Many Marketing And Sales Strategies That Are Common In Other Industries Are Illegal For Cannabusiness In Washington State

The Federal Drug Enforcement Agency (DEA) may or may not be paying attention to your marketing, but the state Liquor and Cannabis Board (LCB) most certainly is. Many marketing and sales strategies that are common in other industries are illegal under Washington State law and could jeopardize your cannabusiness good legal standing.

In a January 8, 2016 memo to stakeholders, LCB Commander Jennifer Dzubay reiterated and expanded upon the general rule that under no circumstance shall a producer or processor (non-retailer) give or lend money, items or services to a retailer. This prohibition includes direct actions such as loans, gifts, extension of credit, etc., as well as indirect actions such as competitive sales incentives, sponsored events, in-store promotions, negotiated customer discounts, etc. This memo expands and clarifies an already existing rule that no industry member shall enter into any agreement which causes undue influence over another industry member,  including gifts, discounts, loans, treats or services, or rebates. ( See WAC 314-55-018) Violations of this rule can endanger the licenses of any and all businesses involved.

This is not the first time that the LCB has created a new rule banning a practice that might lead to undue influence. As of last June, it is illegal for a marijuana sales contract to be contingent upon the purchase of some other marijuana product. (See WAC 314-55-108(4)) This effectively prohibits long-term sales agreements, bulk discounts, or trading cannabis futures.

The purpose of these rules is to prevent producers and processors from exerting too much influence over retailers and to prevent retailers from demanding unfair free perks from producers or processors before selling their products. It also stops price fixing and speculation. The LCB doesn’t want anyone greasing the wheels or guiding the market with a heavy hand.

From the inception of the I-502 market, regulators have promoted policies that foster broad competition from many businesses. Under this competitive market model, licenses are intentionally split into categories, and no one person or entity is permitted to have all three types of licenses, preventing vertical integration (with at least one shining exception that proves the rule).

The competitive market economic theory proposes that competition among roughly equal market participants will create growth and innovation until eventually capped by the invisible hand of the market’s limited demand. Vertical integration could make a single business a lot of money, but it could also stunt the strength and breadth of the cannabis industry in its infancy.

Within the industry, many owners, managers, and activists are terrified of big cannabis, (see also) which is essentially a marijuana boogie-man made in the image of big tobacco: a soulless, faceless, conniving, powerful junta of exclusive elite billionaires. Many industry professionals believe that the failure of Ohio’s recent ballot initiative was in large part due to a fear of crony capitalism.

Smart businesses with good products that are well informed and well managed will continue to grow in market share and strength to the detriment of firms that fail to adapt and compete. Both visible and invisible hands, will influence the economics and regulations that govern the market. Prohibiting a few sales and marketing tools may frustrate the bottom line at times, but (at least for now) there does appear to be a method to the madness.