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Canna Law Blog

LEGAL SUPPORT FOR THE CANNABIS BUSINESS COMMUNITY SINCE 2010

Marijuana Payment Processing

Posted in Business Basics, Federal law and policy, Legal Issues
Cannabis banking. Bruised but not out. Photo by Rafael JM Souza (http://bit.ly/1BqHl3s)

Cannabis banking. Bruised but not out. Photo by Rafael JM Souza (http://bit.ly/1BqHl3s)

We have written a ton on cannabis banking issues and on the many problems that stem from the industry’s a lack of access to banking. Even when a marijuana business does have banking, it can face additional problems. One of those is that it can be challenging to find merchant services companies that do payment processing. This means that even though a marijuana retailer may have a bank account, it may not have a way to accept debit or credit card payments. This is inconvenient for customers and brings with it the risks that come from having large amounts of cash on site.

There are several alternatives. One is to have an ATM on site or to use a “cashless” ATM system at the point of sale. Under these models, the merchant services provider puts a terminal at the point of sale at which a customer swipes his or her debit card. The customer approves the transaction and the payment processor pulls the transaction amount from the customer’s account. The money then sits in the payment processor’s account briefly, before it is deposited in the marijuana retailer’s account (less a hefty transaction fee, of course).

Another alternative emerging is for customers to load dollars into a payment account that they keep specifically for the marijuana retailer(s) from whom they buy their cannabis. PayQwick is an example of this method. Using this method, customers load money into an account, and then make payments using either a PayQwick card or a phone app. The idea is similar to what other payment processing businesses like PayPal and Google Wallet offer. In practice, the payments look similar to what you see in a Starbucks, with people paying via scanned barcodes on their smartphones.

All of these services solve some of the problems that arise from running a cash only business, but they have seen their own share of challenges. One of the primary issues faced by these companies is that they have to maintain a good relationship with their own financial institutions. Most of the small banks and credit unions currently offering financial services to the marijuana industry are not set up to take on the business of a payment processing company. This means that these payment processing companies end up doing business with the same large national banks that refuse to offer financial services to the cannabis industry. Needless to say, this presents some risk that the payment service will have its own accounts closed. My law firm has worked on a number of cases where banks stopped paying payment processors and the customers of those payment processors in turn miss getting paid as well.

Additionally, there is state licensing. Money transmitters, like many other financial services, are regulated and licensed on a state by state basis and it’s important for marijuana businesses and the banks that serve them to constantly do their due diligence on thid party service providers to verify their compliance with state law requirements.

None of these alternative payment services are a real alternative to banking. Similar to bitcoin, they can provide additional convenience and can solve a number of problems that industry members face, but they don’t benefit from the deposit insurance and regulatory oversight of banks and credit unions. Still, they are welcome entrants in the market, and we look forward to seeing what other innovations this industry will provide in the coming years.

Portland Marijuana Rules: The New Draft

Posted in Business Basics, Legal Issues, Licensing, Oregon
Oregon allows for each city to have its own marijuana rules.

Oregon allows for each city to have its own marijuana rules.

As our Oregon clients gear up for recreational marijuana license applications, most of the focus has been at the state level. We recently saw top-down rules from the Oregon Health Authority (OHA) for the re-styled medical program and for temporary recreational sales. We now await rules from the Oregon Liquor Control Commission (OLCC) for next year’s full recreational program. Parallel to these developments but less discussed, have been actions of cities and counties that will issue their own rules on zoning, permitting, and time, place and manner requirements.

Last week, the City of Portland, through its Office of Neighborhood Involvement (ONI), posted draft rules on “Marijuana Regulatory License Procedure and Requirements.” These rules will affect a significant segment of Oregon’s marijuana industry; that is, all medical and recreational industry players within Portland city limits. To give you an idea of the size of Portland’s marijuana footprint, the city has 148 approved medical marijuana dispensaries per OHA data (compared to 93 Starbucks). Eugene is second with 27 approved dispensaries and Bend has 15.

As I have written before, Oregon is a “home rule” state and cities and counties are allowed to make rules without permission from on high, so long as those rules are not incompatible with state law. Oregon’s omnibus marijuana statute, HB 3400, permits cities and counties to legislate regarding marijuana in various ways, including even opting out from legalization entirely. Nothing in the statute says local jurisdictions can’t require their own permits, make their own zoning laws, or have their own inspections. The sole proviso is that local rules cannot conflict with state law.

