What Are the Issues Advertisers Face in The Cannabis Marketplace?

ADVERTISING AND ADVERTISEMENTS
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Building a brand and recognizing growth in any new industry is challenging, but especially for a product that used to be illegal. Marijuana continues to carry a stigma, even when rebranded as cannabis.  This adds to the challenges. However, acceptance of the cannabis industry continues to grow, despite ongoing regulatory limits.

In early 2018, California allowed the legal expansion of the cannabis industry as a legitimate siness. It’s now legal in 11 states. In the Cannabis Industry 2017 Annual Report, sales of medical and recreational marijuana were expected to blossom: “Sales of medical and recreational marijuana are going to reach $4.75 and $6 billion this year respectively. By 2023, both forms of the drug will be higher than $20 billion before hitting $24 billion in 2025” according to report.

With all this in mind, cannabis-related businesses are supposed to have a bright future in terms of profits. However, there are still a lot of legal issues to be aware of. Keep reading if you want to know what pain points marketers face and the ways to get over them.

Business and Marketing Growing Pains

While the future looks bright for cannabis due to large consumer demand and strong approval ratings (65% of American adults favor legalization), the gradual legalization in some U.S. states, and high-profit potential, the industry and marketers still have growing pains. Many legal and political issues handcuff marijuana’s growth. The key obstacle is ongoing regulatory issues as well as strict standards that limit how businesses are allowed to promote their brands, including:

  • In certain U.S. states, cannabis producers must disclose all intellectual property licensing deals.
  • Cannabis is not allowed to be promoted near schools or where children frequent. This means no television, radio, vehicle, or print advertising. This is a pain point understood by the alcohol and tobacco industries who’ve been finding work-around solutions since the dawn of print media.
  • These businesses are not allowed to use mascots.
  • There are other marketing-related laws that strictly limit how a cannabis company can publicize itself, bound by specific advertising rules.

How to Overcome the Challenges of Cannabis Marketing?

"How-to guide" - a cannabis notepad
Make sure to use social media to educate your readers but not sell your products

There’s a long history of reliable marketing information on the challenges faced by other “over 18” industries like alcohol, pharmaceuticals, tobacco, and gambling. These issues have been faced and overcome before. But in the meantime, marketing pros are tasked with getting back to basics and trying some creative approaches.

This means traditional advertising streams: print advertising, direct mail campaigns, and strategic sponsorship. But strong opportunities exist in digital marketing, too with a focus on promoting a lifestyle, not a product or service:

  • Creation of blogs to educate and inform audiences about cannabis’ benefits offers a platform for brand building and stigma breaking, a chance to strengthen brand trust and set brands apart.
  • Strategic use of social media platforms like Instagram and YouTube. Note: educate, don’t sell.
  • Seek new digital companies that welcome these products and are experts in marketing challenges and the hurdles of the U.S. marketplace.
  • SEO strategy and email marketing will continue to play a role.
  • Sponsored posts on blogs where desired audiences spend time is an essential marketing channel, as long as the websites aren’t geared to children and have a local focus.
  • Community service, advocacy, educational seminars, and sponsorships are effective tools.

The tough laws and policies do what they were made to do: strongly limit the (legal, highly regulated) marketing of (legal) marijuana products. Arguably, these laws also help the illegal market for cannabis, which hurts consumers, businesses, and the economy. 

Consumer Demand is Driving Progress in the Cannabis Industry

Despite the obstacles faced with marketing cannabis, this issue is moving ahead along with the industry and society’s changing views. Today’s consumer is less concerned with regulation and stigma than in earlier eras. They’re savvier, do market research before buying things, and today, many people have strong direct knowledge of these product benefits: such as the alleviation of suffering of loved ones and the many benefits of cannabis as both a real therapeutic tool and a medical marvel.

Americans have a desire for the product and are frustrated with the laws and regulations, too. So, the consumer is onside with marketers about access to cannabis products (and more information about them). Polls show overwhelming support among the public (and across political lines) for the legalization of recreational and medical marijuana. These changing attitudes are why so many states have legalized it. But the fight continues. While clearly financially lucrative, the U.S. marketplace is still a risky, rocky one for investors, advertisers, and a challenge for marketers.

Nevertheless, no one can deny another benefit to the newly legal cannabis industry: undeniable economic boost job creation. Researches estimated about 125,000 to 160,000 people employed by the cannabis industry, and Factbook predicts that by 2022 that number could grow to roughly 340,000 jobs, or a job growth rate of 21% per year through 2022.

Legislative and Legalization Challenges

How can any legal business operate outside the benefit and support of the banking system? Think about securing a lease. Budgeting for advertising. Hiring sales and other staff. Operational costs.

  • Many U.S. cannabis companies have limited access to basic financial services: lines of credit or even checking accounts.
  • Banks in the U.S. report to the Federal Deposit Insurance Corporation (FDIC), a federal entity, so any services provided to cannabis companies could be seen as money laundering, subject to possible fines and/or criminal charges. This is leftover from the U.S. government’s “war on drugs”, and one that is painfully slow.
  • Another bone of contention for the industry is U.S. tax code 280E. This decades-old rule disallows businesses that sell federally illegal substances from claiming income tax deductions and triggers a shocking tax rate for U.S. cannabis companies, if they can manage to turn a profit, of upwards of 70% . This tax law is being fought regularly in the courts.

Another marketing challenge: the US Cannabis Market is Too Fragmented

Dollars and a cannabis leaf. Cannabis black market concept
Your black market competitors are not following any rules

This lack of unity hurts production costs and competitive pricing for a legal product in a world that, after all, still has a black-market operating.

As a law-abiding company, you follow the rules around advertising and marketing which strictly limit your ability to promote your products both online and in the real world. Meanwhile, the black-market competitors aren’t following any rules, and even buy up ad space that you are blocked from. The legitimate business suffers and struggles unfairly.

This actually happened in California. Marijuana dispensaries and retailers took their complaints to lawmakers in 2018, causing 500 warning letters and emails to be sent to suspected illegal cannabis operations. Enforcement efforts were focused specifically on advertising violations: a huge irritant to the legal marijuana business’ efforts to toe the line.

 All Roads Lead to Canada

US neighbors to the north offer probably the best model for success in selling legal marijuana products. Canada legalized medical cannabis in 2001 and the industry has since been overseen by its federal body Health Canada ever since. Health Canada strictly regulates licensing, which is key to controlling production and, so, pricing.

Another advantage is that Canada’s industry is highly consolidated. While the number of licenses has gradually grown to meet medical patient demands, a small handful of growers control about half the industry. This has helped to lower growth costs and, importantly, made the price competitive with the illegal market.

The consolidated industry means multi-million-dollar facilities, large-scale production, and more customer satisfaction. It means quality control, experienced sales and service teams, and good infrastructure any business needs for success. It means improving a local community’s job prospects and quality of life and represents innovation. The image is key: it looks nothing like the black market. A high level of organization means better chances of success and represents entrepreneurialism, and even local and national pride.

 Instead of being an investor risk or a marketing gamble, the Canadian cannabis industry has gold chip potential and obvious profitability for stakeholders. With many years to prepare well for nation-wide legalization, Canada had enough time to build a strong business model, one that’s expected to increase four-fold over a ten-year period to 2.4 billion dollars (by 2025). It’s also one that works for everyone: government interests, businesses, advertisers, and most importantly, consumers.

Solver Author: Solver
20.03.2020

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