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SB-162 Would Bar Cannabis Licensees from Using Branded Merchandise (and is Probably Unconstitutional)

California Cannabis Industry Alert!

Senate Bill 162 (hereafter “SB162”), currently making its way through the state legislature, would impose draconian restrictions on cannabis marketing. Specifically, it would prevent cannabis licensees from advertising or marketing cannabis products using merchandise, such as clothing, hats, t-shirts, or other items branded with the name or logo of the product. The bill already passed through the California Senate unanimously, but its constitutionality is questionable.

The bill is intended to limit marketing of cannabis products in ways that were already conceptually prohibited by AUMA in that a licensee may not advertise a cannabis product in a way intended to encourage people under 21 years of age to consume or purchase cannabis. However, the bill goes beyond just requiring that merchandise may not be made attractive to children and bars, presumably, any branded merchandise.

The language of the proposed law is extremely broad.  SB162 would amend Section 26152 of the Business and Professions Code to read:

26152. A licensee shall not do any of the following:

(a) Advertise or market in a manner that is false or untrue in any material particular, or that, irrespective of falsity, directly, or by ambiguity, omission, or inference, or by the addition of irrelevant, scientific, or technical matter, tends to create a misleading impression.

(b) Publish or disseminate advertising or marketing containing any statement concerning a brand or product that is inconsistent with any statement on the labeling thereof.

(c) Publish or disseminate advertising or marketing containing any statement, design, device, or representation which tends to create the impression that the cannabis originated in a particular place or region, unless the label of the advertised product bears an appellation of origin, and such appellation of origin appears in the advertisement.

(d) Advertise or market on a billboard or similar advertising device located on an Interstate Highway or on a State Highway which crosses the California border.

(e) Advertise or market cannabis or cannabis products in a manner intended to encourage persons under 21 years of age to consume cannabis or cannabis products. This prohibition includes all advertising of cannabis or cannabis products through the use of branded merchandise, including, but not limited to, clothing, hats, or other merchandise with the name or logo of the product.

(f) Publish or disseminate advertising or marketing that is attractive to children.

(g) Advertise or market cannabis or cannabis products on an advertising sign within 1,000 feet of a day care center, school providing instruction in kindergarten or any grades 1 through 12, playground, or youth center.

(Emphasis added.)  The entire bill is available on the Legislature’s web site, at:

https://leginfo.legislature.ca.gov/faces/billCompareClient.xhtml?bill_id=201720180SB162

As of August 1, 2017, the Legislative Counsel’s Digest for the bill states, “This bill would specify that advertising or marketing cannabis or cannabis products in a manner intended to encourage persons under 21 years of age to consume cannabis or cannabis products includes all advertising of cannabis or cannabis products through the use of branded merchandise, including, but not limited to, clothing, hats, or other merchandise with the name or logo of the product.”

You read that right—if this becomes law, then cannabis licensees would be prohibited from advertising their brands on any merchandise, even if it was not designed to appeal to minors or even made available to people under the age of 21. The bill cites a case related to tobacco advertising restrictions (Commonwealth Brands, Inc. v. United States, 678 F.Supp.2d 512 (2010)) in support of the legislature’s position that such a restriction on speech for cannabis would be constitutional. However, there are problems with that comparison.

First, Commonwealth Brands dealt with a federal law that placed restrictions on advertising, whereas AUMA is a state law. The federal district court’s holding in Commonwealth Brands is not binding on courts in California.

