Photo of Alison Malsbury

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 intellectual property licensing BCC
These proposed BCC regulations would be a mistake.

As we’ve been blogging about for the last couple of weeks, the Bureau of Cannabis Control (BCC) recently released modifications to the proposed regulations for cannabis licensees, one of which effectively prohibits all licensing, white labeling and manufacturing agreements between two parties where one of those parties is not a licensed cannabis business. In our post on this modification, we urged stakeholders to submit written comments to the BCC expressing their opposition to the rule change. We also noted that we would be submitting formal comments as a firm on behalf of our clients and are publishing those comments here. Our hope is that the BCC understands the damaging implications this rule change will have on the industry here in California, and we will be following the rule adoption process closely to see how this shakes out.

Below is the full text of our November 2 letter to BCC, minus the letterhead and signatures. We will continue to dialogue with affected parties and regulators on this crucial issue as opportunities permit. Please continue to join us in making your voices heard!


Lori Ajax, Chief
Bureau of Cannabis Control
P.O. Box 419106
Rancho Cordova, CA 95741

Re:       Comments Regarding Modifications to Text of Proposed Regulations for All Bureau Licensees §5032-Commercial Cannabis Activity

Dear Ms. Ajax,

On behalf of Harris Bricken McVay Sliwoski, LLP and our clients participating in California’s cannabis industry, we submit our comments to the Bureau of Cannabis Control’s Modifications to the Text of the Proposed Regulations for All Bureau Licensees.

Our comments are limited to Section 5032 pertaining to “commercial cannabis activity.” This section proposes to expand the definition of “commercial cannabis activity,” which may be conducted only between licensees, as follows:

  • 5032. Commercial Cannabis Activity

(a) All commercial cannabis activity shall be conducted between licensees. Retail licensees, licensed retailers and licensed microbusinesses authorized to engage in retail sales may conduct commercial cannabis activity with customers in accordance with Chapter 3 of this division.

(b) Licensees shall not conduct commercial cannabis activities on behalf of, at the request of, or pursuant to a contract with any person that is not licensed under the Act. Such prohibited commercial cannabis activities include, but are not limited to, the following:

(1) Procuring or purchasing cannabis goods from a licensed cultivator or licensed manufacturer.

(2) Manufacturing cannabis goods according to the specifications of a non-licensee.

(3) Packaging and labeling cannabis goods under a non-licensee’s brand or according to the specifications of a non-licensee.

(4) Distributing cannabis goods for a non-licensee.

In particular, we take issue with the expansion of the definition of “commercial cannabis activity” to include “Manufacturing cannabis goods according to the specifications of a non-licensee” and “Packaging and labeling cannabis goods under a non-licensee’s brand or according to the specifications of a non-licensee,” as this modification will effectively prohibit all intellectual property licensing agreements between licensees and non-licensees. We have not encountered such a prohibition in any other state in which cannabis is legalized and regulated, and we believe that this modification would stifle the industry and eliminate many, if not most, of the brands currently on dispensary shelves in California.

Intellectual property licensing agreements are utilized widely throughout virtually every industry. We have assisted clients with many licensing deals throughout the state, none of which were intended to circumvent cannabis regulations or hide ownership or financial interests. In fact, our interpretation of the “financial interest holder” rule has been that the licensor in each of these licensing deals including a royalty component where the licensor receives a share of profits or revenue from the licensee must already be disclosed to the appropriate state regulatory agency as a “financial interest holder” in a licensee.

There are many reasons why intellectual property licensing agreements make sense for a licensed operator, and why access to intellectual property beyond that owned by licensed operators benefits consumers:

  • Many licensed operators do not have the resources to develop new technologies, products, or brand identities and intellectual property licensing can provide a mechanism for expanding and improving their product offerings.
  • Many companies and individuals that own intellectual property, such as recipes, techniques, processes, and brand identities do not have the resources to obtain local and state permits or are based in jurisdictions that do not allow commercial cannabis activity. Intellectual property licensing can provide a mechanism for these companies to provide their intellectual property to licensed operators and become fully disclosed financial interest holders in those licensed operators by taking a royalty based on product sales.
  • For entities that own multiple operations, it often also makes legal sense to utilize an IP holding company (that is not a licensed entity) to hold and manage the group’s IP portfolio for the avoidance of IP ownership disputes and liabilities, among other reasons.
  • Licensed intellectual property expands the ability of licensed operators to provide a greater variety of brands and products to consumers.

