Part of cannabis laws and regulations
Nearly six months after the legalization of recreational cannabis, no one in the industry has been slapped with any fines for overstepping Ottawa’s advertising rules on the drug. But in early March, Health Canada officials apparently decided that licensed producers were due for a light scolding.
In a missive on March 8, a senior bureaucrat observed that some cannabis companies were doing marketing, "including online content, that may not be compliant with the promotion prohibitions prescribed in the [Cannabis] Act.” The letter reminded licence-holders of their obligation to follow those rules, and noted that there had been some promotions, as well as product packaging and labels, that associated a product with “a way of life such as one that includes glamour, recreation, excitement, vitality[,] risk or daring.”
No excitement, no glamour, no fun: The government’s rules on cannabis advertising are nothing if not strict. But that has also ensured that no major brand names have emerged yet, another reason for the sector’s slow start.
When Brightfield Group, a Chicago-based research firm, asked Canadian cannabis users about the brands they bought, almost one-quarter of those surveyed were not sure. “Brand loyalty is a real challenge given the marketing restrictions and packaging restrictions,” said Bethany Gomez, the firm’s managing director.
“A lot of the products are commoditized,” she said. “From the Canadian government’s perspective, they’re trying to stamp out the black market, so you want to give enough appeal to pull people over from the black market.”
Associations of glamour or excitement may come standard in many marketing plans – from beer to accountants – but when it comes to cannabis, they’re offside. Ditto any ads or packages that depict a person, character or animal. That was another example Health Canada called out in the letter, among others. It reminded companies of potential ramifications for breaking the rules, including licence suspensions and fines.
The warning is an indication that some players in the nascent recreational cannabis industry in Canada have been testing the boundaries in promoting their products. While the law contains a laundry list of promotional activities that are prohibited, companies are still trying to suss out where there is wiggle room – and how much.
“There’s a lot more grey than there is black and white, even six months in,” said lawyer Rick Moscone, a partner at Fogler, Rubinoff LLP.
A change is coming to the rules for medical cannabis as well. Starting on April 17, packaging restrictions will be in line with the recreational market, which will likely reduce brand recognition for medical marijuana.
It’s easy to understand why Health Canada has been cautious in formulating its marketing regulations: A major policy goal is to prevent young people being wooed into cannabis use. (The popularity of vaping products among young people is a cautionary tale.) Furthermore, the early days of an industry steeped in so much startup investment could easily lead to a Wild West mentality; it’s much easier to implement restrictive rules at the outset and loosen them if needed, than to attempt to stuff the proverbial genie back in the bottle.
But there is also an incentive for cannabis marketers to push the limits, since the first companies to succeed in building brand loyalty could enjoy the advantage of repeat customers for years to come.
“There are certain players who have taken a bit of an aggressive approach, waiting for regulators to come say something," Mr. Moscone said. “It creates a non-level playing field when some are willing to take that approach and others aren’t.”
The rules allow for some promotion, as long is it is done in a place where young people are not allowed; in a direct communication with someone over 18; or through “telecommunication” such as the internet, as long as “reasonable steps” have been taken to ensure a young person can’t see it. Some industry players have expressed confusion over what constitutes “reasonable steps”; Health Canada’s letter in March noted that measures such as “simple self-attestation of age” could be easily bypassed, and urged licence-holders to “immediately assess their online promotional content” and take a stronger approach to age verification online.
As long as they are not visible to young people, companies can do “informational” promotions such as providing customers with facts about prices or the characteristics of a product; or “brand-preference” promotions involving a brand’s characteristics. (There are further regulations that vary from province to province: For example, branded apparel is permitted to be sold in stores in some provinces but not others.) Some activities have raised questions about what is “informational,” and what is advertising under the guise of education, Mr. Moscone said. “Brand-preference” promotions still have to adhere to prohibitions on such tactics as sponsorships, endorsements or testimonials, claims about the products’ effects, and associations with emotions or lifestyles.
That hasn’t stopped some companies from associating themselves with celebrity investors such as the Tragically Hip, Seth Rogen, Snoop Dogg and Gene Simmons – who may give a brand some celebrity buzz even if they are not technically endorsing it.
Questions also remain about the use of so-called “influencers,” or people with a following on social media who make money for integrating brand shout-outs into their posts. These types of promotions are similar to endorsements, but whether the law applies there is a “challenging question,” said Alice Tseng, a partner at Smart & Biggar/Fetherstonhaugh. Social-media personalities are already building relationships with cannabis brands, on the assumption that the rules may become clearer and more flexible down the road, said Jess Hunichen, co-founder of Shine Influencers, a social talent management agency.
“It will be monetized, I have no doubt about that,” she said.
Digital platforms have been cautious about cannabis advertising. Google Inc. does not accept ads for recreational drugs – even in markets where those drugs have been legalized, including Canada. Facebook Inc. also does not allow content promoting the sale of cannabis or related products. Twitter Inc. recently updated its drugs and drug-paraphernalia policy to provide an exemption to its ban on the promotion of recreational drugs for the Canadian market specifically. The change, which took effect March 4, applies only to companies authorized to operate in Canada.
The reason brand recall is such an important concept in marketing is that being at the top of a consumer’s mind can be a deciding factor in making a sale. The average customer at a bar has been so steeped in beer marketing that he or she will likely have in mind a panoply of options for making an order without looking at a menu. But could a cannabis shopper as easily ask for Liiv, AltaVie, Solei, Doja, Canaca or Hexo? These are not exactly household names – yet.
Retailer Fire & Flower has noticed many shoppers walking into stores not knowing which brand they want to buy, or even the characteristics of the various products. “There really is very little brand preference between individual products, and brands are not well-established,” said Chris Bolivar, the company’s vice-president of brand and marketing.
In-store education is key to sales, said CannTrust’s senior vice-president of sales and marketing, Bernard Yeung. The company has been working on relationships with store “budtenders” to educate consumers about its brands’ product attributes. The company is also actively participating in events, partly to encourage adult attendees to sign up for mailing lists to market to them directly and within the rules.
“It’s been a learning experience for us all,” Mr. Yeung said. “We want to go as close to the line as possible, but be on the right side of the line."
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