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Every brand needs protection, and Alison extends her knowledge of intellectual property and corporate law to our cannabis clients, ensuring their businesses are protected.

california cannabis marijuana
Roll up that California collective and get a license.

This week, the Bureau of Cannabis Control (the “BCC”) announced that as of January 9, 2019, Section 11362.775 of the Health and Safety Code (the “Code”) will no longer be in effect. The BCC notice ends the popular collective and cooperative models of cannabis cultivation, manufacturing and distribution in California. These models were promulgated through the use of “creative” legal advice in order to take advantage of the Compassionate Use Act’s multiple loopholes and ambiguities, and usually involved patients joining a “closed loop” membership system (sometimes a formal corporate entity and sometimes not) to receive medical cannabis from other patients in the collective who grow or process it for them.

California’s transition into a regulated commercial cannabis system left many operators, particularly those with non-profit mutual benefit corporations structured as collectives or cooperatives, uncertain as to just how much time they have left to operate. We’ve encountered some operators who, for a variety of reasons including the time and expense of the process, or their inability to comply with local zoning requirements at their current location, are reluctant to abandon the collective model in favor of receiving a state license under MAUCRSA.

Unfortunately, these operators will have no choice but to join the regulated system, and there are a laundry list of reasons why it makes sense to do that sooner rather than later. Given the recent dismantling of the federal government’s former cannabis enforcement framework, operators will be opening themselves up to much greater risk if they are choosing to operate outside of the state’s licensing framework. U.S. Attorneys now have full discretion to determine to what extent they can and should enforce federal law in the context of marijuana crimes, and we would be willing to bet that California’s U.S. Attorneys won’t be turning a blind eye to cannabis businesses that continue to operate in contravention of local law, or without a state license.

Following the implementation of MAUCRSA, qualified patients and their caregivers may continue to operate with limited criminal immunity without a state license, so long as: (1) the patients and caregivers operate in full compliance with state law, and (2) the local government does not prohibit the activity. See, H&S Code sections 11362.5, 11362.765, 11362.77, and 11362.7. But as we stated above, immunities for medical cannabis collectives (i.e., non-profit mutual benefit corporations, non-profit corporations, non-profit cooperatives, etc.) will expire on January 9th of next year.

And although MAUCRSA expressly exempts qualified patients and caregivers from licensure requirements, it does not allow qualified patients, their caregivers, or cannabis businesses to conduct commercial cannabis activity without a license. Any collective currently engaging in commercial cannabis activity that exceeds the strict qualified patient and primary caregiver limits is in violation of MAUCRSA and is operating illegally.

As a reminder, to be immune from prosecution under the Compassionate Use Act and MAUCRSA, a primary caregiver (or a collective) must operate within the following confines when acting without a state license:

  1. Cultivation, possession, storage, manufacture, transportation, donation, or provision of cannabis must be exclusively for the personal medical purposes of no more than five specified qualified patients for whom the caregiver is the primary caregiver. (B&P section 26033(b));
  2. The caregiver cannot receive remuneration for these activities other than for actual expenses, including reasonable compensation incurred for services provided to an eligible qualified patient or person with an identification card to enable that person to use cannabis, or for payment for out-of-pocket expenses incurred in providing those services. (B&P section 26033(b), H&S Code section 11362.765(c));
  3. The caregiver cannot possess more than eight ounces of dried cannabis per qualified patient unless a physician’s recommendation or local guidelines allow amounts in excess of this limit. (H&S Code section 11362.77(a)-(c)); and
  4. The caregiver cannot maintain more than six mature or twelve immature cannabis plants per qualified patient unless a physician’s recommendation or local guidelines allow amounts in excess of this limit. (H&S Code section 11362.77(a)-(c)).

In addition, everyone, including collectives and caregivers, must still comply with applicable local law. And collectives and cooperatives that opt not to apply for a state license right away will be limited in their ability to distribute their product. The bottom line is that commercial cannabis activity is only permitted among licensees, and once a business entity or individual receives and active temporary license or a full license from the state, they must immediately cease doing business with non-licensed entities, or they risk losing their license. See B&P section 26053(a). And for those licensees looking to “have their cake and eat it too” by obtaining a state license while maintaining a collective or cooperative, keeping that non-licensed entity will put the state license at risk.

