One bewildering contradiction in the U.S. marijuana industry is the fact that cannabis is legal in some states but federally prohibited in all areas. Fortunately, the Justice Department has adopted a relatively hands-off relationship with California’s cannabis companies. A recent investigation, however, has raised concerns among many of these business owners.
Weedmaps, a subsidiary of Ghost Management Group LLC, is the “Yelp” of dispensaries. It allows online users to find, compare, rate, and place orders with cannabis retailers.
In an effort to obstruct the underground pot industry, federal agents recently ordered Weedmaps to hand over documents related to the following:
- Cannabis businesses listed in the app
- Weedmaps’ staff, investment, and accounting information
- Communication or transactions with elected officials or candidates
- Payments to local, state, and federal employees
The subpoena targeted 30 companies listed on the app. The goal of the investigation was to uncover businesses that did not comply with California cannabis regulations. While the federal government has not been able to shut down or intervene with businesses that follow state law, a significant number of raids has resulted in confiscated products, arrests, and closed dispensaries.
According to Weedmaps, this is not its first contact with federal agents or organizations. In 2018, it received a cease-and-desist letter from the Bureau of Cannabis Control, claiming the company was breaking the law by advertising unlicensed businesses. Weedmaps evaded this claim by invoking Section 230 of the 1996 Communications Decency Act, which protects online platforms from liability if their users post about or engage in illegal activities.
In August of 2019, however, the company announced it would no longer allow advertisements for unlicensed dispensaries. Because countless unregulated dealers rely on this site to yield business, the policy change could have serious implications for the cannabis industry.
Illegal dealers are highly motivated and successful because neither they nor their clients pay taxes for transactions. Because they can charge much lower prices while still earning a profit, they constantly threaten the long-term success of legitimate dispensaries. In September of 2019, in fact, an audit performed by the United Cannabis Business Association revealed that the black market for cannabis was three times the sizeof the regulated industry.
Besides interfering with the success of lawful cannabis businesses, products offered on the black market are generally not as safe to use, and the businesses may not comply with consumer protection laws or allow workers to unionize.
In light of these issues, federal crackdowns on the black market may be good news in the long run. Hopefully, the benefits will outweigh the burden of heavy state regulations and taxes on the legal cannabis industry.
Are You Concerned About How Federal Probes Could Affect Your Business?
If you are in the cannabis industry, you likely face extraordinary levels of red tape on top of unfair competition from unlicensed dispensaries. Whether you are worried about a potential investigation or you need assistance navigating California’s tight regulations, Purdy & Bailey, LLP is here to assist. We help business owners comply with state and federal law, avoid disputes, and fight for their rights both in and out of the courtroom.