Buzzkill: Senate Adopts Amendment To Bill C-45 Limiting Cannabis Branding “Swag”

Benjamin A. Smith

Despite the widely held investor belief that cannabis stocks would run in the days leading up to Bill C-45’s crowning vote, we may have found out why the market was less sanguine. We noted the lackadaisical market enthusiasm last Thursday, and this news does market sentiment no favors.

On Friday, Senators adopted an amendment to Bill C-45 put forward by Conservative Sen. Judith Seidman (34-28 margin) which aggressively curtailed the promotion and marketing of marijuana in Canada. Items like branded hats, t-shirts, smartphone cases, and other merchandise will all be restricted. In the words of the Mrs. Seidman, “We are all too familiar with the marketing techniques used by alcohol and tobacco companies to maximize consumption of their products — and consequently their profits.”

Currently, there are loopholes that allow companies to brand items that aren’t related to cannabis—loopholes the Honorable Senator is looking to close. If those exceptions also push through, the cannabis sector will face similar advertising restrictions to that of Big Tobacco. That’s not exactly a sales-friendly scenario.

How much of an impact could a comprehensive ban on cannabis advertising exert in the Canadian market? The evidence is quite compelling.

According to widely disseminated industry fact sheets, research conducted between 1970 and 1992 in 22 countries found that comprehensive bans can reduce tobacco consumption by 6.3%. Furthermore, a study showed a 23.5% reduction in per capita consumption involving 30 developing countries between 1990 and 2005 where tobacco advertising was severely limited.

The International Tobacco Control (ITC) Four Country Survey also weighed-in with a finding which documented the inextricable link being branding and product awareness. In their Canadian findings, they note: “Respondents in Canada reported significant decreases in their awareness of tobacco marketing through 11 of the 15 individual channels during the course of the study period (2002-2008).”

Overall, the conclusion was exactly what you’d thought it would be: “The longitudinal data from this study show that smokers from all SES groups report significant reductions in their awareness of tobacco marketing immediately following the enactment of marketing regulations.”

While the optimists may argue that banning cannabis promotion will make it more cool among Canadian youth, the evidence doesn’t bare that out. As cannabis does not carry the inherent health risks associated with smoke inhalation, perhaps the effect will be more blunted. Either way, it’s hard to find a net positive in this scenario—even in a partial ban situation.

Perhaps the biggest unintended consequence of the cannabis swag restriction is yet to be seen. As Canada is viewed as a world trailblazer in the space, there’s presumably a heightened risk other nations may adopt Canada’s advertising stance once they legalize. The “Pied Piper” effect is really what’s at stake here. We’ve seen this movie before with Big Tobacco, although it took some nations decades to emulate the initial trailblazer position.

It will be interesting to witness how much of an effect this amendment has on the sector on Monday. Will it shrug it off, or was a partial ban an expected occurrence?

With the market deadlocked in a week-long stalemate—and with both the Bill C-45 vote and Ontario provincial election being held on June 7—next week promises to be a trader’s delight.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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