It’s becoming more and more common for companies in all industries to use social media “influencers” to promote their goods and services online. Influencer advertising in the cannabis industry is a particularly risky idea because paid advertisers need to comply with all cannabis marketing and advertising rules.
It goes without saying that social media influencers probably don’t spend a great amount of time learning complicated cannabis regulations and Federal Trade Commission (“FTC”) guidelines, so without solid contracts in place that dictate what an influencer can say and how they can say it, cannabis companies could risk penalties, false advertisement lawsuits, or even losing their expensive and hard-earned licenses.
For starters, the FTC issued guidelines for using endorsements or testimonials in advertising. The guidelines are complicated, but some of the key points are that (1) testimonials and endorsements can’t be false or misleading, and if they are, the advertiser (the cannabis company) can itself be responsible; and (2) in most cases, the nature of the paid relationship between endorser and advertiser needs to be disclosed. The gist is that companies can’t just pay people to pretend that they are unaffiliated third parties to hype up their products. The relationship typically needs to be disclosed.
Even if an influencer does disclose the nature of the relationship, licensees could be sued for false advertising under state or federal law—by consumers, competitors, or even the government. Penalties in false advertising lawsuits can be massive.
Cannabis companies also face a host of particularized regulatory advertising and marketing prohibitions and restrictions, in each state of operation. Most cannabis licensing authorities will explicitly state that the acts of an agent of a licensee (the influencer) are imputed to the licensee. In English, that means that if your cannabis company hires an influencer who advertises unlawfully, you’re on the hook.
Cannabis companies obviously can’t advertise things that they are not allowed to do, so anyone advertising for them must follow all actual laws when advertising. The problem though is that it’s not always clear what companies can and can’t say in advertising. Each state may have different requirements, which are not always easy to figure out even for companies who are professionally acquainted with the regulations.
In the event that an influencer does break the rules, there’s not much a cannabis company can do, which is why it’s so important to educate them. It’s also important to keep in mind that online advertising is inherently public. Advertisement rule violations are much more apparent to the regulators than many other violations, because they are disseminated to the public at large in media that can last forever.
All of this means that cannabis companies who want to work with influencers must use detailed contracts, training, and/or guidelines to educate their influencers. And this is not something that cannabis companies should gloss over in a two-page contract. Generic provisions that require all parties to follow all applicable legal requirements may be sufficient in some contexts, but again, influencers are probably not aware of the specifics in cannabis regulations. And again, if they advertise improperly, that can spell trouble for the licensee.