In my early days as a young entrepreneur I was under the illusion that building a great product was all it took to find success. This might be true for some, but for most, creating a great product or service is only half the battle. The other half is sales – marketing, advertising, and getting consumers to believe that there is nothing else in the world that they would rather do than buy your product or service.
Crafting a solid marketing plan is the first step toward making sales magic happen. To begin, technological innovations of the twenty first century provide an abundance of ways to market a product or service. There’s the traditional television or radio advertisements, newspaper ads, cold calls, or even billboards. On the internet there’s search engine optimization (SEO), Google ads, blogs, websites, and social media. As any salesperson will explain, there’s no universal silver bullet to get a product or service to stick with a target demographic. A great place to start with any marketing plan is to ask the question: “What is the best way to reach my target market?”
But what if I wanted to sell a product or service in the marijuana industry? The game changes. The question now becomes: “Is it possible to reach my target market?” Ultimately, the answer is yes, but not without careful consideration of legal risks and regulations.
For example, in Colorado, recreational marijuana advertisements are only permitted if the medium can show that more than 70% of the audience is over the age of 21. This goes for television, radio, print media, internet, and just about anything else you can think of. Brick and mortar stores can only advertise outdoors solely for the purpose of identifying the location of their store and cannot place ads that specifically target out of state tourists.
As for the last real frontier – the internet – the Colorado Code goes in depth as to what a marijuana business may accomplish online. Principally, a Colorado marijuana business is restricted from advertising via mobile phones, unless they are marketing through an installed app where the device owner is 21 years of age of older. Additionally, pop-up advertising on the internet is banned as well.
Can the Colorado government really make rules like these? What about freedom of speech? In June 2014, High Times, the well known marijuana culture magazine, filed a federal lawsuit arguing that Colorado’s laws violate its First Amendment right to free speech. In general, the First Amendment protects commercial speech as long as it concerns a lawful activity and is not misleading. Comparable laws have been declared unconstitutional in the past. In 2001 the Supreme Court in Lorillard Tobacco v. Reilly rejected a Massachusetts ban on tobacco billboards that fell within 1,000 feet of a school. By applying the traditional intermediate scrutiny analysis for commercial speech, the Court found the government’s interest in enacting the law was not substantially related to the government’s interest of protecting minors, and the Massachusetts law was struck down.
In Colorado’s case, the laws in question (such as the 70% rule) are more restrictive than the limits overturned in the Lorillard ruling, and would likely be struck down as well. However, there is one key difference between Colorado’s marijuana marketing laws and the ones overturned in Lorillard– through the eyes of the federal government, the sale of marijuana is an unlawful activity. Consequently, in 1980 the Supreme Court ruled in Central Hudson Gas & Electric v. Public Service Commission that the First Amendment does not protect “commercial speech related to illegal activity.”
So where does this leave us? At this point in history, First Amendment freedom of speech claims and the Federal Government in general are unlikely to threaten Colorado’s marijuana marketing and advertising regulations because of the precedent set in the Central Hudson case. However, aside from the U.S. Constitution, Colorado has its own state constitution equipped with commercial free speech provisions. If a claim was filed against the state of Colorado, there is a chance that the advertising regulations would be struck down as unconstitutional. This question remains unanswered by the courts.
As for Washington, the marketing and advertising landscape does not appear to be much better, and maybe worse, in terms of how, where, and what marijuana companies can market. To begin, like Colorado, a retail cannabis business only gets one sign visible to the public and cannot include any statements that are false or misleading on any of their products. Additionally, marijuana advertising cannot promote overconsumption of cannabis, represent that marijuana has curative or therapeutic effects, or appeal to children.
Probably the harshest provision of I-502 states:
“No advertisements for marijuana or marijuana infused products can be placed — in any form or through any medium — within 1,000 feet of a school, playground, recreation center, child care center, public park, library, or game arcade open to those under the age of 21.”
Statutory language such as “in any form or through any medium” allows the state of Washington to decide what exactly qualifies as a “form” or “medium.” Fortunately, the Washington Liquor Control Board provides an FAQ that provides guidelines on interpreting provisions from I-502. To summarize, Washington considers traditional advertising outlets such as television and radio as “mediums” which are constantly within 1,000 feet of a school. These restrictions severely limit a marijuana business’s ability to advertise its products and services via traditional advertising avenues without the risk of being prosecuted. However, similar to Colorado, some if not all of these rules and regulations could be subject to a freedom of speech unconstitutionality argument against the state.
What of the Medical Marijuana States? In California, Proposition 215 and the partnering regulations say nothing about marketing and advertising, so it must be legal… right? Wrong. As quick as California is to allow medical marijuana, in recent years federal law enforcement officials are just as quick to enforce Federal law, which prohibits people from placing ads for illegal drugs, including marijuana, in “any newspaper, magazine, handbill or other publication.” Various U.S. Attorneys throughout California have vowed to enforce federal law against wrongdoers. However, some have not. The Sacramento Bee, a printed publication out of Sacramento, CA, has been running ads for medical marijuana affiliates since 2011. By charging up to $2,000 per full-page ad, the business of marijuana advertising is far too lucrative for them to ignore—and is apparently worth the risk of federal prosecution.
While smaller publishers in California continue to take these types of moneymaking risks, bigger, deeper-pocket corporations are feeling the sting of the Feds. Just ask Google, who paid out a $500 million dollar settlement in 2011 for displaying advertisements that led to illegal imports of prescription drugs. Although Google has never tested the waters by running marijuana ads, Google, Facebook, or any of their affiliates do not allow anything marginally related to marijuana (including e-cigarettes) in their ad programs.
