Author Archives: jmadrak

Private Censorship in the Marijuana Industry

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Private Censorship in the Marijuana Industry Tech entrepreneurs are no strangers to the marijuana industry: just ask the teams behind Leafly or Weedmaps, two websites making millions off of their presence in the App Store and Google Play. With limited options to market and advertise, marijuana businesses often take to these types of apps and social media outlets to advertise their products and services.

Take Instagram, for example. Now owned by Facebook, Instagram is a popular photo editing and sharing app that can be found on the App Store and Google Play. With over 300 million users, Instagram is one of the largest worldwide social networks. To gain popularity on Instagram, people use hashtags (#) to categorize photos so that others can easily search and browse through different photo collections. In recent years, large and small companies of many different industries, including marijuana, have allocated thousands of dollars to market their brands and products to the masses on Instagram.

If you wanted to check out some photos of marijuana on Instagram, the first thing you might do is search by the hashtag “weed” (#weed).

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You’ll notice in the screenshot above that #weed doesn’t even exist on Instagram. What is the reason for this?

One theory is that Instagram is doing this to protect its users. Part of posting a photo on Instagram is geo-tagging the photo so that other users can see where the photo was taken. Recently, police across the country have been using this Instagram feature to pinpoint the whereabouts of lawbreakers and bring them to justice. Because posting photos of marijuana to social media sites is considered “reasonable suspicion,” police are using Instagram as a resource to supplement their more traditional efforts of law enforcement.

Another theory is that by allowing its users to freely post pictures of marijuana, Instagram executives, along with Instagram users, could be held criminally liable. A quick scan of Instagram’s Terms of Use reveals that:

“6. You may not use the Instagram service for any illegal or unauthorized purpose

14. You must not, in the use of Instagram, violate any laws in your jurisdiction”

Because marijuana is still federally illegal, Instagram can find a violation of terms #6 and #14 in just about any picture of or relating to marijuana. A possible justification for these broad terms is that, legally, allowing any picture that solicits the sale or promotes the use of marijuana – activities that still remain felonies under federal law – could put Instagram affiliates in harm’s way.

From Instagram’s perspective, censoring marijuana related photos might be in the company’s best interest. In 2011, Google executives faced potential incarceration for allowing Canadian pharmaceutical companies to advertise illegal prescription drugs via AdWords to consumers in the U.S. Since then, companies that rely on their own large ad platforms to generate revenue, such as Facebook and Google, strictly prohibit marijuana and related paraphernalia from their ad programs.

Although Instagram isn’t technically an advertising platform, their business model makes them responsible for controlling the content that is posted to their servers. Perhaps it is just not worth it for a company as reputable as Instagram to test the boundaries and risk their livelihood.

But one man’s ash is another man’s soil.

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Just ask Massroots – the marijuana tech start-up that is building an online community of cannabis consumers. From an objective view, Massroots is literally an Instagram clone. The only real difference is that Massroots is exclusively for marijuana related pictures and videos. Growing from 20,000 to almost 300,000 users in just over a year, Massroots recently filed for an initial public offering, and as of April 9th, is trading publically under the ticker MSRT.

In this instance, private censorship gave rise to a new (but hardly unique) business that was willing to take risks that others wouldn’t. This is yet another example of the marijuana industry beating the odds and finding a way to grow.

Jeff Madrak for Drug Law and Policy – Follow us on Twitter @DrugLawPolicy

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Green Money: The Basics of Investing in Marijuana

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It’s not often that an industry with multi-billion dollar growth potential materializes out of thin air. Despite the morality issues, legal risks, and ethical concerns that plague the marijuana industry, investors – big and small – are buzzing about the rise of marijuana. Whether you are an activist, looking for any way to help push the industry forward, or simply have dreams of doubling and tripling your money overnight, here is what you need to know.

Investing in Public Companies

If you are an average person with no in depth marijuana industry insight or business experience, the easiest way for you to get a piece of the marijuana industry is by buying stock. A good place to find marijuana companies that are offering equity to the public is http://marijuanastocks.com/.

