Weedmaps Fines

Weedmaps IPOOOps – The Weedmaps IPO May Face Problems with a $6.2 Billion Dollar Fine and Possible Money Laundering Inquiries from the Federal Government

In one of the worst kept secrets in the cannabis space, Ghost Group LLC, dba Weedmaps, is planning an IPO in Canada in 2020, but they have some major hurdles to cross before getting an auditor and SEC clearance on issuing stock.

The Vape Crisis and Weedmaps

As John Schroyer at MJBIZ Daily reported yesterday, Weedmaps could be facing billions of dollars in fines over the current vaping crisis. The fines could theoretically get up to $6.2 billion if the California state government and court system agrees with the theory that by Weedmaps refusing to take down illegal and unlicensed operators from its mapping system, and those illegal and unlicensed suppliers sold tainted vape products that have caused deaths in California, then Weedmaps could be facing some serious legal problems. The main element here is proving liability and while it would be a longshot that Weedmaps faces the maximum fines for refusing to take down non-licensed companies that may. or may not. have lead to vaping deaths, there is an element of aiding and abetting illegal drug schemes that has now lead to verified deaths. The case for Weedmaps being liable in those deaths and facing criminal prosecutions is a long shot and would take years to battle out in court.

As John points out in his MJBIZ article:

Link to vaping crisis

The announcement isn’t enough for one of the state’s marijuana trade groups, the United Cannabis Business Association (UCBA), which represents a number of legal retailers in Los Angeles.

In a letter to California Gov. Gavin Newsom and BCC chief Lori Ajax on Wednesday morning, the UCBA linked Weedmaps to the recent vaping illness outbreak that has claimed the lives of at least six people across the country and sickened at least 450.

The group called Weedmaps’ announcement “encouraging” but dismissed the company’s new timeline as “vague” and said regulators need to take action immediately.

“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.

While the numbers look explosive it would take years of legal battles that would most likely lead to some form of settlement and fine with the state of California. Victim’s families would have a longer legal battle to prove the platform that mapped out the illegal vape stores was negligence in a death from a vaping product.

Are Money Laundering and Tax Evasion Charges Next?

Another major headache coming for Weedmaps could be a charge of money laundering and income tax evasion. 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.

Weedmaps is No Stranger to Shady Dealings

The good news for Weedmaps is that this is not their first drive down “Shady Lane”. Not only have they defied the California state government’s request to remove unlicensed cannabis businesses when asked months ago, but they were also caught creating fake 4- and 5-star reviews on their review site. The LA Times article estimated that 60% of the reviews on Weedmaps could be fake and that they were written and posted from within the Weedmaps offices. The reviews were all positive and dispensary owners didn't complain since it made them look good. This lead to Weedmaps being able to charge more for listings and created more leverage with dispensaries and their listings. Consumers were shown thousands of fake reviews about dispensaries and products.

Dispensary owners have long complained about Weedmaps’ “used-car salesman” techniques to improve rankings and listing on their sites. High pressure calls and upsells are common complaints about the Weedmaps’ sales model. Basically, how it worked was that if you were listed at the #10 spot in Los Angeles for dispensary listings, and someone in the #8 position didn’t pay their listing fee or dropped out, Weedmaps would call listings #9 to #20 and tell them they call all move up one spot for X more amount per month. You can see how this became such a cash cow. As one dispensary told us, “I hate them just like everyone else, but they drive a ton of people to my listing and store. They are a necessary evil in my business right now.”

Licensed and legal dispensary owners have their own ax to grind with Weedmaps as well. Many licensed dispensary owners are paying Weedmaps their fees, but their listing is showing up right next to an unlicensed cannabis dispensary who can sell the same products up to 50% cheaper because they are not paying for licensing, testing, and taxes. There have been cases were a legal and illegal dispensary were in the same building and showing up on Weedmaps menu systems next to each other. As pointed out in the MJ BIZ article, many feel legal dispensaries would see a huge revenue jump, and the state of California more tax money, when Weedmaps takes down illegal shops.

These business practices have gone on for years but as a private company, not many people knew or cared, but with legalization now in 33 states and plan for an IPO in Canada, Weedmaps is facing the fact of having to show the skeletons in the closet in order to get to IPO riches.

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