Problems at Sezzle (SEZL)
Sezzle (NASDAQ: SEZL — $1.43 billion) describes itself as “a purpose-driven payments company on a mission to financially empower the next generation.” Launched in 2017, Sezzle is a Buy Now, Pay Later platform that allows customers to pay for purchases over time, typically in four equal installments every two weeks. Sezzle earns money by charging merchants a percentage of every sale, charging late fees and convenience fees on customer payments, and from subscription offerings. Sezzle’s model appears to be working with the company generating consistent profits and shares up ~1,100% over the last year.
The Bear Cave believes Sezzle’s growth and profitability come in part from enabling fraud, consumer scams, and illegal businesses. For example, The Bear Cave believes Sezzle is a leading payment platform for prescription drugs illegally flowing into the United States.
Canada Drugs Direct claims to be “a legitimate online Canadian pharmacy serving U.S. residents,” offering hundreds of prescription and non-prescription medications. On its payment page, Canada Drugs Direct allows customers to pay by check, online ACH, or credit cards exclusively through Sezzle.
High-risk merchants sometimes promote ACH or checks as payment methods because those methods have weak dispute mechanisms, meaning consumers can’t get the money back once they pay. And if a business is unable to process credit card payments directly it may be because card networks realize the merchant is operating illegally or in a legal grey area.
That appears to be the case with Canada Drugs Direct.
The U.S.-based National Association of Boards of Pharmacy has Canada Drugs Direct on its “Not Recommended List” and warns that pharmacies on the Not Recommended List “commonly facilitate the sale of prescription-only medicine without requiring a valid prescription, the sale of medicine that has not been approved or authorized for sale in the patient’s jurisdiction, [and] the practice of pharmacy without required licensure in all relevant jurisdictions.”
LegitScript, an Oregon-based payments compliance company that works with the FDA, also calls Canada Drugs Direct “an unapproved pharmacy website.”
Consumer complaints against Canada Drugs Direct allege the company would ship drugs from India or not deliver them at all:
“This company did a bait and switch. I ordered a more expensive version of my medication from Australia and received a cheap version from India today.” (March 2023)
“The generic pills do NOT look anything like the generic pills in the US. The pills came from some foreign Asian county.” (March 2024)
“I ordered a generic version of the drug Livalo, which was made in India. It gave me really bad side effects that I wasn’t getting from the name brand Livalo…” (May 2022)
“I ordered two Trelegy for Inhalation and noticed after trying the 1st one there was an issue. I checked the expiration date and found that even though it was not an expired product, it did expire a full year sooner than anything I had purchased in the USA. I also found it was shipped from India by way of Singapore.” (December 2023)
“I waited nearly a year for medication and never received it.” (August 2024)
“Absolutely HORRIBLE HORRIBLE HORRIBLE service. I have no idea how they are a legitimate company. We waited 2 months for our prescription that never came. In fact, after we had paid for our medication, after we had called multiple times for updates, they told us we needed to pay more money.” (March 2024)
“Waiting over a month and still not here… Had to go back to my doctor TWICE for samples to hold me over.” (March 2024)
One consumer questioned whether paying with Sezzle was mandatory:
“Very confusing process of paying… not made clear at all if signing up w/Sezzle was mandatory or if I could pay in a different way.” (May 2024)
Another consumer review titled “Scamming Company” said:
“It’s week 4 since I'm trying to get my medication or a refund. They do not communicate when ordering that there are shipping delays. They kept telling me my meds would be shipped soon. By week 3, I asked to cancel my order and refund me my money. That was last week, no refund. I contacted my credit card company to dispute the charge because I did not receive the product. Sezzle sent me an email saying I would be sent to collections and reported for nonpayment because of the chargeback. That’s right you can’t even pay Canada Drugs directly. You have to go through Sezzle, a 3rd party that threatens customers when they try to get refunded.” (April 2023)
This is no isolated incident.
Planet Drugs Direct is another prominent online Canadian pharmacy serving U.S. citizens. The National Association of Boards of Pharmacy also has Planet Drugs Direct on its “Not Recommended List” and LegitScript calls the company “a rogue pharmacy website.”
LegitScript defines an online pharmacy as rogue “if the pharmacy’s sale, prescribing or dispensing of prescription or other drugs reasonably appears to intentionally or knowingly violate applicable laws or regulations.”