Eliminating the ability of licensees to enter into intellectual property licensing deals with non-licensees harms both licensees and consumers by restricting the number of brands and products available. It also seems that the Bureau’s goals may not be well-served by this proposed rule modification due to overbreadth of its scope. The intent of Sections 5032(b)(1) and (b)(2) appears to be preventing licensed entities from conducting cannabis business operations at the behest or at the direction of unlicensed entities. The main purpose of intellectual property licensing deals is not to direct an entity how to conduct its business, but to restrict the ways in which the intellectual property may be used, and to ensure compensation to the owner for those limited uses. The proposed modification to Section 5032 casts an unnecessarily wide net that would prohibit all manufacturing, packaging, and labeling operations by a licensed operator that happen to use intellectual property owned by a non-licensed entity—a result that does not serve consumers, licensed entities, or public safety. Just as a landlord should not have to be licensed in order to lease its property to a licensed cannabis operator in exchange for rent, an owner of a brand or a recipe should not have to be licensed in order to license its intellectual property to a licensed operator in exchange for compensation.

Rather than becoming the first state to prohibit IP licensing in its cannabis regulations, we recommend that the Bureau instead amend the following rule pertaining to financial interest holder disclosure requirements to explicitly include intellectual property and manufacturing agreements where the licensor receives a royalty as disclosable to the state (proposed language emphasized):

  • 5004. Financial Interest in a Commercial Cannabis Business

(a) A financial interest means an agreement to receive a portion of the profits of a commercial cannabis business, an investment into a commercial cannabis business, a loan provided to a commercial cannabis business, or any other equity interest in a commercial cannabis business except as provided in subsection (c) (d) of this section. For the purpose of this section, an interest in a diversified mutual fund, blind trust, or similar instrument is not a financial interest. For purposes of this division, an agreement to receive a portion of the profits includes, but is not limited to, the following individuals:

(1) An employee who has entered into a profit share plan with the commercial cannabis business.

(2) A landlord who has entered into a lease agreement with the commercial cannabis business for a share of the profits.

(3) A consultant who is providing services to the commercial cannabis business for a share of the profits.

(4) A person acting as an agent, such as an accountant or attorney, for the commercial cannabis business for a share of the profits.

(5) A broker who is engaging in activities for the commercial cannabis business for a share of the profits.

(6) A salesperson who earns a commission.

(7) A non-licensed entity that has entered into an intellectual property licensing agreement or manufacturing agreement with a commercial cannabis business for a share of the profits.

From an ownership and financial interest holder perspective, intellectual property and manufacturing agreements are no different than any of the arrangements already referenced in Section 5004 where a non-licensee receives a share of profits from a licensed entity. Intellectual property and manufacturing agreements that stipulate that all commercial cannabis activity shall be carried out solely by a licensed operator and that the non-licensee shall have no control over the licensed entity should not be treated any differently than leases, consulting agreements or any other agreement in which a non-licensee receives a royalty.

If the Bureau is instead concerned with the contents of these intellectual property licensing and manufacturing agreements, we recommend requiring disclosure of the agreements to the state, rather than prohibiting them altogether or requiring the licensor to secure onerous local approval and eventual state licensing for a commercial cannabis license they never intend to actually use. Washington State, for example, which has some of the strictest regulations pertaining to ownership and financial interests in cannabis businesses in the country, requires that licensors entitled to a royalty in a licensing agreement be disclosed to and vetted by the Washington State Liquor and Cannabis Board (WSLCB), and that the licensing agreement itself be disclosed to and reviewed by the WSLCB.[1]

We appreciate the opportunity to provide these comments to the Bureau’s proposed modifications to the text of the proposed regulations for all Bureau licensees and would be happy to engage in a dialogue to identify a means for regulating these types of business deals without causing significant harm to the industry and to consumers. If you have any questions, please contact Alison Malsbury at alison@harrisbricken.com or Hilary Bricken at hilary@harrisbricken.com.

[1]RCW 69.50.395.


Let’s hope that the Bureau considers these and other comments thoughtfully and seriously as California continues to build out its cannabis program architecture. We will keep you posted.

california cannabis marijuana
Get your comments in by Nov. 5 and help us fix this.

On Friday, the California Bureau of Cannabis Control, California Department of Public Health, and California Department of Food and Agriculture issued 15-day notices of modification to the texts of their respective proposed regulations. The California Cannabis Portal has published links to each notice and the modified texts of the proposed regulations. For each set, the respective Department will accept written comments submitted by November 5, 2018.

And to all parties currently engaging in intellectual property (IP) licensing or manufacturing deals as or with a non-licensee, you should most definitely submit your written comments if you want to be able to keep those deals alive. The modifications to the text of the proposed regulations include the following:

5032. Designated M and A Commercial Cannabis Activity

(a) All commercial cannabis activity shall be conducted between licensees. Retail licensees, licensed retailers and licensed microbusinesses authorized to engage in retail sales may conduct commercial cannabis activity with customers in accordance with Chapter 3 of this division.

(b) Licensees shall not conduct commercial cannabis activities on behalf of, at the request of, or pursuant to a contract with any person that is not licensed under the Act. Such prohibited commercial cannabis activities include, but are not limited to, the following:

(1) Procuring or purchasing cannabis goods from a licensed cultivator or licensed manufacturer.

(2) Manufacturing cannabis goods according to the specifications of a non-licensee.

