In keeping with last week’s cannabis patent litigation update, it’s important to discuss a landmark decision that was made by the U.S. Patent and Trademark Office (“USPTO”) Patent Trial and Appeal Board (“PTAB”) on claims involving a cannabis patent just two months ago. On January 3, 2019, the PTAB published its Final Written Decision in the case, Insys Development Co, Inc. v. GW Pharma Ltd., et al. (IPR 2017-00503). SPOILER ALERT: the PTAB found two claims to be unpatentable as obvious, and the remaining eleven claims to be valid (and potentially enforceable in litigation).

In this case, the subject patent was U.S. Patent No. 9,066,920 – “Use of one or a combination of phyto-cannabinoids in the treatment of epilepsy” (“the 920 Patent”). The 920 Patent was originally assigned to GW Pharma Ltd. (“GW Pharma”) and Otsuka Pharmaceuticals Co., Ltd. Some background on GW Pharma: it owns an extensive patent portfolio, many of which are directed to treat disease using cannabis-based formulations. Notably, GW Pharma made history by becoming the first entity to receive FDA approval of the drug, Epidiolex, which contains CBD. Epidiolex was approved to treat two rare forms of epilepsy: Dravet syndrome and Lennox-Gastaut syndrome.

cannabis marijuana patent

Insys Development Company, Inc. (“Insys Development”) is a pharmaceutical company that focuses on cannabinoids and drug delivery systems. Insys Development petitioned the USPTO for an inter partes review (“IPR”) in December 2016 to cancel all thirteen claims of the 920 Patent as obvious based on scientific articles as well as one of GW Pharma’s own published PCT applications.

The two patent claims that were invalidated related to dosing. Although the daily CBD dose given to epileptic patients in the studies was less than the 400 milligrams described in the 920 Patent, the PTAB said it was “logical to think” a higher dose could “increase the anticonvulsant effect.” The PTAB continued, “We find on this record that petitioner has shown sufficiently that a [person of skill in the art] would have a reason to, and a reasonable expectation of success in, increasing the dosage of CBD to at least 400 mg/day to treat partial seizure.”

The remaining eleven claims that survived PTAB review outline additional requirements for administering CBD to treat epilepsy. The PTAB disagreed with Insys Development that these claims were obvious. One claim requires that the CBD be present as a plant extract. Another claim requires the CBD be administered with the cannabinoid THCV. In sum, the PTAB concluded that “[it] find[s] that [Insys Development] has not shown sufficiently where each of the limitations of [these] claims is taught or why a [person of skill in the art] would have combined the teachings of the various references to arrive at the claimed invention with a reasonable expectation of success.”

Consistent with the UCANN case, a key thing to note is that the PTAB treated this cannabis patent IPR challenge as any other, and the fact that cannabis remains a Schedule I drug was not raised as an issue. Coming full circle, it’s likely that IPR challenges of cannabis patents are going to join the overall growing trend of cannabis patent applications and cannabis lawsuits filed.

We’ll know whether either side appeals the Final Written Decision by March 8, 2019.  If an appeal does happen, the case can go through a panel rehearing and then the Federal Circuit, or straight to the Federal Circuit.  Either way, we will keep you posted.

phase three los angeles marijuana
Here we go…

Big changes are coming for L.A.’s long-awaited Phase 3 licensing regarding storefront retail. The last time I wrote on this topic, the Department of Cannabis Regulation (“DCR”) made several proposals to City Council on how to re-vamp Phase 3 licensing for efficiency and expediency, which at the time the City Council pretty much rejected. However, last week, the Council came around and Phase 3 is going to look a lot different than anyone may have anticipated. Needless to say there are going to be some winners and a lot of losers in the City of Angels.

