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Sep 5, 2018

Cannabis Promotion: Seller Beware

By Jeremy D. Burke and Ken Clark

Introduction

The federal Cannabis Act and its regulations (together, the “Act”) are scheduled to come into force on October 17, 2018. The Act imposes strict restrictions on promotional and advertising activities relating to cannabis in pursuit of a key policy goal of the government: to avoid exposure of young people to cannabis. This goal pervades every activity enabled by the Act, from production to packaging to final sale, and includes advertising and promotional activities. Cannabis industry participants should familiarize themselves with the legal framework surrounding the promotion of cannabis products, accessories and services in order to ensure they are able to navigate it successfully.

Although this article discusses new rules being created under the Act, readers should be aware that cannabis advertising is also regulated under other statutes (e.g., the federal Controlled Drugs and Substances Act, the Food and Drugs Act and provincial consumer protection statutes) and - importantly - may also be subject to provincial cannabis legislation in connection with retail distribution. Advertising of any product may also be subject to the Canadian Code of Advertising Standards administered by the Canadian advertising industry’s self-regulatory body, the Advertising Standards Council. The Act also contains significant restrictions on cannabis product packaging, which will be the topic of a future article.

Prohibited Activities

The Act begins with a blanket prohibition on promoting cannabis products, accessories or services (either within or outside of Canada) if they do any of the following – unless a particular activity is expressly permitted elsewhere in the Act. Subject to the express permitted activities discussed below, a cannabis promotion cannot:

  • communicate information about price or distribution;
  • reasonably be considered as appealing to youth;
  • contain testimonials or endorsements;
  • depict a person, celebrity, character or animal (real or fictional); or
  • use a brand element to evoke a “way of life” / lifestyle.

The Act also prohibits (without exception) a promotion that includes false, misleading or deceptive information. Performance claims, in particular, are potential land mines and should not be made unless there is scientific support (such as a study) to back them up.

Similarly, promotional activities based on inducements are not permitted under any circumstance. This means businesses will not be able to run lotteries, games or contests, or to offer any products/accessories/services to consumers at no cost, where the goal is to induce purchases of cannabis or cannabis accessories.

Finally, the Act contains broad restrictions (but not an absolute prohibition) on sponsorship – a prohibition that Health Canada has made very clear that it takes seriously.

The prohibitions in the Act do NOT apply to depictions of cannabis products, accessories or services in artistic, academic or journalistic works so long as there is no consideration given, directly or indirectly, for the depiction. Similarly, there is no prohibition on business-to-business promotion of cannabis products between licence holders or on the promotion of cannabis accessories or services between persons selling such accessories or services.

Permitted Activities

There are limited exceptions to the broad prohibition on promotion of cannabis products, accessories and services described above. These include:

1. Informational or Brand-Preference Promotions. These are promotions that refer to brand characteristics or factual details of the cannabis product, accessory or service. This type of promotion is permitted, but only in the following scenarios:

  • Direct promotion to adults. Personalized informational or brand-preference promotional communications that are addressed (by name) to individuals who are 18 years of age or older are permissible under the Act.
  • Promotion in places where young persons are not allowed. Informational or brand-preference promotions may occur in locations where young persons are not permitted by law. To the extent that this includes any provincially-authorized cannabis retail location, it remains to be determined how this exception will integrate with the rules on point-of-sale promotions (see #2 below).
  • Electronic communications IF “reasonable steps” are taken to prevent access by minors. The individual responsible for the content of the promotion is also responsible for limiting access. It is currently unclear what will constitute sufficient “reasonable steps,” but public posts on social media (for example, Facebook, Twitter or Instagram) will likely run afoul of this rule.

It is important to note that only persons authorized to produce, sell or distribute cannabis are allowed to promote cannabis products in the above circumstances. Anyone, however, is permitted to promote cannabis accessories or services.

2. Point-of-Sale Promotion. The relevant provision of the Act specifies that point-of-sale promotions are permitted if they only specify the price and/or availability of the product, accessory or service. It is presently unclear how this restrictive promotional right interacts with the less restrictive right to conduct informational or brand-preference promotions in places where minors are not permitted by law. In all events, point-of-sale promotion of cannabis products can only be done by the person licensed to sell the product.

3. Branded swag. Cannabis brand elements may be displayed on items that are not cannabis or a cannabis accessory, as long as those items cannot reasonably be interpreted as being associated with or appealing to minors or with a particular lifestyle (such as glamour, recreation, excitement, vitality, risk or daring). Needless to say, there is much room to argue about what goods are associated with or appealing to minors. Hats and t-shirts, for example, would seem to be associated with every age of clothed person!

4. Sponsorship. Cannabis companies will not be permitted to use their name or brand elements to promote events, activities, facilities, individuals or entities. As a result, cannabis companies may not sponsor, for example, sporting events or music festivals.

A number of cannabis firms have invested in relationships with artists, including The Tragically Hip, Snoop Dogg and Trailer Park Boys. Given the current lack of interpretive guidance from Health Canada or binding statutory interpretation (i.e. case law), it is not entirely clear at this point to what extent the activities undertaken to date, pursuant to these relationships, would be compliant with the Act once it comes into force. It is quite likely that some of them would not be. In all events, industry participants should proceed with caution before inking any relationship (or at least before implementing public-facing activities under it) that might associate (in the minds of the public) an “influencer” with a cannabis company, given that Health Canada has clearly signalled that it will not take a relaxed approach to this issue.

Industry participants will also want to consider registering trademarks for any logo or other registrable mark associated with their brand. Registering a trademark is generally a relatively straightforward exercise, but industry participants should – ideally before finalizing their brand marks and seeking trademark registration – consider whether they will actually be permitted to use the proposed mark in commerce, given the restrictive promotion and packaging rules contained in the Act. There is no doubt that some currently-registered and pending cannabis brand trademarks will have to sit idle unless changes are made to the current restrictive regulatory regime.

Whether relating to sponsorship, packaging or other branding activities, businesses operating in the Canadian cannabis space should be designing their brand, and their advertising and promotion strategies, with a clear understanding of the Act’s restrictions and the opportunities that may or may not be available to them to use and protect their intellectual property.

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