The first thing you might notice is that shares in the marijuana industry are not listed on the major exchanges and are instead available over-the-counter (OTC). If you are not familiar with OTC trading (otherwise known as penny stocks), OTC or off-exchange trading is done directly between two parties, without any supervision of an exchange. It is contrasted with exchange trading, which occurs via exchanges. A stock exchange has the benefit of facilitating liquidity, mitigates all credit risk concerning the default of one party in the transaction, provides transparency, and maintains the current market price. In an OTC trade, the price of shares is not necessarily published for the public. There is an inherent danger in this as there is reduced oversight, and therefore increased risk with OTC stocks.

In regard to marijuana stocks, The Financial Industry Regulatory Authority (FINRA) recently warned investors about potential scams associated with marijuana-related stocks. In particular, FINRA warned about the well-known ‘pump-and-dump’ scheme, in which, fraudsters lure investors with aggressive, optimistic — and potentially false and misleading — statements or information designed to create unwarranted demand for shares of a small, thinly traded company with little or no history of financial success (the pump). Once share prices and volumes reach a peak, the con artists behind the scam sell off their shares at a profit, leaving investors with worthless stock (the dump). If you’ve seen the popular movie “The Wolf of Wall Street,” the pump-and-dump scheme is the same method employed by Jordan Belfort and his associates to defraud investors and make millions.

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For example, Growlife (PHOT), a large ancillary marijuana company that develops, markets, and deploys horticulture equipment and supplies, had the trading of its shares temporarily suspended by the Securities and Exchange Commission (SEC) in April of 2014. The SEC cited “questions that have been raised about the accuracy and adequacy of information in the marketplace and potentially manipulative transactions” in its shares. The root of Growlife’s problem was that a few unaffiliated investors decided to send fraudulent and misleading ‘blast’ emails through promotional websites and email addresses under their control with the intent of increasing demand for the stock. After several weeks of vigorous promotion, Growlife’s stock price artificially increased from 2.5 cents to 50 cents per share. The shares were then dumped for a profit of $223,000.

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Once the SEC got involved, Growlife fell back down to 2.5 cents a share and now, a year later, is being traded at 2.4 cents a share. Although this occurrence was not completely Growlife’s fault, reduced oversight and regulation of the penny stock market allows for scenarios like this to transpire and are exactly what potential investors in the marijuana market must be wary of.

Investing in Private Companies – Angel Investors

Rarely will you invest thousands (or millions) of dollars into an unknown penny stock and see your money double overnight. If you are looking to make an investment in the marijuana industry with potential for sky-high returns (but also unmeasured risk), you might consider making a private investment.

Sky-high returns are routinely found in one place – heaven – and to get there, a pair of wings, and maybe even a halo, are essential. Enter the angel investor – an individual who provides capital to a business start-up in exchange for convertible debt or ownership equity in a company. Angel investors are usually affluent individuals who buy in to early-stage start-up companies in order to obtain a high return on their investment.

The best angels are experts at spotting emerging markets and utilizing their keen business instinct and knowledge to help young companies find success. If you are interested in this type of investing, a good place to start is a website like AngelList. At AngelList you can sign up, connect with marijuana start-ups, and apply to invest in companies looking for funding.

A more serious angel might consider joining an investor network like The ArcView Group. ArcView is a company that “facilitates the emergence of the legal cannabis industry by connecting investors and visionary entrepreneurs in an effort to meet the expanding and changing needs of responsible cultivators, dispensaries, and customers nationwide.” As a member of ArcView, early stage marijuana companies that are serious about getting funded come to you to pitch their ideas. However, you must be an accredited investor in order to participate, and you can be sure that there are fees associated with becoming a member and making investments. To date, The ArcView Group claims to have funded over 50 companies with over 40 million+ dollars invested.

Venture Capital

When deciding whether to invest in a particular market, a good way to measure the investor safety and security of the industry can be by watching what the big venture capital firms are doing. Similar to angels, Venture Capital (VC) firms also make high-risk high-reward type investments, but usually invest millions (as opposed to thousands) of dollars into earlier stage companies. Venture Capital firms normally have access to a large pool of capital that includes contributions from pension funds, private individuals, and other sources of big money. A key difference between VCs and angels is that VCs normally invest substantial time and money into due diligence (background checks, financial, market, and legal analysis) before they make an investment. When the time finally comes that a reputable VC firm invests in a company, there are usually several compelling justifications underlying why the investment is warranted.