On March 8,  City Council requested the City Attorney develop an ordinance (based on these instructions) to, among other things, overhaul Phase 3 licensing for type 10 retail storefronts. It’s no secret now that only 200 retail licenses remain in the City when you do the math on undue concentration limits. And all 200 licenses are destined for social equity applicants because of existing City laws. Previously, the DCR was weighing what to do with these 200 licenses–would they be given on a first come, first serve basis? Via lotto? Via merit? As of Friday, here’s how the City plans to proceed in Phase 3 regarding retail storefront licenses, which will now take place in two sub-phases:

Sub-Phase 1:

In a 14-day window, the DCR will first process the initial 100 storefront licenses for folks who have been “pre-verified” as Tier 1 or 2 social equity applicants (there is no mention of Tier 3 applicants getting any kind of priority here). Pre-verification means that the applicants can prove how they meet their social equity tier and that they ink an indemnification agreement with the City. Plus, those Tier 1s and 2s, at the time of application submission to ensure a complete application, also have to meet “basic qualifications,” which are to:

  1. provide a signed lease with proof of payment or deposit, or a property deed;
  2. meet all sensitive use requirements, including undue concentration;
  3. pay of required license fees;
  4. provide ownership organizational structure;
  5. provide financial information;
  6. provide proposed staffing plan;
  7. provide complete and detailed diagram;
  8. provide proposed security plan;
  9. provide the applicable radius map;
  10. provide a labor peace agreement; and
  11. demonstrate compliance with the City’s Equity Share rules (I.e., tier 1s get 51% of the business and tier 2s get 33%).
In addition, “75 percent of the licenses will be reserved for Tier 1 applicants, unless 75 qualified Tier 1 applicants cannot be identified,” only one application per applicant is allowed, and Type 10 EMMDs cannot participate in this sub-Phase 1. Importantly, these folks cannot relocate their businesses while in the licensing process, and the qualifying Tier 1 or 2 individual cannot sell their equity in the business and must maintain their equity share in the business during the licensing process.
Sub-Phase 2:
Unless and until the first batch of licenses is sorted and the City has established/funded compliance assistance programs for Social Equity applicants, no more Phase 3 retail licensing will occur. So, it could be a while before we see what goes down with the second hundred retail storefront licenses.
Once the first 100 licenses are taken care of and we have compliance assistance for Social Equity, DCR will proceed with processing the additional 100 Tier 1 and Tier 2 Social Equity storefront retail applications in a 30-day window, but there won’t be priority for Tier 1s and 2s during this Phase 2. The basic qualifications to apply are less than for Phase 1, but within 90 days of application, the applicants in this phase have to provide proof of right to occupy real estate as well as the other required documentation for eligibility including SOPs and a radius map. And the restrictions on this phase are the same as Phase 1–no moving locations during the licensing process and no selling of equity by the qualifying social equity individual who must maintain their equity throughout the licensing process.
Without a doubt, the City and applicants are going to face issues with the concept of submitting “complete applications” during the open windows. In both phases, applicants have 5 days from submission to correct any application deficiencies and then they’re locked out, so I don’t anticipate the City allowing applicants to amend their applications after-the-fact if it goes to completeness. The other question is what happens if the City receives more than 100 qualifying applicants in Phase 1? Presumably this mechanism of the “complete application” solves that problem though there are bound to be issues regarding timing without any official first come, first serve standard (though your application will be time-stamped and dated at submission). And if someone ahead of you is DQ’ed, do you move up in the line? And, if so, when? For folks who have been sitting on property in Los Angeles for some time now, there’s likely no guarantee of success in Phase 1 if you don’t act quickly to file and all have all of your ducks lined up within that two-week window.
The overall good news is that we now have a clear road map for licensing in Phase 3 in L.A. No one knows still when this window will actually. open, but when it does it’s undoubtedly going to be a serious race to file for those first 100 licenses.

california cannabis packaging labelingOn March 7, 2019 the California Department of Public Health (“CDPH”), which regulates cannabis manufacturers, dropped a new list of updated resources for packaging and labeling. Anyone on the CDPH’s email list should have received a copy. The notice was quickly picked up the Bureau of Cannabis Control (“BCC”), which regulates retailers and distributors, and is available here.

The notice is significant because it contains three new checklists based on product type (cannabis, pre-rolls, and manufactured goods), and a link to updated master packaging and labeling FAQs. This will be sure to help licensees with compliance and is much more user friendly than the scouring through the dense regulations.

But one of the really important parts of the notice is the following language:

Expectations for Compliance: Cannabis and cannabis product packaging that was compliant under the emergency regulations but is no longer compliant under the permanent regulations can be transferred to a licensed distributor until June 30, 2019. Licensed retailers may sell these cannabis products through December 31, 2019.

