Weedmaps counters California’s order to quit assisting unlicensed cannabis companies

Weedmaps apparently doesn’t plan to drop its listings for unlicensed California marijuana businesses any time soon.

In a letter sent Monday to the California Bureau of Cannabis Control, the online marijuana advertising giant wrote that it is “not a Licensee subject to the Bureau’s purview.”

The letter – signed by Weedmaps CEO Doug Francis and President Chris Beals – was a direct response to a cease-and-desist memo the company received from the agency nearly a month ago.

In its order to Weedmaps, the Bureau of Cannabis Control – which is responsible for licensing all of California’s cannabis retailers, distributors, testing labs and microbusinesses – demanded that the website stop advertising unlicensed cannabis retailers or face “criminal and administrative penalties.”

But Weedmaps essentially refused to comply on Monday.

In an interview with Marijuana Business Daily on Monday, Beals said his company was “a bit surprised” by the Feb. 16 cease-and-desist order.

He also said the bureau is “putting the cart before the horse” by focusing on enforcement while the vast majority of existing MJ companies are still unlicensed or attempting to obtain permits.

“Given how freely available this information is (online),” Beals said, “to take a very embryonic market, and say, ‘Let’s just pretend that it’s not embryonic and just pretend that these businesses don’t exist and that you can’t see them driving down any street in California,’ is not the right place” for the state to be.

A spokesman for the bureau did not immediately respond to MJBizDaily‘s request for comment about Weedmaps’ response.

Legal murkiness

There’s no clear answer currently as to what may happen next.

Two California attorneys with extensive experience in the cannabis industry had differing opinions on the strength of Weedmaps’ legal strategy based on the company’s response to the bureau.

At the heart of Weedmaps’ response is an argument that the bureau doesn’t have legal power to order it to stop accepting advertising from unlicensed companies.

The company also cites the Communications Decency Act (CDA) of 1996, a federal law that Weedmaps claims gives it “preemptive protections” as an “interactive computer service.”

But that won’t hold water with the bureau or in the courts, Sebastopol-based attorney Omar Figueroa predicted.

“The letter reads like it was written by a law clerk and they need to get some lawyers,” he said. “They just admitted to violating California law.”

Figueroa said the bureau has jurisdiction over all “commercial cannabis activity” in the state, up to and including Weedmaps.

He said he believes the bureau has the power under state law to order Weedmaps to stop carrying ads for unlicensed MJ companies.

While it’s not clear how that power may be exercised, Figueroa said there are a number of possibilities.

“The worst-case could be the feds come in at the behest of the state because (Weedmaps is) just being defiant and refusing to obey California law,” he said.

“Another step back could be federal asset forfeiture. Another step back would be a lawsuit in California court where Weedmaps would bring up its (CDA) preemption argument to try to get it into federal court.”

Another longtime cannabis industry attorney, Sacramento-based Khurshid Khoja, disagreed.

“You do have an issue where, technically, Weedmaps has a point,” Khoja said.

According to his reading of state law, the bureau doesn’t have legal jurisdiction over ancillary companies such as websites that act as advertising platforms.

“It’s not as though the disciplinary procedures that are set forth for (cannabis industry) licensees are going to be effective against Weedmaps,” Khoja said.

“The main punishment that the bureau can impose is they can suspend the operation of a licensee for a period of time, or they could revoke the license.

“Weedmaps doesn’t operate as a licensee, so that censure isn’t going to have any kind of impact.”

Weedmaps’ strategy may work as a legal Band-Aid for Weedmaps for the time being, Khoja said.

However, he believes the company will eventually have to quit accepting advertising from unlicensed retailers, medical collectives and delivery services.

He also noted that California law hasn’t yet established specific regulations for ancillary companies like Weedmaps, but that could happen either in the finalized regulations due this summer or through a separate bill in the state legislature.

“That’s the likely outcome, if Weedmaps decides to challenge this, that there will be a legislative solution addressing this,” Khoja said.

Meanwhile, Weedmaps’ Beals said the state has not clarified what types of penalties it may be facing if it doesn’t comply with the bureau’s order.

An agency spokesman told MJBizDaily last week that the penalties “are not yet specified.”

Business ramifications

Figueroa and Khoja agreed that a separate but important consideration for Weedmaps is its reputation among its California clients.

“It’s not just the legal concerns that they have to consider. It’s goodwill among licensees,” Khoja said.

“Remember that the action the bureau took was at the request of current licensees, who are customers of Weedmaps.”

Figueroa added that Weedmaps could be taking a self-destructive approach to its customers by charging licensed retailers thousands of dollars a month but perhaps far less for unlicensed competitors.

That’s a complaint he’s already heard from at least one Bay Area dispensary manager.

“She was like, ‘Why am I paying for you to advertise my unlicensed competition and I have to pay even more?’” Figueroa said.

In addition, he noted, it’s quite possible Weedmaps could face legal threats from its own California client base.

“Weedmaps could also get sued by its advertisers who are licensed for unfair business practices,” Figueroa said.

“California has pretty strong protections for that. There’s definitely a risk of that.”

John Schroyer can be reached at [email protected]

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