California Considers Cannabis Ad Legislation
This article has been updated to reflect the fact that AB1417 was killed in the Senate Appropriations Committee on August 30, 2019.
Legislation introduced in the California State Legislature earlier this year sought to impose onerous restrictions on cannabis advertising. Assembly Bill (AB) 1417 would have required websites dedicated to promoting cannabis products to include a dispensary's license number, and require sites with any cannabis ads to display specified warnings about the risks of unlicensed vendors. Had the bill passed, it would have likely been subject to challenge under Section 230 of the Communications Decency Act and the First Amendment.
California made history and headlines in 2016 when it passed Proposition 64, which legalized recreational cannabis use. Proposition 64 was passed under the auspices of the so-called "Cole Memorandum," a Department of Justice (DOJ) directive that deprioritized cannabis prosecutions, under the theory that "strong and effective" state-level regulatory and enforcement systems would better advance the DOJ's stated priorities—to prevent cannabis sales to minors, distribution to nonlegal states, and money laundering and other criminal enterprises.
Under the Trump Administration, former Attorney General Sessions rescinded the Cole Memorandum and instructed prosecutors to "follow the well-established principles that govern all federal prosecutions." But this did not prompt federal law enforcement to more actively enforce cannabis laws. And Sessions' successor, Attorney General Barr, made clear during his confirmation hearings that he did not plan to change that.
California lawmakers expected legalization to result in significant tax revenue. But the legal cannabis market in California has struggled to meet its projected earnings, collecting nearly $300 million less than expected in its first year. The primary suspect for the shortfall? California's unlicensed—or "legacy"—cannabis businesses are able to undercut the state's licensed businesses, which are required to not only pay high licensing fees and costs, but also to impose significant cannabis taxes, which are passed on to consumers.
Accordingly, the legislators who introduced AB 1417 say that they introduced the bill to prevent the advertisement of unlicensed cannabis businesses. The bill sought to amend Section 26151 of the Business and Professions Code, which deals with cannabis, in two significant ways. First, the code would prohibit "operator[s] of an internet site, online service, online application, or mobile application that is operated primarily for the purpose of promoting, or disseminating information about, the sale of cannabis products in the state of California" from "display[ing] an advertisement for the sale of cannabis products unless the advertisement displays the license number issued pursuant to this division of the licensee to which the advertisement pertains." Second, it would have required any site that advertises cannabis goods "prominently" display "a clear and reasonable statement" of specified warnings to visitors presented with cannabis ads. Sites that violate the law could face fines up to $2,500.
Under Section 230 of the Communications Decency Act, "[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider." 47 U.S.C. § 230. Moreover, "[n]o cause of action may be brought, and no liability may be imposed under any state or local law that is inconsistent with this section." The 9th Circuit and California state courts have applied Section 230's grant of immunity to preclude internet service providers from being held liable (civilly and criminally) for third-party content. See, e.g., Carafano v. Metrosplash.com, Inc., 339 F.3d 1119, 1123 (9th Cir. 2003); Barrett v. Rosenthal, 40 Cal. 4th 33, 56 (2006).
AB 1417 , as drafted, ran afoul of Section 230 because it sought to hold sites and apps, which are quintessential interactive computer services, responsible for the content of third-party ads, i.e., for the failure to include a license number. By holding sites and apps "liable for [their] exercise of a publisher's traditional editorial function—such as deciding whether to publish, withdraw, postpone, or alter content"—AB 1417 would have effectively treated them as publishers, which Section 230 forbids. Zeran v. Am. Online, Inc., 129 F.3d 327, 330 (4th Cir. 1997).
Though AB1417 was killed in committee, the dangers for sites "operated primarily for the purpose" of promoting the sale of cannabis are real. AB1417's predecessor, Section 26151 of the Business and Professions Code remains law and still provides that advertisers are required to display the license number of the "licensee responsible for its content" and technology platforms are still prohibited from "display[ing] an advertisement by a licensee on an Internet Web page unless the advertisement displays the license number of the licensee." To the extent Section 26151 is applied to try to hold technology platforms responsible for third-party content created by unlicensed retailers or manufacturers, it may well be subject to challenge under Section 230 too.
Nicole Phillis is an associate and Sam Cate-Gumpert a summer associate in Davis Wright Tremaine's Los Angeles office.