Cannabis advertising: What businesses need to know

There is no one-size-fits-all standard for marketing rules

As the cannabis and CBD industries enjoy increased legalization and rapid growth, it is important to understand that the laws governing advertising are just as varied, inconsistent and often conflicting as the laws that govern cannabis generally. This is especially important as companies endeavor to create national brands on a state-by-state basis. Because there is no one-size-fits-all, it is paramount that businesses understand the relevant rules before advertising in violation of the law.

The Controlled Substances Act

The Controlled Substances Act lists “marihuana” as a Schedule I substance, the classification reserved for drugs with the highest potential for abuse and the potential to create severe psychological and/or physical dependence. In keeping with the intent and purpose behind controlling the proliferation of illegal and dangerous drugs, the Controlled Substances Act prohibits advertisements that have the purpose of seeking or offering to receive, buy or distribute a Schedule I substance, including cannabis.

Examples of such advertisements that may run afoul of the Controlled Substances Act include those for dispensaries, delivery services and various tech platforms. The definition of “advertisement” under the Controlled Substances Act, however, excludes material “which merely advocates the use of similar material, which advocates a position or practice, and does not attempt to propose or facilitate an actual transaction in a Schedule I controlled substance.”

The Food, Drug and Cosmetic Act

The U.S. Food and Drug Administration (FDA) and the U.S. Federal Trade Commission (FTC) work together to enforce the federal Food, Drug and Cosmetic Act. For its part, the FDA is responsible for protecting the public health by ensuring the safety, efficacy and security of human and veterinary drugs, food and cosmetics. The FTC’s role is to protect consumers and business competition by preventing anticompetitive, deceptive and unfair business practices, including false and unfair advertisements. Advertising that involves food, drugs or cosmetics may draw joint enforcement action from both the FDA and the FTC. Thus, in April 2019, the two agencies issued joint cease-and-desist letters to three companies marketing CBD products online.

Although the 2018 Farm Bill removed “hemp” from the Controlled Substances Act and provides that CBD derived from hemp is now legal, it specifically preserved the existing authority of the FDA to continue to regulate products that contain hemp-derived CBD. At the same time, the FDA has not approved adding CBD to food, marketing CBD as a dietary supplement or adding it to cosmetics. Marketing and advertising statements that a non-FDA approved product can diagnose, cure, mitigate, treat or prevent any disease or condition violate existing federal regulations implementing the Food, Drug and Cosmetic Act. This is where the three CBD companies got in trouble with the FDA and the FTC earlier this year.

Advertising in California

States that have legalized cannabis are varied in how they regulate advertising. For example, California has a robust statute while Arizona has none. In California, advertisements for companies that are required to be licensed by the state must follow new regulations specific to cannabis. On the other hand, advertisements for ancillary service providers such as LED lights are regulated by traditional rules, not cannabis rules.

States that have legalized adult-use cannabis have rules intended to limit the exposure of minors to cannabis advertising. In California, these regulations include, among other things, that the audience for cannabis advertising is at least 71.6% adult. In Colorado and Oregon, the audience composition must be at least 70% adult. Advertisements cannot be appealing to minors, in general. This means that they cannot include cartoons, movie characters or anyone under 21 years old. They also cannot encourage minors to consume cannabis or cannabis products.

California also implemented standards for truthfulness and accuracy specific to cannabis, meaning that cannabis products cannot be advertised in any way that is inconsistent with the state’s detailed labeling laws. Thus, there cannot be a discrepancy between advertising statements about potency and labeling disclosures. It also means that products cannot be advertised as originating from a specific geographic area, like Humboldt County, unless it actually originated in that area.

California’s advertising regulations also require disclosure of the company’s license number and prohibit advertisements by companies with suspended licenses. And anyone that shares in the revenue or profits of a regulated cannabis business must be disclosed to the state of California, including advertising agencies.

 Advertising in New York

Unlike California and other adult-use states, New York allows medical cannabis only. Because cannabis is regulated as a medicine in New York, the state’s rules are heavily focused on medical claims. Thus, cannabis cannot be depicted as a recreational drug in advertisement and all statements related to its effectiveness, side effects and contraindications must present a “true and accurate statement” of such information supported by substantial evidence or substantial clinical data.

New York also requires that advertisements be submitted to the state Department of Health 30 business days before publication. New York allows individuals age 18 and older to be included in medicinal cannabis advertising.

Partner Joshua Mandell is an active member of Akerman LLP’s cannabis practice, providing counsel to clients on the complex legal and business issues impacting companies with interests in the medical and adult-use cannabis industries. He can be reached at joshua.mandell@akerman.com.

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