The Bureau of Cannabis Control recently released a Fact Sheet on branded merchandise. The fact sheet is intended to help licensees comply with regulations on branded merchandise. Based on our own experiences, many licensees are falling short in the area of branded merchandise compliance. With that in mind, let’s discuss a framework for incorporating branded merchandise into a licensee’s overall compliance program.
Why pay attention to branded merchandise?
The BCC has utilized a carrot instead of a stick to incentivize compliance. Similar to what we’re seeing with enforcement around track-and-trace and packaging compliance ramping up; we are now two and a half years into California’s regulated cannabis experiment, and it appears the BCC is gearing up for enforcement as opposed to continuing its campaign of education and voluntary compliance. We have seen an uptick in BCC investigations relating to operational compliance, including employment investigations, sales investigation, and security footage reviews in response to complaints received by the BCC.
The area of branded merchandise seems to be particularly important to the BCC, which considers branded merchandise a form of advertisement. The BCC has reiterated many times its intention to protect youth from exposure to cannabis advertisements. This is exemplified most by the stringent regulations on which platforms may be used for advertisement and the requirement for audience composition data. The fact that the BCC has issued a specific fact sheet on branded merchandise signals that this is an important issue to the agency.
Issues involving branded merchandise
We see two big issues relating to branded merchandise:
- Whether the licensee has secured authorization for the merchandise; and
- Whether the merchandise contains all technical requirements for advertisements. This list is not exhaustive of compliance issues but highlights two that we think are important.
Regarding the issue of authorization, some branded merchandise requires specific authorization before it may be sold. Under BCC regulations, “branded merchandise” means clothing, hats, pencils, pens, keychains, mugs, water bottles, beverage glasses, notepads, lanyards, cannabis accessories, or other types of merchandise approved by the Bureau with the name or logo of a commercial cannabis business licensed pursuant to the Act. Any merchandise not listed in the definition, including coolers, playing cards, pocket knives, and other swag, must be authorized by the BCC before it can be sold.
Second, on the issue of advertising compliance, branded merchandise must identify the licensee responsible for the advertising content, including the responsible licensee’s state license number on the branded merchandise. This is a particularly murky area as some licensees operate many licenses across the state and it is unclear whether each store has license-specific branded merchandise or whether all licenses for all locations must be included. This is an area where we are actively working with the BCC for more guidance.
Performing regular risk assessments
In order to be prepared for a branded merchandise audit, a licensee should perform regular risk assessments on its branded merchandise. The objective of this is to identify risks and issues involving the types of merchandise being sold, the necessary labeling, and whether it meets standards for advertising. As marketing teams get more creative with promotional efforts [We have seen some great swag! –Ed.], issues are likely to arise in the future unless a licensee is paying attention to what it is selling. Therefore, licensees should conduct risk assessments regularly.
Reviewing your Branded Merchandise
Prior to an official audit, a licensee will likely be required to gather evidence of all branded merchandise for sale. Due to the pandemic, a licensee will likely be required to submit photographs of the branded merchandise. The auditors may want to talk about the licensee’s process for producing branded and obtaining approval from the BCC as well as including required license number. Keeping proper records of these communications and authorizations and reviewing them periodically will ensure that all the necessary information is up-to-date and relevant.
Conducting training on branded merchandise
Training matters. BCC record-keeping regulations require a licensee to maintain records on training and training material for 7 years. See 16 CCR 5037. The training that you provide to your employees responsible for branded merchandise must be up-to-date and relevant to current policies and practices. In any case, as with most BCC investigations, BCC auditors will likely want information on what training your marketing department has received with respect to branded merchandise. This is why a licensee must maintain documentation on who received the branded merchandise training and the content of that training. It proves the organization is dedicated to education and proper compliance.
Branded merchandise policies and procedures
Cannabis businesses must implement policies and procedures that best suit their culture and practice. However, policies and procedures might change, therefore, licensees should review their current policies and procedures and update them accordingly. With respect to branded merchandise, BCC auditors may want to check if there is a formal procedure for development and review of branded merchandise before it is created and sold. BCC auditors may also want to check if the implemented policies were distributed and communicated to relevant staff members. Licensees should take the time to review whether there is a systemized process for creating branded merchandise and that relevant employees are aware of this procedure.
Involve your compliance officer
A compliance officer should review branded merchandise prior to production and sale. Determining the person who will be in charge of compliance review is essential for producing branded merchandise. BCC regulations do not require the appointment of a formal compliance officer, but having a compliance officer or an outsourced compliance officer sure helps. Nevertheless, a compliance review can be performed by anyone in the organization who is familiar with BCC branded merchandise regulations. Often times, MMLG will serve as an outside compliance officer and resource for licensees for this purpose. The compliance officer will review each piece of branded merchandise for compliance with regulations.
Document Everything
We say it all the time: if something is not documented, it didn’t happen in the eyes of regulators. BCC auditors may request broad documentation relating to branded merchandise, including copy of the merchandise itself, internal communications, compliance officer notes, training material, security footage, sales records, and more. It is imperative to maintain as much compliance-related documentation as possible. Proper documentation can please the BCC auditors even if there is technical noncompliance and it can serve as a strong proof that your organization is making proper efforts to comply with BCC regulations.
Final Thoughts
It remains to be seen how much enforcement will center on branded merchandise. However, the BCC has released a Fact Sheet, which signals to us that branded merchandise will be an important issue in the future. The solutions for “staying in the lines” for branded merchandise haven’t been entirely ironed out even by the BCC, however understanding the Bureau’s expectations via its Fact Sheet is a valuable first step.
Additionally, working with your compliance officer to develop a branded merchandise framework and protocols centered around the BCC’s info. is a pro-active step your company can take. If you have any questions this emerging topic, reach out to MMLG directly.