Marijuana LegalizationThis is proving to be a big year for cannabis. As a result, we are ranking the fifty states from worst to best on how they treat cannabis and those who consume it. Each of our State of Cannabis posts will analyze one state and our final post will crown the best state for cannabis. As is always the case, but particularly so with this series, we welcome your comments. We are now reaching the point in our series where the states we are listing are not laughably (or should we say screamingly) bad, nor are they good. They are generally okay in some areas and bad (without being horrible) in others. Today we turn to number 26: Arizona.

Our previous rankings are as follows: 27. West Virginia; 28. Indiana; 29. North Carolina; 30. Utah;  31. South Carolina; 32. Tennessee; 33. North Dakota; 34.Georgia; 35. Louisiana; 36. Mississippi; 37. Nebraska; 38. Missouri; 39. Florida; 40. Arkansas; 41. Montana; 42. Iowa; 43. Virginia; 44. Wyoming; 45. Texas;  46. Kansas;  47. Alabama;  48. Idaho; 49. Oklahoma;  50. South Dakota.

Arizona

Criminal penalties. In many ways, Arizona is a progressive state when it comes to cannabis. This is not the case regarding criminal penalties. Arizona has some uniquely harsh provisions relating to marijuana. The state imposes a fine for every marijuana offense. This fine must be at least $750 and the maximum fine for any marijuana penalty is $150,000. Additionally, if a person is caught with more than two pounds of marijuana with intent to sell or is caught growing marijuana, a judge may not suspend the sentence, grant probation, pardon or otherwise release the offender before he or she has served the entire sentence.

Arizona punishes cannabis possession as follows:

  • Less than two pounds earns a minimum four-month jail sentence, with a maximum two-year sentence.
  • Two to four pounds earns a minimum six-month sentence, with a maximum sentence of two years and six months.
  • Over four pounds earns a minimum one-year sentence, with a maximum sentence of three years and nine months.

The charges for possession with intent to sell are as follows:

  • Less than two pounds earns a minimum one-year sentence, with a maximum sentence of three years and nine months.
  • Two to four pounds earns a minimum two-year sentence, with a maximum sentence of eight years and nine months.
  • Over four pounds earns a minimum three-year sentence, with a maximum sentence of twelve years and six months.

Medical marijuana. In 2010, Arizona voters narrowly approved the Arizona Medical Marijuana Act by ballot initiative. The Act allows a qualifying patient to possess 2.5 oz. of cannabis or allows them to grow up to 12 plants. Qualifying patients must obtain authorization from an Arizona physician to use marijuana to treat a “debilitating condition.” Cancer, glaucoma, HIV/AIDS, Hepatitis C, Crohn’s Disease, agitation of Alzheimer’s Disease, ALS (amyotrophic lateral sclerosis, also known as Lou Gehrig’s Disease), or other chronic and debilitating diseases qualify as debilitating conditions making one eligible for medical cannabis. The Arizona Department of Health Services (ADHS) oversees the state’s medical marijuana program and grants licenses to nonprofit dispensaries. ADHS has promulgated rules on Arizona medical marijuana, which are available here. According to a recent ADHS report, there are 97,938 qualified cannabis patients in Arizona.

Recreational marijuana. Arizona voters are almost certain to decide whether the state will legalize recreational marijuana this November. The “Regulation and Taxation of Marijuana Act” is currently being circulated in an effort to obtain the requisite number of signatures. Supporters of the Act have until July 7, 2016 to obtain 150,642 signatures. In May, SF Gate reported 215,000 Arizonans had signed in support of the initiative. Those signatures will need to be verified, which is why they will likely continue to collect signatures. According to a poll commissioned by Arizonans for Responsible Drug Policy, 43% of voters would approve “legalizing recreational marijuana use”, 49% would reject it, and 8% are undecided.