With local license caps quickly being reached, stringent legal limitations on collectives and cooperatives, and an uncertain federal enforcement landscape, we cannot emphasize enough the importance of integrating into the regulated state system as soon as possible. Holding on to the collective model through the next year will make that transition much more difficult, and perhaps even impossible.

california cannabis trademark
In California, trademark use comes before registration.

It was big news for California cannabis business owners when the California Secretary of State’s office announced that it would be accepting applications for cannabis-related trademarks under limited circumstances. Until January 1st, one of the biggest hurdles for California cannabis brand owners had been the inability to secure California state trademark registrations for their marks. But we are still receiving a lot of questions from clients regarding whether they are actually eligible for those registrations, particularly when they have not yet received their temporary or full license from the state, or even when they are not yet operating.

As we’ve discussed before, one of the key requirements for obtaining a California state trademark registration (or a federal trademark registration, for that matter) is that you must be making lawful use of the mark in commerce at the time of your application. For any state trademark application, this means you must be making lawful use of your mark in commerce within that state. This requirement has created a good deal of difficulty for those seeking to enter into cross-state brand licensing deals, but it’s also creating some confusion here in California, where it isn’t always clear what “legal use” of a mark entails.

The California Secretary of State’s office has indicated that it will accept trademark applications for goods and/or services that fit within an existing classification code from the USPTO’s Identification of Goods and Services Manual. While it will be easy to register for things that fit squarely within the USPTO specifications, like retail services, registering for cannabis products themselves will prove less clear cut. So every application must specify goods and/or services that the applicant is actually selling, and the sale of those goods and/or services must be legal under state law. Note that mere token sales of goods or services are insufficient to support trademark registration.

To sort through the requirements for a successful state trademark application, it’s useful to go back to the basics of legal trademark use under federal law.

One of the key considerations in any trademark application is that it doesn’t matter how clever the wording of your specification of goods and services is, if you aren’t actually selling goods or services that comply with the relevant law. For example, under federal law, calling your goods “dried herbs,” “dried plant matter,” or “agricultural goods” will not fool the examining attorney if what you are actually selling is cannabis.

How this will play out at the state level, however, is less clear, where the sale of cannabis is now legal for those with a state license (we are intentionally taking a conservative position on this, as a trademark registration that is open to challenge and cancellation down the line could end up doing an applicant more harm than good). As under federal trademark law, you must actually be selling the goods you specify in your application, and the goods you are selling must comport with state law. The Secretary of State’s office has taken a rather ambiguous position here, but we think it’s the best they could do given the lack of legislation amending California’s trademark law. Until the state establishes a specific class under which businesses can register their marks for cannabis products, we expect to see trademark applications with intentionally vague specifications of goods and services, which won’t benefit anyone, including trademark owners.

And remember that this determination does nothing to increase your odds of obtaining a federal trademark, even though the state has deemed your use “lawful.” An applicant must have a bona fide intent to use their marks lawfully (under federal law) in commerce under Sections 1 and 45 of the Trademark Act, 15 U.S.C. §§ 1051, 1127.

Note that even an application filed on an intent-to-use basis could be rejected if the record indicates that the identified goods or services are unlawful, because actual lawful use in commerce is not possible. Many applicants have tried and failed to make an argument that because they sold goods only in states that allow for the legal sale of cannabis, their current and intended use therefore constitutes lawful use in commerce under the Trademark Act. The USPTO has repeatedly rejected this argument, citing a decision that “the fact that the provision of a product or service may be lawful within a state is irrelevant to the question of federal registration when it is unlawful under federal law.” In re Brown, 119 USPQ2d 1350, 1351 (TTAB 2016). In other words, the federal interdiction against cannabis will control over state law cannabis legalization.

The takeaway here is that lawful use in commerce will be key to obtaining a California State trademark registration that will hold up in court, and provide you with adequate brand protection. It’s better to hold off on filing your trademark application until you are certain you meet all the legal requirements under trademark law, than to rush and file an application that could be subject to cancellation. We cannot stress enough the importance of engaging with an experienced trademark attorney to ensure that your application is viable before you file.

California pot trademarks: it’s a race.

