Cannabis Marketing Proposed Regulations In New York & Neighboring States –

Marketing of cannabis products, supplies, and stores is tricky.
States that are eager to embrace a thriving and lucrative cannabis
market are still often hesitant to permit the type of advertising
common for other products, such as alcohol. How strict states are
with regulations also varies, with some states possessing
billboards on major highways and other states effectively banning
most forms of marketing.

The state of New York has the potential to be one of the largest
adult-use cannabis markets in the US. On June 1, 2022, the New York
Office of Cannabis Management (OCM) promulgated its proposed regulations for a public comment
period which ended on Aug. 15, 2022. On November 21, 2022, the OCM
published
revised regulations, which are now undergoing a second public
comment period. These proposed regulations allow us to compare New
York to other regimes.

Comparison to Massachusetts, New Jersey & Connecticut

New York OCM’s proposed marketing regulations make clear
that any marketing and advertising should “not jeopardize
public health or safety, promote youth use, or be attractive to
individuals under twenty-one” § 129.2(b). In leading off
its regulations with such a narrow purpose, New York has made clear
that its regulations will be restrictive. However, this is not out
of the ordinary in the Northeast, a region which generally has
restrictive cannabis marketing laws, let alone the US as a
whole.

Age-Specific Restrictions

In fact, New York’s proposed marketing regulations are
in-line with the neighboring states of Massachusetts, New Jersey,
and Connecticut. While New York’s proposal is slightly more
restrictive than some of its neighbors, for example, requiring that
a license holder have “reliable evidence” that 90% of
the audience of any advertisement is reasonably expected to be 21
years old or older, that number is only slightly higher than
Massachusetts’ 85% and matches Connecticut’s 90%. Mass. Gen. Laws Ch. 94G, § 4(a)(xxix); C.G.S.
§ 21a-421bb.

Neighboring New Jersey, however, only requires that 71.6% of the
expected audience of a cannabis advertisement be over 21. N.J.A.C. § 17:30-14.2(a). This places New
Jersey more in-line with less restrictive Western states like
California, Colorado, and Washington, none of which require more
than 71.6% of the expected audience to be over 21 years old.

Additionally, New York’s proposed regulations require that
digital advertisements utilize mechanisms to keep those under 21
from viewing the marketing materials. §129.2(l). However, this
is not unique, and surrounding states have similar regulations.

Billboard Advertisements

New York’s proposed regulations on signage are generally
in-line with its neighbors as well. First, New York has an outright
ban on cannabis billboards for all cannabis businesses except those
that conduct retail sales or delivery. These signs may only be used
to alert consumers of the location of the cannabis business, and
may only contain: the company’s name, address, phone number,
e-mail address, telephone number, and the nature of the
business.

Further, signage must be affixed to a building or permanent
structure, and only two such signs are permitted per location of
the cannabis business. Thus, like Massachusetts, drivers will
likely be able to easily find the nearest dispensary by following
the billboards along the highway. Massachusetts dispensaries have
grown quite bold with their billboards and have gotten in trouble
in unexpected places. For example, one dispensary in Massachusetts
posted a billboard depicting the fictional character Borat,
portrayed by actor Sacha Baron Cohen. This ultimately led to Sacha
Baron Cohen suing the dispensary. See, e.g., Cohen v. Solar
Therapeutics Inc., No. 1:21cv11139 (D. Mass. 2021). New York
dispensaries will not be permitted to make billboards such as those
at issue in Solar Therapeutics Inc. due to the clearly established
limits on billboard content.

Connecticut, while banning billboards for out-of-state
dispensaries, does not forbid in-state dispensaries from
advertising via billboards. C.G.S. § 21a-421bb(a). New Jersey has the
most stringent requirements for billboards, forbidding the use of
billboards outside the property of the cannabis business. N.J.A.C. § 17:30-14.2(d)(7).