Like Canada Drugs Direct, Planet Drugs Direct exclusively processes credit card payments through Sezzle.
Online reviews also allege drug quality problems and shipments from India:
“BEWARE. If it Seems Too Good to be True, it Probably IS. In light of one of my meds costing upwards of $300/month, my husband had looked up Canadian pharmacy resources. 1st, to process an order, they want your bank’s routing number with a scanned image of your check. Next, you have to wait several weeks for your RX to arrive. We were told my Rx was shipping directly from Mauritius, but it actually shipped from INDIA. The pills looked ‘dusty’ upon opening a few of the pouches, so I was hesitant to try...” (February 2021)
“Fake medicine. Avoid.” (April 2020)
Other online Canadian pharmaceutical sites that process credit card payments exclusively through Sezzle include PharmStore and CanPharm. Both are on the National Association of Boards of Pharmacy’s “Not Recommended List” and LegitScript defines PharmStore as “a rogue pharmacy website” and CanPharm as “an unapproved pharmacy website.”
Other prominent Canadian pharmaceutical websites that use Sezzle include Your Canada Drug Store, Drugmart, TotalCareMart, and CanadaPharmacy — all of which are on the National Association of Boards of Pharmacy’s “Not Recommended List.”
History shows serving illegal online Canadian pharmacies can be very profitable and come with steep regulatory penalties.
In 2011, Google paid $500 million to settle allegations that it “accepted advertisements from online Canadian pharmacies that targeted U.S. consumers and illegally imported controlled and non-controlled prescription drugs into the United States.” Below are relevant quotes from the Department of Justice press release, with emphasis added by The Bear Cave:
“Online search engine Google has agreed to forfeit $500 million for allowing online Canadian pharmacies to place advertisements through its AdWords program targeting consumers in the United States, resulting in the unlawful importation of controlled and non-controlled prescription drugs into the United States.”
“The forfeiture, one of the largest ever in the United States, represents the gross revenue received by Google as a result of Canadian pharmacies advertising through Google’s AdWords program, plus gross revenue made by Canadian pharmacies from their sales to U.S. consumers.”
“The shipment of prescription drugs from pharmacies outside the United States to customers in the United States typically violates the Federal Food, Drug and Cosmetic Act and in the case of controlled prescription drugs, the Controlled Substances Act. Google was aware as early as 2003, that generally, it was illegal for pharmacies to ship controlled and non-controlled prescription drugs into the United States from Canada.”
“The importation of prescription drugs to consumers in the United States is almost always unlawful because the FDA cannot ensure the safety and effectiveness of foreign prescription drugs that are not FDA-approved because the drugs may not meet FDA’s labeling requirements; may not have been manufactured, stored and distributed under proper conditions; and may not have been dispensed in accordance with a valid prescription.”
“[The investigation] is about taking a significant step forward in limiting the ability of rogue online pharmacies from reaching U.S. consumers, by compelling Google to change its behavior. It is about holding Google responsible for its conduct by imposing a $500 million forfeiture, the kind of forfeiture that will not only get Google’s attention, but the attention of all those who contribute to America’s pill problem.”
“The Department of Justice will continue to hold accountable companies who in their bid for profits violate federal law and put at risk the health and safety of American consumers.”
The Department of Justice press release also said Google would rely on the National Association of Boards of Pharmacy’s Verified Internet Pharmacy Sites program for any future pharmacy advertising relationships.
In 2018, the U.S. brought criminal charges against Canada Drugs, an online pharmacy different than the similarly named Canada Drugs Direct, for “the widespread illegal sales of misbranded and counterfeit prescription drugs in the United States.” A U.S. judge “sentenced the Canadian companies to forfeit $29,000,000 of the proceeds of their illegal scheme, to pay a fine of $5,000,000, and to five years of probation.”
A 2023 study titled “Assessing the Impact of Illegal Online Pharmacies in the U.S.” estimated that “12.6% of total adverse events could have been avoided if all drugs purchased from illegal online pharmacies had instead been purchased from legal pharmacies” and found these adverse events represented about $11 billion a year in additional costs for the U.S. healthcare system.
Investors may mistakenly believe Sezzle only takes a 6% merchant fee for these drug purchases at online Canadian pharmacies. However, one crucial sentence in Sezzle’s merchant agreement has been overlooked by nearly all investors: