Two of the masterminds behind Weedmaps – perhaps the most successful online advertising platform for cannabis businesses – are working to set up a new company that would be directly involved in California’s marijuana supply chain.
The venture recently moved a step closer to fruition when the proposed business received conditional approval for a distribution facility in West Sacramento, even as those same executives remain embroiled in a conflict with California marijuana regulators.
Weedmaps CEO Doug Francis, President Chris Beals and Chief Operating Officer Steven Jung would spearhead the new company, DICA Distribution, according to a business proposal obtained from the West Sacramento planning commission.
DICA would be a standard California distributor, acting as an intermediary between the production side of the industry and retailers.
According to the proposal, which was signed by Beals, “DICA is committed to working with licensing authorities and state and local agencies to ensure that we establish a safe and secure supply chain for licensed cannabis throughout the state.”
The move to get DICA a distribution permit comes at a time when it’s still unclear how its executives – in particular, Francis and Beals – stand with the state because Weedmaps continues to accept advertising from unlicensed marijuana businesses in violation of regulators’ orders.
The situation also highlights the fractured nature of California’s newly regulated cannabis industry.
Weedmaps has become a flashpoint for many licensed operators that have spent enormous amounts of money to comply with costly regulations, only to watch as the online platform advertises retailers that are technically illegal and undercutting the licit market by not paying taxes.
From ancillary to plant-touching?
The DICA Distribution facility also still must be formally approved by the West Sacramento City Council before it can apply for a state permit or begin operations.
However, Francis has been laying the groundwork for DICA since at least October, when he registered the company as a limited liability corporation in Delaware.
Neither Francis nor Beals could be reached for comment about their plans regarding DICA.
A Weedmaps spokesman wrote in an email to Marijuana Business Daily that “DICA Distribution and Weedmaps are separate and independently managed companies. So I am unable to comment on DICA’s progress or plans. Weedmaps is solely a technology and SaaS company with a mandate that does not permit touching the plant.”
The Weedmaps executives’ bid to enter California’s plant-touching sector through DICA is already drawing fire from some industry insiders.
Jerred Kiloh, who owns The Higher Path dispensary in Los Angeles, said Francis and Beals are attempting to “have it both ways” by profiting from unlicensed retailers advertising with Weedmaps while also trying to start a new company in the fully regulated market.
“If they’re going to be a part of the supply chain and enter the legal market, do it with both feet. Don’t have one foot in the illegal or unregulated market and one in the regulated market. It really just shows bad faith,” said Kiloh, who also serves as president of the United Cannabis Business Association, a group of L.A. dispensaries.
“Everyone is going to have to be held to the same level of accountability. It can’t just be retailers. We all need to be doing stuff that’s not going to be nefarious and embolden the black market.”
The California Bureau of Cannabis Control (BCC) sent Weedmaps a cease-and-desist letter in February, threatening the company with “criminal and administrative penalties” if it didn’t stop advertising unlicensed marijuana businesses. It’s unclear what penalties Weedmaps may face.
Sacramento regulators also sent Weedmaps a cease-and-desist letter regarding its advertising of unlicensed cannabis companies within city limits. Sacramento and West Sacramento, where DICA is hoping to do business, are autonomous municipalities.
Francis and Beals have yet to comply with the state’s letter, arguing that the bureau doesn’t have any legal power over Weedmaps because the business doesn’t hold a license issued by the BCC.
The conflict between Weedmaps and the bureau remains unresolved.
BCC spokesman Alex Traverso wrote in an email to MJBizDaily that there is “no further news at this time” regarding the cease-and-desist letter. So, it’s still unclear whether the agency will even try to pursue further action against Weedmaps.
Kiloh suggested that California regulators should consider Weedmaps’ refusal to conform with the BCC’s order in weighing DICA’s expected request for a state distribution license.
“Maybe their license needs to be put at risk,” Kiloh said, “because what they clearly told (BCC chief) Lori Ajax was, ‘I’m sorry, but you don’t regulate me, so too bad.’
“Now she does.”
Ajax wrote in an email to MJBizDaily that if DICA were to apply for a California distribution license, her agency will “put it through our normal process, just as we would any application we receive.”
Two companies, same principals
L.A.-based cannabis consultant Avis Bulbulyan said that if DICA does get to that step, the Weedmaps conflict shouldn’t be an issue because the proposed distribution company is a separate business entity from the online platform.
“It’s apples and oranges,” Bulbulyan said. “Because the common denominator are the principals of both of those companies, it does create a contradictory situation.
“But if you were to look at it as black and white on the merits of the (state license) application, you’ve got to judge it based on the merits.”
He added that if the bureau were to deny DICA a permit because of its conflict with Weedmaps, the distribution company would arguably have legal recourse to sue the state for unjustly denying it a license.
“If they get denied,” Bulbulyan said, “they’ll be able to ask, ‘What are your grounds for denial? Weedmaps? Weedmaps isn’t in a business that the BCC has jurisdiction over.’”
However, he added, the bureau could launch a formal investigation into possible legal violations by Francis and Beals, as opposed to violations by Weedmaps. Such a move could give the BCC cover if it wanted to deny DICA a distribution permit, he said.
Bulbulyan acknowledged that many in the California cannabis industry harbor “big-time resentment” toward Weedmaps.
But that probably doesn’t matter much to the company or its clients because there aren’t many other viable marketing options for cannabis companies.
“If you leave it up to the industry, nine out of 10 of them will probably say something negative about Weedmaps,” Bulbulyan said. “In reality, nine out of 10 are still paying Weedmaps to advertise and market for them.
“Has it hurt (Weedmaps’) bottom line? Absolutely. Have a lot of companies pulled out? Absolutely. Are there more than enough people still willing to pay them? Absolutely.”