Branding & Merchandising

New York’s proposed regulations also control the fonts and
colors used in advertisements. While it is common in the Northeast
for states to ban the use of designs that are intended to appeal to
someone under 21 years old, New York has gone even further by
explicitly banning the use of bubble letters and neon colors. New
Jersey has no restrictions on the font or colors of advertisements,
while Massachusetts merely bans the use of neon lights. Mass. Gen. Laws Ch. 94G § 4(a½)(xxix);
935 CMR 500.105(4)(b). However, New York, New Jersey,
Massachusetts, and Connecticut have all banned the use of cartoons,
toys, and other items meant to appeal to those under 21. §
128.1, §129.3; N.J.A.C. 17:30-14.2(d)(1); Mass. Gen. Laws Ch. 94G
§ 4(a½)(xxix); 935 MA ADC 500.105(4)(b); C.G.S. §
21a-421bb(b)(1)(A).

Like other states, New York also seeks to restrict the branded
merchandise that cannabis businesses may sell. In New York,
dispensaries will only be able to sell merchandise in adult sizes,
on licensed premises, and they must not contain any cannabis
symbols or references. § 129.2(j); § 129.3(a)(24). This
regulation nearly perfectly matches New Jersey’s own
regulations. N.J.A.C. 17:30-14.2(e)(5). Massachusetts does
not allow for branded goods solely for the promotion of cannabis
and cannabis products. 935 CMR 500.105(4)(b)(15).

Sponsorship

New York differs from the rest of the Northeast with regard to
sponsorship of events. New York’s proposed regulations allow
cannabis companies to sponsor events, and allow the cannabis
companies to include the company’s logo, name, website, e-mail
address, telephone number, retail dispensary location, and the
nature of their business. § 129.2(i).

In contrast, Connecticut law requires that 90% of the audience
of a sports, charitable, or other similar event be over 21 years
old for a cannabis company to be permitted to sponsor said event,
and New Jersey requires 80% of the audience to be over 21. C.G.S. § 21a-421bb(b)(5); N.J.A.C.
17:30-14.2(d)(5). Massachusetts differs from Connecticut and
New Jersey on this issue, permitting brand name sponsorship of
charitable, sporting, and other similar events. 935 CMR 500.105(4)(a)(2). However, the
sponsorship must be limited to the cannabis company’s brand
name, and any form of advertising in connection with that event is
prohibited unless the audience is expected to be over 21. Thus, New
York’s proposed regulations concerning event sponsorship are
the most permissive in the region.

Finally, New York will require certain language and disclaimers
be present on all advertisements. These regulations are fairly
standard in the cannabis industry, and while the exact language
required may vary from state to state, nothing adopted by New York
is noticeably different from its neighbors

Thus, while New York’s proposed advertising and marketing
regulations appear to be quite restrictive at first glance, they
are largely in-line with the rest of the region.

First Amendment Considerations

It’s an open question whether New York’s proposed
regulations would be vulnerable to First Amendment free speech
challenges, but likely most of the rules would survive
constitutional scrutiny/

The Central Hudson Test

In Central Hudson Gas & Electric Corp. v. Public Service
Commission, 447 U.S. 557 (1980), in which a New York state
rule banning “promotional advertising” by utility
companies was challenged, the US Supreme Court held that commercial
speech is protected by the First Amendment only if the speech
concerns lawful activity and is not misleading.

Because cannabis is illegal at the federal level, one may think
that the First Amendment does not provide protection against
restrictive state legislation. However, even if cannabis was
federally legal, the Supreme Court’s analysis allows
restrictions on commercial speech in certain circumstances.

For a restriction of commercial speech to be constitutional, the
Supreme Court determined the government must possesses a
substantial interest, the regulation must directly advance that
interest, and should be “narrowly tailored”—i.e.,
no more extensive than necessary—to advance that substantial
need. If a substantial interest is present, the regulations advance
that interest, but the regulations are not narrowly tailored, the
regulations will not be permitted.