Licensees should be actively taking steps to transition their packaging and labeling into compliance with the regulations. Tips for licensees to transition into compliance with the labeling requirements:

  • Use stickers to modify existing packaging – Stickers can be used to cover non-compliant labeling or to update/add additional labeling information to outer or inner containers.
  • Repackage using compliant packaging – Manufacturers can repackage cannabis products on their premises. Child-resistant packaging requirements may be fulfilled using child-resistant exit packaging at retail during 2019, reducing the cost of repackaging products.

In other words, it looks like the CDPH will be relaxing some of it new requirements that came into effect with the final regulations, if product packaging was compliant with the readopted emergency regulations. This is key, because as I wrote back in early January, there wasn’t really a transitional period in the regulations for most products. Rather than bake this into the regs, the agencies apparently will simply view this as some sort of compliance expectation. It’s only too bad that this wasn’t announced a few months ago.

There are two important notes: First, the above language regarding expectations refers to packaging and not labeling. However, this may have been accidental since the first bullet-point actually refers to labeling. Second, the CDPH has no jurisdiction over distributors or retailers, so its statements concerning what they may do is not as good as the BCC saying the same thing. However, when the BCC published this notice, that probably indicated its agreement with the CDPH’s position.

Stay tuned to the Canna Law Blog for more details on California cannabis labeling.

cannabis marijuana federal lawThere’s no question that cannabis remains a rocky, emerging industry even though entire countries and more than 30 U.S. states now have cannabis legalization or “medicalization”. The reasons why though stem from a variety of sources–federal prohibition, the patchwork quilt of regulations from state to state, the array of personalities coming into the industry from black and gray markets, the bad behavior and fraud that abounds with the constant changes in state and local cannabis laws, etc., etc.. While there’s a lot of room for improvement that hinges on studying the market and its consumers, I’m going to identify the type five drags on cannabis as an emerging market. Unfortunately, most of these are here to stay thanks to the Department of Justice (DOJ) and the Controlled Substances Act (CSA).

1. Irresponsible Federal Government.

At least half of the reason cannabis is so unpredictable as an industry is due to our federal government sticking its head in the sand over cannabis legalization. Instead of taking the reigns and listening to the people to create a federal regulatory framework for uniform oversight and control, the Feds have let the horse out of the barn where states are 100% controlling cannabis law and policy reform which, in the end, is probably a positive thing since states are better positioned anyway to know the needs and demands of their constituent citizens and can better navigate specific local health impact issues. Still, the fact that states have to pay attention every time a new U.S. attorney general (this time, William Barr) takes the helm at the DOJ to ensure that their cannabis licensing regimes remain in tact is not only annoying, but also a waste of time and resources in that states continually pivot to ensure that the DOJ is kept at bay in this area. This enforcement friction ultimately trickles down to cannabis businesses and the bottom line is affected accordingly. Further, with agencies like the Food and Drug Administration, the Environmental Protection Agency, and the Federal Trade Commission (FTC) just turning a blind eye to statewide cannabis legalization, consumer protection has undoubtedly taken a hit when it comes to cannabis.

2.  Volatile Access to Banking.

Lack of access to banking in the industry is the current norm, and it ultimately helps keep cannabis in the shadows and out of reach of full legitimacy and transparency. Even though in 2014 FinCEN issued guidelines to financial institutions for banking in the industry (despite open violations of the Bank Secrecy Act and anti-money laundering laws), the participation under those guidelines by banks and credit unions has been slow-going at best. The good news is that these guidelines still exist despite then-acting Attorney General Jeff Sessions rescinding all other DOJ cannabis guidance. Ultimately, the guidelines are a band-aid until we can get in place federal legislation addressing the lack of access to cannabis banking (for more on that, see here).

3.  Oppressive Federal Taxation. 

The third biggest drag on the industry that keeps it in its murky, emerging state is IRS rules, and those aren’t changing anytime soon. IRC Section 280E prevents cannabis businesses from deducting expenses from their income, except for those considered a Cost of Goods Sold (COGS).  As a consequence, cannabis businesses are required to determine what expenses are included in COGS and, therefore, what expenses are deductible.  To date, very little guidance has been made available from the IRS to help taxpayers make this determination. And all court cases on the topic (with the exception of C.H.A.M.P.) have not been helpful to cannabis businesses. It’s also very clear that the IRS isn’t interested in cutting back on 280E assessments and audits unless and until a change is made to the federal CSA regarding the current scheduling of cannabis.

