Will Regulations Dampen Promo Sales in the Cannabis Industry?

While analysts predict that the legal marijuana business will ride a sales high for years to come, legislators are considering or already imposing advertising restrictions that create a haze about the extent to which promotional product distributors will be able to capitalize on the nascent industry, at least in some locales.

Advertising regulations vary across the eight states that have legalized recreational marijuana for adults. For promo companies keen to pursue sales in the marijuana sector, which is projected to have a compound annual growth rate of 25% and surpass sales of $20.2 billion in North America in 2021, it will be wise to read up on local rules regarding the marketing and advertising of cannabis before seeking clients and suggesting solutions. Below, Counselor provides some insights on the topic.

The issue of marijuana marketing regulation reared afresh this month in Massachusetts. There, state Sen. Jason Lewis brought forward a proposal that would prohibit branded merchandise from being used to promote marijuana. Bay State citizens voted last year to legalize pot for recreational use by adults, though the legislature is considering amendments that could affect implementation.

Sticking to advertising issues, though, Lewis’ potential restriction on branded merchandise in Massachusetts was part of a broader proposal that would prevent cannabis advertising on public property, require marijuana advertising to display health warnings, outlaw marketing that could appeal to minors, and implement other measures that would strictly govern how pot retailers can market their goods.

As it relates to promotional products, the Massachusetts proposal sounds a similar note to legislation already on the books in Washington state. While recreational consumption of marijuana is legal for adults there, state law bans cannabis retailers from distributing giveaways, coupons and branded merchandise, among other regulations related to advertising and marketing.

Still, in reviewing Washington’s rules, the restrictions on branded merchandise may not be as definitive as they initially appear. For instance, marijuana retailers can invest in branded apparel for employees. While they’re restricted from selling or giving away T-shirts at their stores, the law permits branded merchandise that meets the definition of paraphernalia, such as bongs, pipes and stash jars, to be sold from the premises. Furthermore, it appears cannabis licensees can set up a separate business to sell branded soft goods like T-shirts – they just can’t do so from their cannabis store or cannabis business website. Meanwhile, selling or giving away bumper stickers to marijuana-buying customers is prohibited. Also, producers/processors are not allowed to give promotional items to end-consumers of their products.

Alaska, Maine, Nevada, Oregon, Colorado and California are the other six U.S. states to have legalized recreational marijuana use by adults. An analysis from Counselor and information available from Leafly indicates that those states do not appear to expressly prohibit promotional products. Still, the legislation around promotion can get complicated.

In Alaska, for example, “a retail marijuana store may not use giveaway coupons as promotional materials, or conduct promotional activities such as games or competitions to encourage sale of marijuana or marijuana products.” However, there is no outright ban on branded merchandise.

Elsewhere, California has a range of advertising restrictions, which include prohibitions on signage and barring any advertising or marketing in broadcast, cable, radio, print and digital communications where less than 71.6% of the audience can reasonably be expected to be 21 years of age or older. The Golden State also prohibits marijuana businesses from giving away “any amount of marijuana or marijuana products, or any marijuana accessories, as part of a business promotion or other commercial activity.” Still, Chapter 15 of California’s Adult Use of Marijuana Act, which discusses advertising and marketing restrictions, does not signal out branded merchandise per se.

The patchwork of state-to-state regulations is complicated by the growing uncertainty over how America’s new Attorney General Jeff Sessions will address the liberalization of cannabis laws at the state level. Sessions’ disdain for marijuana has been well documented, and there is concern in the cannabis industry that he could direct a crackdown. Assistant Attorney General Rod Rosenstein said recently that the administration would continue, for the time being, to follow an Obama-era policy that allows recreational and medical marijuana businesses to operate in states where legalization has occurred. But that policy doesn’t carry the weight of law and can be revoked. Rosenstein has called attention to the “conflict” between federal law prohibiting marijuana consumption and state laws where it is permitted for recreational and/or medical use.

North of the border, marijuana legalization also presents opportunity, with significant potential challenges, for Canadian distributors. Canada is expected to legalize marijuana on a national level for consumption by people age 18 and older by the summer of 2018. To protect Canada’s youth from using marijuana, legislators are eyeing regulations on the promotion and branding of marijuana and its legal producers. This includes outlawing packaging, labelling and promotional products that appeal to youth; selling cannabis through self-service displays or vending machines; and promoting marijuana in any setting where someone under 18 could be exposed to it.