(3) Packaging and labeling cannabis goods under a non-licensee’s brand or according to the specifications of a non-licensee.

(4) Distributing cannabis goods for a non-licensee.

These regulations would seemingly prohibit most, if not all, IP licensing agreements where the licensor is not licensed by the state, given that such licensing deals call for the licensee’s use of the licensed IP to manufacture particular goods, often utilizing the licensor’s proprietary techniques, recipes or trade secrets. Section (b)(3) above describes exactly what a licensee does under a trademark licensing agreement where the licensor does not possess its own manufacturing license from the state: “packaging and labeling cannabis goods under a non-licensee’s brand or according to the specifications of a non-licensee.”

Until Friday, there was nothing in the proposed regulations prohibiting a non-licensed third-party from engaging in these types of licensing deals, which we have written about extensively. Under those proposed regulations, a non-licensed entity entering into a licensing or manufacturing deal and taking a royalty from a licensed entity would need to be disclosed to the state as a party with a financial interest in a licensee but would not need to obtain a manufacturing license of their own. These kinds of deals are extremely prevalent throughout the industry, and are allowed to varying degrees in the other states in which my law firm’s cannabis business lawyers work (Washington and Oregon). For California to prohibit licensing deals involving non-licensed entities would be a major departure from what we’ve seen in other jurisdictions and would be incredibly disruptive to the cannabis industry as it currently operates.

This change would have far-reaching and unfortunate implications. Here are some examples of deals and structures that would not be allowed if this modification is ultimately adopted:

  • Licensed operators that have set up separate IP-holding companies to hold and license their intellectual property back to the operator;
  • Out-of-state cannabis companies that wish to license their existing cannabis brand to California manufacturers, but do not wish to directly engage in manufacturing in California;
  • Non-licensed third-parties that have developed technology to manufacture a cannabis product or a brand identity and wish to license that technology or brand identity to a licensed manufacturer.

The list goes on. If you have any type of licensing or manufacturing deal in place that involves both a licensed entity and a non-licensed entity, you should talk to your attorney as soon as possible to determine what the implications of this modification would be. And most importantly, you should provide written feedback immediately to the Bureau of Cannabis Control during the very short 15-day comment period expressing opposition to this modification.

california industrial hemp
For the most part, anyway.

We’ve been closely following the trajectory of SB 1409 and on September 30, 2018, Governor Brown signed the bill which will go into effect on January 1, 2019. This legislation is a huge step for California cannabis, in that it will add an industrial hemp pilot program to the California Department of Food and Agriculture’s registration system.

Currently, California law regulates the cultivation of industrial hemp, and specifies certain procedures and requirements on cultivators, not including an established agricultural research institution. Existing law defines “industrial hemp,” via the California Uniform Controlled Substances Act, as a fiber or oilseed crop, or both, that is limited to the non-psychoactive types of the plant Cannabis sativa L. and the seed produced from that plant.

Existing California law also requires that industrial hemp only be grown by those on the list of approved hemp seed cultivars. That list includes only hemp seed cultivars certified on or before January 1, 2013. Industrial hemp may only be grown as a densely planted fiber or oilseed crop, or both, in minimum acreages. Growers of industrial hemp and seed breeders must register with the county agricultural commissioner and pay a registration and/or renewal fee.

SB 1409 deletes the exclusionary requirement that industrial hemp seed cultivars be certified on or before January 1, 2013. Additionally, “industrial hemp” will no longer be defined restrictively in the California Uniform Controlled Substances Act as a fiber or oilseed crop, and the bill deletes the requirement that industrial hemp be grown as a fiber or oilseed crop, or both. We initially presumed this would allow cultivators to harvest hemp for CBD derivation, and related use, but given the recent FAQ issued by the California Department of Public Health effectively banning the sale of CBD food products, how hemp-derived CBD in California will be regulated in the future remains to be seen. We are certain this is an issue that will be taken up by the state during the rule-making process.

SB 1409 also authorizes the state Department of Food and Agriculture to carry out, pursuant to the federal Agricultural Act of 2014, an agricultural pilot program for industrial hemp. Twinning a state-sanctioned pilot program with licensed, private cultivation is a model that has worked well in other states, like Colorado and Oregon. Given the recent expiration of the 2014 Farm Bill prior to passage of the Hemp Farming Act of 2018, however, it remains to be seen how new hemp pilot programs will be viewed and treated by the federal government. Our hope is that Congress will resolve its differences and enact the Hemp Farming Act of 2018 before the end of the year, or at least before California is able to build out and implement its own regulatory system.