The Portland draft rules are both broad and detailed. ONI proposes that the City require a fee-based license for all categories of medical and recreational marijuana businesses, including growers, processors, wholesalers and retailers. All marijuana businesses “must be within a building or structure subject to permit review” and not located in an area zoned for residential use. Medical dispensaries must be located 1,000 feet apart and retailers must be 1,000 feet apart. Doors may be open from 7am to 9pm.

Like the OLCC and OHA, the City or Portland wants biography via a Personal History Form on every program “Applicant,” which it defines as “any individual directly involved in the management and operation of, or has at least 10% ownership interest in the Marijuana Business or Marijuana Dispensary.” This differs from the definition of “Applicant” in the latest draft rules circulated by the OLCC, which define an “Applicant” as “any person or legal entity having a financial interest in the business….” So, the Portland rules require a little less disclosure, but not much.

In addition to the Personal History Form, the City will require: descriptions of each business’ operations and its security plan; proof of a state-issued license; and proof of ownership in the form of a lease or other instrument. For storefronts, a “Control Plan” discussing security and nuisance abatement is required. Growers must provide documentation of permits from the Fire Department and Bureau of Development Services. And finally, delivery of marijuana off-site is not allowed (except as provided for under the existing Oregon Medical Marijuana Act).

After a Community Stakeholder Meeting on September 8, these rules will be considered by the Portland City Council on September 16. The City Council may adopt the rules in whole or in part, according to its charter. After the rules are adopted, and according to ONI’s timeline, the City does not anticipate accepting applications until October 1, 2016 – exactly one year to the day after the early recreational sales program begins. This is good news for marijuana businesses, which will not need to apply with the city unless they first receive a license from the state.

At this time, cannabis entrepreneurs in Portland and elsewhere should focus on influencing local rule-making while opportunities to do so still exist, as these rules will become very tough to change once codified. Ultimately, Oregon pot businesses everywhere should expect local compliance obligations (and plenty of them) in addition to the OLCC and OHA rules. We will continue to update as key developments unfold.

Marijuana Driving Laws: No Simple Solution

Posted in Advocacy, Legal Issues
What are the driving while stoned laws in your state?

What are the driving while stoned laws in your state?

Driving under the influence of marijuana is a tricky issue, in large part because it is not clear what impact marijuana has on driving and because determining such influence is so difficult. A study on the effects of driving under the influence of marijuana showed that drunk driving was much more dangerous than stoned driving.  Marijuana impairment reduced the driver’s peripheral vision and made the driver slightly more likely to weave within the lane. Alcohol, on the other hand, made it more likely for drivers to actually swerve out of their lane. Another study showed that marijuana use could reduce a driver’s capacity to manage distractions but not with the same severity of alcohol.

Even assuming that marijuana impairment significantly inhibits one’s ability to drive, there is no truly effective method to test for impairment. Officers use drug tests to determine whether a driver is under the influence of drugs. Drug tests identify metabolites from cannabis that can remain in a person’s body for up to 30 days. These tests do not indicate when a person consumed cannabis or whether that person is impaired; they simply measure the amount of THC in the body at that time. In many states, drivers can be arrested for stoned driving weeks after they actually consumed marijuana.

States have taken a variety of approaches in creating “drugged driving laws.” Some use a Zero-Tolerance Per Se Cannabis limit. If a driver has any trace of marijuana, he or she is guilty. Under this test, the actual impairment of the driver is irrelevant.

Per se marijuana laws are similar to the Zero-Tolerance methods, but instead each state sets a THC limit akin to a Blood Alcohol Content threshold. If the driver exceeds this limit he or she will face DUI charges, regardless of impairment.

Colorado uses Permissive Inference laws where impairment is inferred, but not defined, by the amount of THC in blood levels. This means that a person who has a certain level THC in his or her blood stream may be subject to a DUI charge, but guilt is not automatically presumed.

Finally, many states use Effect-Based Laws where evidence of impairment due to recent consumption of marijuana must be established. These laws focus on the behavioral impairment of the driver, rather than a pre-determined THC threshold.