Second, tobacco and cannabis are not the same thing, nor do they have the same effect on the human body. The court in Commonwealth Brands made only passing references to the government interest being served by the federal law at issue in that case citing the Act’s aim as being “to curb tobacco use by adolescents” (at 519) and reducing tobacco use by minors” (at 522). However, even interests that some may consider intuitively worthy are not self-validating under the law. Rather, the government must prove that the interest is substantial (or, in some cases, compelling). In this instance, the interest put forth in tobacco regulations is substantial because it has been widely accepted, through substantiation of numerous studies, that tobacco use is inherently dangerous in its causation of cancer, heart disease, and other serious health effects. This interest is explicitly referenced in the act regulating the tobacco advertising at issue and therefore implicitly accepted by the court in Commonwealth Brands. That said, there is simply no evidence that the potential harm and therefore the same interest in curbing cannabis use. The government lacks the same or even comparable body of evidence demonstrating that cannabis is carcinogenic or otherwise harmful to one’s health. In fact, a number of recent studies comparing tobacco smokers and cannabis smokers found that cannabis smokers had better long-term health and were less likely to suffer from cancer than tobacco users.

In addition, unlike in Commonwealth Brands, where the government provided “extensive documentation” to show that marketing of tobacco products had a causal connection on consumer behavior of children, the legislature does not provide any proof that restricting advertising of cannabis products will affect youth behavior. Rather, the current version of SB162 simply states:

Research by The RAND Corporation indicates that adolescents who are exposed to advertising of cannabis were more likely to report using cannabis or say they planned to use the substance in the future. The American College of Pediatricians’ research has found that cannabis has adverse effects on the adolescent brain and is associated with psychiatric illness and negative social outcomes.

 The bill does not provide any specific studies from either the RAND Corporation or the American College of Pediatricians to support this position, or to demonstrate that restricting speech in this broad way will achieve the desired outcome. Failure to provide the studies presumably demonstrating the government’s interest not only leaves the public in the dark as to what the government posits its substantial interest to be, but also creates a lack of accountability in the manner such interest was substantiated should the public infer or otherwise guess at what the interest might be.

Commercial v. Non-Commercial Speech

The First Amendment prohibits the government from making any law abridging the freedom of speech. Commercial speech is speech where the speaker is more likely to be engaged in commerce, where the audience consists of actual or potential customers, and where the content of the message is commercial in nature. Admittedly, commercial speech is afforded less protection by the First Amendment than non-commercial speech.

The test to see whether a restriction on commercial speech violates the First Amendment is outlined by the U.S. Supreme Court’s decision in Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n, 447 U.S. 557 (1980). First, in order to be protected by the First Amendment, commercial speech must be truthful and not misleading. If the answer is yes, the speech can only be constitutionally regulated if (i) the government has a substantial interest in regulating the speech; (ii) the regulation directly advances the governmental interest asserted; and (iii) the regulation is not more extensive than is necessary to serve that interest. Central Hudson at 565.

Additionally, any regulation of speech is void if it is vague, meaning it does not give reasonable notice of what is prohibited, or overbroad, meaning it regulates substantially more speech than is necessary to serve the government interest at stake.

The government has the burden of demonstrating that the challenged regulation advances its interest in a direct and material way; mere speculation or conjecture that the regulation mayserve the interest is not sufficient. There must be a “reasonable fit between the legislature’s ends and the means chosen to accomplish those ends, a means narrowly tailored to achieve the desired objective.” Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 561 (2001).

The Commonwealth Brands case seems to rely on the idea that branded merchandise when utilized by the public, even if only those members of the public aged over 21 years, such individuals become walking advertisements to which minors will be inevitably exposed.  While there is some logic to the concept, if taken to its logical conclusion, absolutely no brand affiliated products intended for adults should be visible in the public domain given the likelihood that a minor might encounter them – this ban would include not only tobacco, cannabis, and alcohol, but also to clearly illogical extremes such as pharmaceuticals, cars (which are not to be driven except by individuals aged 16 and older), military careers, and more. Certain, more conservative, portions of the population may well include many more items to such a list.