If the Act passes, Arizona would allow a person over 21 to possess up to one ounce of marijuana (with no more than 5 grams being a marijuana concentrate) and to possess up to six marijuana plants. The Act would create a new agency called the Department of Marijuana Licenses and Control to create rules, grant licenses, and oversee the recreational market. The state would allow four licensed types of “marijuana establishments” including retailers, manufacturers, distributors, and testing facilities. Public consumption of marijuana would still be prohibited under the new law. However, a person cannot be considered “under the influence” of marijuana if the evidence is only the presence of THC in a person’s metabolites. This is likely a response to the difficulty states face in regulating “stoned” driving. Another interesting quirk of the Act is that it expressly states that contracts regarding marijuana are enforceable under Arizona state law. This is likely a response to Hammer v. THCII, which held that a loan contract between lenders and a dispensary was not enforceable because it violated federal drug laws.

Bottomline.  Though Arizona has a flourishing medical marijuana program and it may potentially legalize recreational marijuana this year its unbelievably harsh criminal penalties keep it in the bottom half of our ratings.. A person must spend 4 months in prison and could pay $150,000 find for possessing a small amount of marijuana without medical authorization. Though we commend Arizona voters for enacting a workable medical cannabis program, the state’s criminal penalties are far too harsh. We expect Arizona voters will remedy this by voting for recreational legalization this fall and when that happens Arizona will rank much higher on our list.

Cannabis litigationLately, our cannabis litigation team has seen a massive spike in cannabis businesses owners suing their fellow owners within the same cannabis business. Whether you’re already headed to court or you’re just sensing a company mutiny brewing on the horizon, the five tips in this blog post will help you prevent an ownership dispute and best resolve one if one should occur.

  1. Perform due diligence on your co-owners. If you want to increase your odds of avoiding a dispute with your cannabis business co-owner, the most important thing you can do is to choose that co-owner wisely.  What really kills me is how often I have been told by a party locked in a life or death ownership dispute that they barely knew their business partner before they jumped into business with them. If you are going to start a cannabis business, the first thing you do is find out as much as you can about your putative partner’s financial and business history. You should do this before you sign away your soul and money to joining with this person on a business project. It’s neither rude nor unexpected to ask your potential co-owner for documentation showing his or her financial and criminal history. It is even more important to conduct thorough due diligence if you are buying into an existing cannabis business. At minimum, your due diligence should include an investigation and analysis of the assets and liabilities of the company and its current owners. Your due diligence should also include confirming the appropriate standing of the company with state and local government regulators, and determining that the company and its principals understand how to comply with state and local laws as well as the Cole Memo.
  2. Make your business relationship with your partner as clear as possible. The days of handshake deals regarding ownership in a cannabis business should be history; you should do no such deal without first getting everything in writing. Operating agreements, bylaws, and shareholder agreements exist to ensure that the company structure and the relationship between its owners is clear. When starting a company together you and your fellow owners should have at least some understanding regarding how the company will be operated and how such things as equity versus debt, voting rights, sweat equity, preferred returns, owner employment, will be handled. Most of the ownership disputes we have handled have arisen either due to no or bad initial paperwork.
  3. Know your options and consider alternative dispute resolution. Well drafted corporate documents should cover most possible breakdowns in the business and set out the options for handling internal strife. If there is a fight or deadlock, what happens? How are problems resolved? Who makes what decisions? What about selling the business? What about selling an ownership interest and for how much? Can you sell just your membership interest or shares? Can you keep running the business free of your partner? What about dissolving the company and winding down? All of these thing can and usually should be covered in your corporate governing documents, and by doing so, you greatly minimize your likelihood of insurmountable problems later. Your company documents should also make clear how disputes are going to be handled. Are you going to want your dispute made public in a court, or kept quiet in an arbitration? It is a lot easier to reach agreement on such things when you are starting your business rather than in the midst of a hard fought dispute.
  4. Get your own attorney from the start. More often than not, the company has an attorney looking out for its interests. But it is important to realize that the company attorney is not your personal lawyer and that lawyer will almost certainly be conflicted out of any dispute between you and your business partner and/or investor. For this reason, and many others, it almost always pays for you to have your own lawyer providing you with your own counsel regarding your role in the company and your ownership rights. This lawyer should also make sure that the written agreements work for you and not against you. This lawyer will also be an asset for you if any dispute arises. For more on how to avoid a dispute relating to your cannabis business, check out Five Tips on How to Avoid Cannabis Litigation and How to Avoid Costly Marijuana Business Disputes.
  5. Make sure your lawyer knows what he or she is doing. When hiring a lawyer to help protect you when getting into a cannabis business, you should be sure to hire a law firm with lawyers who know both business law and cannabis law. And when confronted with a dispute involving your cannabis business, you need to be sure to hire a law firm with lawyers experienced in civil litigation (criminal litigation experience does not count here) and cannabis law, if possible. For more on choosing your cannabis lawyer, check out How To Choose Your Cannabis Business Lawyer.

