Key Considerations When Accepting Donations and Sponsorships from Cannabis Companies

April 25, 2019 | Kelly Harris, Paul Nicholas Dimerin

While cannabis was legalized last fall, there are considerable restrictions on producing, distributing, consuming and advertising cannabis, cannabis accessories and cannabis services in Canada.  Although federal cannabis legislation does not restrict industry players from making monetary donations to registered charities or sponsoring charitable events, there are certain limitations, which may restrict how such gifts may be recognized and how such sponsorships may be promoted.  The following sets out key limitations to keep in mind when structuring gifts, donations and sponsorships involving the cannabis industry.

Cannabis Legal Framework

The main legislation regulating cannabis is at the federal level, with the provinces primarily responsible for retail sales. Advertising these products and services is mainly governed federally, although there are some additional requirements and restrictions in some provinces. Importantly, the advertising conduct covered by federal regulation is fairly broad, and there are only limited exceptions. The requirements and restrictions apply when “promoting” cannabis, which is broadly defined as making a representation “for the purpose of selling…by any means, whether directly or indirectly, that is likely to influence and shape attitudes, beliefs and behaviours about the thing or service.”

Promotional communications about cannabis, accessories and services are permitted, but with strict limits. A key restriction is that promotions must not be accessible to young people or appealing to young people. This places many practical limitations on how promotional messages can be distributed in most media. Even where advertising is only shown to those who have reached the legal age, there are further restrictions on the content. For example, advertising cannot include testimonials, depict a person, character or animal (whether real or fictional) or evoke a positive or negative emotion, such as glamour, recreation, excitement, vitality, risk or daring.

Sponsorship

Promoting a cannabis-related sponsorship is subject to further restrictions. There is a blanket prohibition against displays on facilities that are used for a sports or cultural event or activity, such as naming a facility after a cannabis producer. This prohibition applies to cannabis brand elements, as well as to any person or entity that produces, sells or distributes cannabis, accessories or services. “Brand element” is a very broad concept and could include a logo, trademark design or a slogan that is reasonably associated with the cannabis, accessory or  service or is merely evocative of it.

There is also a prohibition against running a sponsorship promotion that refers to a cannabis brand element or the name of the person producing, selling or distributing a cannabis product or service. This applies to the sponsorship of a person, event, activity or facility.

Notably, referencing a brand element or name in the sponsorship of an entity or facility is not prohibited so long as it is not “promotional” (as defined above). This is a very gray area, and the federal regulator has issued public warnings regarding sponsorship communications that it viewed to be non-compliant.

Third Party Liability

Cannabis legislation extends liability to parties beyond the licensed cannabis producer or other industry participant that is the subject of the advertising. On this basis, it is possible that the entity responsible for publishing non-compliant promotions could also be subject to enforcement under federal legislation (and at the provincial level as well).

This provision, therefore, increases the risk to charities and non-profits in the event that they recognize donations or grants from participants in the cannabis industry in a non-compliant manner or otherwise publish content that contravenes these strict advertising provisions.

Penalty

In determining compliance, the federal regulator has stated that it will consider the purpose, content and context of the representation, as well as the intended audience, and will make a determination of compliance on a case-by-case basis.

The penalty for non-compliance with these obligations is $250,000 and/or six months imprisonment for a first-time, summary conviction, and up to $5M and/or three years imprisonment on indictments. Directors and officers who directed, authorized, assented to, acquiesced in or participated in the commission of the offence can be held to be parties to the offence and, therefore, personally liable.

How to Recognize Gifts

To avoid non-compliance with these restrictions, any recognition of a donation must be non-promotional in nature. To avoid the recognition becoming “promotional”, it must be conducted such that it is not likely to directly or indirectly influence or shape attitudes, beliefs or behaviours about the donor. These requirements are challenging to reconcile with typical sponsorship recognition.

Alternatively, the recipient could recognize the donation in a manner that does not reference either the cannabis donor’s brand element(s) or the name of an entity that is licensed to produce, sell, distribute or provide the cannabis, accessory or service. Any reference to another entity would have to reflect the actual sponsorship arrangement, and the third party would have to be sufficiently separate from the regulated entity such that it would not be “reasonably associated” with it – or else it could be considered a “brand element” of that regulated entity.

If you have questions about rules regarding the impact of cannabis sponsorship and promotion, Miller Thomson would be happy to provide assistance.

Disclaimer

This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice.

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