Canada Passes Adult-Use Legalization Bill with Tight Advertising Restrictions

Canada Passes Adult-Use Legalization Bill with Tight Advertising Restrictions

Industry stakeholders discuss how cannabis companies can promote their businesses and build brands within federal regulations.

June 20, 2018

The Senate passed Canada’s cannabis legalization bill 52-29 June 19, and as industry stakeholders prepare for the launch of a fully legal cannabis market within eight to 12 weeks, they will be paying close attention to the regulatory framework established by this legislation, including strict advertising restrictions.

The Senate and House of Commons battled over Bill C-45, the Cannabis Act, for months, with the July 1 launch of adult-use sales postponed after the Senate requested more time to review the legislation. One of the main issues in contention was advertising, including corporate merchandise. Ultimately, the Liberal government rejected 13 of the Senate’s proposed 46 amendments, including a provision that would have banned cannabis businesses’ distribution of branded “swag,” such as T-shirts and hats that bear a company logo.

Now that the final bill has passed, specific regulations will be released in the coming weeks that outline advertising and other guidelines based on the law. “The law includes language about what you can and can’t do from a promotional perspective, but it’s fairly high-level, and so we anticipate that there will be regulations published sometime in the next couple of weeks that provide a clearer guidance around what activity can and can’t take place,” said Rebecca Brown, founder of Crowns, a Canada-based cannabis advertising agency.

In Parliament, there were mixed feelings about permitting cannabis companies to give out branded merchandise, said Jenn Larry, president of Canadian brand marketing and communications firm CBDStrategy Group. While some mocked the idea that branded items could contribute to underage use, others felt that company logos on clothing and other products would promote to the youth.

“It would behoove us all to not look at the microparts of what the Senate and House of Commons is trying to do and work toward the bigger picture to ensure the product quality, process, business values [and] fundamental frameworks are put in place, and build an industry responsibly that one day—should we have a door open to us for advertising—we change our own behavior and have taken a more mature approach and responsible approach to what advertising can mean not just to the bottom line, but to the health and wellness of the consumer, whether they’re an adult user or a patient,” Larry told Cannabis Business Times.

The bill will likely received Royal Assent this week, according to a BBC report, and then the government will choose an official start date for adult-use sales.

The Cannabis Act prohibits promoting, packaging and labeling cannabis products in such a way that could be appealing to youth or encourage underage consumption. The legislation also mandates that the packaging provides information that enables consumers to make informed decisions about the consumption of cannabis.

The company logo on the product can only be 25 percent of the package’s surface area, and the mark cannot be larger than the two health warnings that must be on all products, Joel Shacker, director of Vancouver-based cannabis lifestyle brand Weekend Unlimited, told Cannabis Business Times. “I think it’s important that we inform the consumers about the risks of any cannabis-related products,” Shacker said. “I think Canada needs to take a leadership role in that to make sure that any consumers who are trying the substance [are] aware that there are going to be some negative side effects, but I think it’s important that we are allowed to differentiate ourselves by branding because not all cannabis is created equal.”

Consumers need to understand the differences in greenhouse-grown cannabis, indoor-grown cannabis and the cultivation techniques used by each company to make informed decisions about which brands to buy, Shacker added. “If consumers are not able to understand the difference in that through the packaging, it makes it very difficult for them to understand what they like and generate their consumer preferences,” he said. “And as an industry, if the consumers are not able to understand what the difference is between their choices, it’s going to make it very difficult to develop the industry as a whole. So, if Canada wants to be a leader in this marketplace, we need to make sure that we’re able to allow companies to show how they differentiate themselves and give themselves some sort of way of demonstrating their brand so that consumers can associate the level of quality with each brand.”

Cannabis companies will not be able to buy advertising to promote their brands, Larry added. “It is important to distinguish that from a business capacity, it may not be considered as much advertising as it’s seen as outreach,” she said. “So, in a brand essence, this is where the creativity comes in and understanding the fundamental game-changer of not being able to promote your brand. No claims, no guarantees, no product benefits, no individual products within the suite, but making sure that in a responsible approach, if you are going to use advertising in any type of tactic, that it’s still done in a business capacity.”

“[The advertising regulations are] a bit of a hindrance for us Canadian companies in comparison to I think where the U.S. is going right now,” said Keith Dolo, president, CEO and director of Sproutly, a Canadian licensed producer that recently received a cultivation license and is looking to bring product to market this fall. Dolo is eagerly waiting to determine what can be branded and what cannot.

