Less than one month after being lauded for the launch of a “first-of-its-kind initiative to help social equity, low-income and minority-owned businesses in the United States enter and thrive in the fast-growing legal cannabis industry,” Weedmaps could be facing heavy heavy fines in the midst of the recent vaping crisis.
The Irvine, California company has been under intense scrutiny for the inclusion of unlicenced cannabis retail operators in its listing and mapping system, but with black market vape products being linked to over 400 cases of respiratory illness (and 6 reported deaths), criticism could potentially turn to court involvement if authorities can establish viable liability on behalf of Weedmaps.
The move against Weedmaps is being lead by The United Cannabis Business Association (UCBA), a California marijuana trade group which represents numerous legal retailers in Los Angeles. The group is recommending that authorities take severe action against Weedmaps, with maximum fines reaching an estimated $6.2 billion.
Weedmaps announced last month that it would be taking steps to remove unlicensed retailers from its site by December 31, but the move appears to be less than satisfactory for the UCBA.
The UCBA stance regarding Weedmaps, and their proposed action against the company for its potential link to the vaping crisis is further outlined in an article published on September 11 by John Schroyer at MJBizDaily.com:
“Their decision to continue advertising for unlicensed retailers – rather than removing them now – represents a clear public health threat,” UCBA Executive Director Ruben Honig wrote in an email to Marijuana Business Daily.
“Now is the time to enforce the laws that are already on the books to curb advertisements of unlicensed retailers.”
The UCBA said that consumers using Weedmaps are three times as likely to wind up shopping at an unlicensed store, given that it advertises for 3,757 total retailers but only 922 licensed ones, according to a UCBA analysis of Weedmaps’ ad listings of California cannabis companies.
And, it emphasized, the vast majority of the vaping illnesses have been tied to the underground market, which it said Weedmaps is actively promoting with its site.
“The severity of this situation cannot be underscored. … All 57 cases so far in California have involved purchases from unlicensed ‘pop-up’ shops,” the UCBA wrote.
“This outbreak serves as a tragic reminder of the dangers the unlicensed industry poses to consumers.
“The reality is, unless you are buying from a legal dispensary, there is no guarantee of safety.”
The UCBA letter also called on regulators to utilize Assembly Bill 97, which was signed into law July 1, as an enforcement mechanism to force Weedmaps to remove the unlicensed ads sooner rather than later.
It allows for even unlicensed companies – such as Weedmaps – to be fined up to $30,000 per violation per day.
The UCBA calculated that under that provision, regulators could fine Weedmaps up to $85 million per day if they chose to take the strictest stance available.
The organization requested that the state “immediately and retroactively impose the maximum fines permissible by law” on Weedmaps.
If the state took that route, and if UCBA’s calculations are correct, Weedmaps could face fines of $6.2 billion as of Sept. 11 for violations that date back to July 1.
Allegations such as these involve lengthy court engagements which can play out on the timescale of years. Even then, the likelihood of reaching a settlement agreement between Weedmaps and the state of California is high. However, even the possibility of such hefty fines being imposed upon Weedmaps serves to emphasize the severity of this wave of vape-related illnesses while also serving as a cautionary tale against the advertising of unlicensed retailers by companies, and the use of unregulated products by consumers.
The threat of potential fines is just one of the hurdles currently facing Weedmaps as they rally to roll out a Canadian IPO next year. As Thom Baccus at Cannabis.net reported on September 13, the company could also be facing the possibility of charges related to alleged tax evasion and money laundering:
Two sources have confirmed to Cannabis.net that as clients of Weedmaps’ mapping listings, they were instructed to no longer pay their monthly fees in cash but to send in prepaid Visa and Mastercard denominations of $500. The reason given for this were related to “IRS issues” they were told at the time.
The US Goverment Anti-Money Laundering divisions consider prepaid credit cards and gift cards as one of their main concerns about how people can still launder money in the current digital age. Generally speaking, this approach of using prepaid cards as payment, instead of trackable cash or direct credit card charges to a merchant account, are used for one of two reasons. The first is for income tax evasion, so that you can pay for things and pay for services and it never shows up on your accounting books. The second is for money laundering purposes, to take cash from illegal drug sales (which these were in the Federal government’s eyes) and turn it into a form of payment that can enter the financial system without notice. Either way, Weedmaps could be worried because those private “books and record keeping” must become public for a lookback window of 3 years if you want to go public. Where will the prepaid Visa and Mastercard’s show up on their financial records? If an auditor is looking at the books, will the payments be able to be traced and verified? Would the US Federal government consider Weedmaps a conspirator in aiding and abetting illegal drug sales? RICO Act violations and mandatory sentencing starts to enter the conversation now.
If the cards were used to avoid IRS detection of income, then a whole new can of worms gets opened. Will the IRS open new investigations or ask for more information just as Weedmaps is preparing for an IPO? Not the best news for possible investors to read about.
The news gets worse for Weedmaps as one of their clients who took part in this prepaid credit card payment system was recently arrested by the FBI and indicted by the US government on running an illegal marijuana ring and money laundering charges. The computers and email accounts that dealt with Weedmaps are now all in Federal custody after being seized in a raid. The FBI and Department of Justice could share those hard drives and emails with the IRS, as well as the California state government and Cannabis Commission.
PuffPuffPost.com will continue to follow this story as it unfolds.