4.  Constant Changes to “Robust Regulations” by States.

Cannabis will forever be a regulated commodity and that means that the rules around it will change indefinitely. The reason why “constant changes” makes the drag list is because these early days of licensing in various states breeds a lot of uncertainty among regulators as industry issues crop up, so the frequency of these changes in the first few years of licensing help to render and keep cannabis an emerging market. Prohibited products lists, as one of the many regulatory issues in play, are a very good example of constant regulatory change as states decide what products they’ll allow in their marketplaces. In addition, many states opt to err on the side of really robust regulation (mainly to satisfy the rescinded 2013 Cole Memo), which tends to spill into over-regulation in certain contexts such as advertising, marketing, quality assurance testing, and packaging and labeling.

5.  Scammers.

Fraudsters also help to keep cannabis in the wild, wild west. And the bad behavior spans a range of areas in cannabis from scamming investors to bank fraud to lying about entitlements from regulators. With the lack of federal oversight and enforcement, and with states paying attention mainly to just licensing and regulation of actual cannabis businesses, no one is really keeping an eye on the myriad of cannabis charlatans. What will it take to remove these people from the chain? More enforcement activity from state attorneys general and, hopefully one day, from the FTC (which remains a sleeping giant, for better or worse). For more on industry red flags in this area, see here.

cannabis litigation arbitrationBack in 2015, I wrote on this blog that we were never not litigating cannabis business disputes. That is still true today, although the forums have changed: matters are now resolved through the court system more frequently than before, when private arbitration was preferred. This is partly because the prevailing view among cannabis business attorneys is no longer to require arbitration in marijuana-related contracts, or to attempt to shepherd marijuana-related disputes into arbitration. These days, many of the agreements we draft stipulate court as the place to duke it out. This post gives a few reasons why.

Courts enforce cannabis contracts. This was always the biggest consideration in choosing a forum for cannabis disputes. A few months ago, we ran through a survey of federal courts and cannabis litigation, observing that none of the districts at issue were invalidating state-sanctioned businesses’ cannabis contracts on the dreaded “illegal purpose” basis. This trend is holding strong in recent federal court disputes on issues from RICO to patent infringement, despite the prohibited status of “marijuana” under federal law. As to state courts, the decisions declining to hear cannabis beefs are pretty far in the rearview. (Ironically, it has been safer overall to enforce cannabis contracts in federal courts that state courts to date.) When drafting agreements for cannabis clients, we still advise as to the diminishing possibility of non-enforcement, but most cannabis companies seem comfortable choosing court over arbitration if other goals are satisfied.

Publicity isn’t as big a deal anymore. In the old days, every time we filed a cannabis lawsuit in circuit or district court, reporters would call immediately. It’s generally not like that anymore — and that’s a good thing. The federal rhetoric has relaxed, hundreds of cannabis lawsuits have been filed, and people have come to accept cannabis businesses as similar to distilleries or dram shops in many regards. Industry participants also know that business ownership is a part of the public record from day 1. All of this means that the biggest “publicity” reason people may choose arbitration is to avoid regulatory scrutiny in the event of a dispute that could implicate licensing issues. But this consideration alone is often not determinative.

Arbitration may be neither faster nor cheaper than court.  Most cannabis businesses are small businesses and they want fast and cost-effective results. That does not mean arbitration is the best choice by default. Depending on the type of case, the arbitral body selected, the number of arbitrators on a matter, and other factors, court can actually be cheaper and faster than arbitration. This is particularly true in jurisdictions with reasonable dockets and straightforward local rules.

People like to appeal things (or think they can). Generally speaking, arbitral decisions are binding and cannot be appealed. If the arbitrator gets the law wrong, too bad! Her decision is going to be final. Court decisions, on the other hand, are subject to review and appeal in most cases when it comes to matters of law. Very few disputes go up on appeal (let alone to trial in the first place), but cannabis businesses, like everyone else, tend to think of arbitration as more limiting in this sense.