Things are about to get a little easier for marijuana companies looking to protect their brands in California, where obtaining a state trademark for cannabis goods and services has not been possible, to date. Beginning January 1, 2018, however, all of that changes. Customers may register cannabis-related trademarks or service marks with the California Secretary of State’s Office, so long as the following requirements are met:

  1. The mark is lawfully in use in commerce within California; and
  2. The specification matches the classification of goods and services adopted by the United States Patent and Trademark Office.

The Secretary of State’s Office has reiterated that they will only accept applications insofar as the goods and/or services in question fit within an existing classification code from the USPTO’s Identification of Goods and Services Manual. Therefore, it will be easy to register for things that fit squarely within the USPTO specifications, like retail services. Cannabis goods could be more problematic, although we have already begun to develop strategies to protect these as well.

The other key to obtaining a California state trademark registration is that you must be making lawful use of the mark in California state commerce at the time of your application. This means that you must be licensed by the state to provide the goods and services for which you are seeking protection, and you must have made your first sale of those goods or services as well. Unlike the USPTO and some states that allow for trademark “reservations,” California does not have an intent-to-use trademark application, and so you must make use of your mark prior to obtaining protection. In that sense, it’s a race.

We have received a lot of inquiries from clients interested in applying for trademarks on January 1st, but few will actually be eligible on day one. On this point, it is important to note that if you file a trademark application before you’ve made use of your mark, that application could be subject to cancellation down the line. It would also be unhelpful in the event you end up in trademark litigation. The flip side here is that “squatters” who plan to register illegitimate marks on January 1st will fail, or will be open to cancellation without any bona fide use.

When combined with federal trademark registrations for ancillary goods and services, this development in California state trademark policy will be key in bolstering brand protection for licensed cannabis businesses. We are glad to see California finally join Oregon, Washington and other cannabis program states that allow entrepreneurs to protect their valuable intellectual property through registered trademarks.

California cannabis lawyers
In case you missed it…

Over the course of the next week or so, we’ll be putting together a series of blog posts addressing the many questions asked by those who tuned in to our MAUCRSA licensing webinar on December 18th. Unfortunately, we ran out of time to answer all of those questions, so we’ll do our best to cover as many as possible in these posts. And if any of our readers have questions they would like to see addressed via a blog post, please let us know. And stay tuned, because we’ll be posting a recording of the webinar for those who missed out on the 18th.

In this post, we’ll be answering the most-asked questions regarding cannabis manufacturing. In no particular order, here’s the Q and A:

Q:        Are pre-rolls considered a “manufactured” item requiring a manufacturer’s license?

A:         Pursuant to rules for cultivation licensees, pre-rolls are considered “Nonmanufactured cannabis product,” along with flower, shake, kief, and leaf. So, you wouldn’t need a manufacturing license–you would need a cultivation processing license.

Q:        Do consultants who receive a flat fee in exchange for operating a facility need to be disclosed under the financial interest section?

A:         No, so long as the consultant has not made an investment into or loan to the licensed business, and is not entitled to any equity interest in the company, including the right to a percentage of sales, profits or revenue.

Q:        What is the “processor license?”

A:         This license type falls under the cultivation rules, not the manufacturing rules, and allows for only trimming, drying, curing, grading, packaging, or labeling of cannabis and nonmanufactured cannabis products (flower, shake, kief, leaf, and pre-rolls). If you hold a cultivation license, you will not need a separate processor license to conduct these activities. But if you are solely a processor, that processor license must have its own distinct premise (and you can’t cultivate at your processing facility).

Q:        Can manufacturers share spaces or any amenities, like commercial kitchens, sinks, etc?

A:         No, each manufacturer must have its own separate and distinct premises and amenities, and cannot share any common points of entry with any other licensee. The state has indicated that it may consider a Type-S license to allow for shared manufacturing space, but that won’t be decided until sometime next year.

Q:        What about brand licensing deals? Are they allowed?

A:         Yes, they’re allowed. We’ve written extensively about brand licensing deals here, but one key thing to note about licensing deals in California is that receiving royalty payments from a brand licensing deal WILL constitute a disclosable financial interest in a licensee. This may make licensing deals tricky for some licensors if they want royalties based on sales.

Q:        Will mobile kitchens be allowed for manufacturing?