Some other provisions included in SB 1409 include detailed requirements for sampling and laboratory testing of industrial hemp. The bill provides new time frames for sampling of industrial hemp and destruction of hemp that exceeds the 0.3% THC limit. Also of note, and perhaps unfortunately, the bill adds a provision to the Food and Agricultural Code giving local jurisdictions the ability to ban industrial hemp cultivation in limited circumstances:

A city of county may, upon a finding that pollen adrift from industrial hemp crops may pose a threat to licensed cannabis cultivators permitted by the city or county, prohibit growers from conducting, or otherwise limit growers’ conduct of, industrial hemp cultivation in the city or county by local ordinance, regardless of whether growers meet, or are exempt from, requirements for registration pursuant to this division or any other law.”

We’ve seen recent litigation on this issue in Oregon, so perhaps the state is trying to insulate its licensees from similar outcomes.

As stated above, we’ll be very interested to see how (and if) regulators tackle the issue of industrial hemp-derived CBD in California as they develop the new regulatory framework for hemp. In the meantime, if you are unfamiliar with the current legal status of hemp-derived CBD food products in California, we recommend reading the CDPH’s FAQ and checking out our post on the topic here. We’ll continue to monitor rule development now that the bill has passed and all hemp-related developments in California closely.

For more on industrial hemp generally (including CBD), check out our wealth of archived posts here.

canada cannabis trademarkNews broke recently that Tweed, Inc., a subsidiary of Canadian cannabis company Canopy Growth Corp., filed a Canadian trademark application on August 31, 2018 for CHRONIC BY DRE, which they subsequently withdrew, apologizing and calling it a mistake. As we’ve written before, the number of trademark filings covering cannabis and cannabis-related goods and services in Canada has increased dramatically since the cannabis legalization process began. This rush to file cannabis trademarks in Canada could have been what spurred Tweed’s employee to rashly file the CHRONIC BY DRE mark without obtaining the artist’s consent and without having any sort of licensing deal in the works. (No matter what jurisdiction you’re in, don’t ever file for trademark protection for a mark that is already affiliated with a celebrity, hoping to beat them to the punch.)

The application filed for CHRONIC BY DRE covered a wide range of goods including body lotion and body creams, essential oils, personal preparations containing cannabis or cannabis derivatives, sunglasses, housewares, jewelry, stationery, pet accessories, clothing, dog and cat toys, beverage products, smoking products and accessories, and “cannabis and marijuana and derivatives thereof, namely live plants, seeds, dried flowers, liquids, oils, oral sprays, capsules, tablets, and transdermal patches.” That’s pretty broad.

For anyone familiar with the trademark application process in the United States, this specification makes Tweed’s registration of the CHRONIC BY DRE mark seem unattainable, but in Canada, it is not (setting aside the fact that Tweed does not have any deal in place with Dr. Dre himself). In the U.S., as we’ve covered extensively, in order to obtain federal trademark protection, your mark must be in lawful use in commerce (or, if you’re filing an intent-to-use application, you must have a bona fide intent to use the mark lawfully in commerce at the time of filing). This precludes the federal registration of any mark for use on goods or services that violate the federal Controlled Substances Act.

And in fact, Andre Young AKA Dr. Dre filed a U.S. federal trademark application for CHRONIC BY DR. DRE way back in 2013, and it was ultimately abandoned. The examining attorney at the time inquired into whether the goods contained marijuana because if they did, the mark would not be eligible for registration.

But back to Canada, where it is possible to obtain a trademark registration for cannabis, and where Dr. Dre would likely be successful (barring other legal obstacles) in obtaining such a registration for CHRONIC BY DRE. Even though it is relatively straightforward to obtain a trademark for cannabis goods or services in Canada, there are many restrictions placed on how those cannabis trademarks can be used via the proposed cannabis regulatory framework. For example, cannabis trademarks may not be used to promote cannabis goods:

  • In a manner that appeals to children;
  • By means of a testimonial or endorsement;
  • By depicting a person, character or animal, whether real or fictional;
  • By presenting the product or brand elements in a manner that evokes a positive or negative emotion about or image of, a way of life such as one that includes glamour, recreation, excitement, vitality, risk, or daring;
  • By using information that is false, misleading or deceptive, or that is likely to create an erroneous impression about the product’s characteristics, value, quantity, composition, strength, concentration, potency, purity, quality, merit, safety, health effects or health risks;
  • By using or displaying a brand element or names of persons authorized to produce, sell or distribute cannabis in connection with the sponsorship of a person, entity, event, activity or facility, or on a facility used for sports, or a cultural event or activity; and
  • By communicating information about price and distribution (except at point of sale).

For cannabis business owners in the U.S., it may make strategic sense to consult with a trademark attorney with experience filing cannabis-related applications to consider whether Canadian trademarks make sense. Because successful brands will be those that think globally, not nationally.

For more on Canadian branding (and marketing) regulations, check out my recent post here.

cannabis marijuana trademark
Having to re-brand can be pretty painful.

One of my favorite pastimes is perusing the United States Patent and Trademark Office’s (USPTO) Trademark Trial and Appeals Board’s (TTAB) records for disputes involving cannabis, hemp and CBD because there are often valuable lessons to be learned. One such record is the pending Notice of Opposition filed by Heineken Asia Pacific against Hemp Beer Inc., a Colorado company making hemp beer.