Be careful out there.

Cannabis TrademarksLast month, I had the honor of speaking at the International Trademark Association’s Annual Meeting about the unique trademark issues faced by the cannabis industry. We’ve written extensively on the subject (see below for some of the highlights), but it’s about time for a basic refresher on trademark law and the trademark issues cannabis business owners need to be mindful of.

A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others. More commonly, a trademark is recognized as a brand. The importance of trademarks is two-fold: On one hand, owners of successful brands want to rest assured that other parties will not be able to use and exploit their brand without the brand-owner’s permission. But on the other, perhaps more important hand, trademarks are extremely important from a consumer protection standpoint. As a society, we want consumers to know where the goods and services they purchase are coming from, and to make informed purchasing decisions based on factors like quality and safety. And the primary way consumers are able to distinguish the goods of one company from the goods of another is via branding.

There are three ways in which a brand owner can establish trademark rights:

  1. By using the mark in connection with their goods or services (legally) in commerce;
  2. By registering the mark with the United States Patent and Trademark Office (USPTO); and
  3. By registering the mark with an appropriate state trademark registry.

Registering a trademark with the USPTO is the best way to protect one’s mark, but because cannabis is still illegal under federal law, and because one requirement for registration of a federal trademark is that the applicant has made “legal use” of the mark in commerce, the USPTO has continually refused to register marks for use on cannabis and any other goods and services that violate the Controlled Substances Act (CSA). Under the CSA, it is unlawful to sell, offer for sale, or use any facility of interstate commerce to transport drug paraphernalia, i.e., “any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful under the CSA.”

So how do cannabis businesses go about protecting their brands when federal trademark protection is unavailable to marks used on federally illegal goods and services? One way is to obtain registration for ancillary goods or services that do not violate the CSA. For example, if you manufacture a cannabis-infused beverage AND you produce and sell a non-infused version of that beverage, it may be possible to secure a federal trademark registration that will cover your non-infused beverages. The strategy here is to then assert a “likelihood of confusion” argument against any would-be infringers in order to prevent them from using your mark.

Another strategy we advise our clients to use is the state trademark registration process. Though the protection afforded by a state trademark is geographically limited to the state of the registration, state trademarks still provide more extensive geographic protection and legal remedies than common law rights. Common law rights can be limited to the geographic area in which you are using the mark, meaning that if you only do business in Seattle, your common law trademark rights could only protect you within the city of Seattle. And if you want to avail yourself of the statutory remedies available to trademark owners in infringement cases, you will need to register your mark.

Regardless of whether you file for federal or state trademark protection, or whether you opt to develop a brand without ever registering anything, it is critical to ensure that your brand does not infringe on the rights of any third party. A mark does not need to be exactly the same as another mark in order to infringe that mark – the standard is “confusing similarity,” which is comprised of multiple factors and is highly subjective. This is why, prior to investing in brand development, consulting a trademark attorney and obtaining a comprehensive search report on your proposed mark is key. A thorough search is necessary to establish that your brand or logo will not infringe any other trademark, whether registered or not.

As we’ve stated over and over, the federal illegality of cannabis makes brand protection and trademark law particularly complicated in this industry. Navigating state and federal trademark laws to protect your mark is possible, but requires some ingenuity.

