Don't Nullify Your Risk Reward Premium

Between "Netflix partnering with a Los Angeles dispensary to offer strains inspired by its shows" and smaller cannabis players focusing on advertising mediums that are open to them, the Out of Home industry is one of the best ways for cannabis dispensaries to reach their customers and will probably remain so for as long as local dispensaries are the main distribution to consumer channel for cannabis. As explored by Brent Baer in OOH Today’s  "Digital OOH Advertising Only Seen by Cannabis Consumers" article the OOH industry is primed for the cannabis industry. Nevertheless there are questions that OOH owners should take into account before jumping in with the cannabis industry.

The biggest question for OOH owners is around the legal environment. From renting a building to a cannabis company to advertising cannabis, all of it is technically illegal (see everything from the Peters Case to the South Carolina Nullification crisis of 1832, to Cooper v. Aaron for the success of nullification by states of federal laws). Given the current administration, it is not in the realm of impossibility that legal and enforcement action will be taken against the cannabis industry. This doesn't mean that an OOH operator shouldn't allow a cannabis advertisement on their board in a state that has "legalized" cannabis use, rather that they should use a risk-reward model that provides them with a higher rate to compensate the OOH owner for any possible legal or enforcement actions taken against them.

The second question, that while not regulatory (in all localities), is communal: what is the appropriateness of advertising marijuana to specific demographics, normally children? In places like Los Angeles, regulations are going into effect that will limit where cannabis advertising can occur. Even in Sin City, there are regulatory hurdles to jump through for OOH owners to have cannabis creative on their boards. According to Mike Foland of Flo Advertising, “As one of the few companies in Las Vegas that is allowed to advertise for the cannabis industry, we had to work closely with the city to approve the routes and times that we would be advertising, due to the current advertising restrictions in this industry. We did this by creating a presentation and using data to show that we would not be advertising to underaged consumers. " (As is my normal refrain at Abraxas, data is king).

Lastly, a question that should concern OOH owners is the question of handling illegal money. At this present time, US cannabis dispensaries on the whole (with few exceptions) are not allowed to use banks nor are they allowed to process credit card transactions (however many are using a loophole that allows the buyer to purchase a gift card with their credit card, making it appear to the buyer that it is a seamless credit card transaction). While you might ask what does this have to do with me, it is important to keep in mind that the Money Laundering Control Act prohibits individuals from engaging in a financial transaction with proceeds that were generated from certain specific crimes, known as specified unlawful activities. One of those specified unlawful activities is drug trafficking, which under federal law, cannabis dispensaries are doing.

Now, none of this should be taken as a knock against the cannabis industry nor as a knock against OOH owners who are allowing cannabis creative on their board. Rather, OOH owners have every reason to charge a risk premium to the cannabis industry to advertise on their boards, because there is a risk when doing business with the cannabis industry, and OOH owners need to make sure that they aren’t nullifying their risk reward premium.

Joshua Lawton is the COO and Co-Founder of Abraxas Technology. He is also a member on Forbes Technology Council and OAAA’s Innovations Committee. He’s not a lawyer and you should not take what he says as legal advice.

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