The private sector is attempting to cash in on the need to measure impairment. An app has been developed to help drivers determine if they are “good to drive.” The app uses tests to assess memory, reaction time, balance, and time perception. Users should first take these tests sober to set a baseline to which they can compare themselves after consuming cannabis. This app is being marketed directly to consumers, not to law enforcement.

A more dubious product is the “marijuana breathalyzer,” which would measure amounts of marijuana on a person’s breath. Proponents argue this can be used to determine whether a person consumed marijuana recently because marijuana remains on a person’s breath only for a short time. Taking this argument further, a breathalyzer may be a better indicator of whether that person is impaired, because it determines whether someone consumed recently. However, as of now, the idea of a marijuana breathalyzer is nothing more than that, an idea. Companies are vying to be the first to develop a functional breathalyzer, but at this point none has delivered the goods. Additionally, this type of breathalyzer could end up being just as incapable of testing for impairment as the drug tests.

States should consider whether their drugged driving laws are an effective way to keep their roads safe. At this point, the best we can tell you is to stay abreast of your own states drugged driving laws and act accordingly.

California Cannabis and the Feds: The Harborside Health Case

Posted in California, Federal law and policy, Legal Issues

Last week the U.S. Ninth Circuit Court of Appeals handed down a disappointing ruling in the ongoing Harborside Health Center case. A three-judge panel unanimously ruled that the U.S. Department of Justice has the legal right to attempt to close Harborside’s doors.

We first wrote about Harborside Health Center over three years ago, when the U.S. Attorney for the Northern District of California, Melissa Haag, moved to shut down Harborside by seeking to seize assets and property under the Controlled Substances Act. It is critical to remember that federal civil asset forfeiture is a risk even the most compliant marijuana businesses run, and that the federal government can and does seize property used for cultivating, manufacturing, or distributing marijuana.

Harborside Health CenterBut the situation with Harborside Health Center and the City of Oakland is exemplary. First of all, since its inception, Harborside has worked closely with the City of Oakland and (by all reports) has always been a model of compliance with both state and local law. Harborside also pays its taxes. And it pays a lot of taxes – Harborside provides the City of Oakland with more than $1 million in annual tax revenue. As a model of compliance, an industry leader, and a major revenue generator for Oakland, Harborside has consistently had strong support from the city council and the city attorney.

So why did the federal government go after Harborside in the first place? Back in 2012, Haag stated, “I now find the need to consider actions regarding marijuana superstores such as Harborside. The larger the operation, the greater the likelihood that there will be abuses of the state’s medical marijuana laws, and marijuana in the hands of individuals who do not have a demonstrated medical need.” So in other words, Harborside was “too big.” Arbitrary as this logic may seem, it is a good reminder that federal prosecutors have discretion, and depending on who holds office, enforcement priorities can change.

In fact, Melinda Haag recently announced that she will be stepping down from her roll as the chief federal prosecutor for Northern California. Haag instituted a crackdown on medical marijuana businesses in 2011 and since then, hundreds of California dispensaries have been forced to close. In addition to the high profile Harborside case, Haag’s office is seeking to shut down Berkeley Patients Group, another of the Bay Area’s largest medical marijuana operations. Her successor has yet to be named, but it’s a safe bet that whoever fills her position will have differing, though not necessarily more progressive, views on medical marijuana as an enforcement priority. Northern California cannabis businesses will once again need to reconsider their operating plans in light of their local U.S. Attorney’s stance on marijuana. It may be that cases like the one against Harborside will become a thing of the past, or it may be that enforcement efforts ramp up.

If the most recent Harborside ruling becomes final, the case will be remanded to the district court for further hearings. This case serves as a harsh reminder that despite shifting public perception and state-level progress toward cannabis legalization, the federal government still holds the ultimate trump card. We are eager to learn who will become the new Bay Area U.S. Attorney, and to see if and how local marijuana enforcement policy will change.

Illinois Cannabis: Marijuana Plants in the Ground

Posted in Illinois, Legal Issues, Licensing, Medical Cannabis, States

Medical marijuana and illinoisQualifying patients in Illinois, currently numbering approximately 2,800, could be buying oil-based marijuana prescriptions under the state’s Medical Cannabis Pilot Program as soon as October 2015. It will take a bit longer for the raw cannabis plant, for smoking, to be on shelves because the flowers must be dried and cured. (Oil-based products can skip the drying stage.) Several cultivation centers in Illinois now have marijuana plants growing and at least one dispensary is ready for operation.

