IRVINE, Calif. – Ghost Management Group LLC, parent company of online cannabis platform Weedmaps, in September received a subpoena naming dozens of businesses and individuals as part of a probe launched by U.S. federal attorneys into cannabis businesses.
In early March, Marketwatch reported the broadly-written subpoena requested tax, banking, and additional financial documents, including transactions. Business-to-business communications between Weedmaps and “any person engaged in commercial cannabis activity” also were specified.
Additional documentation requested in the subpoena included “communications and payments to local, state, and federal employees, as well as elected officials and any candidates for those offices.”
“This is firing across the bow, and cannabis businesses should be concerned.”—Manny Medrano, partner, Zuber Lawler & Del Duca LLP
Dozens of individuals and cannabis businesses were named in the subpoena. U.S. attorneys also sought documentation about Weedmaps’s communications with specific companies, as well as investment companies and potential investors.
When mgRetailer contacted Weedmaps for comment, a spokesperson returned the following official statement:
“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.
“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,” Weedmaps added.
The subpoena was issued by a grand jury in U.S. District Court for the Eastern District of California, and U.S. Attorney for the Eastern District of California McGregor W. Scott is leading the investigation.
Attorney Manny Medrano, partner at Los Angeles law firm Zuber Lawler & Del Duca LLP, is a former federal prosecutor.
In 1985, Medrano was lead prosecutor on the trial for the infamous kidnapping, torture, and murder of DEA Special Agent Enrique Camarena and possesses significant expertise in working with federal agencies including the Drug Enforcement Administration (DEA); Federal Bureau of Investigation (FBI); and the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF), among others. At Zuber Lawler, he leads the White Collar Criminal Defense Group, and the firm serves a significant clientele in the cannabis industry.
In an exclusive interview, mgRetailer asked Medrano if he could sense wide-ranging implications from the subpoena’s scope or where various documentation could lead in a federal investigation.
“It’s a real shotgun approach, just casting a wide net,” Medrano told mg. “And it shows that investigators are really digging. That they got a grand jury to issue the subpoena shows that they are serious about doing an in-depth investigation. They’re going to use the federal microscope to look at details. They’re methodical and will take their time.”
He added an investigation could take years, so parties involved should not expect a fast resolution. Medrano also said cannabis companies and related individuals, nationally and especially in California, could expect more subpoenas as investigators continue to follow leads and collect information.
“They have the resources and the manpower to do it,” Medrano said, with the gallows humor of having spent many hours and years prosecuting federal trials. “So, this is firing across the bow, and cannabis businesses should be concerned” by developments.
“Areas of inquiry” for federal prosecutors, he added, might include money laundering, bribery of state or local officials, tax evasion, and interstate trafficking, among other violations—all “stand-alone” federal crimes. Possible conspiracy is another area investigators look at closely.
Cannabis businesses and entrepreneurs, Medrano said, “should be on their toes. If you get a subpoena, do not talk to them without counsel.”
He also pointed out the subpoena in the Weedmaps case had been issued in federal district court in Eastern California, a court with a more conservative bent compared to other districts in California.
In regard to specifics, Medrano commented on legal issues that long have dogged Weedmaps. The online platform has been criticized and legally embattled with legal cannabis businesses that protested Weedmaps’ policy of allowing unlicensed cannabis businesses to use the platform for promotion. The company claimed the same “safe harbor” protections cited by social platforms like Facebook. Weedmaps also said it worked to moderate illegal vendors off the site.
“Areas of inquiry” for federal prosecutors might include money laundering, bribery of state or local officials, tax evasion, and interstate trafficking.
Weedmaps, which was founded in 2008, announced in September 2019 the company would purge advertisements for illegal vendors from the platform. But Medrano said the damage may already have been done in regard to eliciting the interest of federal authorities.
“Illegal businesses have kind of gotten a pass, because local and state authorities don’t have the resources they need to carry out enforcement many times,” Medrano said. “But unlicensed retailers have to be very careful now, because federal authorities do have the resources they need to wreak havoc.”
In his opinion, Medrano gave a flat “no” to any change in federal cannabis policy coming any time soon. After his time as a prosecutor, he believes changes are needed in federal policy but he explained, “They have been fighting the ‘war on drugs’ now for decades. It would be kind of hard to do a complete one-eighty…”
Investigations, of course, often lead to charges and litigation, but will cannabis industry businesses be forced to take on a legal fight with federal agencies, in an attempt to force progress on policy?
“Those kind of trials can be extraordinarily expensive—and really uphill,” Medrano said, “and it’s not that some industry businesses haven’t thought about it—they have. But it’s very, very expensive, so, no—I don’t see that happening.”