Cannabis trademark lawyerWe’ve written extensively on cannabis trademarks and the unique issues posed by the fact that cannabis remains a Schedule I controlled substance under federal law. Some of the highlights can be found here:

We also like to write about more forward-thinking issues that could affect the cannabis industry, like plain packaging regulations and counterfeit goods, in order to help our clients and business owners prepare for what may be coming down the pipeline. One such issue we’ve been considering is how the cannabis industry will be affected if the Drug Enforcement Administration (DEA) moves cannabis from Schedule I of the Controlled Substances Act, which is reserved for drugs that have a high potential for abuse, no currently accepted medical application, and a lack of acceptable safety standards for use under medical supervision, to Schedule II, allowing for more research and potentially making FDA-approved derivatives of cannabis available for prescription (with substantial restriction, natch).

Moving cannabis into the pharmaceutical realm would implicate a whole host of other federal laws and regulations, including rigorous Food and Drug Administration (FDA) review, and naming requirements that go beyond merely obtaining a federal trademark for your brand. Without venturing into the quagmire that is FDA review, the purpose of this post will be to give an overview of how the naming of cannabis “drugs” would change in the context of pharmaceuticals.

Marketed drugs have three different names: a chemical name, a generic name, and a brand name. The chemical name is the drug’s scientific name and, being generally unknown to the general population, is not used to identify the drug in clinical or marketing situations. The generic name is assigned by the United States Adopted Names (USAN) Council, and will be commonly used to identify a drug during its clinical lifespan. The brand name, which is always trademarked, is selected by the company that patents the drug and obtains 17 years to exclusively make, sell and use the drug pursuant to patent law.

A five-step process is undertaken in naming a marketable drug:

  1. New Chemical Entity (NCE) and patent application;
  2. Generic naming;
  3. Brand naming;
  4. FDA review; and
  5. Final approval.

Step one consists of submitting data on any newly discovered compound to the FDA for classification as an NCE to obtain authorization to begin animal testing to determine the effects of the compound. This step also includes beginning the patent application process, which can take multiple years to complete. After NCE classification, the USAN Council, which is composed of members of the United States Pharmacopeia, the American Medical Association, the American Pharmaceutical Association, and the FDA, creates and assigns a generic name to the chemical. The generic name is then sent to the World Health Organization for final approval. The USAN has certain criteria for naming, including that the name must be:

  1. Short;
  2. Easy to pronounce;
  3. Euphonic;
  4. Suitable for use in both the U.S. and internationally;
  5. Not misleading nor confusing;
  6. Not implying efficacy; and
  7. Not implying application to particular anatomical parts.

The process and considerations for developing a brand name to trademark are nearly identical to that of any other industry, in that the name cannot be generic or descriptive, and cannot be the same as or confusingly similar to any existing marks. Just as with the generic drug name, brand names to be registered with the USPTO for federal trademark protection cannot be misleading or misdescriptive. Additionally, the Center for Drug Evaluation and Research (CDER) will evaluate, prior to the marketing of a drug, the “potential for a proposed proprietary name (i.e., ‘brand name’) to cause or contribute to medication errors as part of the Center’s focus on the safe use of drug and therapeutic biologic products.” The purpose of this review is to ensure accurate interpretation of the product’s name for product procurement, prescription, preparation, dispensing, and administration to patients. Healthcare practitioners rely on a drug’s name as a critical identifier of a product amongst thousands of other drugs. Confusing names can lead to administering the wrong product to patients or dispensing the product incorrectly.

While this is a very brief, high level overview of the pharmaceutical naming process, the takeaway is that if cannabis moves from Schedule I to Schedule II of the CSA, the complexities of branding and trademarking may change, but they certainly won’t disappear.

Big Companies and CannabisIt has been a busy week for Microsoft. Fresh off Monday’s announcement that it is acquiring LinkedIn for $26.2 billion, the company yesterday unveiled its first foray into the cannabis industry. Microsoft, through its newly-created Microsoft Human Services Pod for Managed Service Providers arm, will begin marketing software designed to help states administer recreational and medical cannabis programs through seed-to-sale tracking that ensures no cannabis is lost or stolen along the supply chain. The move comes in the form of a partnership with KIND Financial, a financial services company that serves the cannabis industry. Microsoft and KIND plan to integrate KIND’s Agrisoft Seed to Sale for Government software into Microsoft’s Azure cloud computing platform.

