Canadian Cannabis Sector Facing Marketing Hurdles

Although Canada had an early mover advantage in the cannabis market, becoming the second country in the world to legalize the drug in 2018, the nation’s regulatory landscape has stifled one crucial part of the industry: marketing.

The Cannabis Act, the legal framework that governs cannabis producers and users in Canada, lays out a comprehensive — and rigid — set of rules that has blocked off some of the traditional marketing channels, including promotion.

Promotion — which the act defines as a representation, package or label that is “for the purpose of selling the thing or service … whether directly or indirectly, that is likely to influence and shape attitudes, beliefs and behaviours about the thing or service” — is prohibited under legislation across the supply chain, affecting cannabis producers, distributors and even media organizations.

But according to one cannabis marketing expert, Rebecca Brown, within the strict set of regulations, there is a bit of leeway cannabis companies can take advantage of.

Brown is the founder and CEO of Crowns Agency, an advertising firm that deals exclusively with cannabis clients in Canada and the US.

She told the Investing News Network (INN) that though promotional restrictions are a concern, a higher-level barrier for players in Canada’s marijuana space is ensuring the marketing for their brand is focused in a consistent and disciplined way. Brown said, however, that this kind of targeted marketing approach isn’t something she’s seen in the nascent industry so far.

“There is a ton of competition, but I think the number of brands who you can kind of point to and say, ‘They are not going after everyone, they’re going after a very particular kind of person, they’re trying to solve a very particular need’ — that is a small handful of brands,” Brown told INN. “I think that’s the opportunity.”

She added that marketing fundamentals, such as making the consumer a part of the portfolio creation process, still apply to the cannabis industry, and that the rules in the act further highlight the importance of an effective strategy.

“In fact, the restriction really demands that we be even more intentional and take the time to understand who the consumer is, what their barriers are, what their needs are and how they want to be educated and informed, and then do as much of that in as many places as humanly possible while maintaining your compliance,” she explained to INN.

Experts question the letter of the law

The exceptions to the rules may be where cannabis companies have the chance to flex their creativity, but some experts say it comes down to a matter of interpretation.

During a panel at a cannabis marketing event held by the Canadian Marketing Association last Thursday (December 5), Mariana Fonar, general counsel and corporate secretary at Lift & Co. (TSXV:LIFT,OTCQB:LFCOF), told the audience that when it comes to promotion, there are still questions about where companies can find wiggle room in the law.

“What I advise my team is always first we need to determine if it’s promotion. If it’s not, great, and I’ll stop there. But if we determine it is promotion, then the question becomes, ‘Do we have a defendable position?’ We might not know exactly,” said Fonar.

In that case, looking at previous decisions made about Canada’s alcohol and tobacco acts can serve as a precedent as to where the limits of the Cannabis Act lie, Fonar said.

The prohibitions laid out in the Cannabis Act are similar to those found in certain sections of Canada’s Tobacco and Vaping Products Act, which, like the Cannabis Act, forbids the use of brand elements that might be appealing to young people.

In Brown’s view, finding success for marijuana businesses in Canada is helped in large part by a symbiotic relationship between a company’s marketing team and its legal counsel.

But the act names some marketing favorites, including using pricing information, testimonials and endorsements, and having a mascot or brand ambassador, as prohibited acts unless the promotional materials are sent to people over 18 years old or are used in places that don’t allow people under 18 to enter by law, among other exceptions. Cannabis companies have used age-gated websites to get around that particular constraint, though the age gate has been a source of contention.

Earlier this year, Corinne Guenette, director of Health Canada’s compliance promotion and policy branch, sent out a letter to cannabis companies, reminding them that age gates are easily circumvented — though Health Canada went on to say that it has issues with one click age gates specifically, according to Marijuana Business Daily.

Rebecca Brown, CEO of @CrownsAgency, said since cannabis is so tightly regulated, businesses need to use all the tools at their disposal to find marketing streams. “You have to use all of the levers and all of the channels to crack the code on this thing,” she said. #CMAevents

— Cannabis News | INN (@INN_Cannabis) December 5, 2019

The issue of testimonials and endorsements was also discussed during the panel as a particular point of interest with the recent celebrity additions to the cannabis space, including Canadian hip hop artist Drake’s partnership with Canopy Growth (NYSE:CGC,TSX:WEED).

Fonar said having a celebrity as the CEO of a cannabis company bypasses the issue of promotion when they’re speaking about the company in general terms, but things get muddy when celebrities extol the virtues of their cannabis products publicly.

“Drake can’t go on his LinkedIn and talk about how this is the best product, and he probably can’t show himself smoking it on a yacht, Fonar said.

Another panelist, Fire & Flower Holdings’ (TSX:FAF) vice president of strategic growth, Chris Bolivar, disagreed, saying that its comes down to a matter of whether or not a celebrity is paid a consideration for their promotional post, which might not be the case if the figure in question owns the company.

Though the digital sphere remains a tricky landscape to navigate, it is one arena Brown said could offer firms more room to develop a marketing approach and interact with consumers.

“I think that the creation of content disseminated through digital channels is an area that we need more investment in and where there can be some creativity in play,” Brown told INN.

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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.