King County Superior Court Judge invalidates I-502 Advertising Restrictions

In a groundbreaking ruling involving the Washington State Liquor and Cannabis Board, a King County Superior Court judge found a statute and provision of the Washington Administrative Code unconstitutional. The provisions relate to the “content, size, and manner of affixing of on-premises advertising by marijuana retailers.”

By way of background, there have been many problems related to signage free speech issues with relation to signage in stores. For example, one Cannabis retail establishment received an administrative violation notice (“AVN”) after placing a Black Lives Matter sign in their store window.

This case arises from a retailer by the name of Hashtag Cannabis. The store used Christmas lights to spell the word “POT” in all capital letters. To understand why this sign violates the statute and regulation, as written, it is important to look at the text. RCW 69.50.369(2) reads as follows:

Except for the use of billboards as authorized under this section, licensed marijuana retailers may not display any signage outside of the licensed premises, other than two signs identifying the retail outlet by the licensee’s business or trade name, stating the location of the business, and identifying the nature of the business. Each sign must be no larger than one thousand six hundred square inches and be permanently affixed to a building or other structure. The location and content of the retail marijuana signs authorized under this subsection are subject to all other requirements and restrictions established in this section for indoor signs, outdoor signs, and other marijuana-related advertising methods.

The accompanying provision of the Washington Administrative Code provision, WAC 314-55-155(2)(a) similarly states

(2) Outdoor advertising. In addition to the requirements for advertising in subsection (1) of this section, the following restrictions and requirements apply to outdoor advertising by marijuana licensees:

(a) Except for the use of billboards as authorized under RCW 69.50.369 and as provided in this section, licensed marijuana retailers may not display any outdoor signage other than two separate signs identifying the retail outlet by the licensee’s business name or trade name, stating the location of the business, and identifying the nature of the business. Both signs must be affixed to a building or permanent structure and each sign is limited to sixteen hundred square inches.

(i) All text on outdoor signs, including billboards, is limited to text that identifies the retail outlet by the licensee’s business or trade name, states the location of the business, and identifies the type or nature of the business.

(ii) No outdoor advertising signs, including billboards, may contain depictions of marijuana plants or marijuana products. Logos or artwork that do not contain depictions of marijuana plants or marijuana products as defined in this section are permissible.

(A) A depiction of a marijuana plant means an image or visual representation of a cannabis leaf, plant, or the likeness thereof that explicitly suggests or represents a cannabis leaf or plant.

(B) A depiction of a marijuana product means an image or visual representation of useable marijuana, marijuana-infused products, or marijuana concentrates, or an image that indicates the presence of a product, such as smoke, etc.

(iii) Stating the location of the business may include information such as the physical address or location, directional information, web site address, email address, or phone number of the licensed business.

(iv) Identifying the nature of the business may include information related to the operation of the business, what the business is engaged in, or the goods the business offers for sale.

(v) Double-sided signs or signs with text visible on opposite sides are permissible and count as a single sign so long as the sign is contained in or affixed to a single structure.

The facts of the case are simple. The signage was larger than allowed and it was not permanently affixed to the building. The Liquor and Cannabis Board also took issue with the content of the sign, even though pursuant to WAC 314-55-155(2)(a)(i), signs are allowed to mention the “nature of the business” or the “registered trade name.”

Federal First Amendment Free Speech jurisprudence is vast. However, the central applicable case here is Central Hudson Gas & Electric Corporation v. Public Service Commission of New York, 447 U.S. 557 (1980), a case involving commercial speech. You see, if a person says something, it is more protected than if a business is saying it. The first step is whether the speech is “more likely to deceive the public than inform it.” Obviously, if the commercial speech is more likely to deceive than to inform, the State may ban the speech. However, the other part of the test deals with whether the speech is related to “illegal activity.”

If the speech is not illegal activity, then a three-part test applies. If the speech is for illegal activity, then no such test applies and the inquiry ends.

Here is where things get messy. Washington State has allowed recreational Cannabis, whereas under the Federal Government recreational Cannabis is still illegal under the federal Controlled Substance Act.

In the present case, the court’s have to apply a test under Gunwall to determine if the State Constitution must be read differently than the federal constitution. However, such was not the case here, as the State has specifically adopted Central Hudson in its own interpretation of the Washington State Constitution. Judge Keenan noted that several times the Court has already interpreted conflicting State illegality and is required to apply the constitutional provision with the most free speech protection (essentially, a Gunwall analysis applied to a specific later situation).

The Washington Constitution has a differing free speech clause, which states “[e]very person may freely speak, [and] write and publish on all subjects.” Wash. Const. Art. I, § 5. The Washington courts have looked at issues previously where speech was legal in the state it was coming from, but illegal in Washington. The courts in those cases found that the speech passed the “illegality” test under Central Hudson, though the Court did note that no cases have looked at the issue where there was a federal ban, but legality within the state. It would be absurd, however, to find that illegality between the states was treated differently than illegality where the federal government was involved. Thus, the Court found that the bar to illegality did not apply.

Because it passed the illegality test under Central Hudson, the Court then turned to a three-factor test, which includes (1) whether the State has a substantial Interest; (2) whether the restriction directly advances the state interest involved; and (3) whether the governmental interest could be served as well by a more limited restriction on commercial speech. In looking at these last two issues, “the regulation may not be sustained if it only provides ineffective or remote support for the government’s purpose,” and “excessive restrictions cannot survive.”