Recently, Founders Fund, an investment firm created by Peter Thiel, joined a Series B round of funding worth $75 million for Privateer Holdings. Privateer, as I discussed in my last post, is a large marijuana-centric private equity fund that is investing millions into large-scale marijuana ventures throughout North America. Founders Fund did not disclose the exact amount of its investment in Privateer, beyond mentioning that their contribution was worth “multi-millions” of dollars.

To date, the investment by Founders Fund is undoubtedly the highest profile investment in the marijuana industry and could be a telltale sign that the time is now to invest in marijuana.

The Payoff

Similar to owning a business in the marijuana industry, finding success at investing in the industry has a lot to do with your own personal tolerance for risk. If you aren’t the risk taking kind, you might stay away from the industry all together and wait until marijuana becomes more nationally accepted. If you really want to play it safe and position yourself for the future of the industry, you might look to big tobacco stocks for safety – one of the most probable industries to expand into marijuana. If you want to test the penny stock market, do your research before you invest and be wary of suspicious stock price movement. If you want to break into the market as an angel investor, learn the business landscape and invest in companies that you truly believe in. Additionally, know that the biggest risk of all is that the federal government could, at any time, decide to pull the plug on the entire marijuana legalization movement. And lastly, remember, the higher the risk, the higher the reward.

Jeff Madrak for Drug Law and Policy – Follow us on Twitter @DrugLawPolicy

Making Green by Selling Green – Leveraging Intellectual Property in the Marijuana Industry

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Brendan Kennedy (pictured above, right) is not afraid. The man who heads Privateer Holdings – a cannabis focused private equity firm – has put his years of education and experience on the line to help shape the future of the cannabis industry. With the support of a management team full of seasoned professionals, Privateer has raised $82 million in pursuit of pioneering the impending business of big marijuana.

Privateer’s quest for global dominance began in Canada, where they purchased a full-scale medical marijuana company called Tilray. In Canada, provinces are free to make marijuana-related laws without any conflict with Canada’s federal government. Unlike the United States, this means that marijuana companies are able to conduct extensive research into medical treatments, grow their product with the finest practices, and put their cash into banks. These types of benefits have allowed Tilray to accumulate a patient base of over 4,000 and growing.

Outside of Canada, Privateer owns Leafly – a website and phone app that allows users to rate and review different strains of cannabis and cannabis dispensaries. Known as the “Yelp of pot,” Leafly is responsible for upwards of 3 million visitors a month and a $425 million valuation.

Untitled And finally, there’s Marley Natural – Privateer’s newest endeavor and a forthcoming international cannabis product brand. By signing on the Marley family and using their name as the face of its products, Marley Natural hopes to capture the interest of the mainstream cannabis community and become the “Marlboro of marijuana.”

Going global or even interstate is no easy task in the marijuana industry. Confusion, vagueness, and difficulty are born out of poorly written regulations and unique issues that have no precedent. However, the progress Privateer has made is largely due to its stalwart practice of looking for answers in the fine print of the law.

To make it big, Privateer makes great use of intellectual property (IP) – patents, trademarks, copyrights, and licensing. To summarize, IP and licensing are tools for businessmen to protect their creations, justify research and development, and expand their businesses to reach new heights. As opposed to a tangible object such as a house or car, intellectual property protects intangible property such as creations of the mind, and these IP rights allow the owner to exclude others from using their piece of IP. In ultra-competitive industries like oil & gas, pharmaceuticals, and electronics, IP enjoys relatively straightforward rules and regulations for obtaining and enforcing rights. As for the marijuana industry, it’s not that simple. Let’s examine.

PATENTS

First, one of the most well known types of Intellectual Property is a patent. A patent is a bundle of rights granted by the government to an inventor, giving the owner the right to exclude others from making, using, selling, offering to sell, and importing an invention for a limited period of time, in exchange for the public disclosure of the invention. By providing inventors the prospect of an exclusive right to an invention, patents encourage innovation and safeguard research and development costs of creating new technology.