As a little bit of background on the trademark opposition process, the owner of a registered trademark can file a Notice of Opposition against a trademark applicant when the opposer believes that the applicant’s pending mark infringes on the opposer’s registered trademark rights. In this case, Heineken owns eight U.S. federal trademark registrations for TIGER, TIGER WHITE, TIGER BLACK, and multiple other variations on the “tiger” marks for “beer, ale, lager, stout, pilsner, porter, and non-alcoholic [malt beverages] beer.”

The applicant in this case, Hemp Beer Inc., makes a hemp beer called “Tiger Hemp Beer,” and has filed for trademark protection with the USPTO for GET THE EYE OF THE TIGER for “beer; beer, ale and lager; craft beers; flavored beer.”

Heineken alleges in its Opposition that “[t]he mark shown in the Opposed Application so resembles the “TIGER” word or design marks previously used in the United States by the Plaintiff, when used or in connection with the goods identified in the Opposed Application, to cause confusion, to cause mistake, or to deceive, and Applicant’s mark is thus unregistrable under § 2(d) of the United States Trademark Act, 15 U.S.C. §1052(d), as amended.”

Now, perhaps the applicant did a search of the TESS database prior to filing its application, and came up with no hits for “get the eye of the tiger” in Class 32 (the class that covers beer). However, a hard lesson that many applicants have learned is that one mark does not need to be identical to another in order to infringe that other mark. And a quick look at Hemp Beer’s branding quickly reveals that they are using a mark (“Tiger Hemp Beer”) that is even more similar to Heineken’s TIGER registrations than the mark for which they’ve filed for federal trademark protection (and it is possible that Heineken has taken separate action on this account).

This serves as a good reminder to conduct a trademark clearance search prior to filing your federal trademark application to make sure that there are no existing “confusingly similar” trademarks to the mark you propose to use. It is also helpful to keep in mind the factors a court will consider in determining whether two marks are confusingly similar (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.

“Similarity of the marks” is only one factor, and where the goods are very similar, or where the marketing channels and consumer base is the same, a registered mark may be given a broader scope of protection. The analysis for likelihood of confusion can be quite complex.

Before adopting a new cannabis brand name, we recommend consulting with an experienced cannabis trademark attorney and we also recommend having them perform a trademark clearance search to ensure your brand won’t be infringing any existing registrations. Even if you manage to avoid litigation over trademark infringement, you could still open yourself up to an opposition proceeding with the TTAB months or years down the line, which can be expensive and time-intensive, and should be avoided at all costs.

california cannabis enforcement
Unlicensed cannabis traders, beware.

California has experienced some growing pains as it has continued to roll out its regulated cannabis regime pursuant to the Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA”), but despite delays in implementing permanent regulations, the state and many local jurisdictions are not waiting to enforce against unlicensed operators. We first covered this dynamic back in April, and the enforcement trend has only accelerated since then.

As we’ve noted many times before, in order for state legalization to succeed in the long run, regulators will need to take a tough stance against black and “gray” cannabis markets in order to ensure an even playing field for licensed, compliant operators. Other states have already taken action to make sure that unlicensed, unregulated cannabis operators don’t undermine their licensed counterparts, and California is finally beginning what will undoubtedly be a long and extensive endeavor to do the same. Although the Compassionate Use Act will not be repealed until January 9, 2019, there is no protection for cannabis businesses engaged in commercial activity without a local and state license.

And the enforcement in California will come from both state and local authorities. The City of Los Angeles recently launched a massive crackdown on unlicensed, illegal cannabis businesses, filing misdemeanor charges against more than 500 people and shutting down 105 illegal cannabis businesses, including cultivation operations, extraction labs, and delivery companies across the city. In Los Angeles, a charge of unlicensed commercial cannabis activity within the city carries a potential sentence of six months in jail and $1,000 in fines. Los Angeles’ City Attorney Mike Feuer, who has a track record of going after illegal cannabis businesses within the city, summed up the city’s reasoning behind its recent enforcement actions succinctly:

If they’re going to go through this process, it just cannot be the case that others that flout the rules are allowed to function. It’s bad for those who buy from them, it’s bad for the communities in which they’re located and, again, it threatens to undermine the viability of a system that’s predicated on lawful licensing.”

Although there are currently around 165 approved cannabis storefronts and delivery businesses in Los Angeles, there are many more operating without the necessary approvals, a problem that has plagued the city for years and will likely be an ongoing issue.

