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HIGHLIGHTS
  1. Advertising spending drops post-legalization, as LPs face strict rules and supply shortages
  2. Focus has shifted to public relations, pushing pot stocks more than pot
  3. Legalization of vapes and edibles could be a catalyst for marketing spending

In the quarter ahead of legalization last October, Aurora Cannabis Inc. spent $29.4-million on sales and marketing. Over the next quarter, sales and marketing expenditure dropped by $6.6-million to $22.7-million.

This 23 per cent drop in spending is being replicated across the Canadian cannabis industry, according to marketing firms involved in the space. Licensed Producers are trying to come to grips with the Cannabis Act’s strict marketing rules, and a combination of product shortages and lower than expected revenues have forced numerous LPs to pause their consumer-facing marketing efforts, even as they continue to spend on public relations.

“It's a hard argument [for marketing staff at LPs] internally to resolve, to be like, ‘let's spend money to show people the value of our product,’ even though there may not be product,” said Rebecca Brown, founder of Crowns Consulting, a cannabis-focused marketing firm.

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“If you’re the one that’s advocating for spend, and you can’t show ROI, that’s not great for your job. If you’re the one advocating for spend and you get in trouble with Health Canada, that’s not great, so I have deep empathy for the plight of marketers,” Ms. Brown said.

In the months leading up to Oct. 17, cannabis companies spent millions of dollars on advertising, sponsoring festivals and pop-up “experiences,” advertising on billboards and bus stops. Much of this pushed the limits of what was legal. But because the strict language of the Cannabis Act would not come into effect until October, many companies felt the risk-reward calculation pointed to an aggressive marketing push. This all changed after Oct. 17.

“Note that branding and promotion of cannabis are prohibited under the Cannabis Act,” Aurora said in its most recent management discussion and analysis, filed in February. “The costs related to preparation activities for the legalization of cannabis use by the consumer market are non-recurring and are not expected to impact subsequent quarters.” (Aurora spent liberally on festival sponsorship in the summer of 2018, including sponsoring the North by Northeast music festival in Toronto and a series of concerts across the country).

With companies now tiptoeing around splashy consumer-facing advertising – like Aurora’s festival spending or Canopy Growth Corp.’s “Hi” billboard campaign – other methods for brand building have taken hold.

"Advertising spending came to a halt. Everyone is very nervous and trying to approach things from a compliant standpoint; and that's really where we saw the uptick in the traditional PR side," said Katie Pringle, co-founder Marigold PR, which works mostly with cannabis companies.

Cannabis public relations firms are busy trying to drum up attention for their clients, using traditional PR strategies to engage mainstream media and by creating sponsored content for a handful of age-gated media websites, such as Civilized and The GrowthOp, that have emerged to soak up LP advertising dollars.

"The big barrier is it needs to be age-gated. So if you’re able to offer a digital experience... that is age-gated, that brings forward lots of different opportunities for marketing and communications,” said Ms. Pringle.

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Much of this marketing, however, has less to do with selling cannabis to consumers than selling pot stocks to retail investors, said Corey Herscu, who runs RNMKR PR, a cannabis public relations firm.

"Right now, any publicly traded CEO, all they're trying to show is why people need to buy their stock, to keep increasing the value, so [Bay] Street stays happy,” Mr. Herscu said.

His company focuses on driving retail investors towards a given client’s stock by creating awareness around the company’s executives. That involves getting media attention for executives, often by so-called “newsjacking” – offering them up to comment on news stories relevant to the cannabis industry. "My job is to make sure they're everywhere," Mr. Herscu explained.

With so many LPs eager to pump their valuations, either to raise money or to allow insiders profitable exits, PR spending remains high, even as product advertising is on pause, Mr. Herscu said.

“I found that if you tangibly show any CEO that he's giving you X dollars, and you're bringing him back 10-, 20-times that based on his stock valuation and his branding online, they're not going to kick you off the payroll. It's when you can't show them tangible proof of what they're spending, that they're saying, we got to cut this," he said.

However much LP marketing is focused on capital markets, the lull in traditional consumer advertising can’t continue indefinitely, said Ms. Brown. The next round of legalization, later this year, could be one catalyst for advertising expenditure.

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"There is awareness that there’s going to be this other shakeup in October when vape pens and edibles come online. So I think some marketers are reasonably asking the question, does it make sense to maintain some presence for now, but wait until that moment to make a bigger move,” Ms. brown said.

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