Brand recognition is a holy grail among cannabis brands competing in the nascent regulated market. The industry is attracting top-caliber creatives. Exciting new brand collaborations abound, and ancillary providers leveraging data enable unprecedented insights into cannabis customer behavior.
But, as any cannabis marketer will tell you, getting customers’ eyes on cannabis products is a challenge, both inside and outside of a dispensary. Many digital advertising and social platform providers will not carry cannabis ads, and states (like California) typically pass stringent cannabis advertising and marketing rules.
It’s not just billboards. Early this year, California state regulators reached out to the cannabis community with new guidance: “licensees may not place new advertising or marketing on any interstate highway or state highway that crosses the California border,” and any existing advertising and marketing within that space should be removed. The guidance was spurred when a formal judgement was entered by the San Luis Obispo County Superior Court holding that Section 5040(b)(3) of the BCC’s regulations, which would have only prohibited such advertising within 15 miles of the state’s border, is invalid. It seems BCC will not appeal the ruling.
Misbranding allegations hit California cannabis.
A recent case in California illustrates how cannabis product labeling can create legal exposure beyond regulatory risk. A class action lawsuit is underway in the San Francisco Superior Court involving whether Central Coast Agriculture, LLC DBA Raw Garden misled consumers by labeling certain cannabis vape cartridges as “Refined Live Resin” where the products contained distillate and reintroduced terpenes. “Live Resin,” plaintiffs argue, refers to a materially different product—one that categorically excludes distillation where a cannabis flower is flash-frozen, organic compounds are extracted using a solvent, and then the solvent is removed from the extracted compounds. Among the questions the court will resolve: whether the liquid in Raw Garden’s vape cartridges is properly described as “Refined Live Resin,” and whether a reasonable consumer would be misled as to the true nature of the liquid contained in such vape cartridges by the “Refined Live Resin” label. Or, as the court put it, whether the “Refined Live Resin” label “tells reasonable consumers that they are getting the good stuff, but the good stuff [is] not in the cartridge.” Plaintiff brings six causes of action under California law: violation of the Unfair Competition Law (“UCL”) (by virtue of breaking cannabis-specific and general misbranding and false branding statutes), the False Advertising Law (“FAL”), the Consumer Legal Remedies Act (“CLRA”), as well as claims breach of implied warranty and negligent misrepresentation.
Did we think early cannabis class action litigation would go straight to the matter of live resin? Not necessarily. It seemed possible that cannabis cases would mirror CBD litigation, which in many instances involves the potency and legality of the product. But, just as the food industry litigates certain descriptive product claims (i.e., “sugar free,” “artificially flavored,” “contains 100% real fruit juice”) so will the cannabis industry define key product differentiators in courts of law.
TCPA lawsuits continue to plague the cannabis industry, highlighting the need for compliance in D2C communications.
Cannabis companies nationwide have emerged as a target for class action lawsuits under the federal Telephone Consumer Protection Act (“TCPA”). Broadly speaking TCPA litigation typically involves one or more of the following statutory violations: (1) automated calls or text messages without the requisite prior consent of the recipient; (2) call or text messages to telephone numbers registered on the Federal “do not call” list; (2) calls or text messages to customers that have opted out of receiving such communications; and (4) the company engaging in calls or text messages has failed to implement and maintain required procedures. Penalties can range from between $500 to $1,500 per individual violating call or text. If your cannabis company has any doubt as to its compliance with TCPA, seek assistance from counsel.
BCC Fact Sheet on Branded Merchandise, as well as California marketing and advertising statutes and regulations, leaves wake of uncertainty regarding branded merchandise.
MAUCRSA and BCC regulations establish rules for cannabis advertising. BCC regulations establish certain rules for selling cannabis branded merchandise, and BCC Fact Sheets provide additional guidance. An updated 2020 BCC Fact Sheet on branded merchandise
cast further uncertainty on branded merchandise requirements by creating a new standard when branded merchandise is also “advertising”—and therefore subject to additional requirements. In particular, the BCC Fact Sheet provides that stakeholders should “consider” the following when making this determination:
· Whether the item is intended to encourage individuals who view it to purchase cannabis goods.
· Whether the item is intended to raise awareness of the licensee’s brand.
· Whether the item is intended to be viewed within the licensed premises, within a customer’s private property, or in public.
· Whether the item is a cannabis accessory that simply indicates that brand of the merchandise for identification purposes.
· Whether the purpose of the item is to satisfy a regulatory requirement such as an exit bag, which simply indicates where the purchases were made.
BCC goes on to say that when branded merchandise is indeed “advertising,” the merch must comply with the following:
· Must identify the licensee responsible for the advertising content, including the responsible licensee’s state license number, on the branded merchandise. The responsible licensee’s license number must be clearly visible as required with other forms of advertisement.
· Cannot be sold while a licensee’s license is suspended.
· Cannot be designed in any manner likely to appeal to anyone under 21 years of age.
What are stakeholders to make of the Fact Sheet? For one, even though the “considerations” are lamentably broad, we resist the interpretation that all branded merchandise is advertising. But where to draw the line is a fact-specific inquiry. Next, where cannabis merchandise IS advertising, whose license number goes on the merch where the brand belongs to an “unlicensed” entity—such as one with arms-length private label agreements with several manufacturers? We note also that the Fact Sheet introduced new guidance limiting a cannabis retailer to selling only its own branded merchandise—an unpopular provision and arguably regulatory overreach by the BCC.
Cannabis advertising and marketing rules are unclear and, as written, difficult to apply to modern cannabis marketing efforts. Until clarified by legislators, regulators, or the court, most clients seeking to promote a cannabis brand face uncertainty and risk—but it is possible to navigate the choppy waters. To safeguard your investment in your cannabis brand, an attorney should review any marketing or advertising campaign, and any branded merchandise.