The state is also commencing its own enforcement actions in conjunction with local authorities, and has sent out several emails in recent weeks to stakeholders with the details of those crackdowns. Enforcement actions are being carried out by the Bureau of Cannabis control (BCC) and the Department of Consumer Affairs’ Division of Investigation – Cannabis Enforcement Unit (DOI-CEU). It appears that many of these actions, including one last month against an unlicensed cannabis home delivery business in Sacramento called The Cannaisseur Club, and another against an unlicensed cannabis retail store in Costa Mesa called Church of Peace and Glory, both resulting in criminal charges, have been initiated based on complaints received by the BCC (complaints related to unlicensed commercial cannabis activity can be filed here, by the way). Based on our experienced in other jurisdictions, we anticipate that the number of complaints filed, especially by licensed and compliant operators, will continue to increase.

As a reminder, all commercial cannabis activity in California requires a license from either the BCC, the Department of Public Health, or the Department of Food and Agriculture. Obtaining these licenses requires local approval. This is only the beginning of extensive enforcement by both state and local authorities, which will be necessary to ensure that California’s regulated cannabis market succeeds, not just in sales, but in eradicating the black market.

california cannabis marijuana advertising
Seem likely, anyway.

It’s been a while since we wrote about advertising regulations in California, in large part because the regulations have been a moving target. But with AB 2899 making steady progress, we thought it would be a good time to give a rundown of current Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA”) advertising regulations, and what AB 2899 would do to change them.

Currently, Section 26151 of the Business and Professions Code states as follows regarding cannabis advertising:

(a)(1) All advertisements and marketing shall accurately and legibly identify the licensee responsible for its content, by adding, at a minimum, the licensee’s license number.

(2) A technology platform shall not display an advertisement by a licensee on an Internet Web page unless the advertisement displays the license number of the licensee.

(3) An outdoor advertising company subject to the Outdoor Advertising Act (Chapter 2 (commencing with Section 5200) of Division 3) shall not display an advertisement by a licensee unless the advertisement displays the license number of the licensee.

(b) Any advertising or marketing placed in broadcast, cable, radio, print, and digital communications shall only be displayed where at least 71.6 percent of the audience is reasonably expected to be 21 years of age or older, as determined by reliable, up-to-date audience composition data.

(c) Any advertising or marketing involving direct, individualized communication or dialogue controlled by the licensee shall utilize a method of age affirmation to verify that the recipient is 21 years of age or older before engaging in that communication or dialogue controlled by the licensee. For purposes of this section, that method of age affirmation may include user confirmation, birth date disclosure, or other similar registration method.

(d) All advertising shall be truthful and appropriately substantiated.

And Section 26152 states that a licensee (or third-party advertising on behalf of a licensee) shall not do any of the following:

(a) Advertise or market in a manner that is false or untrue in any material particular, or that, irrespective of falsity, directly, or by ambiguity, omission, or inference, or by the addition of irrelevant, scientific, or technical matter, tends to create a misleading impression.

(b) Publish or disseminate advertising or marketing containing any statement concerning a brand or product that is inconsistent with any statement on the labeling thereof.

(c) Publish or disseminate advertising or marketing containing any statement, design, device, or representation which tends to create the impression that the cannabis originated in a particular place or region, unless the label of the advertised product bears an appellation of origin, and such appellation of origin appears in the advertisement.

(d) Advertise or market on a billboard or similar advertising device located on an Interstate Highway or on a State Highway which crosses the California border.

(e) Advertise or market cannabis or cannabis products in a manner intended to encourage persons under 21 years of age to consume cannabis or cannabis products.

(f) Publish or disseminate advertising or marketing that is attractive to children.

(g) Advertise or market cannabis or cannabis products on an advertising sign within 1,000 feet of a day care center, school providing instruction in kindergarten or any grades 1 through 12, playground, or youth center.

The key with these rules is that all advertising must be tied to a specific licensee and must include that licensee’s license number. So, in the case of a non-licensed third-party looking to advertise a cannabis brand, that company would need to be working with a licensed manufacturer, for example, in publishing those advertisements, and the licensed manufacturer would need to be involved in the advertising such that its identification on the advertisement does not render it false and misleading.

Under AB 2899, the legislature is proposing to do away with the cumbersome requirement that a license number must be included with each advertisement. This would make it much easier for third-parties–including, for example, out-of-state brand licensors–to advertise their products in California, even without a license of their own. Rather than requiring a license number attached to each advertisement, the new legislation states that it would “prohibit a licensee from publishing or disseminating advertisements or marketing of cannabis and cannabis products while the licensee’s license is suspended.” That makes sense to us.

Of course, in addition to state advertising requirements, cannabis licensees should make sure that any outdoor advertising complies with applicable local law. Some local jurisdictions further limit the placement of billboards or signage, or may have other related restrictions. Businesses need to be mindful of that.

We’ll be monitoring AB 2899 closely, as it could give many of our cannabis intellectual property licensing clients more flexibility in how they address the delegation of marketing responsibilities in their licensing agreements. Stay tuned!

hemp california cannabis
Coming soon?

Last week, California’s industrial hemp bill, SB 1409, received a unanimous passing vote from committee. We last wrote about SB 1409 in March, and the legislation has undergone some changes, warranting a new summary of what has been proposed.