A:         No. Your premises has to be a fixed, fully secured location.

Q:        Will the state issue a manufacturing license with no premises if I am using a contract manufacturer?

A:         No. Each license must be tied to a physical premises.

Q:        Can you be both a cultivator and a manufacturer?

A:         Yes, but each license needs to have its own separate and distinct premises. There is no prohibition in California on vertical integration for licensees (but you do have to apply for medicinal and adult use licenses separately).

Q:        Are breath strips considered “edibles” or “tinctures? when it comes to packaging”

A:         For purposes of packaging (i.e. whether this product would require opaque packaging like other edible products), breath strips likely need to meet the requirements for edibles (since mints are definitely on the edibles list and fairly similar), which are cannabis products “intended to be used orally, in whole or in part, for human consumption. But another important distinguishing factor will be whether they are manufactured using an infusion process, which would mean they would fall under a Type N license (infusions), or an extraction process for extracts or concentrates, which would require either a Type 6 (non-volatile solvents) or Type 7 (volatile solvents) manufacturing license.

Q:        Do you need a separate license for medicinal and adult-use manufacturing?

A:         Yes, you will need an M-license and an A-license for manufacturing, although those two licenses can share the same premises so long as they’re owned by the same company.

Q:        Is it possible to share space with a non-cannabis company (i.e. a catering company run by a different individual)?

A:         No, you cannot manufacture non-cannabis products on a licensed premises, and no licensee can sublease any portion of its premises anyway.

Q:        What type of license would I need to make CBD-infused products?

A:         If you are sourcing raw materials from licensed cultivators, you would need a Type N license.

We’ll continue to address more questions from the webinar over the next few weeks, so stay tuned.

California cannabis manufacturing lawsWe wrote last week about the California Bureau of Cannabis Control’s (BCC) issuance of their much-anticipated emergency rules to fully implement the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) in California. These emergency regulations, including those issued by the Departments of Public Health and Food and Agriculture, can be found here, here, and here.

The emergency rules are similar to the withdrawn rules under the Medical Cannabis Regulation and Safety Act (MCRSA), but there are some important additions and gap-fillers with which applicants need to familiarize themselves. In the coming weeks, we’ll be summarizing some of the key rules with respect to each category of license, beginning with manufacturing. We will be discussing these regulations a bit at our Southern California Cannabis Investment Forum on November 30 in Los Angeles and it would also behoove you to stay tuned for an announcement setting the date for our next webinar, which will delve into the new regulations in detail.

The California Department of Public Health (CDPH) regulates cannabis manufacturing through its Manufactured Cannabis Safety Branch. The CDPH will issue temporary licenses allowing manufacturers to engage in commercial cannabis activity, effective January 1st. These temporary licenses will be valid for 120 days and may be extended for additional periods of 90 days if the business has submitted an annual license application.

For manufacturers, there are two license categories and four license types, a departure from the categories specified in SB 94. The two license categories are the A-License for the adult-use market and the M-License for the medicinal market. A single business may hold both an M- and an A- license at the same premises, so long as they submit separate applications for each.

The four license types are as follows:

  • Type 7: Extraction using volatile solvents (i.e. butane, hexane, pentane).
  • Type 6: Extraction using non-volatile solvents or mechanical methods (i.e. food-grade butter, oil, water, carbon dioxide). The rules also clarified the definition of “volatile” by expressly excluding ethanol, which is now deemed “non-volatile.”
  • Type N: Infusions (i.e. using pre-extracted oils to create edibles, beverages, capsules, vape cartridges, tinctures or topicals).
  • Type P: Packaging and labeling only

*Note that both the Type N and Type P licenses had been eliminated in SB 94, but have been reintroduced.

Each licensee will need to have written SOPs for inventory control, quality control, transportation, security, and cannabis waste disposal and must submit these SOPs with their license application. Extractions using CO2 or any volatile solvent must be conducted with a closed-loop system that has been certified by a California-licensed engineer, and volatile, hydrocarbon-based solvents must have at least 99% purity. Certification by the local fire code official will be required for volatile solvent, CO2, and ethanol extractions.

Many of the product standards from the repealed MCRSA rules have also made their way into the new MAUCRSA regulations. For example, products cannot be infused with nicotine or alcohol, or have added caffeine. Edibles cannot be shaped like a human, animal, insect, or fruit, and potentially hazardous foods like meat, seafood and other products requiring refrigeration are prohibited.

