I think they poo-poo it because it tends to produce just-so stories that "explain" known facts while saying nothing about anything beyond them. To an extent, all hypotheses arise from observations (and more specifically, the frisson between observations and theoretical expectations), but you can't just stop there. Grounded theory just feels like empiricism with a soft blur filter.

(This problem is not just limited to social scientists. I think you could, for example, construct a plausible objection to dark matter as an "explanation" that just "saves appearances" on the same basis.)