnes noted. “It’s just hard to say how they prioritize cannabis.”

The evidence

Canex submitted nearly 50 documents to regulators to support its claims against Weedmaps.

The allegations include:

• Displaying ads for retailers that show no license information.
• Posting ads for illegal products, such as edibles that contain far more THC than the California limit of 100 milligrams per package.
• Not vetting the state licenses in many ads, which has led to both the selling of license usage by some legal companies – for the purpose of obtaining Weedmaps ads – and the theft of license numbers by illicit actors.

Some of the content on Weedmaps’ site has been altered since Canex conducted research in April, including the addition of new license numbers to some ads, Damask and Bitzer said.

The executives began their process by informing Weedmaps of the issues before filing their complaints with regulators.

But, the executives said, Weedmaps has taken minimal action to address the problem, though some ads have been removed from the site.

MJBizDaily was able to confirm that, as of June 28, there were at least five operators with listings on Weedmaps that either:

• Failed to display license information.
• Advertised illegal products.
• Displayed a stolen license number from a legal operator.
• Advertised illegal operating hours.

Those ads involved the following companies:

• Bliss, which had 10 delivery ads for Anaheim, Anaheim Hills, Irvine, Laguna Beach, Lake Forest, Mission Viejo, Newport Beach, Santa Ana, San Francisco and San Mateo. The license used in some of the company’s Weedmaps ads belongs to the JNBA Corp. in Alameda County; in other ads, it displayed no license information at all. A JNBA spokesperson told MJBizDaily the issue will be reported to the state as fraud.
• Green Guest, which had six delivery ads for downtown L.A., Culver City, Pasadena, Woodland Hills and West L.A. The license used in some Weedmaps ads belongs to the Koreatown Collective in downtown L.A. Reached by phone, a Koreatown Collective spokesperson refused to comment on the record.
• PB Marijuana, which had 11 delivery ads for San Diego neighborhoods and nearby municipalities. The license used in Weedmaps ads belongs to Levitating Enterprises in Alameda County. Reached by phone, a Levitating Enterprises spokesperson refused to comment on the record.
• Star Leaf, which has six delivery ads up for downtown L.A., Glendale, Hollywood, Pasadena, Santa Monica and Van Nuys. The company also has ads on Weedmaps and its home site for illegal 1,000-milligram edibles. The license used in several ads belongs to Higher Vision Dispensary in Palm Springs. Messages seeking comment left for Higher Vision were not returned.
• Zippy Leaf, which has eight ads for delivery services in Inglewood, Hesperia, Victorville, Hemet, Apple Valley, Clovis, Menifee and Perris. The license used in the company’s Weedmaps ads belongs to the Kris Wong Group in Alameda County. “Zippy Leaf is NOT authorized to use our (license) nor they are approved or associate with us in any way,” a Kris Wong Group spokesperson told MJBizDaily via email.

In addition, Canex identified more than a dozen questionable instances in which state licenses appeared to be either stolen or used illegally for franchise-like setups.

MJBizDaily confirmed that some of those ads identified by Canex have been removed from Weedmaps, while other ads used licenses declared stolen by their owners.

At the same time, some operators defended the ads as part of fully legal companies operating under management agreements.

One such apparent instance was defended staunchly by Drew Director, manager at L.A.-based High Tide, whose license number is also being used on Weedmaps by delivery company DreamCali.

DreamCali was one of the examples cited in Canex’s complaint to the state as potentially illegal.

According to the DCC database, the license belongs to Magnolia Extracts and is operated under the High Tide DBA (doing business as). But there’s no mention in the database of DreamCali or any other DBAs.

Director said he runs his legal delivery under a “management agreement” with Magnolia Extracts, which owns the license and runs similar contracts with other delivery services.

“My management agreement lets me use the license. I can name two other deliveries using the same license as me. It doesn’t mean that they’re illegal deliveries,” said Director, who declined to identify the two.

Director also defended Weedmaps, saying he believes the company phased out illicit market ads in 2020.

There’s “no way in hell that they’re going to risk their entire business to put a black-market shop on that’s claiming to be under a license,” Director said. “They just wouldn’t do that. They’re pretty strict now. It was an issue years ago, but that’s old news.”

One of the more conspicuous licenses, which appears on more than 60 Weedmaps pages for at least 15 company ads, is owned by Koreatown Collective in northwest L.A., the Canex team noted.

The Canex executives suggested the Koreatown Collective, and others, have been improperly selling their state licenses so underground operators can at least have the appearance of legitimacy on Weedmaps.

“We know certain bad actors … that are willing to lend out their license for a fee,” Damask said.

Asked if state marijuana business licenses can be contracted out in such a fashion, a DCC spokesperson said via email that state law “does not allow for the typical franchise model used in many other industries due to how an owner is defined for cannabis businesses.”

“Licenses are issued to a specific person – which may be an individual, corporation, partnership, or other entity – … and may not be assigned to another ‘person,’” the DCC spokesperson wrote.

Industry experts expressed further skepticism that Koreatown’s license use in such a way would be permissible.

“Seems obviously illegal to me,” said Alex Traverso, formerly of the DCC’s predecessor, the California Bureau of Cannabis Control.

Traverso was involved in the state’s original 2018 effort to force Weedmaps to stop carrying ads for unlicensed marijuana companies.

“If one outfit doesn’t have their own license, the state isn’t going to allow any business to subcontract per se off that same license,” Traverso said.

“It just seems like Weedmaps is using licensed businesses to shield the fact that they’re still advertising and profiting off the illegal market.”

Jeff Smith contributed to this report.

Source: https://mjbizdaily.com/weedmaps-again-advertising-illegal-cannabis-retailers-and-products-complaints-allege/