The first cultivation center, located in Albion, IL, received approval from the Illinois Department of Agriculture on July 10 and started growing marijuana plants on July 13. According to information released by the Department on August 21, six more cultivation centers received approval to start growing plants since the middle of July. Eleven more cultivation-center licensees have received initial approval, but have not yet received a green light to commence operations.

If product had been available, qualifying patients could have had their first prescriptions filled on August 25, 2015. On that date, the Illinois Department of Financial and Professional Regulation announced that the first dispensary had completed the inspection process and was given the first license to open for business. This dispensary calls itself Harbory and is located in Marion, IL. The Department’s website will list subsequent dispensaries that complete the inspection process and receive licenses to commence operations on a rolling basis.

To follow-up on our May report, Illinois Medical Cannabis Advisory Board OK’s New Qualifying Conditions, the Illinois Department of Health continues to consider new qualifying conditions for the Medical Cannabis Patient Registry Program. Illinois residents had between July 1 and July 31 to submit petitions with the Department for adding new debilitating medical conditions. This period for petitioning the Department is the first step in this process. Public hearings with then be held and the conditions recommended by the Illinois Medical Cannabis Advisory Board will then need to be approved by the director of the Department of Health.

And finally, the Illinois Department of Public Health has now issued approximately 2,800 approval letters to qualifying patients. According to the Department’s website, approximately 23,700 people have started the online application and of those, approximately 3,500 have submitted a complete application. It is worth pointing out that ten minors have had their applications approved.  This would not have been possible under the law initially adopted by the Illinois Legislature.

The Medical Cannabis Pilot Program in Illinois continues to move forward, with the most recent developments perhaps bringing more optimism than at any time since the program’s inception. The number of qualifying patients is still too low to support a profitable market, but a spike in the number of applicants can be expected once product is available for purchase.

For more information on what is going on with Illinois cannabis and on what its medical cannabis regime is going to look like, we urge you to go here and start reading.

They Said It On Marijuana, Quotable Saturday, Part LXXIV

Posted in Advocacy, Federal law and policy

“First it was Michael Jackson, then Amy Winehouse, now the magnificent Whitney Houston. I’d like every person in this room to campaign to legalize drugs. Let’s legalize drugs like they did in Amsterdam. No one’s hiding or sneaking around corners to get it. They go to a doctor to get it.”

 

- Tony Bennett at a pre-Grammy gala in 2012, very soon after the overdose death of Whitney Houston.

Many were angered and others were dumbfounded after Tony Bennett said the above on the heels of Whitney Houston’s death. We get that. The real question (and one on which our firm’s cannabis lawyers are decidedly split) is whether legalizing all drugs would reduce or increase harm.

Not exactly on marijuana, but certainly related. There are good arguments on both sides of the issue and we encourage you to give us your thoughts on full legalization below. And as a prompt question, if we were to legalize something like heroin, how should it be regulated?

Marijuana Odor in Oregon: The Courts Weigh In

Posted in Business Basics, Oregon

Like many recent court cases involving marijuana, last week’s Oregon Court of Appeals decision got folks talking. Most headlines read something like “Oregon court rules that the odor of marijuana smoke is not legally offensive.” This is accurate but incomplete, and sort of misleading. A complete description of the court’s holding would read something like “Subject to appeal, Oregon court rules that an affidavit which fails to describe the intensity and persistence of a marijuana smoke odor, cannot, as a matter of law, satisfy the probable cause standard required for search warrant issuance.”

Marijuana Odor and OregonSuch a headline would be unwieldy, but it is important to note that this was a criminal case construing a criminal statute. The law at issue, ORS 166.025, provides that a person who “creates a hazardous or physically offensive condition” commits the crime of “disorderly conduct in the second degree.” Though the court’s ruling (if it stands) may constitute a helpful precedent for civil nuisance complaints, the odor of marijuana has not been adjudicated as powder fresh. Instead, the court’s ruling seems to imply that if a smell were intense and persistent, it could be “physically offensive” enough for a magistrate to issue a search warrant under the statute.