The bottom line here is that cannabis business lawyers should talk through forum options with clients, rather than insist upon arbitration in contracts or when disputes arise. Cautious attorneys might also consider drafting language into agreements to the effect that violation of federal marijuana laws, without more, is not a defense to claims arising from that contract. That type of provision is particularly apt where the cannabis outfit is more likely to seek contract enforcement than the service provider or ancillary business with which it has signed an agreement.

cbd hemp cigar cigaretteIn the last few weeks, we have received a growing number of inquiries pertaining to the legality of smokable products infused with cannabidiol derived from industrial hemp (“CBD Smokables”), including vape pens and pre-rolled hemp flower joints. This post provides a brief overview of the current legal status of these products.

As we have discussed on several occasions (here and here), the U.S. Food and Drug Administration (“FDA”) has yet to promulgate clear guidelines on CBD-infused products. While we know the FDA deems the sale and use of CBD in food and dietary supplements unlawful, the agency has yet to address its sale and use in tobacco products.

Indeed, the FDA has the authority to regulate the sale, manufacture, and marketing of tobacco products under the 2009 Family Smoking Prevention and Tobacco Control Act (“TCA”). The TCA defines “tobacco product” as a “product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product.”

In 2016, the FDA expanded its regulatory authority to all products meeting the TCA’s statutory definition of a tobacco product, such as e-cigarettes, cigars, pipes and waterpipes.

However, the various statements published on the FDA’s website (here and here) seem to suggest that the agency currently refuses to interpret “tobacco products” so broadly as to include products free of nicotine or tobacco. Accordingly, it seems unlikely that CBD Smokables devoid of these substances would be considered “tobacco products.”

Although the federal agency is not likely to regulate most CBD Smokables as tobacco products at the moment, it could potentially regulate them as a drug under the Food, Drug and Cosmetic Act (“FDCA”).

Under the FDCA, a drug is defined as “intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease” or “intended to affect the structure or any function of the body . . . .” Accordingly, the agency’s jurisdiction is triggered by the intended use of the product. Generally, intended use is determined on the basis of claims made in labeling, advertising and other promotion of the product. Therefore, any health claim made about CBD-infused products, including CBD Smokables, will be treated by the FDA as a drug.

Drugs are tightly regulated by the FDA and are subject to pre-market approval. Yet, as of the date of this post, the FDA has only approved CBD as a pharmaceutical drug in the treatment of epilepsy (Epidiolex). Accordingly, any health claim made about any CBD Smokable would lead the FDA to treat the product as a drug, and thus, would require the distributor to submit their product to the agency for pre-market approval before they can begin selling it in interstate commerce.

Until the agency makes a final determination and issues guidelines for CBD Smokables, no distributor will technically comply with current FDA rules. However, based on the FDA’s recent statements and past enforcement actions, said distributors can mitigate the risk of FDA enforcement by avoiding medical claims all together.

For additional information on CBD Smokables, please contact our team.

cannabis marijuana trademarkAn interesting Bloomberg article came across my desk a couple weeks ago called, “CBD Craze is Creating a Trademark Problem for a Coffee Brand in Maine.” The article raises a couple of important issues related to the trademark requirement of distinctiveness, as well as the lengths to which one can stretch their trademark protection.

The article recounts a coffee shop and wholesale coffee company in Maine called Coffee by Design, that ultimately adopted the acronym for its name, CBD, as its trademark.  Coffee by Design appears to have filed for trademark protection of CBD for “coffee” and “coffee shops” in 2009. But with Maine’s legalization of marijuana in 2016 and the rapidly growing popularity of CBD, customers began to get confused, thinking that Coffee by Design had CBD, and that CBD products sold throughout Portland, Maine were sourced from Coffee by Design. According to the owners of Coffee by Design, “the [CBD trademark] filing prevents others, nationwide, from using the term CBD for coffee products and coffee shops,” and that they are “well within [their] rights to prevent others from using the term CBD as a trademark in relation to coffee and coffee shops.”

The wording of that last statement is key: a trademark owner can prevent others from using the same mark “as a trademark” in relation to the same goods. The issue that Coffee by Design will face, however, is that other coffee shops are generally not using CBD as a trademark, but as a descriptive term to describe an ingredient added to their beverages. Trademark infringement will be a tough claim to sustain if the shop can’t show that others are using the term CBD as a trademark: in fact, it is well within the rights of others to use CBD to describe cannabidiol. As a matter of public policy, trademark law is not designed to allow trademark owners to prevent others from using descriptive terms in a descriptive manner. This also means that a coffee shop selling CBD-infused coffee (or any other CBD product) could not obtain trademark rights to exclusively use “CBD” on their goods, because such a mark would be deemed merely descriptive.