Continue Reading Big News: Microsoft Set to Develop Cannabis Compliance Software

Cannabis mobile appsCannaTech is a burgeoning industry and one in which many of our clients are participating and investing. And though these businesses run the gamut from purely ancillary service providers, like WeedMaps, to full-blown delivery companies, like SpeedWeed and Nestdrop, they all face trademark and copyright issues unique to mobile apps. Continue Reading Cannabis Apps: Protecting Your Brand on Mobile Platforms

Cannabis investingA couple weeks ago, I attended a Marijuana Investor Summit in San Francisco, during which cannabis companies pitched their businesses to a group of investors who were then asked two questions.  First, would you invest in this company?  And second, is this company ready to go public?  Only one company received a unanimous “yes” to the second question posed, but the same investors also cautioned the company that while it could go public, they recommended it did not.

Cannabis investing is an issue high on the minds of those in the cannabis industry, especially those looking to launch or invest in a marijuana business in the upcoming year. The potential for profits in the marijuana industry continues to grow at astounding rates, and that growth is only expected to increase as states like California consider legalization measures this year. The 2016 Marijuana Business Factbook predicts the cannabis industry will grow from a $14-$16 billion market in 2016 to a $44 billion market by 2020, which is an increase of about 300% in just four years.

So it’s not surprising that funding for cannabis-related startups is becoming more central than ever. A record high 30 deals were reported in the fourth quarter of 2015, up from the 2 deals reported for the same quarter in 2013. A total of 98 deals were completed in 2015, which is a significant increase from the 63 deals completed in 2014. Noteworthy deals in the cannabis space include a $75 million Series B financing by Privateer Holdings in 2015, partly funded by an investment from Founders Fund (more on the basics of investment rounds here). Privateer Holdings was the first U.S. private equity firm to focus solely on cannabis-related investments and its portfolio includes well known companies such as Leafly, which it acquired in 2012, and the Marley Natural brand, which it launched in 2014. Companies such as Leafline Labs and Palliatech have managed to secure funding of $10 million or more and several other cannabis-related companies have received funding totaling at least $1 million.

The increase in funding these past years may be attributed to a lessening of the stigma previously associated with cannabis companies. We are beginning to see investments from more mainstream sources, such as Founders Fund mentioned above, which is a venture capital firm better known for its investments in conventional startup companies such as Facebook, Airbnb, Lyft, and SpaceX. And we can expect to see even more growth as new opportunities open up through previously outlawed sources of funding. Effective in May of this year, non-accredited investors will for the first time be able to invest in cannabis startups through an “equity crowdfunding” exemption under Title III of the Jumpstart Our Business Startups Act (JOBS Act). Crowdfunding is already expected to surpass funding through venture capitalists this year.

As the home of Silicon Valley, California is poised to be at the heart of future cannabis funding and deals. California is in the midst of overhauling  its medical marijuana market and there are several measures in the works likely to increase investment within the state. These measures include the potential for a legalized recreational market in California that will lead to increased revenues and thus profits for investors, an amendment to explicitly authorize for-profit entities in the state that will allow for more traditional equity structuring (more on the basics of equity financing here), and the possibility of a state-chartered bank that will give California cannabis companies the much needed ability to conduct more of their transactions through bank accounts instead of through cash.

Now considering the stats and information above, how you would you respond to the following question: “Would you invest in a cannabis company?”

Cannabis and the Internet of thingsPart 1 of this series was on the union of marijuana and the Internet of Things (IoT). This post is on the legal issues cannabis business lawyers face in representing companies involved in the Internet of Things.

What happens when you combine cannabis, whose laws are changing almost daily, with technologies that are constantly evolving as well? You get a lot of gray areas and issues of first impression. We typically analyze the following issues for our IoT clients:

  • Criminal liability. Just like other ancillary service and product providers to the cannabis industry, IoT providers could face criminal sanctions for aiding and abetting and/or conspiring to violate the federal Controlled Substances Act. Because of this, most of the IoT providers we represent seek only to work in those states with “robust regulations”  that comply with the Cole Memo. Though that narrows our IoT clients’ customer base, it correspondingly lessens their potential for criminal liability.
  • Product liability. Because IoT hinges on automated and connected devices that make various tasks tasks easier to do or to monitor, a product breakdown or malfunction can have a huge impact. As just one example, suppose a watering or nutrient device malfunctions and, for whatever reason, destroys part or all of a massive cannabis crop. Will the IoT device manufacturer be liable for all of the damage? Will the IoT device manufacturer’s liability disclaimers be sufficient to prevent liability? Let’s just say that one of the most important things we do for our IoT clients is to draft their liability disclaimers. See Nest Thermostat Glitch Leaves Users in the Cold and Marijuana Product Recalls: You Can’t Touch This. What happens if a vape pen manufacturing company partners with an IoT software company whose software tracks or recommends patient dosing for medical marijuana and the software malfunctions and the patient suffers because of that? Which company will bear the burden of the malfunction, the vapor pen company or the IoT software business? The answer will usually be based on the contract between these two companies. What happens if the Iot Software malfunctions and publishes on the internet the names and addresses of all those who are using the vape pens and exactly how much cannabis they are consuming? Taking this a step further, what happens if the local police mount an investigation of some of those on the list and arrests occur?
  • Intellectual Property Protection. Most of our IoT clients are on the bleeding edge of innovation, oftentimes with respect to their software and their hardware and with the processes used to combine the two and to make them work effectively together. The last thing they want is for someone else to be able to duplicate what they were able to achieve through years of research and development. We spend a lot of time figuring out how we can protect our client’s IP. And because virtually all IoT devices are made in China, the IP issues become international. See China and the Internet of Things, China NNN Agreements and China Product Development Agreements. See also Cannabis IP Licensing: It’s Complicated.
  • Insurance. IoT companies need insurance that will cover them against product liability and cybersecurity lawsuits and this is usually neither inexpensive nor uncomplicated. Many insurers will not provide insurance unless and until the IoT company has proper contracts in place.  Insurers have sought to avoid paying cannabis related insurance claims by arguing federal illegality of cannabis. See Marijuana Inventory is Insurable. We should expect an insurer to assert the same argument against a marijuana-friendly IoT company, especially if the damage incurred involves the plant itself.
  • Investors. If investors are salivating over IoT and cannabis (and they are), they are salivating even more over the combination of the two, especially since investing in ancillary cannabis businesses is legally less risky (and usually less tricky legally as well) than investing in a business that deals directly with the plant. Nonetheless, because marijuana is still federally illegal, marijuana related  should disclose this illegality and discuss what that means by way of investment and even criminal prosecution risk. See Marijuana Business Investments: Not Simple
  • Privacy issues. Part 1 of this series addressed some of the privacy issues inherent in many IoT businesses. What will the IoT business do with the data it collects? How might its data be hacked? What might its own employees do with the data? Our job as lawyers, is to draft privacy policy notices and disclaimers.

Any business doing cannabis IoT or even doing business with a cannabis IoT entity should be considering the above issues. The intersection of marijuana and the IoT is filled with new and different landmines and preparation is the best way to avoid them.

There has been considerable buzz around the term “Internet of Things” over the past few years. But what exactly is the Internet of Things (IoT)? It is:

[T]he network of physical objects—devices, vehicles, buildings and other items embedded with electronics, software, sensors, and network connectivity—that enables these objects to collect and exchange data.

Almost everyone uses an IoT device on a daily basis. If you have a FitBit, live in a “SmartHome” or a “SmartCity,” use Amazon Echo, or have a self-starting car, you are part of the IoT. It is estimated there will be 26 billion devices on the IoT by 2020. That figure no doubt includes IoT devices used in the marijuana industry, many of which are already here.

The Internet of ThingsBut IoT is not without its big issues. What data do IoT devices garner from you? What of that data do IoT devices get from you without your knowledge? How secure is that data? You may be fine with Google (through its Nest thermostat) knowing when you tend not to be home, but how would you feel about a burglar hacking in and knowing the same thing?

But what about IoT and the cannabis industry? How might interaction with the IoT affect your marijuana business or your marijuana consumption? IoT is already changing how the cannabis industry works by saving time and resources and by opening new opportunities for expansion. But will it also create huge headaches for marijuana businesses and consumers alike?

Maybe.

This article reveals how marijuana grows can easily be geotracked and locatable just by virtue of someone checking into Facebook or posting on Instagram via their SmartPhone. Of course, you can deactivate these settings on your phone, but most people aren’t even aware that this IoT effect exposes them in this way. For cannabis businesses located in states with heavy regulation, security is a main priority. And though these businesses usually use high level security and are heavily monitored by the state in which they are located, they are not beyond being hacked and this is just one more issue you need to worry about if your cannabis and cannabis-infused products are constantly being geotracked. IoT devices are vulnerable to being hacked and exploited.

