Marijuana

Brand Influencers: A Lucrative, Yet Risky Marketing Strategy For Cannabis Companies

By 2022, U.S. companies are expected to spend up to $15 billion on influencer marketing.

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In recent years, brands of all sizes, including cannabis companies (i.e., marijuana and hemp companies), have turned to social media influencers to promote their goods and services online. According to the Washington State University Carson College of Business, for every dollar spent on an influencer marketing campaign, brands earn $6.50. So, it’s easy to see how with such a high return on investment more and more companies are jumping on the influencer bandwagon. By 2022, U.S. companies are expected to spend up to $15 billion on influencer marketing. But this profitable cutting-edge marketing opportunity isn’t without risk, particularly for cannabis companies, which are subject to a wide range of stringent marketing and advertising rules.

For starters, the Federal Trade Commission Act (the Act) strictly prohibits false, deceptive, or unfair advertising practices in any medium, including the internet.

The Federal Trade Commission (FTC), which enforces these advertising laws, released strict guidelines, known as the Endorsement Guides, along with other brochures, for using endorsements or testimonials in advertising.

The first requirement imposed on influencers is to clearly and conspicuously disclose their “material connection” with the brand. Specifically, influencers must tell consumers if they are compensated in any way (the brand is either paying them or giving them free or discounted products or services) to keep their recommendations honest and truthful and enable consumers to weigh the value of the endorsement.

The second, and equally as important requirement under the Endorsement Guides, is that any testimonial and endorsements made must be true and not misleading. For instance, an influencer may only promote the value or benefits of a product if they have actually tried the product.

It is worth mentioning that a violation of these guidelines by an influencer would not shield the advertiser (in this case, a cannabis company) from liability. Even if an influencer discloses the nature of their relationship with the advertiser, the cannabis company could be sued for false advertising under state or federal law, possibly being hit with massive penalties. So, all that is to say that cannabis companies cannot hire influencers to puff up the quality or efficacy of their products or services and pretend these people are unaffiliated third parties. Such relationships must be disclosed and any statement made by an influencer regarding the company’s product or services is treated as a statement made by the company.

But being sued for false advertising isn’t the only threat looming above cannabis companies’ heads. These businesses also face a host of specific advertising and marketing restrictions imposed by each state in which they are licensed. Many cannabis licensing authorities, especially agencies that oversee the THC recreational market, such as the Oregon Liquor and Cannabis Commission, expressly state that the act or omission of a licensee’s representative or agent in violation of any state cannabis rules would be imputed on the licensee. Put more simply, the cannabis company would be on the hook for any violation committed by the influencer and could possibly lose its license.

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Because social media influencers are likely unfamiliar with the complex and nuanced marketing requirements imposed on the cannabis industry, advertisers should enter into detailed agreements that clearly stipulate the influencer’s compliance obligations under the Act, the Endorsement Guides, all applicable cannabis regulations, as well as social media companies’ policies regarding these products. These contracts should expressly dictate what the influencer can and cannot say, and should require that the influencers go through a specific training provided by the company — or by an experienced consultant — to help them appreciate the nuances and complexities of these regulations and restrictions, and thus, reduce the risk of violations.

The takeaway from this 30,000-foot view post is that cannabis companies should not be blindsided by dollar signs in their eyes. Instead, they should tread carefully when hiring social media influencers by adopting specific mechanisms to help ensure compliance with all applicable state, federal, and social media advertising requirements imposed on the industry to reduce the risk of enforcement actions, including jeopardizing their expensive and hard-earned business social media accounts and licenses.

Nathalie Bougenies chairs Harris Bricken‘s hemp CBD practice group and focuses her practice on health and wellness, in addition to corporate transactions and regulatory compliance. For the past three years, Nathalie has helped clients navigate the complex regulatory landscape of hemp products intended for human consumption and advises domestic and international clients on the sale, distribution, marketing, labeling, and importation of these products. Nathalie frequently speaks on these issues and has made national media appearances, including on NPR’s “Marketplace.” She also authors a weekly column for “Above the Law” that features content on cannabis policy and regulation and is a regular contributor to her firm’s “Canna Law Blog.” For three consecutive years, Nathalie has been named Rising Star by Super Lawyers.

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