Although this case did not concern “nuisance” in the civil context, the court reviewed the legislative history of the criminal statute at issue and helpfully observed that it appears “designed to reach activity that constitutes a public nuisance” (emphasis added). In civil law a “public nuisance” is an unreasonable interference with a right common to the general public. “Private nuisance,” on the other hand, is an unreasonable invasion of a person’s interest in using and enjoying their land. A nuisance may be public or private or both.

Regardless and in every case, nuisance describes the intentional, negligent or reckless invasion of a common right or private property interest (i.e., by marijuana smoke), but not the invasive acts creating the nuisance (i.e., smoking marijuana). This means that a nuisance complaint cannot be brought against someone for cannabis-related activities on her own property, if those activities do not cause harmful effects over property lines. A plaintiff must also plead and prove that the nuisance is substantial and unreasonable to prevail.

So, could the smell of marijuana smoke or plants be considered substantial enough, and unreasonable enough, for a plaintiff to prevail in a civil nuisance case? Most likely, yes. In making this determination, a court would consider the interests of the parties involved and weigh the harm suffered by the plaintiff against the utility of the defendant’s conduct. For example, let’s say a downwind daycare owner brings a private nuisance complaint against a large marijuana processing operation that creates a strong, persistent odor from 1,001 feet away. It is very possible that a court would consider the odor harmful, and the utility of the defendant’s conduct low. In such a case, the plaintiff might prevail.

Other cases are not so clear. Our cannabis litigation lawyers have defended a number of marijuana growers in private nuisance complaints brought by neighbors. Sometimes these complaints are litigated but other times creative workarounds are available. For example, one client with a large indoor grow operation recently decided to retrofit its building with scrubbers after ongoing complaints by neighboring businesses. This solution was reached after we met with the local fire department, a city office, neighbors and the client’s landlord. Ultimately, the landlord even agreed to foot a large part of our client’s costs so as to keep our client in the building, despite lease terms that put odor control obligations squarely on our client.

Fortunately for that client, no local ordinance expressly declared marijuana a nuisance and its neighbors had less leverage than they would have liked. In other cities, that would not have been the case. The City of Pendleton, Oregon, for example, home to the World Famous Pendleton Round Up and all of its associated smells, recently declared marijuana odor a nuisance. Accordingly, a city ordinance now expressly prohibits marijuana odors from leaving a person’s property. (Pendleton is the county seat Umatilla County, which has opted out of commercial marijuana activity entirely). In Pendleton, even a casual marijuana user could be liable on a nuisance theory for smoke smells drifting across to a neighboring residence.

Marijuana users and businesses need to be mindful of the immediate external effects associated with using and handling marijuana, along with any local rules. Despite the recent Oregon Court of Appeals decision, there are no hard and fast rules on when and whether marijuana smoke may constitute a nuisance, and when it’s just a thing. Smart business practices—including choice of location—will minimize exposure to these types of claims.

Montana’s Marijuana Backslide

Posted in Legal Issues, Litigation, Medical Cannabis, States
Montana's marijuana regime is moving backwards, not forwards, and thata shame.

Montana’s marijuana regime is moving backwards, not forwards, and thata shame.

Though all seemingly is moving forward for state-by-state legalization and for marijuana’s overall normalization in the U.S., not every state that legalizes or decriminalizes marijuana is having a heyday with it. And one state in particular should be a lesson that any state’s marijuana policies and laws can quickly turn sour given the right circumstances. Montana is the state that is a cautionary tale for the cannabis industry and nobody should dismiss that state as an outlier just yet.

Way back in 2004, Montana voters legalized marijuana for medical use. Up until 2009, Montana’s cannabis he industry was very quiet and very small but, in 2009 (with the release of the Feds’ Ogden Memo stating that the U.S. Department of Justice would de-emphasize going after cannabis patients and caregivers in states with clear cannabis laws) Montana’s medical marijuana industry exploded. Not long after the Ogden Memo, Montana, population of about one million boasted 30,000 patients and 4,900 providers.

This exponential growth of patients did not sit well with many Montana residents, who were starting to view their state’s medical marijuana regime and its participants as mere fronts for a recreational program. Then — presumably at the urging of some of these residents — the federal government in 2011, “conducted raids across the state after an 18-month investigation into whether medical marijuana businesses were involved in drug trafficking and other federal crimes. [Dispensaries] were closed, and their operators were charged under federal drug laws.”

