The Fall of Grassdoor: California-Based Cannabis Delivery Giant Begins Insolvency Proceedings, Ceases Operations

California-based cannabis delivery giant Grassdoor ceased operations Nov. 21, just ahead of “Green Wednesday,” the day before Thanksgiving that has historically been one of the largest cannabis sales days of the year.

Interim CEO Chi-Chien Hou delivered the news to employees via a video message, which has since been circulated online by former Grassdoor employees, who were all laid off “effective immediately.”

The news, which has been reported by WeedWeek and Higher Origins, comes as Grassdoor begins insolvency proceedings, according to Hou’s message.

“We’ll be closing our doors effective immediately, and all employees will be laid off,” he said. “It is painful news to deliver.”

Hou described the insolvency proceedings as “a way of winding down the business similar to bankruptcy.”

“This process would involve a third-party trustee liquidating all assets of the company—everything—and distributing any cash in a very specific order of priorities,” he said.

Hou noted that employees can file a claim regarding “any outstanding issues” related to their employment at no legal cost.

“Today will be your last day,” he told employees, and added that anyone scheduled to work Nov. 21 would receive reporting time pay, while all others would receive pay for one hour for attending the video meeting.

Hou said that “due to the company’s complete closure and dire straits,” Grassdoor is not able to offer severance or the continuation of benefits to any of its former employees.

“This is a sad day for all of us,” he said. “I’m sorry to have to deliver this news and recognize that this is a terrible time for this to happen. The board really did explore every possible option and we held on as long as we could. Unfortunately, this is just our situation and is happening to all of us. I’ve met so many wonderful people here at Grassdoor and appreciate everybody’s efforts to try and make this work. And I want to thank everyone for their commitment and their dedication.”

The fall of Grassdoor is, in some ways, eerily similar to the collapse of California cannabis distribution giant Herbl, which closed its doors in June following reports that it had been placed in receivership after falling behind on a key loan.

RELATED: Inside the Collapse of California Distribution Giant Herbl

Grassdoor had a series of challenges leading up to its ultimate demise.

The company faced a class action lawsuit in January 2022 over text message marketing; the complaint alleged that Grassdoor sent telemarketing messages to consumers who never agreed to receive them. Such practices violate the Telephone Consumer Protection Act (TCPA), a federal law that bars companies from sending automated promotional text messages without a recipient’s consent.

In February 2023, Grassdoor landed in more legal trouble when a delivery driver sued the company, alleging that Grassdoor failed to pay him and other employees when they worked beyond their regularly scheduled shifts. That complaint also claimed that Grassdoor violated California laws related to the information that must be provided in wage statements, as well as other labor laws.

Hou, of investment firm AFI Capital Partners, had only taken over the reins as Grassdoor’s interim CEO in October, when he filled the role left vacant by Grassdoor founder Zack Ein, according to a WeedWeek report. Ein continued to serve as chairman at the time, the news outlet reported.

Stone Road Farms, a sun-grown flower brand based in Nevada City, Calif., worked with Grassdoor for roughly a year before the delivery company ceased operations last week.

Sabrina Wheeler, Stone Road’s chief operating officer, told Cannabis Business Times that she and Stone Road founder Lex Corwin had existing relationships with the teams running Grassdoor’s business-to-consumer (B2C) and direct-to-consumer (D2C) services and decided to try the platform based on their recommendations.

“They kind of sold us on this grand plan of how B2C really takes brands to the next level, and we gave it a try,” Wheeler said. “We lost money month after month, and that was short-lived—I think we only kept the B2C open for four months or so before it just didn’t make sense. Then we kind of learned that no brand was making money from B2C.”

Wheeler said Grassdoor has “always been notoriously bad for paying,” but the past six months have been especially tough for Stone Road to collect on the payments it was owed.

Even before that, Wheeler and Corwin saw signs over the past year of Stone Road’s working relationship with Grassdoor that the delivery giant was in trouble.

“Obviously, they were digging themselves so deep into a hole and the [California Department of Food and Agriculture] CDFA doesn’t play,” Wheeler said. “They will revoke your license in which you will have to cease operations. And at that point, too, not only will they owe all that money they can’t afford to [pay, but] then it’s legal trouble.”

The Stone Road team recalled that in the past six months, Grassdoor only made one partial payment to the brand. While the payment sparked optimism that perhaps the delivery company was recovering, Grassdoor’s ultimate collapse means that Stone Road has likely lost all the funds it was owed in outstanding invoices.

“And then none of us had any notice,” Wheeler said. “They announced they were closing their doors to both all of the vendors and employees the day that they were closing. And once they closed it, it’s really hard to find any avenue to recoup any of the money that they owed. And so now, us and so many brands are really kind of in a tough spot on, what do we do here? You can't sue a bankrupt entity. They don’t have many assets being a delivery service. It’s not like they have a retail storefront that they can sell.”

Wheeler said Grassdoor’s demise highlights the need for credit laws to ensure that invoices are being paid in a timely manner.

“Any other business has this,” she said. “[In the] alcohol [industry], you have to pay within 30 days or your prior invoice.”

Corwin said the fall of Grassdoor underscores the fact that “the market is structurally broken.”

“The taxes are simply too high,” he said. “The regulations for delivery are too stringent. They used to be able to have $10,000 in product in a vehicle, and then that was revised down to $2,500, and then I think it got increased to $4,000 or something. But still, it’s not enough and requires too many visits back to depot for the drivers. … There was a number of different reasons why it was structurally really hard to operate non-storefront retail. And then, ultimately, it is just mismanagement.”

Since California’s peak at 502 active delivery licenses in early July, the state’s non-storefront retail license number has dwindled to 471 as of Nov. 28, according to the Department of Cannabis Control.

Corwin surmised that Grassdoor maintained too large of a team, citing Hou’s executive assistant and three different buyers as extraneous personnel.

“Lex and I are a two-person team,” Wheeler said. “We’re so scrappy and lean because that’s what you have to do to survive in this market.”

Wheeler and Corwin have reached out to Grassdoor’s entire executive team as part of their efforts to recover the money they are owed in unpaid invoices, but they have yet to receive a response. They assume a class action lawsuit may be filed, but Stone Road doesn’t plan to bring its own lawsuit against Grassdoor due to financial constraints.

The entire situation is an “eye-opener” for Stone Road, Wheeler said, adding that she and Corwin will not continue delivering to its vendors without collecting payment.

“There are so many accounts in California where people are five or six invoices deep and they kind of drag their feet with payments,” Wheeler said. “We’re tightening that and, unfortunately, we probably will see a slight [dip] in sales, but we are hoping that because we know so many other brands are in this boat, that we can all collectively agree that we need to all have more stringent processes so that we can avoid this. … This cycle will continue until, A, we have credit laws in place, or B, we all kind of collectively agree to have more stringent payment terms and have a more equal playing field. Then it will only benefit everybody because then we’ll avoid this happening.”

Ultimately, Corwin said Grassdoor’s collapse is just another sign of dysfunction in California’s cannabis market.

“I think the biggest takeaway is that this is really symptomatic of how California is so broken,” Corwin said. “I think they were literally the second biggest delivery service after Eaze. If they’re struggling badly, then what does it say about the California market?”