Overall though, IoT and cannabis will make friendly, in the following ways (among others), according to a 2015 article by PotBotics:

  • Solar powered, wi-fi connected garden sensors are streaming data on temperature, light, humidity, and soil acidity to the cloud, to then be analyzed by cannabis cultivators to optimize, regulate, and automate the harvest cycle. This enables growers to breed plants remotely and with predicable outcomes and to tailor plants to benefit specific ailments. One company has launched a hydroponic “countertop ‘SmartPlanter,” for home cultivation.
  • Cannabis regulatory bodies are using radio frequency identification technology (RFID) to digitally track cannabis plants from seed to sale to shut out the black market and to ensure product quality and consistency. Each new plant is issued an RFID tag with a unique 24-digit ID number, which is entered into the government’s digital database. When the plant is harvested, the leaves and buds are shipped to cannabis dispensaries with a new RFID tag and a printed label detailing its origins and chemical breakdown. The database is updated at every step – from seed to sale.
  • Medical cannabis pharmaceutical companies and testing labs are embracing the concept of personalized medicine from research and development to commercializing. Check out the Syqe Inhaler, an Internet-connected marijuana dispenser developed in Israel that gets dosing down to an exact science. The Syqe is connected to the Internet so doctors can monitor and control dosing. Every device and experiment is supported by online electronic records, decision support systems, and tests analyzing specific biomarkers.
  • PotBotics itself has PotBot, a medical cannabis recommendation engine that recommends cannabinoid levels, custom strains, and consumption methods to patients via in-store kiosks, desktop, and mobile apps.

The infiltration of the IoT into marijuana is yet another sign of pot’s normalization. So though it is fine for the cannabis industry and cannabis consumers to welcome IoT, there should be at least some wariness about its risks. The”always-on” connectivity created by IoT and its connected apps and devices constitutes a new set of targets for potential data exposure and for crime, and marijuana businesses and consumers are not going to be exempt from this.

The Internet of Things has come to cannabis and cannabis will likely never be the same.

In part 2 of this series, I will write about the legal issues we cannabis business lawyers face in representing companies involved in the Internet of Things.

Cannatech: the merging of cannabis and technology
Cannatech: the merging of cannabis and technology

In northern California, the Emerald Triangle is as synonymous with cannabis as Silicon Valley is with technological innovation. Thus, it seems almost inevitable that cannabis and tech would eventually merge and now there are clear signs that “CannaTech” is the new trend to watch in the marijuana market.

First came the ancillary businesses, tech-based startups that service cannabis companies but do not actually touch the plant themselves. Instead, they provide support to California growers and collectives through web-based platforms and the streamlining of processes making it easier to run marijuana companies as well as easier to purchase medical marijuana in California than ever before. For each tech success story (think Facebook, Yelp, and Uber) there is a cannabis equivalent. For example, WeedMaps is the equivalent of Yelp for cannabis. In fact, if you’re looking to start a new CannaTech company, you can check out this Buzzfeed infographic to see if your cannabis startup idea has already been taken. In addition, there are also tech startups providing services specifically tailored for the cannabis industry; such as Meadow and FlowHub, which both provide tech-based solutions to make seed-to-sale tracking easier for cannabis companies.

With the emergence of these ancillary businesses came the investors. For investors, businesses that support but do not directly sell cannabis are seen as a safer way to get a stake in the fastest growing market in the United States. However, securing investments in the cannabis industry is more difficult than in other industries, as conventional investors are sensitive to putting their money in a market still largely a legal grey area. So where can a new CannaTech business find investors? One option is the ArcView Group, which holds events where cannabis startups can pitch to a panel of investors in the style of the reality television show, Shark Tank. Also launching late last year was Gateway, a business incubator that helps new cannabis startups by providing office space, mentoring, and an initial investment in exchange for a stake of the company.

Finally, a new startup can attend one of the many cannabis conferences that take place each year around the world. Forbes estimates that the number of marijuana conferences increased from a single conference in 2013 to over 30 conferences scheduled for 2016. In addition, there are now conferences focused on narrow sectors of the industry, such as the New West Summit that includes speakers and panels targeting the media and technology sides of the cannabis market. However, it seems that CannaTech startups are not receiving a warm welcome from the entire tech industry. At the International Consumers Electronic Show (CES), the tech industry’s largest trade show, both organizers and participants of the conference did not approve of cannabis-related companies taking part in the conference’s startup contest. In fact, cannabis-related companies were specifically banned from the CES show floor, though that didn’t keep a few businesses from renting booths to showcase their technology for its non-cannabis uses.