The potency requirements have changed slightly, although edibles are still limited to a maximum of 10 mg of THC per serving and 100 mg of THC per package. Other cannabis products, including tinctures, capsules, and topicals, may contain up to 1,000 mg of THC per package for adult-use products and 2,000 mg per package for medicinal-use products.

The MAUCRSA packaging and labeling regulations will require a significant departure from current practices for many existing manufacturers. Cannabis product packaging cannot resemble traditionally available food packages, and all edibles packaging must be opaque. Cannabis products and their packaging cannot be attractive to children, and packaging must be tamper-evident and child-resistant. Labels must include an ingredient list, nutritional facts, and the CDPH-issued universal symbol. Products cannot be referred to as “candy,” and must include mandated warning statements and the THC content.

Perhaps most promising to many small-scale manufacturers is CDPH’s statement that it is currently developing an additional license type, Type S, which would allow businesses to share facility space. Currently, the rules require a separate and distinct premises for each license, with the exception being that a licensee can hold both an M- and A- license of the same type on one premises. The Type S license would open the door to co-sharing of manufacturing facilities and possibly equipment, which would greatly reduce the barriers to entry for many small companies struggling to secure and build out their own manufacturing facility.

In the coming days, we’ll be delving into the new regulations for cultivation, retail, and distribution as well, so stay tuned.

 

 

 

Cannabis IP licensingGiven the recent influx of cannabis-IP licensing deals on which we have worked, I thought it important to discuss some of the issues potential licensees often face when negotiating with brand owners.

These licensing deals are complicated and fraught with unique cannabis-related issues. Many companies come to us with such licensing deals expecting the biggest hurdle to be state cannabis law compliance. And though this is certainly a major concern, it’s important to start with the fundamentals by analyzing the validity and strength of the intellectual property itself. With any licensing deal, the first step should be determining who actually owns what intellectual property. This is especially true when it comes to the cannabis industry, where information, strain names, and industry terminology have been shared freely since long before state-level legalization.

Ownership of IP in the cannabis industry is a tricky issue, in large part because the USPTO will not issue federal trademark registrations for cannabis-related marks. Far too regularly, cannabis companies come to us with proposed licensing deals where basic due diligence quickly reveals the licensor simply does not own what it claims to own. A little bit of high-level IP due diligence can save a lot of money.

If you are looking to get a license for another company’s IP, here are the most basic questions you should be able to answer about that other company and its IP:

  • Does the licensor own any federal trademark registrations?
  • If so, what goods and/or services do those trademark registrations cover?
  • Was the description of goods and/or services filed with the USPTO accurate and true? Were there possible misrepresentations?
  • Are the trademark registrations based on actual use, or upon an “intent-to-use?”
  • What representations and warranties is the licensor making (or, often more importantly, not making) regarding the marks?
  • If the licensor doesn’t own any federal trademark registrations, is it licensing someone else’s trademarks?
  • Does the licensor have a master licensing agreement? Do the terms of any proposed sub-licensing agreement mirror that master licensing agreement?
  • What quality control standards will you be held to by the trademark owner?
  • Has the trademark owner warranted to keep all USPTO filings up-to-date?
  • Does the licensor own any state trademark registrations?
  • If so, has the licensor made lawful use of its mark in commerce in the state of registration?
  • Does the licensor have any common law trademark rights? Can the licensor even legally acquire common law trademark rights in your jurisdiction?

This is a substantial list, but it only scratches the surface of the issues you and your cannabis IP counsel must consider before you enter into any IP licensing deal. Cannabis companies are often too quick to skip straight to negotiating commercial terms for a deal, without ever assessing whether the rights they are licensing actually exist. Just like with any other type of property — like a house or a car — a licensor of intellectual property must actually own the rights to that property to be able to confer all or some portion of those rights to another party. Seems basic, but it’s truly shocking to see the deals we’ve seen put together by attorneys who either do not know cannabis or, more often than not, do not know the intricacies (or even the basics) of intellectual property law.

