The Still ‘Dark Reality’ of Sponsorship and Cannabis/Marijuana in Canada

May 12, 2020 10:45 am Published by

About 20 months ago, Canada was preparing for the legalization of Cannabis from coast to coast. It was a very hot topic, with many polarizing views. On one side, many Canadians expressed passionate anticipation and an “it is about time” attitude. While, others, offered deep concern and expressed worry about implications for driving, over-use, availability and safety of children.

At that time, due to the interest in the sponsorship community around the pending approval, I did some research and wrote a white paper around sponsorship and Cannabis in Canada. The paper led to a lot of great discussion, including a Sponsorship Marketing Council of Canada breakfast event, but it was time to revisit the topic and see what if anything has changed.

Today, in the midst of the COVID-19 global pandemic, and with the legalization of Cannabis (a.k.a., “pot”) in Canada in effect (including edibles), we wanted to take a few minutes to not talk about COVID-19 and sponsorship but do an update on Cannabis and sponsorship.

Since early 2018, I have been part of many conversations, digital chats and deep discussions about what the legalization might mean for sponsorship, but also more broadly the impacts it could have on the country and our health, our economy and our global reputation. Views include many divergent opinions ranging from passionate to mildly interested to afraid to bullish. Of course, over the past 2 months, as we deal with COVID-19, the interest in the topic of Cannabis and sponsorship has dropped, but, as some jurisdictions around the world and at home start planning to relax isolation measures and consider a return to ‘normalcy’, we thought this update might be topical.

So, what happened?

The original date of July 1st, 2018 was delayed to October 17th, 2018 by the Canadian government, which was about 5 months after the release of the first white paper.

By most accounts, October 17th, 2018 came and went without much disruption to the everyday lives of Canadians. Projections for the growth of the ‘legal’ industry have not been achieved (even remotely) and experts report that the black market continues to outperform the legal market. Some of this is due to the low availability of legal cannabis from three main factors. First, in Ontario and Quebec – where most Canadians live – a number of factors have led to only a few retail outlets being opened. Second, the supply of legal product from Government of Canada approved manufacturers is also lower than expected. Third, since each province has the ability to alter how the legislation is implemented, there are varying levels of support.

The other big news came into being on October 17th, 2019, one year exactly after the initial legislation, which was the legalization of edibles, or versions of Cannabis that are not smoked but eaten typically in the form of brownies and other baked goods, or candies (e.g., cotton candy, gummies). The term ‘edibles’, by definition also includes oils and lotions where the cannabis is absorbed through the skin (often as a form of pain relief). One major difference between traditional cannabis and edibles is that the ‘latency period’, or the time required to feel the effects of the cannabis, is longer in edibles, sometimes taking hours.

Deloitte, in May 2019, published a report[1] called “Nurturing new growth: Canada gets ready for Cannabis 2.0”, in anticipation of the legalization of edibles. In this very comprehensive report, Deloitte characterized the industry in a way which helps us understand the reality for sponsorship even better. To this end, there are a few key points that Deloitte found that are highly relevant here:

  1. As a new industry, “there will be missteps, delays and frustration”. Yes, growth is slower, implementation delayed, obstacles created, and politics to navigate.
  2. The long-term trajectory for the industry, though, is very good. For instance, Deloitte estimates that the market for edible and alternative cannabis products is worth $2.7 billion (Canadian) annually and that global markets will value US$194 billion by 2025[2].
  3. Over time, Deloitte expects the users of cannabis to shift from “risk-takers” to “conservative experimenters” who have a high interest in trying edibles and other alternative forms of cannabis. The latter is a more attractive target market for many Canadian organizations[3].

Now, for sponsorship, has anything changed?

In a few words, no. The market is still very dark with no expectation of opening in any time in the near future. And, COVID-19, has not changed this at all, nor is post-COVID expected to.

Let me explain.

When the Trudeau government announced they would follow-through on their promise to legalize Cannabis, many in our industry became very excited about the opportunities for sponsorship, namely for a new category (and a cool, hip category) for properties to seek partners in. Similarly, both cannabis and non-cannabis brands began thinking about the possible associations to images that they could leverage. Finally, agencies were imagining new lines of business related to cannabis.

