Online Advertising and Marketing for the Cannabis Industry – Where Does the Road Lead Now?

By Karl Kronenberger and James Weixel

With the approval of Proposition 64 in November, California welcomed the legalization of cannabis for recreational use in the state. At the same time, however, Prop 64 placed a number of advertising and marketing restrictions on the marijuana industry that are of special importance in the online arena. Additionally, the incoming Trump administration portends more hostility to state-level marijuana normalization efforts than previous administrations have. These circumstances will likely have a momentous effect on advertising networks and others in the online commerce space who intend to serve the cannabis industry.

Prop 64 contains an entire chapter, starting at section 26150 of the Health and Safety Code, relating to advertising and marketing of marijuana and marijuana-related products and services. Those provisions apply to advertising in any medium, including online marketing. One particularly onerous provision, Section 26151(b), requires ads and marketing content, including “digital communications,” to be displayed only “where at least 71.6 percent of the audience is reasonably expected to be 21 years of age or older, as determined by reliable, up-to-date audience composition data.” Networks, publishers, and others in the online advertising space will thus need to develop and use marketing data, advertising metrics, terms of use, contractual provisions, and other measures to ensure that their content is being directed only to age-appropriate recipients. Other provisions require advertisements to identify the licensee responsible for their content, and to use age verification methods to ensure that direct communications are received only by those at least 21 years of age.

The incoming administration has taken an antagonistic posture against the cannabis industry. Sen. Jeffrey Sessions (R-Ala.), who was recently tapped as the attorney general-designate for the new administration, has been one of the most vociferous opponents of the cannabis industry.

Other major requirements are more ambiguous, but of equal concern to marketing participants. For instance, Section 26151(d) requires all advertising to be “truthful and appropriately substantiated,” without further definition or guidance. Sections 26152 through 26154 set forth advertising restrictions similar to those in other controlled industries, including a ban on advertising near schools or day care centers, or marketing content that is “known to appeal primarily to persons below the legal age of consumption.” Presumably, this means cartoon animals or other fanciful content will run afoul of Prop 64’s restrictions. Also banned are untrue or misleading representations regarding the health effects of cannabis consumption, as well as giveaway promotions and the like.

One provision of which online advertising entities should be aware is Section 26160’s requirement that marijuana licensees keep accurate records of “commercial marijuana activity.” Although Prop 64 appears to direct those requirements at the actual licensees, the definition of “commercial marijuana activity” is sufficiently broad that it could possibly be read as including advertising and marketing partners. It might therefore be prudent for ad networks, publishers, and others to develop retention policies and practices for the services they provide to the cannabis industry, even though they themselves are not actually selling or otherwise distributing marijuana-related products or services.

Looming over Prop 64’s liberalization of California’s marijuana trade, however, is the result of the presidential election. In the past several years, the U.S. Department of Justice has relaxed its criminal and civil enforcement efforts against members of the cannabis industry in states where legalization has occurred. The two “Cole memos” released by the DOJ in 2013 and 2014 expressed a government policy of not pursuing active federal enforcement against cannabis industry participants so long as they are complying with adequate state-level regulatory schemes and are not engaged in activities of such a magnitude that they present a danger to federal interests (such as international smuggling, or diversion of marijuana to illegal uses). The marijuana industry has since relied on these policy statements to govern its activities and to gauge the likelihood of federal intervention.

In the past, President-elect Trump has made rather tepid statements about his tolerance of marijuana use and trade that might have led to a conclusion that the laissez-faire federal enforcement policy would continue. However, in the weeks since the presidential election, the incoming administration has taken an antagonistic posture against the cannabis industry. Sen. Jeffrey Sessions (R-Ala.), who was recently tapped as the attorney general-designate for the new administration, has been one of the most vociferous opponents of the cannabis industry, even going so far as to have been once heard to say that he was “OK” with the Ku Klux Klan until he heard some of its members smoked marijuana. Such a choice for the nation’s chief law enforcement post can hardly inspire hope for the continued vitality of the legal cannabis trade, or for the liberalization and growth of the provision of online marketing services to that industry.

In summary, despite the legalization of marijuana for all purposes in California, the landscape of the cannabis industry continues to be a complicated one. The upcoming changes at the federal level will likely present even more challenges. These changes will affect not only direct participants in the marijuana trade, but also online advertising and marketing providers looking to serve cannabis-related commercial entities. As leaders in the provision of legal services to the online commerce community, we at Kronenberger Rosenfeld, LLP are uniquely qualified to assist and advise advertisers and marketers serving the cannabis industry. We invite you to contact us to see how we can help your efforts.