What You Need to Know About Social Media Compliance and Federal Legalization

May 3, 2023

Written by Highlyte

Cannabis companies, famously, have a love-hate relationship with social media. Despite the unprecedented reach of platforms like Instagram, Facebook, Twitter, LinkedIn and TikTok, federal prohibition presents a barrier between cannabis brands and social media companies’ terms of service. 

While many cannabis companies hope that national legalization might simplify how they execute on their marketing strategies, the truth is that social media will always (inevitably) be a complicated landscape for members of highly-regulated industries to navigate.

The power of social media platforms to influence B2C and B2B purchasing decisions is undeniable. According to Hootsuite, there are over 4.62 billion active social media users online. Roughly 72% of American adults use at least one social media platform—up from 5% less than twenty years ago. Because 90% of those users follow at least one business or brand, it’s easy to see why companies are projected to spend $268 billion on social media ad spend in 2023. 

Cannabis companies don’t have a straightforward time tapping into that potent sales funnel, however, thanks to the extensive advertising restrictions inherent to most social media platforms. The UX compliance burden is simply higher for both visual and written content. It’s not uncommon for a cannabis company to get shadowbanned or outright de-platformed for something as seemingly straightforward as posting pictures of cannabis plants or fresh flower.

It’s easy to see why some cannabis brands have feelings of persecution when it comes to social media— after all, no one is telling the local fast-food chain not to post photos of hamburgers and fries on its Instagram. Many brands assume that federal legalization will magically unlock social media companies’ terms of service. But the truth, as always, is more complicated when it comes to the false dream of low-risk advertising.

Why Social Media Companies Moderate Cannabis Companies

Social media companies set the restrictions they do for several reasons. One, while cannabis may be legal on a state-by-state basis, the internet is much harder to fence. Even with age-gating and paid advertising parameters, digital spaces are far more porous than offline interstate commerce. Social media companies have to consider the same regulations as cannabis companies concerning advertising to minors, albeit from a different angle.

Even in legal states, cannabis retains a certain degree of stigma and controversy, too. Social media companies already face intense scrutiny for their role in politics, and their content moderation policies. Just look at the discourse around Twitter’s decision to reinstate banned accounts—not to mention the Congressional inquiries into whether Twitter participated in political censorship. There simply isn’t enough financial incentive to accept cannabis companies’ paid advertising dollars in exchange for increased legal and public relations liability.

For one, while the cannabis industry itself is estimated to be worth almost $24 million in 2022, that valuation typically doesn’t translate to massive advertising budgets. Indeed, Twitter’s February 2023 decision to change its cannabis paid advertising policies follows months of significant financial losses following billionaire Elon Musk’s acquisition of the company in 2022. The decision may say less about the profitability of selling cannabis brands digital ad space and more about Twitter’s search for a reliable revenue stream.

Indeed, Twitter’s decision hasn’t changed one of the primary sources of reticence for many social media companies faced with the cannabis question. As long as the cannabis sector is forced to operate outside federally regulated financial networks as a cash industry, many social media companies will see paid advertising as a potential means for money laundering. 

Indeed, as the American Bar Association notes, “cash businesses are more readily exploited for money laundering and other nefarious purposes, which undermines the public-policy goal of creating legal and regulated markets.” Even if there were more revenue to be made, no social media platform wants to run the risk of being used to launder money by federally illegal and publicly scrutinized businesses. 

Will Federal Legalization of Cannabis Lower Marketing Risk?

It’s true that when federal legalization is enacted, concerns like these will likely dissipate. But the end of national prohibition is hardly a silver bullet for cannabis companies that hope to reduce their cannabis risk management responsibilities. 

Instead, federal legalization is almost certain to increase scrutiny on the industry. While certain advertising channels like social media will open up, new compliance protocols will be introduced. And many companies will be forced to navigate federal compliance lawsuits like the one lost by Juul. 

Just because state regulators haven’t pursued violations doesn’t mean that years of pre-legalization evidence won’t be levied against cannabis brands in the future. Whatever a company was doing years prior may well be up for scrutiny by federal regulators—who will likely be better funded and prepared than state regulators, particularly those in emerging markets. Just look at the ruling of Manhattan Supreme Court Justice Margaret Chan, who ruled against Juul’s claim that its advertising practices were shielded from prosecution by a three-year statute of limitations.

Cannabis companies can look to highly-regulated “sindustries” like gambling for a preview of what federal legalization might bring. Large, well-funded enterprises will be able to afford consultants who specialize in liaising with regulators and navigating complex cannabis content compliance metrics. Smaller businesses will struggle, however, and will be more like to face fines and other repercussions that better-connected businesses can course-correct before facing punitive action. 

The grass may seem greener on the other side of social media platforms’ present terms of service. But cannabis companies will never enjoy the freedom on these channels as businesses in other, less regulated industries. Rather, federal legalization will change which regulatory authority bears the brunt of overseeing cannabis compliance. While social media platforms may loosen up their rules, cannabis companies will instead have a new set of rules to navigate—at arguably higher stakes. 

That’s why it’s important to perform a rigorous content audit now, and stay on top of social media compliance in perpetuity—not only for online marketing content, but also to ensure compliant cannabis packaging, branding, logos and more. While it won’t necessarily solve the problem of shadowbanning that stems from bad-faith reports filed by your followers and competitors, it will protect you from legal liability down the line. 

Be sure to know the marketing regulations in your brand’s state(s) of operation and stay up to date on any changes that may be introduced. A cannabis compliance software tool like Highlyte can be invaluable for performing routine health checks to ensure your social media is working for your business, not undermining it.

Ready to learn more about how Highlyte can help cannabis companies avoid state-by-state content compliance risks? Learn more about how Highlyte works by booking a demo with us today