As you may recall, in 2018 this excitement was misplaced and, well, in 2020 it is still that way. Sponsorship in any form related to Cannabis is prohibited and external marketing in any public setting is also currently disallowed. This same reality exists for both traditional cannabis, as well as edibles and other alternate forms.

And, why is this the case?

First, for both Health Canada and Justice Canada, cannabis is considered like tobacco[4]. The language of the Cannabis Act[5] (Bill C45) is very similar to the Tobacco and Vaping Products Act[6] (Bill C71), which was put into effect in 1997.

Second, due to the specifics outlined in the Cannabis Act, any marketing or promotion of cannabis – traditional or alternative forms – is confined to plain packaging (i.e., a Health Canada warning and a logo). Further, in any setting where a young Canadian (under 18) could potentially observe any marketing communications, there can be no association to other products, no link to celebrities or fictional people is allowed, nor is any lifestyle advertising or deceptive marketing possible.

It was (in 2018) and still is (in 2020) as closed of a market as you think of from a sponsorship perspective. Continue to think about tobacco sponsorship when you consider cannabis in this regard.

Are there any loopholes like in the period before October 17th, 2018, when some cannabis companies were able to do some marketing? No is the answer, well unless you are Drake and have ownership in a cannabis producer.

Yes, in a late November 2019 article in the National Post[7], Drake (60%) owner and Canopy Growth Corp (40%) set up a joint venture, More Life Growth Co. to own and operate a cannabis production facility previously operated by Canopy. The fact that Drake is an owner means, as far as the National Post reported, that he can promote the new venture on his own social media channels and not violate Health Canada rules. The reason why is that he is an owner. Of course, he would need to tread carefully, very carefully.

Now, is this really a benefit for sponsorship? You are probably saying, no, Norm, not at all. And you are right. This is simple function of an owner with a massive social media following of passionate fans, who can generate attention easily. This is not sponsorship.

Thus, we’re back to where we were in June 2018. Nothing for sponsorship here. No imagery or activation or events. No sponsorship outside of Canadian borders. Yes, the law is very clear, and the government is very clear. Thus, in thinking ahead to a post-COVID-19 world, sponsorship needs to go elsewhere, at least for the foreseeable future. Considerations such as esports, digital assets, gambling and COVID-19 related areas such as food insecurity and front line health workers should be the focus.

So, what can be done?

First, cannabis companies and their agencies need to think about other avenues to market to the consumers that sponsorship could have reached. This could include private events for 18+ audiences, database marketing to existing clients, product enhancements (quality, format, taste, etc.), pricing tactics and improved supply chain management.

Second, cannabis firms and their industry associations can look to build a longer term strategy to convince governments to allow sponsorship for certain strains or types of cannabis product.  For instance, advocates for sponsorship and cannabis point to the fact that edibles are not smoked, that cannabis is very different than tobacco, that there are medical benefits of some cannabis strains, and more.

Finally, as we look towards a post-COVID-19 world, where – at least in the near term – public events and gatherings will be limited, the entire sponsorship industry is changing and likely moving to become a more digital medium, where a marketer can control their channels, their audiences and their messaging. Thus, perhaps building digital sponsorship assets that will only be seen by adults over the age of 18 is possible, or will soon be possible…

[1] https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/c-and-ip/ca-en-consumer-nurturing-new-growth-en-aoda-may31.pdf
[2] https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/c-and-ip/ca-en-consumer-nurturing-new-growth-en-aoda-may31.pdf
[3] https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/c-and-ip/ca-en-consumer-nurturing-new-growth-en-aoda-may31.pdf
[4] http://www.justice.gc.ca/eng/cj-jp/marijuana/c45/c45.pdf
[5] https://laws-lois.justice.gc.ca/eng/acts/c-24.5/
[6] https://laws.justice.gc.ca/eng/acts/T-11.5/page-14.html
[7] https://business.financialpost.com/cannabis/he-owns-the-company-drake-may-have-just-outsmarted-health-canadas-strict-pot-promotion-rules

Photo by Next Green Wave on Unsplash

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This post was written by Dr. Norm O'Reilly, Partner Consultant

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