Of course, even after you resolve the fundamental IP issues, you still must resolve the state cannabis law issues. In California, for example, even state trademarks are still not available for cannabis and cannabis products. And we don’t yet know how the soon-to-be-released MAUCRSA draft regulations will impact our options for commercial terms and structuring of licensing deals.

Fortunately, the news isn’t all bad. Though these licensing deals are complicated, there are creative and effective solutions to all of these problems, but those take a firm understanding of both IP and state marijuana laws from the outset.

Santa Cruz cannabis regulations
Santa Cruz is in the forefront of California cannabis

We wrote last week about the City of Santa Cruz’s efforts in adopting and implementing adult-use cannabis regulations, and on Tuesday, the Santa Cruz County Board of Supervisors voted unanimously to allow the twelve existing legal medical marijuana dispensaries in the County to sell adult-use cannabis as well. The dispensaries will of course need a state license in addition to local approval, but this move by the County will position these dispensaries to be among the first in the state able to apply for adult-use retail licenses come January 1st.

Santa Cruz County now joins a very small list of California jurisdictions that have taken proactive steps toward implementing adult-use cannabis regulations. Most California cities and counties are still waiting for guidance from the state’s Bureau of Cannabis Control (BCC), which is not set to release proposed state rules governing both adult-use and medical cannabis until mid to late November. Without guidance from the state, local governments have been reluctant to put resources into drafting cannabis regulations when those state rules could necessitate substantial revisions.

Both Santa Cruz City and County have been working to stay at the forefront of cannabis industry development. I had the opportunity to attend the City of Santa Cruz Planning Commission meeting last week, and the Commission voted to propose that the City Council make certain amendments to the proposed ordinance:

  • Additional privacy protections for retail store managers, including removing the requirement that managers’ addresses be public information;
  • Clarification that multiple cultivation licensees can operate on the same premises, so long as they are separate and distinct, and meet all other state licensing requirements; and
  • Rather than prohibiting deliveries from outside the City of Santa Cruz, expanding this restriction to allow for deliveries from retail stores anywhere within Santa Cruz County.

There was some talk about opening up the downtown retail core to cannabis businesses, and reducing the buffer from 600 feet to 300 feet, but the Commission ultimately decided these would be changes to discuss down the road, after the licensing program had been established and operating. Santa Cruz’s City Council is scheduled to read its proposed ordinance on November 14th, after reviewing the Planning Commission’s recommendations. The City of Santa Cruz will cap the number of available retail licenses at five, with the two existing, legal medical dispensaries having priority for adult-use licenses. And Santa Cruz County, which has moved to give its twelve existing dispensaries priority for adult-use licenses, has authorized only fourteen dispensaries as eligible for licenses. According to the County, they do not anticipate licensing additional dispensaries for either medical or recreational cannabis at this time, although that could change with upcoming rules implementation.

 

 

Cannabis Brand names
Choose your cannabis brand name wisely

If this feels like déjà vu (all over again), it’s probably because earlier this month, I wrote about The Gorilla Glue Company’s lawsuit for trademark infringement against GG Stains LLC out of Nevada. In that case, Gorilla Glue, the manufacturer of a variety of adhesives sold under the “Gorilla” brand and distinctive logo, alleged trademark infringement, dilution, unfair competition, and cybersquatting against GG Strains, which marketed one of its popular strains under the name “Gorilla Glue.” The allegation was that by marketing its cannabis strains under “confusingly similar” names, GG Strains was trading off the goodwill and reputation established by Gorilla Glue over the course of 23 years. The parties ultimately settled the dispute a few weeks ago, and GG Strains will have to cease using the Gorilla Glue marks.

Now, we have another allegation of trademark infringement by Tapatio Foods LLC, the famous American hot sauce brand. Tapatio has filed two separate complaints against TCG Industries, LLC (d/b/a Payaso Grow), alleging federal trademark infringement, federal and state unfair competition, and dilution. Sound familiar? TCG has a cannabis-infused hot sauce called “Trapatio” that bears an image of a “man in [a] sombrero, yellow shirt, and red tie” that is (according to Tapatio) “confusingly similar” to Tapatio’s trademarked images.