As we have noted before, there is a spectrum of strength when it comes to trademarks. The distinctiveness, or strength, of a mark will determine both how well the mark performs from a marketing and branding perspective, as well as the level of legal protection to which it is entitled. When a mark is highly distinctive, identifying the owner of the mark as the source of the goods sold, the mark is strong. And when a mark is not inherently distinctive, or when a mark is the same or very similar to one already used by others, the mark is weak. Here are the types of marks on the spectrum, from strongest to weakest:

  • Fanciful Marks: These marks are inherently distinctive and consist of a combination of letters with no meaning; they are invented words. Some examples of famous fanciful marks are EXXON and KODAK. These marks can be more difficult from a marketing perspective initially, because the public must be educated through advertising before they will associate the owner’s goods or services with the mark.
  • Arbitrary Marks: These marks are composed of a word or words that have a common meaning, but have no relation to the goods or services to which the mark is applied. Perhaps the most famous example of an arbitrary mark is APPLE, used on computers. As with fanciful marks, these marks are highly distinctive.
  • Suggestive Marks: Suggestive marks hint at or suggest the nature of a product without specifically describing the product. An example of this type of mark is AIRBUS for airplanes. These marks can be appealing from a marketing perspective, because they require less education of consumers than arbitrary or fanciful marks, but they are also typically entitled to less extensive legal protection.
  • Descriptive Marks: These marks are comprised of words that actually describe the goods or services provided; descriptive marks are too weak to function as a trademark and cannot be registered. Note that it is possible to register a descriptive mark if it has obtained secondary meaning due to use in commerce for some years – in the nascent cannabis industry, however, it is unlikely many marks would meet these requirements.
  • Generic Words: These words and phrases are so inherently descriptive of a product or service as to be incapable of functioning as a trademark; they are the common names of the product or service in question, and cannot be registered.

Perhaps Coffee by Design was unaware in 2009 that CBD was one of the cannabinoids found in cannabis and therefore could not have anticipated a future in which CBD coffee was a thing. But this is a great lesson in why choosing a distinctive mark (and being realistic about the protection your mark will afford you) is critical for any business, including those in the cannabis industry.

california cannabis packaging and labelingOur California cannabis attorneys have been getting inundated with packaging and labeling review since each California cannabis licensing agency adopted its final rules in January 2019, and even before that when the rules were under consideration. One thing that many California cannabis companies—and especially cannabis companies from other states who are stakeholders in California—often overlook or gloss over are the requirements of the Safe Drinking Water and Toxic Enforcement Act of 1986 (or “Prop. 65”). It’s been a while since we’ve written about the specific requirements Prop. 65 for California cannabis goods, so we thought it best to look back at the Prop. 65 rules and see how they square with the final cannabis rules.

For some refresher, Prop. 65 is NOT a cannabis-specific law. It was passed long before the Medicinal and Adult-Use Cannabis Regulation and Safety Act (or “MAUCRSA”) and applies broadly to all kinds of goods and other things in California. What’s important for California cannabis companies to know about Prop. 65 is that it requires companies to notify consumers about the presence of certain harmful chemicals in cannabis goods.

Prop. 65 requires the California Office of Environmental Health Hazard Assessment (“OEHHA”), which is part of the California Environmental Protection agency, to publish a list of chemicals known to cause cancer, birth defects, or other types of reproductive harm. The OEHHA’s regulations give California businesses a roadmap for, among other things, how to provide notice to consumers if certain carcinogens or reproductive toxins are present in consumer products (i.e., marijuana). In light of Prop. 65’s requirements, any cannabis licensee needs to ask itself a number of important questions:

Do Prop. 65’s Warning Requirements Even Apply?

