Once regulated to head shops, the legalization of cannabis in Canada is a significant business opportunity not only for cannabis producers themselves but for companies that make cannabis accessories.
Learn About Cannabis in CanadaHowever, there’s some confusion about just how those accessories can be marketed–and in some jurisdictions, restrictions that essentially prevent their sale.
In Newfoundland and Labrador, for example, a St. John’s-based cannabis accessories retailer called the Dabber Hashery found itself targeted by the provincial liquor regulator on October 17.
Newfoundland and Labrador Liquor Inspectors visited the shop and told its owners they were unable to sell cannabis accessories as they are not licensed cannabis retailers, the Dabber Hashery said in a Facebook post on October 22. Provincial authorities appeared to contend that the issue was the use of the word “cannabis” in the marketing of those products, citing federal regulation.
However, the federal legislation doesn’t appear to restrict the use of any particular word in the sale of cannabis accessories, said Harrison Jordan, a Toronto lawyer who specializes in cannabis legislation.
“There’s no rule in the federal legislation or regulations in regards to not using the word ‘cannabis,’” Jordan said. The federal legislative framework focuses on when and where a representation is being made, he said–for example, it lays out that cannabis marketing must be accurate, must not be misleading, and must be restricted to adults.
Part of the issue is that the effects of cannabis regulation are widespread and move beyond simply cannabis itself. Cannabis advertising that could reasonably be seen by youth, or that features celebrities, is not allowed, for example. Through the federal Cannabis Act, the packaging and advertising of cannabis is heavily regulated: health warnings are mandatory, health claims aren’t allowed, and images other than a company or brand logo are forbidden. Packaging must be plain, and brand elements evoking glamour, recreation, excitement, vitality, risk, or daring are not allowed.
The rules around cannabis advertising are similar to those for cigarettes and other tobacco products. Producers can’t hire celebrities to endorse their products or promote their products with contests or giveaways. Many of the restrictions already placed on the advertisement of medical cannabis in Canada are carrying over to recreational cannabis.
Legal but Restricted
The market for these restricted products is not insignificant, with an estimated $10 billion a year of sales in Canada, as estimated by one CIBC World Markets employee–more than alcohol.
“Every single vertical will be affected by the regulation,” said Glenn McElfresh, the director of business development for Baker Technologies, which has a CRM system used by cannabis dispensaries.
Licensed producers (which are regulated by the federal government) are approved for some territories and not others, for example. Some accessory manufacturers may be unable to sell in some places, and they have to be wary of how their products are advertised in places where children might possibly see them.
The effects of cannabis regulation are widespread and move beyond simply cannabis itself.
Some jurisdictions have expanded on the restrictions put in place by federal legislation. “Quebec has a law where retailers of cannabis accessories are prohibited from selling any items that basically have a cannabis leaf or that mention cannabis or that mention a term closely associated with cannabis, like 4/20,” Jordan said.
For similar reasons, cannabis-adjacent businesses could come into trouble through social media, Jordan said. “If you’re on the internet, they have to take reasonable steps to assure that youth won’t see the promotion,” he said.
Applications like Instagram and Facebook do not necessarily block young people from their use, or have restrictions lower than the age of legal cannabis use. And many accounts on social media sites can be viewed by anyone, whether or not the person has an account. Some of those platforms also have their own restrictions in place on content that contains cannabis, shows marijuana leaves, or otherwise depicts or promotes pot-related products.
Companies have taken different approaches to addressing this, Jordan said. Some put a disclaimer in their profile saying that a user is agreeing they are the age of majority in their jurisdiction if they view the page. Others avoid any specific mention of cannabis, referring to “smoking” accessories. Showing cannabis itself could be even more problematic, even if to demonstrate the product’s intended use.
Other things are open season, however. The Senate suggested restricting the sale of related merchandise–for example, baseball hats–by companies that sell cannabis, but the federal government did not put such a restriction in place. Tweed-branded stores in Newfoundland and Labrador sell a variety of merchandise including sweatshirts and t-shirts, and customers leave the store with a brown-paper shopping bag printed with a black Tweed logo.
The restrictions can have unintended consequences. For example, the Postmedia Network said last week that they will no longer provide print editions of their newspapers to schools across Canada, because federal cannabis regulations restrict cannabis advertising and promotions that could appeal to young people. Some of the print papers contain cannabis-related advertisements, but the digital editions do not and will still be available.
Laws vary between provinces and territories, which means that businesses across the country have to spend more time and money ensuring they comply with both federal laws and the laws in their specific jurisdiction, McElfresh said.
“I think the longer-term harm is that companies will spend a smaller percentage of their budgets on R&D which will hinder the growth of new products, both cannabis-based and ancillary, entering the market,” he said.
The potential worst-case scenario is that the friction between provincial and federal regulators over cannabis and related products becomes such that cannabis regulation becomes overly politicized or simply grinds to a halt, McElfresh said.
“This last scenario is unlikely but regardless, governments move faster when everyone is in agreement,” he said.