When will this hostile legal environment change? Will it ever change? To continue the Big Tobacco comparison from my earlier post, over a multi-decade tenure the tobacco industry has been repeatedly hit harder and harder by marketing and advertising regulations. In 1997, the Tobacco Master Settlement Agreement banned outdoor, billboard, and public transportation advertising of cigarettes in 46 states. It also prohibited tobacco advertising that targets young people and the usage of cartoons (such as Joe Camel) in association with their products. The most recent regulation – The Tobacco Control Act – was signed into law by President Barack Obama in June of 2010 and limits audio ads to no music or sound effects, and video ads to static black text on a white background. The days of the infamous “Marlboro Man” are long gone as big tobacco companies rely mostly on price discounts paid to cigarette retailers or wholesalers to reduce the cost of cigarettes to the consumer. Last year, this category accounted for 73.7 percent ($9.21 billion) of the Tobacco industry’s marketing expenditures.
If the marijuana industry grows into the new Big Tobacco, marijuana marketing and advertising may suffer the same restrictive fate. However, in states like Washington, where marijuana is being regulated by the same state agency that regulates alcohol, there remains hope that the marijuana industry could shift into being treated more like alcohol than tobacco.
Fortunately, the alcohol industry in the United States remains mostly unscathed by broad sweeping regulations on marketing and advertising. We’ve all seen the annual Budweiser commercial on Super Bowl Sunday where the golden retriever puppy makes friends with a Clydesdale horse.
The tear-jerking tale of two animal friends is enough to melt one’s heart and always leaves me wondering – was that a beer advertisement? Apparently it served its purpose because I remember the commercial vividly—as well as the fact that Budweiser was responsible for it. In the Big Tobacco industry, commercials like this are long gone. But in the world of Big Alcohol, companies like Budweiser have no problem creating marketing campaigns that appeal to and capture the interest of the American mainstream.
In the United States, the alcohol industry utilizes self-regulatory bodies that decide standards for the marketing of alcohol. Similar to the Colorado marijuana industry, the current standard is that alcohol advertisements can only be placed in media where 70% of the audience is over the legal drinking age. As long as the alcohol companies stay above 90% compliance with the 70% rule, ”particular attention” is not warranted by enforcement agencies such as the Federal Trade Commission (FTC). Additionally, unlike the undeveloped marijuana industry, the sub-industry behind staying compliant with alcohol regulations is seasoned and sophisticated, allowing alcohol companies to pinpoint and gain access to their target demographics with great accuracy and minimal fear of infraction. The FTC has even gone as far as to recommend the use of social media platforms as advertising outlets because of the detailed information they keep about the age of their users.
If nationwide support continues to grow, it’s not obscene to think that marijuana could follow the same path as alcohol. Don’t forget, less than a century ago alcohol was illegal, and through years of planning, refinement, and compromise the now $400 billion per year industry has found a way to make it all work.
The marijuana industry in the United States is no longer in the shadows. Although unpredictable, the best glimpse at its future is to examine the current state of the industry and align it with trends in comparable industries. From a business perspective, this type of forecast helps navigate risk and identify opportunity for those who dare to take the plunge. If I wanted to start-up in the industry tomorrow, here are several approaches that I might take with marketing and advertising:
If I started my own marijuana business today, one approach I could take to marketing and advertising would be to limit or choose not to market my product or service at all and focus on building a great product. I would bet on regulations like those in Colorado and Washington being struck down as violative of freedom of speech and hope that the marijuana industry moves in the direction of Big Alcohol instead of Big Tobacco. This would keep me above the law, my business afloat, and keep me poised to market and advertise to the masses if and when the regulations change. The problem with this approach is that I would be allowing my bolder competitors to gain an edge on me while they attain a first-to-market competitive advantage and market to a pool of eager marijuana consumers.
A second approach would be to follow whatever everyone else in the industry was doing in my particular state and try to blend in with the crowd. I’d also seek out a strategic business partner or hire someone experienced with marijuana compliance. This might be expensive, but of much less cost than trying to run a business from prison. In states like Colorado and Washington where rules and regulations are more defined, I might take some calculated risks in an attempt to gain access to untouched consumers by skirting the grey area of the rules. For example, I might put up a professional looking billboard (out of harm’s way those under 21) that listed my business name and where to find out more about my company. At first hint of legal trouble, I would scale back. If possible, I would consult industry experts before taking any significant risks.
And finally, if I were a savvy millennial ganjapreneur – in tune with the latest trends of the internet, social media, and technology in general – I would use the internet to find the best and least risky marketing channel to my potential customers. Websites and apps like Weedmaps and Leafly provide private web platforms that allow direct access and advertising to people who are looking for marijuana products and services. The best part about it all is that these companies do all the hard legal work in ensuring that they stay in compliance with state laws so that I wouldn’t have to. I would get on Twitter, Facebook, and possibly Instagram, and promote my brand and company directly to the consumers. As long as social media platforms choose not to privately censor media relating to marijuana (something I’ll discuss in a later post), the cost and benefit are hard to beat.
As the marijuana industry continues to grow and expand across state lines, staying up to date with the ever-changing laws and regulations and how they are being applied is a strategy that I would utilize on a daily basis. Any combination of the aforementioned approaches could ultimately pave the way for success. However, the volatile nature of the marijuana industry bears a stark reminder – in this industry there are no guarantees.
Jeff Madrak for Drug Law and Policy – Follow us on Twitter @DrugLawPolicy