Currently, California law regulates the cultivation of industrial hemp, and specifies certain procedures and requirements on cultivators, not including an established agricultural research institution. Existing law defines “industrial hemp,” via the California Uniform Controlled Substances Act, as a fiber or oilseed crop, or both, that is limited to the non-psychoactive types of the plant Cannabis sativa L. and the seed produced from that plant.

Existing California law also requires that industrial hemp only be grown by those on the list of approved hemp seed cultivars. That list includes only hemp seed cultivars certified on or before January 1, 2013. Industrial hemp may only be grown as a densely planted fiber or oilseed crop, or both, in minimum acreages. Growers of industrial hemp and seed breeders must register with the county agricultural commissioner and pay a registration and/or renewal fee.

SB 1409 proposes to delete the exclusionary requirement that industrial hemp seed cultivars be certified on or before January 1, 2013. Additionally, “industrial hemp” would no longer be defined restrictively in the California Uniform Controlled Substances Act as a fiber or oilseed crop, and the bill would delete the requirement that industrial hemp be grown as a fiber or oilseed crop, or both. We initially presumed this would allow cultivators to harvest hemp for CBD derivation, and related use, but given the recent FAQ issued by the California Department of Public Health effectively banning the sale of CBD food products, how hemp-derived CBD in California will be regulated in the future remains to be seen.

SB 1409 would also authorize the state Department of Food and Agriculture to carry out, pursuant to the federal Agricultural Act of 2014, an agricultural pilot program for industrial hemp. Twinning a state-sanctioned pilot program with licensed, private cultivation is a model that has worked well in other states, like Colorado and Oregon.

Since its last incarnation, some other provisions have been added to beef up SB 1409, including more detailed requirements for sampling and laboratory testing of industrial hemp. The bill will provide new time frames for sampling of industrial hemp and destruction of hemp that exceeds the 0.3% THC limit.

Also of note, and sort of unfortunately, the bill adds a provision to the Food and Agricultural Code giving local jurisdictions the ability to ban industrial hemp cultivation in limited circumstances:

“A city of county may, upon a finding that pollen adrift from industrial hemp crops may pose a threat to licensed cannabis cultivators permitted by the city or county, prohibit growers from conducting, or otherwise limit growers’ conduct of, industrial hemp cultivation in the city or county by local ordinance, regardless of whether growers meet, or are exempt from, requirements for registration pursuant to this division or any other law.”

As stated above, we’ll be very interested to see how the issue of industrial hemp-derived CBD plays out in California, and whether the passage of SB 1409 would do anything to change it. In the meantime, if you are unfamiliar with the current legal status of hemp-derived CBD food products in California, we recommend reading the CDPH’s FAQ and checking out our post on the topic here. We’ll continue to monitor this bill and all hemp-related developments in California closely.

For more on industrial hemp generally (including CBD), check out our wealth of archived posts here.

marijuana trademark cannabis licenseI’ve worked on many celebrity licensing and endorsement deals, and my firm’s cannabis intellectual property lawyers have received countless inquiries from companies looking to partner with one celebrity or another. And while the best of the deals can be very lucrative (and interesting) for everyone involved, plenty of them fizzle out for one reason or another. Often, the excitement over the prospect of partnering with a celebrity can blind businesses to the bigger intellectual property and trademark issues they should consider before negotiating one of these deals.

Earlier this month, Above the Law published a great article on the potential pitfalls of utilizing personal names as trademarks, as is done in celebrity licensing deals. The author noted the recent trademark litigation brought by a company that owns a registered trademark for SWIFTLIFE for “consulting services in the field of design, selection, implementation and use of computer hardware and software systems for others” against none other than Taylor Swift and her “SwiftLife” app. And while a celebrity’s name and likeness can be protected under rights of publicity or privacy law, this case raises the issue of when and how personal names can be recognized as trademarks.

In the United States, a person’s name can be eligible for trademark protection only if that individual is able to establish secondary meaning for their name. In other words, a celebrity will only be able to trademark their name if, through use of the name, it has come to identify a single source of origin for a particular set of goods or services. And it isn’t enough for the name to be well-known – the name must actually be associated with a set of goods or services in order to qualify for protection. While for a celebrity like Bob Marley, the connection to cannabis goods may seem clear, for many other celebrities, there is simply no connection at all and establishing trademark protection would be difficult (even setting aside the federal issues surrounding cannabis trademarks, which we have written about at length).

Some key takeaways to consider if your cannabis business is looking to partner with a celebrity for a licensing deal are as follows: First, the more unique the name or moniker, the better the chance of that name being protectable. And second, consider whether the celebrity name has a strong association with the cannabis products you’re looking to sell, as this will help determine whether the name could be shown to have secondary meaning. A licensee should be secure in the licensor’s ability to protect what it is licensing, otherwise what is the licensee paying for?

