Collins | Cannabis-Related Advertising A Cloudy Situation
Recreational marijuana became legal in Illinois on Jan. 1 of this year. Not wanting to miss out on any potential sales, a number of the newly licensed retailers opened for business on New Year’s Day. Potential customers were met with hours-long lines. It wasn’t much more than a week before dispensaries were posting out-of-stock signs.
There’s no question that the laws around the sale of marijuana and other cannabis-derived products (formally cannabis sativa L) are changing. If the results from Illinois’ early sales are any indication, there’s significant consumer demand for the products. This seems to be a situation tailor-made for media advertising outlets, particularly those in areas not expecting the political advertising windfall I discussed in my last column.
Unfortunately, advertising for products containing marijuana, cannabidiol (CBD) or even hemp is constrained by a web of federal and state laws. Moreover, these laws are in a state of flux.
Legal experts Daniel Kirkpatrick and Seth Williams from Fletcher, Heald & Hildreth prepared an article on the subject for the January/February 2020 issue of MFM’s member magazine, The Financial Manager. Then, at the end of January, they were joined by the firm’s Frank Montero in a webinar for state broadcasters’ associations, which included updated information on the topic.
The bad news is “it is a felony to use a communications business to facilitate the sale or distribution of illegal drugs.” Communications businesses include broadcasters as well as MVPD providers, newspapers, magazines, and online publications.
Further, for broadcasters, “A felony conviction may disqualify a person or entity from holding a license under the FCC’s evaluation of a licensee’s ‘character.’ ”
The good news is that things are not as straightforward as they may seem. The first thing to keep in mind is that “the 2018 Farm Bill effectively legalized hemp, subject to the oversight of the U.S. Department of Agriculture (USDA), state and tribal regulators.” Hemp is defined as the cannabis plant containing a maximum of 0.3% tetrahydrocannabinol by dry weight.
Recent updates to that 2018 Farm Bill gave states and tribes the authority to regulate hemp, providing that the USDA approves the plans, which it has already begun doing. In the short-term, the USDA provided states with an interim plan that will be effective for as long as two years.
Hedging Bets On Hemp
Not all hemp is created equal. To qualify as legally produced, and therefore a legitimate advertising candidate, the hemp must have been produced under an approved plan by a grower licensed according to state — or tribal — regulations. Additionally, states may regulate advertising of hemp or of the compound CBD.
To help mitigate risk, the Fletcher, Heald & Hildreth experts recommend that advertising agreements for these products include indemnification language “requiring the advertiser to certify that it fully complies with relevant state and federal regulations.” Of course, they are also quick to point out that this language may not be enough to prevent “legal or enforcement action.”
Edibles And CBD’s Healing Power
The Federal Trade Commission is responsible for prosecuting false or unsupported advertising claims. Additionally, as explained on its website, the “Food and Drug Administration is responsible for protecting the public health by ensuring the safety, efficacy and security of human and veterinary drugs, biological products….” To date, the FDA has approved only one CBD-based drug, Epidiolex, used to treat a rare form of epilepsy.
This means that media organizations must be on guard against advertising that could be construed as offering medical benefits. This might include saying a CBD product can “cure,” “treat,” “do wonders for” or otherwise remedy a specific symptom or disease.
FDA rules make it illegal to “sell food that contains CBD or to sell CBD as a ‘dietary supplement.’ ” This can also be extended to cosmetics if they are “intended to affect the structure or function of the body,” or to offer what could be interpreted as medical benefits as outlined above.
The agency is taking its responsibility seriously. At the end of November 2019, it issued a press release detailing 15 recent warning letters to companies “illegally selling various products containing cannabidiol as agency details safety concerns.” Unfortunately, this enforcement action comes at the same time that both a number of retailers and food and beverage companies are introducing and marketing ingestible products that contain CBD.
Worse yet, with a number of states considering legislation to legalize ingestible CBD products, such laws can be both inconsistent with federal regulation and in conflict with state and local health regulations.
At the 50,000-foot level, the decision about whether to accept marijuana advertising is straightforward. Marijuana “is illegal at the national level; therefore, it also remains federally illegal to advertise marijuana.”
However, as the authors point out: “Some media organizations have started accepting advertising from legal growers or distributors of marijuana in states where the sale of marijuana is legal.” This business decision is primarily predicated on the understanding that the Department of Justice is taking a “hands-off” approach in states where marijuana is legal. So, while this approach is subject to change at any time, at the moment, “factors that could attract federal law enforcement attention” include:
- Distribution or marketing to minors.
- Sales by criminal enterprises (gangs and cartels).
- Distribution in states where marijuana remains illegal.
- Use of authorized marijuana sales to cover for other illegal activity.
- Use of violence or firearms in the cultivation or distribution of marijuana.
- Drugged driving and other public health impacts.
- Growing marijuana on public lands.
- Possession of marijuana on federal property.
The authors also point out that those communications businesses that decide to accept marijuana advertising must be cautious. First and foremost is the knowledge that “the FCC has specifically cautioned broadcasters not to accept any marijuana advertising.”
Next, the media organization will want to ensure that the advertiser is licensed both in the state in which its business is located and in the state in which the ads will run. The legal experts recommend including indemnification language (see above) in any such advertising agreements and that the ads be particularly conservative when it comes to health or other advertising claims.
“Finally, media organizations must comply with any state advertising regulations for marijuana.”
Both the CBD and cannabis goods markets continue to experience significantly accelerated growth and substantial margins. Media organizations wishing to take advantage of the related advertising revenue opportunities must consider establishing best practices to ensure that all new cannabis-related advertising complies with both the company’s internal policies and all applicable regulations.
The rules around controversial advertising, which includes cannabis products as well as categories such as gambling, vaping, and alcohol, are in a state of flux. For this reason I expect this topic to be on the agenda for both MFM’s upcoming CFO Summit (March 5-6 in Fort Lauderdale, Fla.) and our annual conference, Media Finance Focus 2020, (May 18-20 in Los Angeles).
Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. She can be reached at [email protected] and via the association’s LinkedIn, Facebook, Instagram and Twitter accounts.