Marketing restrictions to help small marijuana brands compete against deep-pocketed players: panel

Sunny Freeman | April 24, 2017 12:46 PM ET

Licensed marijuana producers have dominated Canada’s medical marijuana industry, but a host of smaller brand-focused companies are waiting to disrupt the industry in the new era of recreational legalization.

“We’re seeing the power shift from the farmers who grew the barley to the brands who make the beer,” Dooma Wendschuh, CEO of cannabis beverage startup Province Brands said on a panel at the O’Cannabiz conference in Toronto on Sunday.

In this analogy, of course, his company is the Labatt, Molson or other recognizable beer brands, while existing licensed producers that have been at the forefront of the nascent industry, such as Tweed, Aphria Inc. or Tilray, are the humble farmers.

It’s a bold and ambitious statement for a company launching a product that’s still in the development stage, and which cannot be legally produced yet. But Wendschuh is hoping that wide-ranging advertising and branding restrictions under the Liberal government’s proposed Cannabis Act will create a more level playing field for the new entrants.

“There are companies in the cannabis business in Canada that are tremendously well-funded, companies with hundreds of millions of dollars in the bank and my little company is not going to be able to compete with these companies in a world where we’re allowed to do media buys for our products,” he said.

“This doesn’t provide a benefit per se to the small businesses but it provides a win for whoever’s smartest — that could be the big companies with all the money or it could be the small companies. It’s whoever can think outside the box.”

The draft Cannabis Act would ban advertising that can be seen by youth, prohibiting companies from conventional and social media outreach. The act also prohibits association with certain glamorous or relaxed lifestyles, nor can marketing depict a person, character or animal.

Michael Lickver, a lawyer at Bennett Jones, said companies will have to get very creative to get around advertising restrictions. In that way, he said, the recreational cannabis market could look very similar to tobacco — with one big difference: the tobacco companies had a long life of open marketing to establish brands before governments cracked down for public health reasons.

“We have to find how to operate in the creases and that’s what the tobacco companies do — they find the edges of the regulations and they operate entirely in there,” Lickver said on the panel.

“So we’re going to see a lot of creativity, we’re going to see some trial and error and I’m excited for that first wave.”

Still, there is an opportunity to establish brands before those new regulations come into place, expected in July 2018, said Alan Gertner, CEO of Tokyo Smoke, which currently sells coffee, marijuana paraphernalia and clothing with its logo at its shop in downtown Toronto, and wants to build a trendy cannabis brand.

It has also developed four proprietary strains with easy-to-understand names such as “Go” or  “Relax”, that it has licensed to Aphria and it hopes to sell internationally.

“The oncoming strict regulation is in some ways embraced by us at Tokyo Smoke because it only furthers the barriers for other people building brands.”

The penalties for violating the advertising rules in the proposed act are strict and include holding individuals, not just the corporation, responsible for breaking the law. They can face fines and jail time.

However, the government has yet to flesh out the exact nature of the advertising rules, giving industry groups time to push the government toward a more liberal interpretation. Licensed producers have argued that allowing them to brand and advertise will educate consumers as to why their product is distinct from, and superior to, that offered on the black market.

The legislation is not as restrictive as a federal task force on legalization had recommended as it allows for brand preference promotions and informational advertising and outreach at point-of-sale, said Eileen McMahon, chair of intellectual property and food and drug regulatory practices at Torys law firm. In addition, it also provides room for existing companies who have celebrity or other associations could ask that allowances be grandfathered into the legislation or some other time of concession, she added.

“The landscape is starting to form but there is an ability to influence how that landscape will ultimately look,” McMahon said.