Exploring the Shifting Landscape of Marijuana and CBD Advertising

June 25th, 2020, Adult-use, Business & Corporate, Cannabis Law, CBD, Federal, Hemp, Intellectual Property, Retail, State

By: Elek A. Miller, Esq.

Advertising for marijuana and CBD products is governed by a complex and frequently changing patchwork of state and federal laws.  While each of these laws and how it is interpreted is worthy of its own article (stay tuned for those in future installments), here we have highlighted a few of the most important and impactful federal laws governing advertising for marijuana and/or CBD that cannabis-based business should be aware of.

Federal Law

Controlled Substances Act

The first law that businesses engaging in the sale of marijuana and marijuana products need to be aware of at the federal level is the Controlled Substances Act.  The CSA classifies cannabis (excluding hemp and hemp derivatives) as a Schedule I controlled substance, and provides that it is “unlawful for any person to place in any newspaper, magazine, handbill, or other publication, any written advertisement knowing that it has the purpose of seeking or offering illegally to receive, buy, or distribute a Schedule I controlled substance.”  The law also provides that it is unlawful to knowingly or intentionally use the internet for such purposes, although there is also an exception for materials that “merely advocate the use of a similar material, which advocate a position or practice, and do not attempt to propose or facilitate an actual transaction.” 

This means that many marijuana ads are banned by the CSA, but ads that do not attempt to facilitate a transaction and merely advocates the use of cannabis or another controlled substance are permitted.  Violation of the CSA is a crime, and so the possible ramifications of noncompliance are significant, although enforcement has been inconsistent given the legality of cannabis in many states. 

The CSA is likely one of the primary reasons that many websites – including Google and Facebook – refuse to allow cannabis advertising.  They have likely done a cost-benefit analysis of the risks vs. the rewards of allowing such advertising and have decided, at least for now, that the risks outweigh the benefits.  Time will tell if the scales tip the other way at some point.   

What this law means, as a practical matter, for many cannabis-based businesses is that they need to make informed, cost-benefit decisions of their own regarding whether they will advertise their goods and/or services involving marijuana, and, if so, how.  And many businesses have been doing just that, given the significant number that have begun advertising in some form and, in the states where doing so is permissible, are distributing cannabis despite the fact that the CSA prohibits selling cannabis.  Businesses making these often difficult decisions are well-served to consult with their legal counsel to better understand the risks and potential pitfalls involved. 

The Lanham Act

Another important federal law is the Lanham Act, which is the principle federal law governing trademarks and unfair competition.  Notably, the Lanham Act protects businesses against unfair competition from competitors who use false or misleading advertising or labeling. 

To prevail on a Lanham Act unfair competition claim, a business must show that their competitor made (1) a false or misleading statement; (2) in connection with commercial advertising or promotion that; (3) was material; (4) was made in interstate commerce; and (5) damaged or will likely damage their business. 

The potential remedies for a Lanham Act violation are varied, and can be significant. For instance, plaintiffs may seek an injunction against the false or misleading advertising, monetary damages and, in some cases, attorneys’ fees. Injunctions are a frequently-awarded remedy. The court may also “in its discretion” award (a) defendant’s profits resulting from the false or misleading advertising, (b) any damages sustained by the plaintiff caused by the false or misleading advertisement, and/or (c) costs for a “willful violation.”  Historically, a plaintiff has had to show willful behavior on the part of the defendant to be awarded the defendant’s profits.  However, a recent Supreme Court decision in Romag Fasteners Inc. v. Fossil Inc. addressing a trademark infringement claim and finding that willful conduct is not required for a plaintiff to receive a defendant’s profits has opened the door to the possibility that willful conduct will not be required in Lanham Act unfair competition claims either. 

The Lanham Act also permits the court to order a defendant to engage in “corrective advertising.” This may mean the defendant has to retrain its sales personnel or spend money to “fix” the damage done by the misleading or false ads. Courts are more inclined to consider this remedy where a defendant is making false claims about its products that relate to the public health (there may be other legal issues related to health claims as well, as noted below).

The FTC Act

Finally, the FTC Act, which is enforced by the Federal Trade Commission, also regulates advertising and generally prohibits unfair or deceptive advertising.  In recent years, the FTC and the FDA have teamed up to issue potential FTC Act violation warning letters to a number of companies making suspect health claims related to their CBD products.  And, more recently, the FTC has even gone to court to seek injunctions against certain companies making health claims related to their CBD products and COVID-19. 

In many instances, marijuana-specific packaging and labeling laws enacted by states expressly incorporate certain prohibitions and restrictions contained in federal law (for example, it may be a violation of state law to violate federal trademarks on marijuana packaging and labeling).  For that reason, it is important to pay attention to federal laws even if marijuana remains federally illegal and federal enforcement is currently limited. If and when marijuana becomes legal, the FDA and FTC will likely ramp up enforcement for marijuana products as they have for hemp-derived CBD products.

State Law

Numerous states now have their own laws and regulations governing advertising for marijuana, medical marijuana, and/or and other cannabis-related goods and services.  Cannabis-based businesses need to be aware of, and follow, the state laws that apply to them, particularly if they have decided that the cost-benefit analysis regarding compliance with federal law comes out in favor of advertising in some form.  State marijuana laws vary significantly, and certain provisions may be ambiguous.  Particularly in new markets, these provisions will not have been interpreted by courts, and guidance from regulatory agencies may be lacking.

As cannabis-based businesses work to make consumers aware of the goods and services that they offer, they also need to be aware of the numerous laws that may apply to their activities and should consider how compliance with those laws (or not) will affect their advertising and their business.  Because this is a complex area of law, businesses should consult with legal counsel prior to making significant advertising decisions. 

 

Elek Miller practices in the areas of intellectual property and privacy and technology.  In his intellectual property practice, Elek helps clients acquire and protect trademarks, copyrights, and other intellectual property.  He is probably the first attorney in Maine to successfully register a state-level adult-use cannabis trademark.  As the practice group leader for DWM’s Privacy & Data Security Group, he also advises clients on compliance with state and federal data privacy and security laws, helps them create and negotiate complex privacy and/or security-related technology agreements, and assists them with the development of information security and privacy programs (including data breach prevention, response, and crisis management) and drafting related policies and protocols.