Weedmaps, the popular online marijuana dispensary locator, has turned to a familiar shield to fend off a cease-and-desist threat from state regulators: Section 230 of the Communications Decency Act.

Earlier this month, California's Bureau of Cannabis Control disclosed it had ordered Weedmaps to stop running ads from sellers that don't hold and display registered California license numbers. Weedmaps executives fired back this week, saying that while they're willing to work with the regulators, the state has no legal authority to sanction them.

“Weedmaps is a technology company and an interactive computer service which is subject to certain federally preemptive protections under Section 230 of the Communications Decency Act,” Doug Francis, the company's CEO, and general counsel Chris Beals wrote in a letter to Lori Ajax, chief of the Bureau of Cannabis Control.

What's more, they wrote, Weedmaps “ is not a licensee subject to the bureau's purview.”

The flare-up between state regulators and the Orange County company known as the Yelp for pot consumers is symptomatic of the larger problem California faces trying to bring a once-illicit industry into a regulated market.

A February report by California Growers Association concluded that fewer than 1 percent of marijuana cultivators in the state have obtained licenses. The report cited high taxes, worries about Internal Revenue Service audits, prohibitions by cities and counties and costly licensing fees as just some of the issues keeping growers out of the regulated system.

Meanwhile, licensed retailers have complained to the Cannabis Advisory Committee, an appointed group advising the bureau on writing final regulations due later this year, that black-market operations are freely advertising through outlets such as Weedmaps and undercutting their tax-paying businesses.

Two lawmakers this week tried to address licensees'  concerns about high taxes by introducing legislation that would suspend the state's $148-per-pound levy on cultivation for three years and lower the excise tax from 15 percent to 11 percent over the same time period. State Sen. Bob Hertzberg, D-Van Nuys, offered amendments to a different bill addressing marijuana businesses' lack of access to banking. SB 930 would license “cannabis limited charter banks” under state regulation.

In their letter, Francis and Beals blamed the prevalence of unlicensed businesses on “a regulatory landscape that is so blurry it stifles investment.”

“Scrubbing the internet of the reality of unlicensed operators that have created thousands of jobs over the last 20 years does nothing to fix the underlying issues,” they wrote. “It is simply opening a new face of 'whack-a-mole' when the ultimate cause is broken policy.”

Santa Clara University School of Law professor Eric Goldman said Weedmaps may have a Section 230 defense from state prosecution “even if those ads promote illegal activity or themselves are illegal.”

“However, if the federal government enforces federal criminal law against Weedmaps, Section 230 won't apply,” Goldman added. “Furthermore, states may be able to find other legal theories to hold website operators accountable for illegal third party ads. For example, the California Attorney General is prosecuting the operators of Backpage for money laundering, and the court ruled that Section 230 did not apply to those charges.”

Bureau of Cannabis Control spokesman Alex Traverso said officials are “having internal discussions about what the appropriate next steps are.”

 

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