Ghost Drops, which describes itself as “Canada’s premium cannabis brand,” announced in an April 29 news release that it filed its statement of claim in Federal Court on April 4 and has hired experienced, Vancouver-based cannabis law specialist Kirk Tousaw to advance its case.
Health Canada fined the privately held company $500,000 for breaching the Cannabis Act’s advertising rules following an investigation in mid-2023 that was sparked by numerous complaints.
Among other things, Health Canada objected to Ghost Drops’ use of digital and social media marketing channels as potentially contravening the Cannabis Act’s prohibitions on promoting cannabis in a manner that could appeal to youth or associate cannabis with a lifestyle or emotions such as excitement, risk or glamour. The company’s bold, street-inspired branding and culture-driven messaging were also cited as problematic, with Health Canada suggesting that these elements could be seen as appealing to young people.
The company said it suspended advertising following the fine, but its competitors continued using the same advertising techniques that it was being punished for.
“The brand believes the fine to be punitive in nature rather than ‘promoting compliance through education, information sharing and guidance documents aimed to help regulated parties understand their obligations and prevent non-compliance’ as outlined in the regulators mandate,” the company said in its news release.
“Ghost Drops believes it was treated unfairly, which ultimately hindered its ability to effectively compete,” it added. “This inequitable treatment placed immense pressure on the brand, ultimately threatening its very existence in a very saturated competitive marketplace bound by over-reaching regulations.”
Tousaw noted in the release that his arguments will assert, in part, that cannabis is a far safer product than alcohol and should not be treated in a heavy-handed way by the government.
“I think it is clear that the marketing restrictions violate the commercial free speech rights protected by section 2 of the Charter,” he said. “The real issue for trial will be whether the government is entitled to override those rights and, if so, whether the rules as applied minimally impair those critical freedoms in a way that is rationally connected and proportionate to the government’s goals.”
In an email to Law360 Canada, Tousaw said he believes this is the first legal challenge to the federal cannabis advertising regulations, and he expects the case will be argued primarily on s. 1 grounds.
“As I’m sure you and your readers know,” he said, “the prevailing authority on commercial free speech arises in the tobacco context — and the SCC [Supreme Court of Canada] found section 2 breaches but upheld the severe marketing restrictions on section 1 grounds because, in short, tobacco is quite deadly.
“I do not think the evidence will show that cannabis is deadly,” he added, “and given that there exists a medical access regime, the evidence is likely to show very little harm and even some benefit.”
Tousaw said the advertising regime governing alcohol, which is also potentially more dangerous, demonstrates that alternative and less restrictive regulatory schemes are possible and are already in use in Canada.
Federal cannabis advertising rules have stirred significant debate among lawyers, regulators, industry participants, and civil liberties organizations over their breadth, clarity and enforcement, as well as the balance between public health protection and the rights of legal businesses to inform and compete.
According to a September 2023 analysis by McMillan LLP lawyers Joshua Chad and Emily Hush, the Competition Bureau of Canada has recommended easing cannabis advertising restrictions to improve market competitiveness and consumer information, while still balancing public health objectives.
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