Conservative Montana lawmakers then began seeking to roll back Montana’s medical marijuana program. Beginning in the spring of 2011, two different attempts to fully repeal the state’s medical marijuana laws were made in the Republican-controlled legislature. The first attempt was a blanket repeal of the existing laws, which was ultimately vetoed by the Governor. The second attempt, Senate Bill 423, was known as a “repeal in disguise,” as it would all but completely eliminate Montana’s relatively liberal medical marijuana regime. The governor signed this bill into law in May 2011. According to the Washington Post:

[u]nder the law, providers couldn’t charge a cent beyond recouping license application fees, so they had no incentive to stay open. After it was passed, the number of patients dropped from almost 30,000 to less than 9,000 in June 2012. The number of providers, who were suddenly limited to three patients a piece, shrank from almost 5,000 to less than 400.

The Montana Cannabis Industry Association sued the state in 2011 to stop the new law’s implementation and, finally, on January 2, 2015, State District Court judge James P. Reynolds permanently struck down as unconstitutional key provisions of SB 423. Specifically, Judge Reynolds permanently enjoined the state’s ban against medical marijuana advertising, its prohibition against commercial sales of marijuana to authorized patients, its limiting caregivers to growing marijuana for no more than three patients, and its requirement to provide to the state Board of Medical Examiners the names of doctors who recommend more than 25 patients for medical marijuana in a 12-month period. Not a sweeping victory for Montana’s marijuana industry, but enough to ensure that the industry survives.

In May 2015, the State Attorney General appealed Judge Reynolds’ decision to the State Supreme Court, and the Supreme Court’s ruling in this case is expected sometime this October. Regardless of the Supreme Court’s opinion, at least one Montana prohibitionist is (again) trying to get on the ballot a measure fully criminalizing all-things marijuana, medical or not. In less than a decade,  Montana has gone from doing the will of the people to completely eviscerating its democratic experiment with medical marijuana.

Most states faced with a “Wild West” marijuana situation like Montana’s from 2009 to 2015 have countered by increasing regulation and taxation,. Montana has taken an entirely different tack by seeking to return to full on prohibition. We wish we could say at this point that Montana is a lone oddball, but we cannot. Unless and until we achieve effective changes a the federal level Montana may not be the last state to politically and legally witch hunt its own marijuana regime. The best way to counter this is to as quickly as possible move sensible legalization forward in your state.

Take heed everyone. You’ve been warned.

The Precarious Legal Status of CBD

Posted in Federal law and policy, Hemp, Medical Cannabis
How do federal laws define marijuana?

How do federal laws define marijuana?

The cannabis plant is made up of dozens of compounds called cannabinoids. The plant’s two most prominent cannabinoids are tetrahydrocannabinol (THC) and cannabidiol (CBD). Each compound has different effects on the human body. THC has the renowned psychoactive effect on users for which marijuana is well known, but it can also increase one’s appetite, reduce nausea, and act as an anti-inflammatory. CBD on the other hand has a very mild or no psychoactive effect. CBD has been sought after for its ability to prevent convulsions, making it effective for treating seizures. Studies have also shown that CBD may help treat brain injuries. As CBD gains recognition as truly effective medicine, its market potential is growing rapidly. As of late, many of you have probably seen those companies, companies not even located in states with medical marijuana laws, claiming to be able to sell medical-grade CBD anywhere in the U.S. via the internet.

Given the foregoing, is CBD legal under federal law? It depends.

Marijuana is currently listed as a Schedule I narcotic under the federal Controlled Substances Act, meaning the federal government believes it to be a dangerous drug with no recognized medical benefit. Consequently, any CBD derived from marijuana violates the federal Controlled Substances Act, and the Drug Enforcement Administration (DEA) has already stated that it believes that CBD is a marijuana derivative and, therefore, a Schedule 1 drug. However, the federal Controlled Substances Act does not include in its definition of “marijuana” the plant’s “mature stalks.” These mature stalks are used to create hemp (which contains little to no THC and has not intoxicating effect). Hemp is not scheduled under the federal Controlled Substances Act and, therefore, is also not under the enforcement authority of the DEA.