Patentable inventions include machines, pharmaceuticals, electronic devices, and the more natural variety – plants. From a botanist’s or even ganjapreneur’s perspective, this type of information begs the question: What if I wanted to patent a marijuana strain? If you want in depth legal analysis and policy perspective on this question, click here. If you want more of a big picture analysis, keep reading.

In theory, the USPTO could grant these sorts of strain patents because nothing in the federal law of patents expressly bars patent protection for illegal substances such as marijuana. There are even specialized law firms that claim they will help their clients through this process. However, the United States Patent and Trademark Office (USPTO) has not yet decided whether they will issue patents on marijuana strain varieties. This question may be answered soon, as there are several marijuana strain patent applications that are currently on file at the USPTO.

As a side note, if the USPTO did grant you a patent for a cannabis strain, enforcing it through the state and federal court system is another whole issue entirely – one that is even more difficult to predict and answer. This is because state and federal courts could be entitled to different opinions about how the law should apply to this type of issue. Stay tuned for more on this subject. The safer option might be to seek patent protection for ancillary marijuana technologies such as vaporizers or botanical technology that aids the growth of cannabis plants. Patents of this “paraphernalia” variety have made their way through the USPTO and been granted.

TRADEMARKS

The prospect of spending thousands of dollars to ultimately have a cannabis related patent application rejected may be too risky at this point in time. Fortunately, there is something much cheaper and easier to obtain that may very well be the solution to the shortcomings of marijuana patent law – a trademark. Once again, if you want in depth legal analysis and policy perspective on this subject, click here. If not, keep reading.

In general, a trademark is recognizable signdesign or expression which identifies products or services of a particular source. The purpose of a trademark is twofold – first to protect investments in marketing and advertising for a particular product or service, and second to protect consumers by ensuring that they know what they are getting from a particular brand. Trademarks are generally much cheaper (thousands of dollars less) and easier to obtain than patents, and, if used correctly, can be equally as valuable.

In order to register a trademark with the USPTO, the use of the mark in commerce must not be unlawful. To this day, the Controlled Substances Act makes it unlawful to:

“manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance; [… ] sell or offer for sale drug paraphernalia … mean[ing] any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance.”

So, it seems, anyone filing for cannabis related trademarks with the USPTO would be denied. However, a case study of Marley Natural proves differently. A quick search of the USPTO trademark database shows that Marley Natural has been awarded three different trademarks in late 2014 for the products they plan on selling this coming year.

A November 21, 2014 filing for the word mark “Marley Natural” grants a trademark for:

“Smoking accessories, namely smokeless cigarette and cigar vaporizer pipes, electronic cigarette refill cartridges sold empty, tobacco grinders, tobacco smoking pipes, tobacco filters, tobacco pouches, and ashtrays.”

A second filing lists:

“Chocolate; Chocolate bars; Confectionery; Food flavorings; Essences for nutritional purposes, except essential essences and oils; Sauces; Granola-based snack bars.”

And a third designates:

“Cosmetic and beauty care preparations for skin, body and hair care”

Although Marley Natural has yet to sell a product, their website products page claims that they will be selling cannabis and hemp infused lotions and balms, accessories and hand crafted limited edition products, and their own “heirloom” cannabis strains.

Marley Natural’s awarded trademarks compared to the products they plan on selling seemingly afford federal trademark protection to all of their products except one – “heirloom” cannabis strains. However, if someone were to start selling cannabis strains under the “Marley Natural” designation, even without a trademark, Privateer still might have a claim for infringement.

The standard for trademark infringement is whether there would be a “Likelihood of confusion among an appreciable number of ordinarily prudent purchases in the relevant market” Sleekcraft. Courts look to an array of factors to decide what “likelihood of confusion” entails, including “likelihood of product expansion” – finding infringement where there is a likelihood that the disputed product lines will collide & create confusion in the future.

Because Marley Natural owns trademarks for similar products that will be marketed in the same industry as their heirloom cannabis strains, Marley Natural might have a valid infringement claim if someone were to try and steal their mark.