It was fairly undisputed the State does have a substantial interest in regulating the industry. However, what those interests are and how they apply are a little murkier. The State claimed an interest in “curtailing minor children’s interest in and exposure to the marijuana trade.” Hashtag Cannabis agreed the State held this interest. However, the second claimed substantial interest in the regulation was “avoiding federal enforcement,” through maintenance of an “orderly marketplace.” The State pointed to federal memoranda in support of this, and the Court used a bit of colorful language to describe the current status of Cannabis under federal law:

In support of its argument that it has a substantial interest in maintaining an orderly marketplace, the State points to memoranda from the U.S. Department of Justice: the 2013 Cole Memo, which seems to giveth, and the 2018 Sessions Memo, which seems to taketh away.

Now, as those in the industry know, the Cole Memo was Obama’s attempt to allow the states to experiment with legalization of marijuana. The Cole Memo did not get as specific as advertising. This was all for naught, though, as the Sessions Memo returned us to the status quo, at least as far as federal stances on experimentation were concerned. Essentially, the federal government only tried pot once in college, but then became Jeff Sessions, and decided pot was bad. But what has happened since the rescission of the Cole Memo? Nothing. Federal regulation of the illegality is too much of a moving target to be allowed as a substantial state interest under Central Hudson.

However, that still leaves “preventing of underage consumption” as a legitimate state interest.  As the Court noted in its order, any regulations still had to be “effective in practice.” The State cited studies that exposure to advertising may play a significant role in marijuana use of youth. So the question then becomes whether that harm is real and whether these restrictions on advertising really do alleviate that harm.

First, these retail sales are new. There were only two scholarly articles submitted on the topic of underage consumption, and even the authors admitted that this was a relatively new landscape given the recent legalization. However, the harm does not appear to be mere speculation or conjecture. Even though the data regarding harm to children is scant, it is still data.

So where does that leave us? The State has to show that those regulations then help to curtail that harm. In the present case, we have a similar issue that was encountered with beer.

A federal regulation allowed prohibition of alcohol content of beer on labels or in advertising. There was an exception for where state law required the alcohol content be disclosed. The regulation took a different stance than the law, stating that it was prohibited only in states where it was also prohibited. In this case, eighteen states prohibited such advertisements, allowing the majority of states to disclose alcohol content. The United States Supreme Court took note of whether the statute and regulation could be considered effective because of this discrepancy and held

The failure to prohibit the disclosure of alcohol content in advertising, which would seem to constitute a more influential weapon in any strength war than labels, makes no rational sense if the Government’s true aim is to suppress strength wars.

In other words, if you’re going to allow some of the conduct to happen, but not others, your claim seems a little weak, or as Judge Keenan put it:

Thus, the Rubin court concluded that the challenged law “cannot directly and materially advance its asserted interest because of the overall irrationality of the Government’s regulatory scheme.”

In the present case, though a sign larger than the restriction is out of compliance, the regulations still allow for billboards. In case you have not seen a billboard lately, it is a little bit larger than sixteen hundred square inches (they generally run 96,768 square inches, over sixty times larger than allowed by the LCB). The state conceded you could have a billboard right next to your store. You could have Pot on the sign if you registered it as a trade name. The Court did not address whether “POT” could comply with the nature of the business.

Simply put, “where the State’s asserted interest is to prevent underage consumption of marijuana, it makes no rational sense to restrict advertising in marijuana retailers where underage consumers are not allowed to enter or make purchases, but not so restrict billboards, where, billboards would seem more effective at capturing the attention of potential underage consumers.” The Court also noted the studies cited by the State actually referenced advertising viewing by minors in the form of “billboards, in magazines, or somewhere else.”

Thus, “there is little change that RCW 69.50.369(2)’s on-premises advertising restrictions relating to business or trade name can directly and materially advance the State’s asserted interest in preventing underage consumption when a marijuana retailer can register a business or trade such as pot and then use that word on signage.” The Court similarly found that “affixing and size” really had no reasonable bearing on the harm, given that billboards were still allowed, and are more extensive than necessary, especially given that underage persons cannot enter the premises anyhow. As one Supreme Court noted with regard to bear, “To the extent studies have identified particular advertising and promotion practices that appeal to youth, tailoring would involve targeting those practices while permitting others.”

What might that look like? Well, Joe Camel comes readily to mind. Restrictions on the advertising of marijuana candies might apply. However, this would mean figuring out which advertising practices in marijuana are targeting consumers and then banning those. The State’s own study cites viewing by children of billboards, but then allows billboards under their regulation.

So what does this do with advertising at the present time? The Court only invalidated this with relation to the content, size, and affixing restrictions, leaving in place, for now, the other restrictions on advertising which were not at issue in this case, and noting that further research may result in well-regulated advertising.

So what happens next? The Court’s order is immediate. But the State may seek an emergency stay of the order at the Court of Appeals. If that occurs, then the advertisement restrictions would still be in effect until the Court of Appeals or the Washington State Supreme Court tackles the issue. We at Gleam recommend waiting until the appeal period lapsed, and or a full decision has been made, prior to altering your advertising methods. If you have any questions on the full impact of the order, or if you have an issue related to signage violations with which you would like us to help, we are well-versed in the First Amendment Jurisprudence under which this challenge was based. We are here to help.

If you’d like to take a look at the full order, you can find it below.

FINALORDER