What the election results mean for cannabis marketing

Tuesday’s election brought a mixed bag of results for the cannabis industry—and for those hoping for a windfall of new marketing spending in the sector. Voters in New Jersey, South Dakota, Montana and Arizona approved recreational pot legalization—which will open up new consumer markets and more ad spending, especially in the potentially huge Jersey marketplace. Marijuana Business Daily projects that the four newly legalized states will account for $2.5 billion in cannabis sales by 2024 (including medical use), with $1 billion of that coming from New Jersey. But if Republicans hold control of the Senate—which seems likely—the prospect does not look good for pot becoming federally legal anytime soon. “A GOP Senate likely means legalization is off the table for the next two years as Senate Majority Leader Mitch McConnell has been a steadfast opponent who refuses to bring cannabis measures to the floor,” Jaret Seiberg, an analyst for Cowen Washington Research Group, wrote in a note to investors assessing election results. Big publicly traded media companies like Facebook and Twitter have remained on the sidelines when it comes to accepting marijuana ads—a stance they are likely to maintain as long as cannabis legality remains governed by a patchwork of state laws. Cannabis is “a massive, massive industry but it is kind of being cut off at the pass because there are so many differences state-to-state,” says Sean McConnell, a managing director at Media Kitchen in Canada. The global media planning and buying agency has worked with cannabis brands. But there is no doubt the election results have opened more pathways for pot to keep edging its way into the mainstream. Recreational use is now legal in 15 states, and New Jersey’s adoption is considered a major milestone. The Garden State’s approval lays the groundwork for New York to legalize pot—“and the city of New York is the largest single cannabis market in the world,” says Jason DeLand, a partner at ad agency Anomaly and co-founder of Dosist, which specializes in dose-controlled cannabis products. New Jersey lawmakers still must pass laws creating pot regulations, a process that is expected to take many months. The rules will include marketing guidelines, which vary from state to state and put more restrictions on pot than most other goods. In California, for instance, brands are prohibited from advertising giveaways like “buy-one-get-one free” promotions and are banned from using any images that could be interpreted as appealing to people under the age of 21, like toys or movie and cartoon characters. Education DeLand expects that retail marketing will take precedence in New Jersey as brands educate new consumers on what is available. This includes outreach to so-called budtenders—the people working in dispensaries that have a big sway over purchases. “While cannabis has been used for thousands of years, the level of knowledge about cannabis for the average cannabis consumer is extremely low—and so I think a lot of marketing will be about just getting the basics out of the way first,” DeLand says. If New Jersey is anything like Illinois, where recreational pot use has been legal since Jan. 1, demand will initially outstrip supply, due to factors such as the length of time it takes growers to get licensed and clear other regulatory hurdles. More demand than supply typically means marketing does not have to work as hard to spur sales. But Greg Butler, chief commercial officer of Cresco Labs, one of the nation’s largest cannabis companies, suggests that marketers who spend early to promote their brands will win in the end, even as supply catches demand. He drew a comparison to White Claw. The hard seltzer dominated the market early on when it was one of a few options available. But it kept spending on marketing, and now still dominates the hot-selling category, even as a wave of new brands enter. “History and economics have told you, specifically from a branding perspective, that when you’ve got limited supply, that is when you build your brand,” Butler says. Safe banking Of course, in cannabis, brand-building is easier said than done. Marketers have a hard time even gaining the help of holding company-controlled agencies that have shied away from pot accounts—partly due to legal concerns. Because cannabis remains illegal federally, moving money made from the business across state lines is risky. The American Bankers Association warns that “any contact with money that can be traced back to state marijuana operations could be considered money laundering and expose a bank to significant legal, operational and regulatory risk.” But agencies and other service providers could gain protection if federal lawmakers pass the so-called “Safe banking act,” which offers protections for banks against money laundering laws for banks engaged in the cannabis industry. Agencies could also gain protections from the “States Act” which limits federal intervention in states that have legalized marijuana. Both bills have been stalled in Congress, but potential changes in the Senate banking committee could give it a boost. Seiberg projects that Pennsylvania Republican Pat Toomey will take over leadership of the committee from Idaho Republican Mike Crapo. “Toomey seems more receptive to arguments from small banks that they need legislative certainty to fully service the cannabis space. And we continue to believe that Republicans can frame the SAFE Act as about public safety rather than about cannabis,” Seiberg wrote in his note to investors. “It is a way to bring an all-cash industry into the banking system where money can be tracked for law enforcement and tax purposes.”

What the election results mean for cannabis marketing

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