In either event, even if such items may seem easily forgone by some, the Supreme Court has already rejected such logic, not only with substantial interests but even the higher bar of compelling interests, and for good reason.  In Lorillard, the Court held that even retailers and manufacturers of adult-oriented products have an interest in conveying truthful information about their products to adults, and adults have a corresponding interest in receiving truthful information about such products. Lorillard at 564. In fact, the Court has reiterated several times that the level of discourse reaching the public simply cannot be limited to that which would be suitable for a sandbox, despite the presence of minors and their inevitable exposure to such discourse. To hold otherwise would be to reduce the adult population to reading only what is fit for children. Id (citing Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 74 (1983) and Butler v. Michigan, 352 U.S. 380,  383 (1957)).

Purely political speech is given the full protection of the First Amendment, and restrictions on political speech are judged using strict scrutiny, which is the most difficult burden for the government to uphold. There must be a compelling government interest at stake and the government restriction on speech must be narrowly tailored to achieve that interest. A law is not narrowly tailored if it is over-inclusive, meaning it restricts even speech that does not implicate the government’s interest, or if there is a less restrictive means available to serve the government’s interest. Additionally, government restrictions on the content of speech are judged using this strict scrutiny analysis.

The constitutionality of non-commercial, content-neutral restrictions of speech are assessed using intermediate scrutiny. This means that the law or restriction must advance an important government interest, and the means chosen must be substantially related to that interest. As is the case with content-based, purely political, or commercial speech, the law cannot be vague or overbroad.

Additionally, there can’t be what’s called a “prior restraint” on speech, which is a governmental action that prevents speech or expression before it occurs. Prior restraints are typically found to be unconstitutional.

Prohibition on Cannabis Advertising of Bands

Cannabis companies advertising their brands or products on merchandise would likely fall under the purview of commercial speech, though certain messages could be construed to be non-commercial or even purely political given the fact that the legality of cannabis is currently a topic of political discussion.

Yet, even if a court were to find that cannabis and cannabis product advertising on merchandise was commercial speech, the restriction would not withstand Central Hudsonreview. Specifically, the government would not be able to meet the first and final prongs of the test—that the government have a substantial interest to be served and the regulation be not more extensive than necessary to achieve that interest. Here, the State of California may well posit an interest in ensuring that children do not have access to cannabis products made for adults in much the same way that the State has an interest in ensuring youth do not have access to alcoholic beverages; however, the scientific data is entirely lacking to put cannabis on par with tobacco given the severe and undisputed health effects associated with the latter but not the former.

In addition, prohibiting all cannabis licensees from advertising their company or products on branded merchandise is more extensive than is necessary to serve that interest given the plethora of valid and easily implemented alternatives. There is not a “reasonable fit” here between the objective and the means chosen. Instead, the legislature could restrict marketing that is specifically designed to be attractive to children, or could prohibit cannabis licensees from distributing branded merchandise at locations where children are present. Additionally, self-regulation of the industry is also an option. This method works quite well in the beer industry, where industry-created guidelines exist for branding and marketing by brewers and have thus far prevented the need for outside, legislative restrictions.

Interestingly, the prohibition on advertising cannabis or cannabis products through branded merchandise would only apply to licensees. This means that someone without a state-issued cannabis license, such as a headshop or unpermitted operator, both of which are more easily accessible by someone under the age of 21, could advertise cannabis products through branded merchandise without repercussion, but someone with a license would be in violation of the law if they did so. This does not seem equitable or in line with the goal of reducing child exposure to branded cannabis merchandise.

Lastly, the restriction on speech in SB162 is overbroad, as it would regulate substantially more speech than is necessary to achieve the government’s interest in restricting advertisements to minors. Speech that is not targeted in any way towards children, is not sold or distributed in places where children are present, and is not attractive to children would be included in the prohibition. This would impede the ability of cannabis companies to engage in constitutionally protected truthful commercial speech.

If you’re concerned about this, we encourage you to contact your state assembly member today and tell your representative to vote “NO” on SB 162 unless amended.

Please contact the Law Offices of Omar Figueroa to learn more about proposed restrictions on cannabis branded products and constitutional challenges thereto.