However, the “likelihood of confusion” balancing test depends on more factors than just “likelihood of product expansion,” and it is unclear if federal courts would extend this type of protection to a substance that remains federally illegal.

Fortunately for Marley Natural, the USPTO is not the only solution to protecting a brand. While patents are exclusively registered on the federal level, most states afford statewide protection for marks that are filed with their respective secretaries of state. In recreational states like Colorado and Washington, a trademark seeker can pay less than $60 to obtain statewide protection of their mark. Interstate companies like Marley Natural can file a trademark for their cannabis strains in each state they plan on operating in to protect the integrity of their brand. Although not ideal, this type of legal patchwork is just part of doing business in the marijuana industry.

LICENSING

Privateer and its subsidiaries understand what it takes to protect their ideas and developments from competitors. But their real genius is in how they leverage their intellectual property to destroy the competition and expand their business. One of their best legal weapons is brand licensing.

In general, brand licensing is the process of creating and managing contracts between the owner of a brand and a company or individual who wants to use the brand in association with a product, for an agreed period of time, within an agreed territory. In the marijuana industry, brand licensing is one of the most viable ways to expand across state lines.

Pretend that Marley Natural begins selling its products in the recreational Colorado market. To abide by Colorado law, the marijuana that Marley Natural uses to manufacture its products must all be legally cultivated in the state of Colorado. To expand their business to the state of Washington, the most logical thing to do would be to transport their products via mail or freight from Colorado to Washington. However, Section 812 of Title 21 of the U.S. Code classifies marijuana as a Schedule I Controlled Substance. Because the U.S. Constitution gives the federal government authority to regulate interstate commerce, it has the ability to prosecute individuals for transporting marijuana across state lines, even if the transport is from one legal state jurisdiction to another. The problem is figuring out how to get their products, which are manufactured in Colorado, to the state of Washington – or some alternative.

A solution to this problem is licensing. Marley Natural may not be able to use their Colorado cultivators and suppliers to help produce their Washington product. However, if they own a trademark for the Marley Natural brand in each state, they can license it to a separate business entity in Washington that is qualified to manufacture cannabis products in that territory. Marley Natural can dictate via licensing agreement how the Washington product using the “Marley Natural” name is to be produced, packaged, and sold. Additionally, they can offer consulting services to the Washington subsidiary to teach them how to manufacture their product and manage their business. The “heirloom cannabis strains” sold under the Marley Natural brand in Washington might not be the product of the same growers and greenhouses that are used in Colorado, but this alternative is one of the best available for marijuana businesses planning to expand interstate.

So let it begin. Thanks to intellectual property and effective legal techniques like brand licensing, the nationalization of the marijuana industry is imminent. Navigating the complicated legal landscape of the rules and regulations surrounding the marijuana industry may be difficult, but having the know-how to proceed with confidence could ultimately be the difference between failure and success.

Stay tuned for my next article on investing in the marijuana industry.

Jeff Madrak for Drug Law and Policy – Follow us on Twitter @DrugLawPolicy

 

 

 

Building Big Marijuana: Marketing and Advertising for the Brave

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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.

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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:

Approach 1

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.

Approach 2

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.

Approach 3

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

The Ganjapreneur’s Road To Something Bigger

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Imagine – it’s 2025 in California. Marijuana has been recreationally legal for almost ten years. You leisurely walk into the local gas station and purchase a pack of Marley Natural Special Blend – a brand of marijuana cigarettes. While you stand outside and light up, people walk by you as they file in and out of the store. No one says anything to you. No one calls the police. No one cares what you are doing. Marijuana has taken root in the mainstream American culture. Big Marijuana has risen.

So what exactly is Big Marijuana? Is it the same as Big Tobacco? The answer to this question depends on how “Big Tobacco” is defined.

Generally, Big Tobacco is a derogatory term referring to the industry that consists of the largest tobacco companies in the United States. Big Tobacco reached the height of its power in the early 1960’s and was known for its enormous spending on political influence. Its lobby centered attention on the notion that the science of tobacco was uncertain, and it called into question each medical and scientific finding that was released to the public.