Central Hudson & Cannabis Regulation

While it is unlikely all of New York’s proposed regulations
would be deemed as violating the First Amendment, it is certainly
possible that some may be successfully challenged. In fact, this
has happened in other states, notably in Washington. In
Plausible Products, LLC d/b/a Hashtag Cannabis v. Washington
State Liquor and Cannabis Board, Case No. 19-2-03293- 6 SEA,
Washington State King County Superior Court (2019), cannabis
retailers challenged restrictions on advertising, arguing that the
Central Hudson ruling protected their commercial speech.

Specifically, the retailers challenged restrictions on on-site
advertising, which were more restrictive than those on billboards.
The court agreed with the retailers, finding that since cannabis
was legal in the state of Washington, the retailers had overcome
the initial hurdle that they must be engaged in lawful
activity.

While the court did agree that Washington had a substantial
interest in keeping cannabis out of the hands of individuals under
21, the court did not feel the restrictions being challenged
advanced the state’s interest, nor were they narrowly tailored.
The court agreed with the retailers that the more lenient
regulations on cannabis billboards showed that the onsite
advertising regulations were more restrictive than necessary.

While the court did agree that Washington had a substantial
interest in keeping cannabis out of the hands of individuals under
21, the court did not feel the restrictions being challenged
advanced the state’s interest, nor were they narrowly tailored.
The court agreed with the retailers that the more lenient
regulations on cannabis billboards showed that the onsite
advertising regulations were more restrictive than necessary.

Cannabis Marketing & Advertising in Practice

The proposed regulations in New York appear restrictive, but
that does not mean innovative marketers will not find a way to
promote their brands. As the most developed cannabis market in the
Northeast, Massachusetts serves as a prime example.

As discussed above, Massachusetts requires 85% of the expected
audience of an advertisement to be over the age of 21 years old.
Yet in Worcester, Mass., 60 banners line the streets outside the stadium of the
Worcester Red Sox—a.k.a., the
“WooSox”—bearing the logos of a local cannabis
company and the minor league affiliate of the Boston Red Sox. How
was this possible given Massachusetts strict regulations? The
solution was surprisingly simple—housing data demonstrated
that over 85% of the residents in the area were over the age of
21.

Cannabis companies have performed extensive studies to determine
locations that will meet the necessary audience threshold to permit
advertising. For example, while it may be difficult to determine
the age of audiences to radio shows over-the-air, it is much easier
to ascertain the audience make-up for radio that is streamed over
the internet. It is not uncommon to hear cannabis advertisements on
internet streams of sports radio, whereas those same advertisements
are missing if you listen on your car radio during your morning
commute. Podcasts are another area where cannabis advertisements
have thrived. Many forms of online advertisements already let you
target your ads to users of a specific age, making those arenas
ripe for cannabis advertising.

In New York, expect cannabis companies to seek to advertise
wherever they legally can. Studies regarding the audience
demographics for television shows, radio shows, and print media
will be especially valuable. The advertising market for forms of
media with an audience of over 90% people 21 years old or older
will be competitive. We can expect such ads will run wherever a
cannabis company can demonstrate that the expected audience is
compliant.

Further, we can expect cannabis companies to seek out creative
new ways to market themselves—whether through on-site events
or through mobile applications. With all forms of advertisements,
documentation will be key to the success of cannabis businesses.
New York will likely audit businesses to determine their compliance
with the new regulations, and business will have to support any
assertion that 90% of the expected audience of an advertisement was
over 21 years old to avoid fines and other penalties.

Conclusion

New York’s proposed regulations are largely in line with its
neighbors, as well as with other states that have legalized
adultuse cannabis. These regulations may be challenged in court,
and some may be overturned, but it is likely that most will
survive. While these regulations may appear restrictive, they will
likely only encourage more innovation in the marketing industry,
forcing marketing and advertising professionals to find creative
solutions to reach the maximum number of consumers. Thus, while we
may not see flashing lights for cannabis in Times Square, New
York’s regulations will most likely be speed bumps for the
creative minds in New York’s marketing firms, rather than
roadblocks

Originally Published by Bloomberg Law.

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