Though the DEA has no enforcement power over hemp products, it does control hemp cultivation. In order to grow hemp in the U.S., you have to have a permit from the DEA which the DEA typically never issues. Therefore, cultivating hemp without a permit to do so from the DEA remains a federal crime. The only exception is the 2014 federal Farm Bill which allows state departments of agriculture, universities, and colleges to cultivate hemp without a permit from the DEA for educational and research purposes. Because of the prohibition on hemp cultivation without a DEA permit, the hemp products we see in the U.S. typically come from hemp imported from overseas. This means that companies and individuals may freely sell CBD derived from processed hemp (not from marijuana), imported from outside the U.S.

Additionally, the Food and Drug Administration (FDA) has inserted itself into the CBD market. Generally, when a company makes a medical claim about a product, that product is classified as a drug. Under the Federal Food, Drug and Cosmetic Act (FDAC), new drugs are not allowed to enter the market without first being tested by the FDA, unless they meet the definition of a dietary supplement (which doesn’t require such testing). When these types of claims are made without the requisite testing, the FDA takes action under the FDAC.

The FDA does not consider CBD to be a dietary supplement; it considers CBD to be a new drug. As a result, earlier this year, the FDA issued warning letters to companies making medical claims about their CBD products. Ultimately, among other identified violations of the FDAC, the FDA accused these companies of making unfounded medical and therapeutic claims about their CBD products by, for instance, stating that CBD is effective for treating certain kinds of cancer. The FDA gave these companies 15 days to demonstrate how they were curing violations of the FDAC or face legal action by the FDA.

Anyone undertaking the sale of hemp-derived CBD should make very clear to regulators and to its customers that its products come from imported hemp and not from marijuana. Moreover, anyone selling or making hemp-derived CBD should take great care to avoid making any medical claims about those products or else they risk facing the consequences under the FDAC.

Protecting Your Cannabis Brand: Why Domain Names and Trade Names Are Not Enough

Posted in Business Basics, Intellectual Property/Branding, Legal Issues

Marijuana and trademarksCannabis businesses often tell us that registered trade names or domain names afford adequate brand protection. They will say things like, “I registered my trade name with the state, so no one else can use it, right?” This post will will explain what domain names and trade names can do for your busines and delineate between these and registered trademarks. Because there is a big difference.

Registered trademarks provide the utmost level of legal protection for your brand. A trademark is a word, phrase, symbol or design that identifies and distinguishes the source of the goods of one party from those of others. The owner of a valid trademark has the right and the ability to prevent others from selling similar goods or services bearing the trademark or one that is confusingly similar. For unique issues surrounding registration of marijuana-related trademarks, see the following:

A domain name is a series of characters used to describe a specific location online – it is a web address. Domain name registration is typically administered by a non-governmental organization. As an extension of your brand, a domain name functions like a trademark in that it can convey goodwill and recognition in the market place. However, domain names differ from trademarks in that they do NOT provide you with any legal protections, nor do they provide you with the exclusive right to use the name. In fact, using a domain name that is the same as or confusingly similar to a registered trademark constitutes trademark infringement, and can open the trademark violator to costly litigation. The fact that domain names are registered on a first-come, first-served basis has fueled the domain name infringement problem, in that so-called “cyber-squatters” have sought to beat out rightful trademark holders in the domain name registration process so as to be able to “hold domain names hostage and demand compensation from the trademark holder.” To repeat, holding a domain name does not afford legal protection or rights akin to those of a registered trademark.

The second common branding misconception we encounter is that registered trade names afford a registrant the exclusive right to use a name. This confusion likely stems from the fact that, like a trademark, a trade name is registered with a government agency. However, the sole function of registering a trade name with the state is to declare the official name under which your cannabis company does business. It is more commonly known as a “doing business as,” or “dba” name, assumed name, or fictitious name. Like a domain name, a registered trade name DOES NOT provide you with legal protection or with the exclusive right to use that name. Additionally, a simple search of your state’s trade name database is not sufficient to clear your name for trademark use. To avoid infringing on someone else’s trademark , it is important to consult with an attorney who can obtain a comprehensive, nationwide search report for your name, and who can issue an opinion that your mark is not the same as or confusingly similar to an already registered mark. Because the flip side to adequately protecting your brand is ensuring that you are not infringing on someone else’s.

The takeaway here is that you cannot rely on domain names or registered trade names for brand protection. The only way to guarantee exclusive, nationwide use of your name, and to provide government protection from infringement, is to obtain federal trademark registration.