For ease of reference, here are several past blog posts relating to trademark infringement, and how to choose a brand that won’t get you sued:

And here are the factors a court will consider in assessing whether one mark is likely to be confused with another, proving trademark infringement (AMF Inc. v. Sleekcraft Boats):

  • Strength of the mark;
  • Proximity of the goods;
  • Similarity of the marks;
  • Evidence of actual confusion;
  • Marketing channels used;
  • Type of goods and degree of care likely to be exercised by the purchaser;
  • Defendant’s intent in selecting the mark; and
  • Likelihood of expansion of the product lines.

The two most basic factors I recommend our cannabis clients evaluate before they select a brand are 1) is your mark similar to or the same as an existing mark, and 2) Are you intentionally “riffing” off an existing brand? Remember that parody is not a defense to trademark infringement that will typically fly in a commercial setting. When you choose a mark as a “parody” of an existing brand, chances are you’re actually infringing a registered trademark, and possibly diluting a famous mark. And the fact that you knew of the senior trademark would absolutely play against you in litigation, as your infringement would be deemed willful.

Of course, these two factors are only the beginning of the analysis. There are instances where similar, or even the same brand names can coexist if the goods those brands are used on are completely different and marketed through separate channels to disparate groups of consumers. The analysis for likelihood of confusion can be quite complex.

Before adopting a new brand name, we recommend consulting with an experienced trademark attorney and we also recommend having them perform a trademark clearance search to ensure your brand won’t be infringing any existing registrations. This recent flood of cannabis trademark litigation is only an indication of what’s to come as the cannabis industry continues to grow.

Santa Cruz Cannabis
Will Santa Cruz lead on cannabis?

With less than three months until the end of the year and the commencement of California’s medical and adult use cannabis licensing program, most local jurisdictions are still without regulations to govern adult use commercial cannabis businesses. This has created concern throughout the industry that despite the Bureau of Cannabis Control’s (BCC) promise that it will begin issuing licenses on January 1st, few — if any — adult use commercial cannabis businesses will have secured the requisite local approvals for state licensing. Last month San Francisco, for example, introduced legislation confirming the city would not allow recreational cannabis sales by January.

San Francisco’s stance on adult use commercial cannabis activity is echoed across the state, with cities and counties waiting for state guidance before drafting, adopting and implementing their own adult use regulations. Though Proposition 64 gave local jurisdictions broad authority to adopt cannabis regulations, without draft rules from the state, cities and counties are in a tough place. It doesn’t necessarily make sense to put resources into drafting regulations when the state rules could necessitate hefty revisions.

But last week, the City of Santa Cruz recommended to its City Council amendments to the local zoning ordinance and the Local Coastal Program to regulate adult use commercial cannabis businesses. The Bay Area in particular lacks local regulation of adult use commercial cannabis businesses, so adoption of these recommendations could provide opportunity for those looking to open a recreational business.

The City’s recommendations are broken down by retail sales, manufacturing and cultivation, and delivery. Here are the highlights of the proposed regulations for each category:

Retail Sales

  • Retail uses should be limited to the same zoning districts that currently allow medical marijuana dispensaries: CC, CT, IG, and IG-Per 2.
  • There should be a 600-foot buffer between marijuana retail outlets, with the City maintaining discretion to consider smaller separations when certain findings are met;
  • Based on the MAUCRSA locational restrictions (600 feet from any K-12 school, childcare center, or youth center), the definition of “youth center” is broad and should include parks with playgrounds or those that provide youth programs, both athletic and educational. The city has provided a map indicating the locations where retail outlets would be allowed.
  • The city may limit the number of retail outlets to a maximum of five. This would include both medical and adult use retail stores. The two currently operating legal medical marijuana dispensaries in Santa Cruz may be allowed to sell recreational cannabis in addition to medical cannabis.
  • Applications should be reviewed with consideration to factors of importance to the community, including local preference, preference for women- and minority-owned businesses, and treatment of employees (living wage and benefits).
  • Licenses should be non-transferrable.
  • Onsite consumption, including smoking lounges, should not be allowed.

Manufacturing and Cultivation

  • Commercial outdoor cultivation should not be allowed within city limits.
  • Marijuana testing, manufacturing, distribution and warehousing, and indoor cultivation should be allowed in industrial districts only (IG and IG-Per 2) with approval of an Administrative Use Permit at a public hearing by the Zoning Administrator.
  • The 600-foot MAUCRSA buffer would not apply to commercial uses that are not open to the public, except for manufacturing that uses volatile solvents.
  • Indoor cultivation should be limited to a maximum of 10,000 square feet.