In Canada, cannabis is being regulated similarly to tobacco, which is regulated more tightly than alcohol in terms of advertising, Larry said. “In Canada, cannabis is not being looked at as alcohol, which has the freedom to advertise, promote, make apps, give out points for purchase,” she said.

“There are a lot of companies that have invested a significant amount of money—even more so than we’ve probably done at this point—to determine what their brand recognition is going to be, how they’re going to play on the space and the shelves with everybody else, how they’re going to market their product,” Dolo said. “That’s probably the biggest [concern] if you … talk to a lot of the cannabis companies that are out there. That’s really going to affect and change the business structure and the business model.”

The companies that already have products on the shelves will have to learn to capitalize on Canada’s brand structure, Dolo added. “We’re going to be very limited here in Canada and it’s causing a lot of concern as to how the companies are actually going to deal with it.”

Sproutly has not yet rolled out any branding strategies, but how to best position the company is certainly on the minds of everyone at board meetings, Dolo said. “We’ve really been limited at this point and not wanting to spend a lot of time and effort going down a path that we weren’t sure or clear exactly on what it was going to look like,” he said. “I think the biggest branding strategy is—and this is why we’re pivoting into the consumables and the beverage market—going to be to joint ventures with brands that already have existing products on the shelves.”

Cannabis companies can benefit from branding themselves next to the Frito-Lays of the industry—the ones that are already out there and succeeding in the space within the forthcoming regulations. “I feel like they’re going to have the branding power, the distribution and the capabilities to come up with much more enticing and interesting ways to get products either into their own consumable products or next to their shelves, where they already have brand power and brand space,” Dolo said.

Some companies have been exploring online content and marketing through social media platforms, he added, and although Sproutly may not take the same path, businesses have seen success through having individuals tweet and post Facebook messaging to reach their target audience.

“It seems to be that you’re going to have to find interesting ways to pitch your company and get it in the mind of consumers that are out there without having to put your logo on a bottle or put your ad on TV or in a newspaper or in a magazine,” Dolo said. “There’ll be some interesting and creative ingenuity, if you will, toward the branding exercises that we certainly see over the next little while.”

And while navigating Canada’s strict advertising regulations may seem daunting for companies eager to launch in the adult-use space, there are ways to thrive inside the box of regulation, Larry said. “I would say that hiring partners who understand how to help them navigate these spaces outside of their court agencies could be a really interesting approach. It brings you a neutral base that’s still very targeted to the key area of cannabis and hemp,” she said.

However, companies may have to get creative and look beyond advertising to reach their audience, she added. “I would say … to use these opportunities to remind ourselves that advertising is not the only vehicle that makes the difference in both improving the bottom line and improving the consumer experience,” she said. “I would really encourage companies to … [rethink] what advertising means to them and where those channels and touch points exist and how they will maximize them and the ability to scale them for tomorrow, in the spirit of it’s not a static industry.”

Companies should craft brands that are authentic to the business and the way it is positioning itself in the market, Brown said. Since the Cannabis Act mandates that any promotion must be informational or brand-preference driving in nature, businesses need to rely on their business model as a means of branding, sharing information about their leadership, employees, values and corporate culture.

“If you are going after women, for example, it will be easier in some ways to create a meaningful and resonate brand if that’s reflected in your company structure—like if you have female leadership—because you will be able to say things that are informational, like, we are the cannabis brand for women, we care about women, and that’s reflected in our hiring practice and in our leadership,” Brown said.

A company’s corporate story should be the same as its brand story, she added, and cannabis businesses should satisfy the need for good consumer information in the industry through their branding. “There is … consumer need for good information about what cannabis is [and] how cannabis works so that people have good experiences, and that’s important to everyone,” Brown said. “I think there’s also a utility role that brands can play in being a trusted ally … for their customers in really understanding where the need for information and education lives and delivering it in a way that is logical and accessible and makes sure everyone has a good experience.”

And as one of the first countries to end prohibition, all eyes are on Canada to see how legalization rolls out and which brands rise to the top. “There’s some fragility there, so we all need to be champions of the industry and the category while at the same time being as creative as humanly possible, which is kind of fun,” Brown said. “It’s a fun challenge.”

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