Legal Pot Doesn’t Mean Ad Dollars Just Yet

Earlier this month, Maryland became the 20^th U.S. jurisdiction to legalize marijuana for some uses within its borders. Ten other states have pending legislation to do the same.

Legalization varies from state to state. Most of the 20 have legalized “medical marijuana” — to treat pain and other aspects of illness. Maryland authorized medical marijuana only for “investigational use” by “academic medical centers.” California’s medical marijuana law has spawned an estimated 2,100 or more dispensaries in the state, employing thousands and generating many millions of dollars in taxes to the state and local governments. In Colorado and Washington, voters approved ballot initiatives last November to legalize recreational use of the drug.

Does this marijuana phenomenon – adopted or being considered in at least 29 states and the District of Columbia — create a new, law-sanctioned category of advertisers on broadcast stations, cable systems and other multichannel video program distributors (MVPDs)? 

Potentially, yes. But there are two levels of significant obstacles that make it unlikely for TV and radio now.

1.  State or local regulation of marijuana-related advertising.

Though authorizing production, supply and use of medical marijuana, state legalization may limit or proscribe advertising it. Montana is an example. No marijuana advertising in any media, including email and websites. It is necessary to check state and local law for each jurisdiction covered by a TV signal. Also, state and local laws could change over time based on each state’s experience with legalization, and conflicts between local and state law may have to be resolved.

The Denver City Council voted unanimously to ban all outdoor medical marijuana ads — from billboards, posters and bus benches to windshield leaflets and sign twirlers. The city council allowed broadcast, print and online advertising by marijuana businesses, but required that the ads say that the products advertised are only for Colorado-registered medical marijuana patients. Compliance with that would not make the advertising legal under federal law.

2.  Federal law: the big gorilla. 

Nationwide, federal law continues to ban production, distribution, possession and use of marijuana for medical and all other purposes. The Controlled Substances Act of 1970 (CSA) defines marijuana as an illegal Schedule 1 “dangerous” drug, the most serious category of controlled substances. Violation is a felony. Heroin is also a Schedule 1 drug federally.

Of particular interest, the Schedule 1 drugs are defined to have “no currently acceptable medical use.” In contrast, cocaine is a Schedule II drug in the federal law because it has limited medical use.

Last January, the U.S. Court of Appeals for the D.C. Circuit, often considered the nation’s second most powerful court, turned down a challenge to the CSA’s classification of marijuana.   The court did not address whether marijuana could have medical benefits, but upheld the federal government’s decision not to initiate proceedings to change the current federal law classification. This is not, however, the last word on this.

What’s next? The stark conflict between state and federal law may be resolved eventually. For example, Congress could amend the CSA to allow medical marijuana use and establish federal standards for it. Legislation has been introduced in the House of Representatives to decriminalize marijuana in federal law and let states regulate it as they do for alcohol. Thus far, such measures have not moved far in the legislative process. Court challenges could also shape resolution of the conflict. So far the FCC has not addressed the issue.

At a minimum, this creates legal uncertainty and a flashing red light for would-be advertising media, particularly for federally licensed TV and radio stations and MVPDs that hold FCC or other federal licenses. Although broadcasters are regulated mainly by the FCC, and MVPDs by state and local government, both have federal technical and policy standards and some FCC licenses.

Asked last December about recreational use legalization in the first two states, President Obama acknowledged the state/federal law conflict, and the federal government’s obligation to enforce current federal law. He called for a conversation to reconcile the conflict. Federal law enforcement, he said, has “bigger fish to fry” than recreational marijuana use in the two states legalizing it. 

Under that approach, might the same reasoning apply even more to state-legalized medical marijuana?  Eventually, perhaps, but now:

• Justice Department officials announced planned enforcement of the federal ban on marijuana in states that have legalized it, notwithstanding President Obama’s indication that there are bigger fish for the federal government to fry than recreational marijuana in two states.

• In California in 2011, federal law enforcement agents seized 3.9 million marijuana plants, and planned to expand that effort in 2012 and beyond.

• A U.S. attorney in Southern California announced that he would prosecute those responsible for marijuana ads, apparently including media carrying the ads and those who lease space to the clinics. On May 2, 2013, the federal government filed a lawsuit in U.S. District Court in San Francisco against the landlord of the largest marijuana outlet in Berkeley, Calif. The suit seeks seizure of the landlord’s property, partly under federal drug laws.

Unlike landlords leasing space to clinics, and most other businesses, broadcasters and other FCC licensees cannot do business without an FCC license. FCC initial license and renewal applications require certification that the applicant has the necessary character qualifications to hold a license, including compliance with certain types of federal laws. Good character is a continuing requirement for licensees. We are in the midst of a broadcast license renewal cycle now.

Also, FCC-regulated media are frequently in interstate commerce.  Signals do not stop at borders. This is another basis for federal law enforcement. 

Further legal developments may change this contorted landscape over time. Meanwhile, broadcasters and MVPDs lured by marijuana ad revenue in states that legalize it must ask themselves (and perhaps their counsel) whether the risk of federal enforcement outweighs the benefits of accepting ads from a new and growing industry. 

Accepting those ads raises other non-legal questions for stations to ponder, such as the impact of marijuana advertising on other advertisers and viewers. On the legal side, caution is my watchword for now, until the conflict between state and federal law is resolved and it is clear that FCC licensees do not risk federal prosecution and/or loss of license. 

As the number of states legalizing marijuana grows, pressure will increase for amendment of federal law. When that change might occur is an open-ended question.

This column on TV law and regulation by Michael D. Berg, an experienced Washington communications lawyer and the principal in the Law Office of Michael D Berg, appears periodically. He is also the co-author of  FCC Lobbying: A Handbook of Insider Tips and Practical Advice. He represents commercial and noncommercial television and radio broadcasters, and others.

He can be reached at 1200 New Hampshire Ave., Suite 800, Washington, D.C. 20036-6802; [email protected]; or 202-776-2523. Read more of Berg’s Legal Memos here. 

Manny Fragata, a legal intern at Berg’s firm, contributed to this article. He expects to have his Juris Doctor degree in 2014 from the Georgetown University Law Center. His email address is [email protected].