Delivery

  • Deliveries should be prohibited within the City from businesses located outside the City limits. Santa Cruz acknowledges the difficulty of enforcing this rule.
  • The ordinance should specifically prohibit deliveries from other than licensed retailers, microbusinesses or nonprofits.

The City Council will take up this issue this Thursday, October 19th, and we’ll be standing by to see whether the city adopts these proposed cannabis ordinance amendments.

Cannabis trademarksThe Gorilla Glue Company and GG Strains LLC, a Nevada-based cannabis company, entered a recent settlement agreement in the trademark infringement case brought by Gorilla Glue back in March. This case provided a perfect illustration of what NOT to do when developing your cannabis brand, and it now illustrates the possible consequences of infringing the trademarks of a well-established company.

In its complaint, Gorilla Glue, the manufacturer of a variety of adhesives sold under the “Gorilla” brand and distinctive logo, alleged trademark infringement, dilution, unfair competition, and cybersquatting. The allegation was that by marketing their strains under “confusingly similar” names, GG Strains was trading off the goodwill and reputation established by Gorilla Glue over the course of 23 years.

The trademark infringement in this case appears to have been flagrant – GG Strains utilized a logo for its “Gorilla Glue #4” strain that incorporated a gorilla, and certainly conjured an association in the minds of consumers with the famous adhesive brand. But though this case involved a pretty flagrant example of trademark infringement – after all, the infringing word mark was exactly the same as the registered Gorilla Glue mark – the standard for infringement is actually significantly lower. Not only can you not use a mark that is the same as a registered trademark, you cannot use a mark that is confusingly similar to a registered trademark.

We’ve written before about the standard for assessing likelihood of confusion, but it warrants repeating. The Ninth Circuit (which sets the law on this for Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) in AMF Inc. v. Sleekcraft Boats, developed an eight-factor test for determining whether one mark is confusingly similar to another. Here are those eight factors:

  1. Strength of the mark;
  2. Proximity of the goods;
  3. Similarity of the marks;
  4. Evidence of actual confusion;
  5. Marketing channels used;
  6. Type of goods and the degree of care likely to be exercised by the purchaser;
  7. Defendant’s intent in selecting the mark; and
  8. Likelihood of expansion of the product lines.

Some of these factors are clear-cut, and some are highly subjective. The Ninth Circuit has repeatedly reaffirmed that this is a flexible test, but it is useful to consider these factors when choosing a name for your brand that may be similar to another registered mark. For example, if the other, similar mark is a well-known brand, or a household name, your risk of infringement goes up. If the goods you are selling are similar to the goods provided by the other brand, your risk goes up. Likewise, if the marks are very similar, if similar marketing channels are used, or if either company intends to expand into the market of the other, your risk of infringement goes up. You’ll notice that the court also considers the intent of the defendant. This means that if you knew from the outset that your mark was similar to a registered mark, the court is less likely to look favorably on your case.

In the Gorilla Glue case, the intent of the defendant would likely have been a factor weighing heavily in favor of the plaintiff. It would have been tough for GG Strains to make a case that they weren’t intentionally referencing and playing off of the brand of the well-known adhesive company.

And the consequences for GG Strains’ branding choices were serious. The settlement agreement gives GG Strains twelve months to cease using the word “Gorilla,” an image of a gorilla, or any of the “Gorilla” trademarks. After December 18th of this year, GG Strains can only use their current “Gorilla” marks preceded by a new name, together with the phrase “formerly known as.” Affiliated companies, dispensaries, cultivators and other partners must stop using the word “gorilla,” or any Gorilla Glue trademarks or imagery, and licensees of the strain have ninety days from September 19, 2017 to cease use of the gorilla word, images or trademarks.

The founder of GG Strains estimates that the dispute and rebranding costs have totaled around $250,000. And the costs would have been astronomically higher had the case proceeded to litigation. This should serve as a lesson to cannabis business owners that your brands will be treated no differently than those in any other industry. Big brand owners are taking note of what cannabis businesses are doing, and they are not hesitating to enforce their trademark rights against cannabis brands in court.