With a number of celebrities having jumped on the cannabis branding bandwagon–including the Marley estate, Snoop Dogg, Willy Nelson, Whoopi Goldberg and Melissa Etheridge, along with many lesser known celebrities who have used their name to promote ancillary cannabis products–these deals are certainly promising. Though trademark registrations are at play for many of these brands, the rights of publicity of the celebrities are at the center of each of these branding deals. Because state law and not federal law regulates the right of publicity, it is not subject to the same restrictions based on legality of use as federal trademarks. This makes enforcement in the event of infringement much easier for celebrities.

It’s important to remember, however, that using one’s name and likeness to sell cannabis is not without risk. Even ancillary companies face the risks posed by federal illegality, since these companies and their financial backers could be subject to charges of aiding and abetting or conspiring to violate the Controlled Substances Act for providing goods and services to cannabis businesses. Given the proliferation of celebrity-branded cannabis, however, this appears to be a risk that many celebrities are willing to take to become early entrants into the cannabis market.

It’s clear that celebrity licensing and endorsement deals in the cannabis industry are trending, but if your company is seeking a celebrity partnership, be sure to assess the deal not only from a business perspective, but from a legal perspective as well. While celebrity trademark rights in the cannabis industry are particularly difficult, rights of publicity have provided celebrities with a powerful tool for establishing and protecting their cannabis brands. This is a real leg up in an industry where federal law has made brand protection such a complex legal issue.

With implementation of Canada’s Cannabis Act (the “Act”) set for October of this year, many of our clients owning brands that will be sold in both the United States and Canada are beginning to wonder what the implications of new branding and marketing regulations will be. So far, more than 1,500 trademark applications for cannabis and cannabis-related products have been filed with the Canadian Trademark Office, and that number is certain to grow as legalization rolls out.

The Act, through its regulation of packaging, addresses many of the same concerns as certain state statutes in the U.S.: preventing false and misleading advertising and prohibiting advertising that is appealing to children. Some of the key prohibitions contained in the Act are on testimonials and endorsements, the use of real or fictional people, characters or animals, and branding or packaging that connotes “glamour, recreation, excitement, vitality, risk or daring.” Interestingly, there was discussion in the government’s Proposed Approach to the Regulation of Cannabis of implementing a plain packaging regime, something we’ve long suspected could be applied to cannabis.

The new regulations will require that all cannabis products be packaged in a manner that is tamper-evident, child-resistant, prevents contamination, and keeps cannabis dry. Packaging must be opaque. Pursuant to the Proposed Approach to the Regulation of Cannabis, licensed processors must label the package in which the cannabis product is contained in both French and English, and the following information would be generally required:

  • Name and contact information of the processor who packaged the product;
  • Product description;
  • Product lot number;
  • Product weight or volume, depending on the product class;
  • Packaging date (and expiry date, if one has been set);
  • Recommended storage conditions;
  • THC / CBD content (expressed as the percentage of THC / CBD the product could yield, and by unit or dose, if applicable); and
  • Inclusion of the statement: “KEEP OUT OF THE REACH OF CHILDREN”.

Under the Act, it is prohibited to promote cannabis in a manner that is false, misleading or deceptive, or that is likely to create an erroneous impression about its characteristics, value, quantity, composition, strength, concentration, potency, purity, quality, merit, safety, health effects or health risks. This aligns well with what we’ve seen in U.S. jurisdictions with regulated cannabis.

However, interestingly, the Act also prohibits promotion of cannabis brands using foreign media:

“It is prohibited to promote … cannabis, a cannabis accessory, a service related to cannabis or a brand element of any of those things in a publication that is published outside Canada, a broadcast that originates outside Canada or any other communication that originates outside Canada.”

This regulation could have serious implications for brands that are looking to position themselves not only in Canada, but also in other jurisdictions, including the U.S. The Canadian government has made it a priority to ensure that companies cannot evade the Act’s advertising and promotion restrictions by merely promoting the products abroad.

Sponsorship by Canadian cannabis companies will also be prohibited (perhaps even if a particular brand is only sponsoring events or individuals abroad). As such:

“It is prohibited to display, refer to or otherwise use any of the following, directly or indirectly in a promotion that is used in the sponsorship of a person, entity, event, activity or facility:

  • A brand element of cannabis, of a cannabis accessory or of a service related to cannabis; and
  • The name of a person that
    • Produces, sells or distributes cannabis,
    • Sells or distributes a cannabis accessory, or
    • Provides a service related to cannabis.”

Clearly, the implications of Canada’s cannabis advertising regulations will be far-reaching once they are implemented in October. For brands that intend to have a presence in both the U.S. and Canada, it will be particularly important to ensure that no advertisements or promotions produced in the U.S. run afoul of the Act, as they could ultimately jeopardize the license(s) in Canada and open the responsible individuals up to liability. Having an understanding of how Canada’s rules will impact your brand, if you intend to expand beyond the U.S., will be critical in the coming months.