But not all in the tech industry are against the growth of the cannabis market. Some are even footing the bill to push forward the legalization of marijuana throughout the nation. For example, billionaire Sean Parker has donated over $500,000 to the Adult Use Marijuana Act initiative, which seeks to legalize the recreational use of marijuana in California during the state’s upcoming 2016 elections.

Whether you believe the tech industry’s response to these new CannaTech businesses is good or bad, one conclusion that can be drawn is that this is a good time for cannabis-related tech companies to enter this fast-growing market. The opportunities to secure investments are increasing and there is currently less competition from the larger and more conventional tech companies, which leaves room for smaller businesses to emerge and grow.

Tech entrepreneurs are into marijuana and our cannabis business lawyers regularly get calls from coders, tech investors, and other startup-types concerning new ideas for market entry. Product traceability, consumer support, market tracking, commodities exchanges, data support for cultivators and processors — both software and hardware companies are actively looking for ways to attack the market.

CannaTech. Like a cannabis business, but different.
CannaTech. Like a cannabis business, but different.

As an ancillary service, technology is a less scary for financiers than investing directly into a business that violates the Controlled Substances Act. Similarly, market entry is easier because though states have robust regulations to deter investment into businesses that deal directly with marijuana, those same regulations don’t affect outside software providers. Banking, taxation, and fundraising are all a little easier. The IRS treats technology companies in the marijuana space much better than cannabis companies, and the U.S. PTO is more than willing to allow tech companies to register their trademarks.

This is not to say though that marijuana tech companies don’t have their issues — often cannabis related — because they do. Facebook, Google, Apple, and Twitter (just to name a few) seem committed to shut out any cannabis related business. Just like those directly involved with the plant, software companies are often constrained by having to deal with the laws of multiple states and with the fact that cannabis is not legal nationwide. It’s not often that you meet a coder who loves digging into the minutiae of different state regulatory regimes, but tech companies that offer services in multiple states generally need to have a pretty good understanding of the regulatory scheme in each of the states where they work.

The primary void today seems to be in software companies offering primarily business-to-business solutions and those that businesses run internally to increase efficiency. Most of the most successful tech companies in the cannabis space are consumer facing, but have found a way to monetize that via advertising or payments from the business end. Here is a sampling of some of the companies currently populating the market:

  1. Weedmaps. Weedmaps has been a staple in the cannabis ancillary economy for a number of years now. Often called the Yelp of marijuana, Weedmaps is “[a] free . . . service that maps out local marijuana dispensaries in states across the country. Registered users of the site can leave reviews and ratings for different dispensaries with the ultimate goal of helping others find the best weed in town.” As of May 2014, the company’s website “. . . has more than half a million registered users and accommodates four million unique visitors per month.”
  2. Canary. It’s finally here — the phone app that tells you if you’re THC-impaired. Through a series of memory, balance, reaction, and time perception tests, the app can allegedly determine if you’re impaired. The science behind “My Canary” can be found here. With new state marijuana laws that maintain strict DUI standards for relatively low thresholds of active THC, “My Canary,” if truly effective, could prove to be a useful tool for consumers (though Canary currently disclaims relying on its app to determine whether you should drive or not if you’re stoned).
  3. PayQwick. Looking at payment platforms to avoid paying cash at a dispensary? PayQwick is one of several companies that offer this service, but they may be the first company to actually register those services under its state’s (Washington’s) money transmitter licensing schemes. In addition, according to its website, PayQwick is working on the technology to allow consumers to pay for their pot with their smart phones and there should be an app coming soon.
  4. Leafly. If Weedmaps is the Yelp of marijuana, Leafly is the WebMD. Leafly describes itself as “The World’s Cannabis Information Resource” made up of marijuana dispensary and strain reviews. By clicking on the site’s “Strain” tab, you can search volumes of information about “Flavors, Effects, Symptoms, and Conditions”; you can also locate on Leafly your neighborhood dispensary (in multiple states) that carries your favorite strains and products.
  5. Massroots. Billing itself as the Instagram of marijuana, Denver-based Massroots maintains an app that “. . . allows its 275,000 semi-anonymous users to post pictures of themselves smoking marijuana without the potential repercussions of doing so on conventional social sites.” Essentially, Massroots is a social media platform for its users (and marijuana businesses) to unite over their common love and interest in cannabis, regardless of state lines. And Massroots is serious about its staying power. Through the power of lobbying and persuasion, Massroots pioneered a big victory against Apple in February 2015 where the tech giant originally refused to allow Massroots (as well as other marijuana-geared apps) to offer its free app in its App Store.

What are you seeing out there in the world of CannaTech?