The Nasdaq is not weed-friendly. The stock exchange denied a listing application for cannabis social network MassRoots this week.

Isaac Dietrich, CEO and cofounder of MassRoots, says they are disappointed, but will be appealing the denial.

"Nasdaq's major concern was the 'aiding and abetting' risk factor," Dietrich says. Nasdaq was concerned, he says, because marijuana is federally illegal and MassRoots sells ad space to marijuana companies. 

MassRoots, which is like Instagram for pot users, does not touch the plant but it does make revenue from companies that grow and sell pot. The startup, which was founded in 2013, is publicly traded on the over-the-counter market and has raised $6.5 million from 300 investors.  

"It is the company's position that we are not aiding and abetting the distribution of an illegal substance," Dietrich says. "We are a technology company that just so happens to be focused on the cannabis space. Yelp is already accepting advertising dollars from marijuana companies and they have a national listing. I think we have a strong case."

As soon MassRoots receives the denial letter, Dietrich says, the company plans to appeal the decision to the Nasdaq Listing and Hearings Review Panel. If that doesn't work, Dietrich says he will appeal to the Securities and Exchange Commission.

Nasdaq has given listings to three biotech companies that use the cannabis plant, including GW Pharmaceuticals, which extracts CBD from cannabis to create anti-seizure medication. One key differentiator is that these companies are testing with the Food and Drug Administration and making products for medical marijuana and MassRoots is focused on recreational marijuana users.

Dietrich says Nasdaq set a "dangerous precedent" for the industry by denying his company a listing. 

"The industry is rallying behind us because this decision has tremendous implications for them," says Dietrich. "If getting listed on a national exchange is off the table there is no real exit window for investors, which will result in less capital being deployed in the space. The OTC gets the job done in some respect, but institutional capital requires a national exchange."

Nasdaq stated it does not comment on listing applications.

In addition to Nasdaq's concerns about listing a company that--by it's own admission in its S1 filing--is breaking federal law, a bigger problem for Massroots is that it does not meet the financial requirements for Nasdq listing. Nasdaq requires that companies have a total stockholders' equity of $5 million; MassRoots has a stockholders' equity running a deficit of $316,737.

According to its quarterly report, MassRoots made $93,385 in revenue in 2016,  is operating at a $2.6 million net loss, and its accumulated deficit is $14.5 million. In terms of profitability, MassRoots states that it has not yet achieved profitability and may not achieve profitability. Also, the company explains in its S-1 that it needs to raise $2.5 million in capital to fund operations through December 31, 2016.

Nasdaq has approved the listing of other pot stocks, such as GW Pharmaceuticals because the U.K.-based company is part of the regulated medical marijuana market and has been working with the FDA to study how compounds in marijuana can be used to treat seizures and has support from the DEA to work with marijuana.