Federal prosecutors in California issued a grand-jury subpoena to Weedmaps, a popular online cannabis-retail directory, demanding wide-ranging records held by the company on its own operations as well as those of dozens of marijuana businesses listed on its website.
The US attorney’s office for the Eastern District of California issued the subpoena to Ghost Management Group LLC, which owns Weedmaps, in September 2019. While subpoenas are supposed to remain confidential, the document was leaked in late February. It reveals that representatives of Ghost Management LLC were ordered to submit all requested documents within 5 weeks and to appear before the court’s grand jury on October 31, 2019.
Weedmaps was founded in 2008, and has grown to become the world’s largest marijuana-focused technology platform. Its services allow users to rate and review marijuana businesses and products, search for deals on cannabis products and place orders for home delivery.
In particular, federal prosecutors sought records pertaining to scores of marijuana businesses advertised on Weedmaps and how its cannabis ordering system works. On top of this, the subpoena demands documents and records Weedmaps holds on its own staff, investors and accounts.
The Eastern District of California has so far declined to comment on the matter, while Weedmaps’ official statement reveals very little.
“Given our role as the largest technology company in the cannabis sector, from time to time, Weedmaps receives requests for information from government agencies. We cooperate with these requests as we do with all lawful inquiries,” a statement from a Weedmaps spokesperson reads.
“Our corporate policy is not to comment to the media about any specific legal matters or inquiries with respect to the company or any of its customers.”
This is not a simple request for information from a government agency though. It is an order from the federal government, involving dozens of companies – licensed and unlicensed – as well as investors, politicians, and state officials.
“You only present the case to the grand jury to determine whether or not there’s probable cause to return criminal charges. So this is a criminal investigation,” said San Francisco-based attorney Henry Wykowski, a former federal prosecutor.
The full scope and purpose of the investigation remains unclear, leaving many attorneys to speculate on who exactly federal prosecutors are targeting.
“This could be a million things,” California cannabis attorney Jessica McElfresh said.
“Just because you get a subpoena, it doesn’t mean you’re the target of the investigation. It’s impossible to know if those targets are within Weedmaps or if they are the other entities.”
The most obvious target though is, of course, Weedmaps. After reviewing the subpoena document and its far-reaching demands, some attorneys say federal prosecutors could be shaping up to indict Weedmaps on any number of charges, such as violations of banking, drug, tax and communication laws.
This assessment is partly based on Weedmaps continuing to openly advertise unlicensed marijuana businesses in California since the end of the state’s transition period to a legal, registered cannabis market on January 1, 2019. There has since been an uptick in law enforcement efforts at shutting down unlicensed marijuana businesses in California. After the end of the transition period, legal cannabis businesses in California became more enraged at Weedmaps listing and accepting payments from unlicensed marijuana businesses, now considered illicit, which do not carry the costs of complying with regulations and paying taxes.
“These guys were sabotaging the entire system,” said Omar Figueroa, a longtime cannabis criminal defense attorney based in Santa Rosa, CA. “It’s part of the reason why the regulated market is unworkable for honest operators who play by the rules.”
The subpoena document reveals though that “honest operators,” as well as unlicensed marijuana businesses, are in the sights of federal prosecutors. Among the 40 companies that prosecutors sought records for, 27 possess a cannabis business license in California. Some, such as CannaCraft and Terra Tech Corp, are large, well-known industry operators. The other thirteen businesses (or nonprofits) do not hold cannabis retail licenses but have been active in the industry, some for many years.
Others have speculated that the primary target of the federal investigation could be to corrupt state officials, noting the subpoena demand for all communication and payment records between Weedmaps and local, state, and federal employees, as well as elected officials and candidates running for office.
Henry Wykowski says it is still too early to tell what exactly is going on.
“They’re casting a very wide net here, and we’ll just have to see how it plays out,” Wykowski said. “(The subpoena) seems to be focused on recordkeeping and financial affairs, so that would gravitate toward some type of tax or financial misreporting type of offense,” Wykowski said
“But at this stage of the game, that’s really just speculation,” he added.