Now on the decline, Big Tobacco corporations such as Phillip Morris, R.J. Reynolds, and Lorillard are credited with a long history of lying to Americans about the dangers of smoking. Their exploits include having doctors promote cigarettes as medicine and deliberately targeting children as “tomorrow’s potential regular customers.” Although Big Tobacco’s glory days have passed, it still remains a powerful entity, and is being used as the model to explain what the rising marijuana industry could one day become.

Will Big Marijuana follow the same path? This question is difficult to answer. However, certain parallels between Big Tobacco and the rise of marijuana in the United States are striking. Take, for example, the strategy employed by Big Tobacco of having doctors promote cigarettes as medicine. Is marijuana currently being promoted as a medicine? The legalization of medical marijuana in 23 out of our 50 states says that it is. What about the strategy employed by Big Tobacco of questioning each medical and scientific finding that was released? There sure seems to be a large variance of opinions about marijuana throughout the scientific and medical communities. Do you see the pattern? Or it is too soon to tell where the marijuana industry is headed? Or maybe you don’t care about the ethics of Big Tobacco, but you smell a business opportunity in Big Marijuana. You might be in luck.

As each year passes, more and more states and municipalities across the country are choosing to decriminalize marijuana and some are going a step further in choosing to legalize and regulate it. Nationwide support to end prohibition is increasing every day and money that was once being lost by enforcing the ban against marijuana is now being found through tax revenue from the regulation of marijuana’s distribution. In states like Colorado and Washington, millions of dollars are flowing from consumer pockets and into the hands of state governments and bold businessmen. In states where marijuana remains illegal, the black market continues to generate an exorbitant amount of untaxed profit for the opportunistic outlaw.

Whatever shape the marijuana industry may take in the future, it is clear that it is not going away. For a country that prides itself on its capitalist foundations, there is simply too much potential profit and opportunity for the marijuana industry to stagnate. As time moves forward, Big Marijuana will inevitably show its face, however beautiful or ugly it may be. If I – the entrepreneur, businessman, visionary – wanted to be that face, how would I get there?

In the hostile and dynamic legal environment that surrounds the marijuana industry, how would I advertise and market my company’s product or service to consumers? How would I expand my business across state boundaries? How would I protect my brand? How would I take on investments and stay on good terms with the IRS? And for all of this, is it even possible to build Big Marijuana?

These questions are daunting, and as the law changes daily the answers to these questions follow suit. But all hope is not lost. There are companies out there that have formed their own answers to these questions. Take Marley Natural, for example: the company that is planning on being the “Marlboro of Marijuana” plans to launch its first product in “Late 2015.”

If they can do it, so can I. In this multi-part series I will envision a potential framework of how a company might overcome some of these obstacles. Stay tuned for more.

Jeff Madrak for Drug Law and Policy – Follow us on Twitter @DrugLawPolicy

Building Big Marijuana

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Sometime in late 2015, a private equity firm by the name of Privateer Holdings will debut a brand called “Marley Natural” to the legal marijuana industry. Bearing the infamous “Marley” surname, Marley Natural will feature a variety of cannabis products and hopes to quickly become the “Marlboro of marijuana” in an industry that is slowly but surely coming out of the shadows. If you wanted to build a big marijuana company like Marley Natural, how would you do it? My multi-part series will inspect the rise of big marijuana and discuss legal strategy and business ethics on topics including marketing and advertising, intellectual property, investments, taxes, and rising ancillary businesses in the big marijuana market sphere. Along the way I will examine case studies of real marijuana companies that are currently on a quest to dominate the marijuana market as it expands quickly across legal boundaries and into the unknown.

My name is Jeff Madrak. I was born and raised on the East Coast. I came to California to surround myself with sunshine and forward-thinking people. I’m currently a law student where I’m focusing on intellectual property and business law. At my core, I pride myself on being an entrepreneur and I’ve launched and been a part of several start-up companies throughout the last five years. I’ve written business plans for marijuana-related companies and designed strategies to navigate the hostile legal landscape that the grey marijuana market provides. In my spare time I run a company that advocates personal vaporizers for use as a tool to quit smoking and as an alternative to cigarettes. I’m fascinated with the law and how it creates new business opportunities for those who are brave enough to test its limits.