Benjamin Rattner is an attorney with Cermele & Wood and a member of the NYC and Hudson Valley Cannabis Industry Association. He has agreed to a Q&A next week with readers who have questions related to this topic. Please send any questions to bracino@nyup.com.
New York’s proposed regulations for packaging and advertising of adult-use cannabis products will likely cause its nascent legal cannabis industry to fail and the illicit cannabis market to thrive. Why is that? Broadly, it is because the proposed packaging and advertising regulations effectively forbid licensed adult-use cannabis businesses from creating desirable packaging, clever advertising materials, and otherwise making a lasting impression on adult cannabis consumers.
By contrast, legacy market operators who choose to stay in that market will remain unencumbered by these restrictions and will continue to employ all the tactics of successful brand building.
Every successful product is more than just a black and white name. Take the iPhone, for example.
The iPhone revolutionized how we communicate, take photos, and listen to music. But we forget that back when Apple first introduced the iPhone in 2007 it was not the most powerful or highest performance device on the market. It was buggy. It was slow — the original iPhone wasn’t even 3G. It was only available on one cell phone carrier’s network, and that network had a reputation for dropping calls and being unreliable. Early adopters got hammered by unexpected charges for data usage. Yet the iPhone took the world by storm.
One of the reasons for this success has to do with the marketing and packaging of the iPhone. Apple marketed it as revolutionary, highlighting design elements such as the intuitive skeuomorphic icons and the touchscreen. The iPhone also looked slick and futuristic. Opening the retail box was itself an experience that revealed an expensive looking and feeling device. In other words, Apple created demand through clever marketing, and pleasing design and packaging, not just the iPhone’s technical specifications.
Imagine if Apple created the same basic functionality of the original iPhone, but regulations constrained it to make the design look like a BlackBerry, only allowed Apple to write “Apple” and the phone’s model number in a specific font in one place, and only permitted Apple to tell consumers where they could purchase an iPhone. It is doubtful that the iPhone would have succeeded had such regulations straitjacketed Apple’s design and marketing.
Like the hypothetical example above, New York’s proposed adult-use cannabis advertising and packaging regulations effectively prohibit adult-use cannabis licensees from developing a robust marketing program. For example, the retail package cannot contain any unique pictures, images, or graphics. That leaves solid colors, words, and one brand logo alone as being permissible. And while the proposed regulations ostensibly allow for the brand name to be in any font and color, that’s not really the case. The font size is limited and cannot appear bubble-like, “cartoon-like,” or be brightly colored. As for the licensee’s logo, it cannot depict the very product in the package, namely cannabis. In short, the proposed regulations hinder licensees’ ability to create enticing packaging that markets their product to adult consumers at the point of sale and beyond.
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Related: Prominent marijuana industry group: NY’s proposed cannabis packaging rules too strict
The proposed advertising regulations will similarly stunt growth of a licensee’s cannabis brand. A licensee may only advertise if the primary purpose of the advertisement is to “displace the illicit market and inform the consumer of the location of licensed retail dispensaries.” This restriction could severely limit the content of what a licensee may say when promoting their product or dispensary. Under the strictest reading of this language, advertisements could be limited to a dispensary stating: “Don’t buy from your ‘guy,’ visit Dispensary X located at 123 Out of the Way Street to get adult use cannabis.” That is not a compelling or memorable pitch. Additionally, advertisements cannot use or display depictions, digital images, or icons of cannabis, cannabis products, or paraphernalia or use colloquial references to cannabis such as chronic, weed, pot, or sticky buds. Thus, the Cannabis Control Board has proposed allowing only the most clinical and sterile public service announcements, not true advertisements designed to build brands.
Additionally, how and where a licensee can market itself and its products may also be severely restricted under the proposed regulations. For example, a licensee cannot sponsor events using its brand or business name, and cannot advertise through free promotional items or loyalty programs. Nor can a licensee advertise on more than two outdoor signs, and those signs cannot show cannabis or cannabis products. Moreover, neither of the licensee’s signs may exceed 1,600 square inches in area, or a little less than three-and-a-half-feet by three-and-a-half feet.
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These proposed restrictions contrast markedly with illicit cannabis packaging, advertisements, and marketing techniques. Go to any of the weed trucks parked throughout Manhattan and observe the colorful scrolling signage they display. The sides of these trucks are empaneled with depictions of what is being sold. The packaging for the cannabis products is often vibrant and creative. The companies behind these weed trucks are building brands or selling brands from legacy operators that a cannabis consumer will seek out.
Unless the legal market can compete with the attractiveness of that packaging and capture the attention of adult-use cannabis consumers through creative advertisements, New York’s nascent legal cannabis market will struggle to compete. Indeed, it is likely that the illicit cannabis products will be cheaper than the taxed, tested, and highly-regulated adult-use cannabis sold by adult-use cannabis licensees. To compete, licensed adult-use cannabis businesses must be able to create branding that targets their ideal consumer and creates a positive association between their brand and that consumer. New York’s proposed packaging and advertising regulations hamstring adult-use cannabis licensees’ ability to do this. Thus, the proposed packaging and advertising regulations set up licensees to fail, and disincentivize legacy operators from “going legal.”
The proposed regulations are not all bad — far from it. New York State rightly has a strong interest in preventing cannabis use by minors, and the proposed packaging and advertising regulations attempt to address youth use in several ways, including requiring licensees who advertise via websites or digital applications to have a way to keep minors from visiting the website or using the digital application.
Additionally, the proposed regulations attempt to prohibit adult-use cannabis retail packaging and branding from being easily mistaken for some other product like a nationally-known candy. These types of regulations make sense, are consistent with how cannabis businesses should be run, and they will not inhibit achievement of the goals articulated under the Cannabis Law.
New York’s Cannabis Law aims to bring the legacy market into the taxed and regulated market, while also reducing the illicit sale of cannabis. Allowing some creativity in packaging and advertising will incentivize legacy operators to enter the legal market without entirely abandoning their brands, which they have expended significant time and effort building. Less restrictive packaging and advertising regulations than what New York currently proposes will also allow new entrants into the adult-use cannabis market to compete with the illicit market by building brands that appeal to consumers, for which consumers are willing to pay a premium. Simply put, the Cannabis Control Board should significantly rethink and redraft the proposed cannabis packaging and advertising regulations if it wants to achieve the goals of the Cannabis Law.
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