Pot shops crying foul over online ads for illegal sales

LOS ANGELES» Weedmaps is a goto website for people looking to find a marijuana shop. With a few clicks on a cellphone, customers can find virtually any type of cannabis product, along with the fastest route to the place selling it and ratings from other consumers to help them decide what to buy.

But legal and illegal operators advertise next to each other, and licensed operators in California say that’s put them at a disadvantage in a cutthroat marketplace.

To them, Weedmaps is helping illegal sellers flourish without having any of the obligations licensed operators endure — collecting and paying taxes, insuring their businesses and employees, and abiding by safety rules for their products.

In other words, illegal shops can sell pot at cheaper prices, sometimes 30 percent to 50 percent less.

“That’s Weedmaps’ business model, to confuse the difference between legal and illegal,” said Jerred Kiloh, a licensed dispensary owner in Los Angeles who leads the United Cannabis Business Association, an industry group. “It’s an unfair playing field. They are pitting us against each other.”

Weedmaps operates in more than two dozen states, but the issue is coming to a head in California, which in January became the nation’s largest legal marketplace. State regulators last month warned Weedmaps to stop advertising shops operating outside the law.

In a response, Weedmaps executives said they are eager to work with the state but asserted that the online directory doesn’t fall under state authority and is shielded by provisions in federal law.

The company sees the core of the problem as a scarcity of legal outlets and hefty taxes that scare off consumers from licensed shops, not its online ads. In Los Angeles, where the pace of city licensing has been sluggish, only about 130 retail shops have authority to operate, while city officials acknowledge hundreds more are making illegal sales.

Weedmaps says its experience dropping unlicensed businesses from its listings in Washington, Oregon, Nevada and Massachusetts had no impact on the size of those unlicensed markets.

“Scrubbing the internet of the reality of unlicensed operators ... does nothing to fix the underlying issues,” Weedmaps CEO Doug Francis and President Chris Beals wrote to the state Bureau of Cannabis Control earlier this month.

The company some call a Craigslist for cannabis defines itself as an “interactive computer service” that falls under the federal Communications Decency Act. A key section of that law is designed to protect internet publishers, generally providing immunity to them for content posted by users.

But Kiloh is among those who argue Weedmaps is far more than an advertising platform, noting consumers can use the site to submit orders and summon deliveries from shops legal and otherwise.

“They are acting like Amazon, saying, ‘Here is a shopping cart,’ ” Kiloh said. “They are creating a marketplace, not a platform for advertising, and it’s driven by dollars.”

The dispute over the online ads goes to basic economics for an emerging market sprung from what was mostly an illegal one: Lawful operators will struggle if they’re competing with a robust black market that can undersell them.

Complaints have surfaced elsewhere, including over fees that in some cases can be tens of thousands of dollars a month for prime ad space.

The company says some advertisers pay nothing.

“I strongly believe their response to advertise for unlicensed cannabis companies is a black eye to the industry,” said Peter Marcus, a spokesman for Denverbased Terrapin Care Station.

Terrapin has three licensed dispensaries in Colorado and has advertised with Weedmaps for years, Marcus said.

Marcus said Terrapin worries Weedmaps’ high-profile spat with California regulators will bring unwanted attention from the U.S Justice Department, which continues to prosecute marijuana offenses under federal law that still sees cannabis as an illegal drug.