Today at the National Cannabis Industry Association’s Business Summit and Expo in Oakland, CA, Canna Law Group’s Hilary Bricken will speak at 11:15 am. on products liability issues in the cannabis industry.

Her panel entitled, “Product Liability and Mass Tort Litigation: Will imgresthe cannabis industry be next?,” will cover product liability issues faced by the marijuana industry, as well as the potential for mass tort litigation in light of recent lawsuits filed in the industry against marijuana operators in other states.

As many of you already know, marijuana retailers have already had to deal with all sorts of product liability issues, and there is no doubt that the number and the complexity of these issues will increase. Hilary’s NCIA panel is apt and timely and it will provide you with current and actionable information regarding your liability as a marijuana business.

We hope to see you there.

California cannabis lawyersUntil recently, the “Wild West” of U.S. cannabis lacked robust statewide regulations which left California cannabis companies subject to unclear rules and risk of federal shutdowns. The Medical Marijuana Regulation and Safety Act (MMRSA) created these regulations, but ultimately left control in the hands of local cities and counties. At last count, California has 58 counties and 482 incorporated cities across the state, each with the option to create its own rules or ban marijuana altogether. In this California Cannabis Countdown series, we plan to cover who is banning, who is waiting, and who is embracing the change to legalize marijuana — permits, regulations, taxes and all. For each city and county, we’ll discuss its location, history with cannabis, current law, and proposed law to give you a clearer picture of where to locate your cannabis business, how to keep it legal, and what you will and won’t be allowed to do. Our last California Cannabis Countdown post was on Calaveras County, and before that, Monterey County and the City of Emeryville. Continue Reading The California Cannabis Countdown: The City of Berkeley

Marijuana Federal De-schedulingBusiness planning is both science and art, research and forecasting. In cannabis, the forecasting quotient is challenging compared to other industries. That is because federal prohibition has created a dance around conflicts in law that is equally awkward and intricate, alongside an ever-evolving panoply of state and local rules. Our cannabis corporate attorneys field questions regarding federal prohibition daily, including the big one: what happens if the Drug Enforcement Administration (DEA) reschedules cannabis, from Schedule I to Schedule II? We typically answer, “not as much as you may think.” Continue Reading Federal Reclassification of Cannabis Will Not Kill the Industry

Cannabis excise taxesHigh Times has a column out this week arguing against excise taxes for marijuana. The main point is that excise taxes on marijuana are unfair to consumers because they aren’t proportional to the harm caused by marijuana. Marijuana taxes are higher, for example, than alcohol taxes, even though alcohol is a more dangerous product. The column also argues that revenues from these taxes are not steady, as they are tied to wholesale prices which are rapidly declining. Since marijuana excise taxes are neither tied to harm nor do they generate steady revenues, they should be dropped entirely or kept as low as possible.

Are marijuana excise taxes really that unfair? Continue Reading Cannabis Excise Taxes: Are They Fair?

Marijuana LegalizationThis is proving to be a big year for cannabis. As a result, we are ranking the fifty states from worst to best on how they treat cannabis and those who consume it. Each of our State of Cannabis posts will analyze one state and our final post will crown the best state for cannabis. As is always the case, but particularly so with this series, we welcome your comments. We are now reaching the point in our series where the states we are listing are not laughably (or should we say screamingly) bad, nor are they good. They are generally okay in some areas and bad (without being horrible) in others. Today we turn to number 27: West Virginia. Continue Reading State of Cannabis: West Virginia

Love Is LoveTypically on Saturdays, we post quotes about the political climate for marijuana in the United States, but this week we are taking a break from our regular Quotable Saturday to briefly turn our (and your) focus to something else.

Throughout the last six days, you have likely seen your social media explode (more than usual) with opinions, sadness, anger, and unfortunately, hate as well. Situations such as that which occurred in Orlando early Sunday morning have the unfortunate tendency to put people further at odds with one another and to exacerbate current controversies.

We at Canna Law Blog are not going to tell you what to think, but we will invite you to take a pause and think about the lives that were cut short and the many instances of communities rallying together.

As Gandhi says, we must not lose faith in humanity in the face of hate.