Drake joins Canopy’s roster of partnerships
Deal with pot company could circumvent advertising rules, say marketing experts
TORONTO Superstar rapper Drake is jumping into the cannabis game through a cleverly structured deal that marketing experts say could effectively circumvent strict advertising rules that govern the promotion of cannabis.
Drake announced Thursday the launch of his new cannabis company More Life Growth Co., a joint venture with Canopy Growth Corp. in which Drake will own 60 per cent, and Canopy the remaining 40 per cent.
As part of the deal, More Life will become the beneficial owner of a cannabis production facility in the Toronto suburb of Scarborough that is already being operated by Canopy.
“The structure of setting up the joint venture between Canopy and Drake’s new company is a very clever way around the general sponsorship prohibition because he’s not technically being paid by Canopy to promote cannabis,” said Chris Bolivar, vice-president of strategic growth at cannabis retail chain Fire & Flower.
Cannabis advertising rules in Canada are similar to that of tobacco — any kind of endorsement that glamourizes cannabis or promotes it as a lifestyle is strictly prohibited.
Although there are hundreds of different cannabis brands on shelves in legal retail stores, none of the licensed producers associated with those brands are allowed to promote them, or package them in anything other than plain packaging, resulting in weak brand recognition by consumers.
But Drake is Drake, and anything he touches tends to become part of the country’s cultural fabric, potentially giving More Life Growth an edge over other cannabis brands.
According to Bolivar, if Drake were to promote More Life on Instagram
for instance, that would be well within his right and not a violation of advertising rules on cannabis because he is an owner of the company, and not just a celebrity paid by Canopy to endorse their product.
“The issue around sponsorship by a celebrity is whether or not the celebrity is paid consideration for the endorsement of the product,” said Bolivar, who was part of a Canadian Marketing Association team that developed advertising guidelines to help the cannabis industry navigate the tough regulations.
Drake commands market access that no cannabis company comes close to having. His YouTube channel has over 13 billion views, and he has almost 53 million followers on Instagram. Within hours of teasing the launch of More Life in an Instagram post Wednesday evening, the company’s own account had gained more than ten thousand followers.
“I’m not sure whether the association right now is stronger between More Life and Drake or between Canopy and Drake, but as this rolls out, this is going to continue creating publicity,” said David Soberman, a marketing professor at the Rotman School of Management.
“It is very smart, because it is certainly a run around the regulations. You’re not supposed to use a person in the promotion of cannabis and that’s exactly what this is, if you think about it,” he added.
Soberman believes that Drake’s promotion of More Life on social media falls within a grey area of cannabis advertising regulations.
“One of the reasons the government came up with strict marketing regulations is to stop this kind of thing. But at the same time he owns the company, and you are allowed to have some kind of targeted brand promotion talking about the attributes of the products. I think this will be an interesting test case for the regulators,” he said.
With the deal, Canopy adds another celebrity to its roster of partners. Drake joins lifestyle guru Martha Stewart, rapper Snoop Dogg and actor Seth Rogen in working with Canopy, the biggest cannabis firm in the world by market value. This is the first such partnership signed after co-chief executive Bruce Linton was fired in July. The deal comes at a crucial time for Canopy Growth, which saw revenue decline in its most recent quarter.
Under the terms of the arrangement, the Smiths Falls, Ont.-based company will reserve the right to nominate two board members to More Life, and will continue to hold the Health Canada licence required to cultivate and sell product from the Scarborough facility.
And more crucially, Canopy will retain the rights to distribute More Life products.
“As a cannabis business person, I’ve seen these celebrity strategies work and not work. When it works best, it is with a celebrity that has true involvement with the cannabis plant and plays an active role in building the brand,” said Steve DeAngelo, a longtime cannabis activist in chairman of California cannabis company, Harborside.
“Drake may do very well, but I think there are risks because larger cannabis companies have not been very successful at producing high quality cannabis and at the end of the day, that’s what we know customers in this business want,” he said.
Financial Post
With a file from Bloomberg