Promotional problems — the challenge of promoting cannabis products, services and accessories

Everyone in the industry had fair warning that promoting cannabis products, services and accessories was going to be exceptionally difficult from a regulatory perspective. When the Cannabis Act was first tabled by the Federal Government on April 13, 2017, section 17 explicitly provided that any form of promotion would be prohibited, unless otherwise authorized under the legislation. Neither section 17 nor the rest of the sections in the legislation pertaining to promotional activities changed in any material way between the first reading on April 13, 2017 and the version of the legislation that was ultimately given Royal Assent on June 21, 2018.

Licensed producers with the appetite to stomach some (in my view minimal) risk, saw not only the writing on the wall, but also an opportunity. The time period between when the Cannabis Actwas introduced and when it ultimately came into force on October 17 provided an 18-month window in which companies could push the envelope on promotion and advertising under the existing legislation, namely the Access to Cannabis for Medical Purposes Regulations (ACMPR) and the Narcotic Control Regulations (NCR) which are made under the Controlled Drugs and Substances Act.

Neither the ACMPR nor the NCR were designed to deal with aggressive promotion and advertising.  The NCR only contains one section that relates to advertising and promotion and simply:

(a) requires any advertising respecting a narcotic to display the symbol “N” clearly and conspicuously in the upper-left hand quarter;

(b) prohibits the publishing or furnishing of any advertisement to the general public respecting a narcotic; and

(c) prohibits the advertising of a certain (non-cannabis related) preparation within a pharmacy.

Some producers pounced at the opportunity to build up brand recognition and good-will in a relatively lax regulatory environment that was going to disappear come October, 2018.  What we saw was a series of pop-ups, websites, sponsored music festivals and events throughout the country.  Some companies complained at their competitors’ conduct which they felt was illegal.  Health Canada took a dim view of the conduct as well which ultimately resulted in Health Canada issuing a warning on July 13, 2018.  The warning noted that Health Canada was “concerned by the decision of some federally licensed producers of cannabis for medical purposes to sponsor events, such as music festivals, and engage in other promotional activities”.  The problem was that at that time the government was essentially powerless to put a stop to the conduct.  The warning pointed out that the conduct was “contrary to the Government’s goal to protect public health and public safety” but the government could only point to section 70 of the NCR and make a vague reference to the Food and Drugs Act, neither of which technically prohibited much of the conduct that was ongoing at that time.

What is most interesting is what has transpired since October 17, 2018.  The companies who were on the edge pushing the promotional envelope have drastically altered the way they go about their business.  Gone are sponsorships of festivals and concerts and in their place are things like messages about responsible consumption and impaired driving.  Clearly these companies understood not only the 18 month window that existed, but more importantly that it would close on October 17, 2018 and the promotional path forward would have to be a different one.  These companies understand that despite the heavy restrictions on promotional activities in the Cannabis Act, exceptions do exist and there are still a number of creative, and legal, ways to build brand awareness and a following.

Conversely, there are clearly companies who have not invested the time, cost or energy in discerning what promotional activities are and are not permitted under the Cannabis Act.  Less than two weeks after legalization, Health Canada announced that it had issued warnings to no less than seven cannabis producers about their promotional activities since the Cannabis Act came into force.  Advertisements for sponsored events (one of the most explicitly clear prohibitions in the legislation) continue to surface as do questionable statements and images used in the promotion of cannabis.

From a business perspective what strikes me as most concerning about companies who do not understand the promotional restrictions (and more importantly the exceptions to the restrictions)  is not the penalties that may be levied by the government but rather how far they will continue to fall behind the companies that do understand.  In a market where everyone’s packaging is nearly identical and there are limited ways to differentiate yourself in the eyes of the consumer, opportunities to stand out cannot be missed.  Unfortunately for some, fortunately for others, many remain two steps behind those who are taking the time and investing the resources into understanding the regulatory framework and coming up with creative ways to effectively build their brand within it.

This article was originally published in Grow Opportunity Magazine. To read the article there, visit the Grow Opportunity website.