The first question cannabis businesses need to ask themselves in a Prop. 65 analysis is whether they’re subject to Prop. 65 at all. There are a short list of exemptions that are applicable to California cannabis products:

  • Businesses with fewer than 10 employees and government agencies.
  • Situations where a business can demonstrate that “exposure poses no significant risk assuming lifetime exposure at the level in question for substances known to the state to cause cancer, and that the exposure will have no observable effect assuming exposure at one thousand (1000) times the level in question for substances known to the state to cause reproductive toxicity, based on evidence and standards of comparable scientific validity to the evidence and standards which form the scientific basis for the listing of such chemical”. This is a mouthful, requires demonstrable evidence, and places the burden on any defendant in a case to prove.
  • According to the California Attorney General, “[e]xposures to listed chemicals that occur naturally in foods” is also an exemption. There is a more detailed discussion of this exemption in the regs.

Are Prop. 65-Type Chemicals Present?

Once California cannabis companies determine that Prop. 65 applies to them, they need to determine what specific chemicals are present in their cannabis goods. The Prop. 65 list now includes more than 1,000 chemicals. In 2009, marijuana smoke was added to the Prop. 65 list of chemicals known to cause cancer. Thus, all cannabis flower is subject to Prop. 65 warnings since all flower produces “marijuana smoke.”

But Prop. 65 doesn’t end there. In most cases, other manufactured cannabis products—such as oils, vape cartridges, and even edibles—contain at least one chemical on OEHHA’s gigantic Prop. 65 list. Because of this, many (if not most) cannabis businesses in California will be subject to Prop. 65 warning requirements. And as noted below, none of the California cannabis agencies regulate or even explain how to comply with Prop. 65.

How to Provide Warnings?

This may be one of the more complicated issues, and this is where the cannabis regulations come in.

As any California cannabis licensee knows, the California Department of Public Health (“CDPH”)—which regulates manufacturers—is the agency which has promulgated explicit packaging and labeling rules in its regulations. Even though these regulations apply to manufacturer licensees, the other two agencies explicitly incorporate them for packaging and labeling. The CDPH regulations don’t explicitly require Prop. 65 compliance, but the CDPH does have FAQs which note that Prop. 65 compliance may be necessary. That said, there are some pretty important aspects of the CDPH regulations to consider when thinking about Prop. 65.

First, the CDPH requires that for any product, an informational panel and primary panel be present and provide certain information (the necessary information changes from product to product). The CDPH is clear, however, that each label can include other information. Typically, we see Prop. 65 warnings somewhere on one of these two labels, though the CDPH doesn’t specifically require it. The reason is probably because section 26501(d) of the OEHHA rules requires that the warning be conspicuously displayed on a package in a way that a consumer would be likely to actually read and understand it. That probably won’t happen if the label is tucked away into a corner on the bottom of the box.

Second, the CDPH has explicit requirements for multi-layered product packaging (CDPH rules 40403). The gist of these rules is that for products with separable layers of packaging, each layer must include different kinds of information (the required information changes based on the product, but for some products all that must be present is a compliant version of the CDPH’s universal symbol).

These regulations raise two important questions: (1) Does a Prop. 65 warning need to be present on each layer of separable packaging? and (2) What does the Prop. 65 warning need to say?

The answer to the first question is probably “no.” In the OEHHA’s final statement of reasons for its regulations, the OEHHA responded to a comment as follows: “These regulations do not require a warning on both the container and the outer packaging, although some businesses may choose to provide both to ensure that the average consumer receives a warning as required by the Act.” Thus, a single warning is probably fine, and our California cannabis attorneys typically see that on the outer layer of the packaging.

The answer to the second question is more complex, but there are a number of options. OEHHA rule 25602(a) says that for consumer products, a warning meets the safe-harbor if it is provided via one of four methods. One of those methods is a “label” compliant with section 25603(a), and the other is an “on-product” warning that complies with section 26503(b). Label is defined as “a display of written, printed, or graphic material that is affixed to a product or its immediate container or wrapper.” The term “on-product”, however, is not defined.

That said, section 25603(a) provides a mechanism for providing full notice by using the triangle, the word “WARNING”, and specific language that identifies the carcinogens and/or reproductive toxicants. It must be on a label as notice above, which can be on the product or its immediate wrapper.  In this case, the label must have one of the following four full warnings which specifically identify the problematic chemicals.

On the other hand, section 25603(b) governs “on-product” warnings. On-product warnings are abbreviated warnings that require only the Prop. 65 symbol, the word “WARNING”, and a short-form warning which does not need to identify all chemicals. While the term “on product” is not defined, the OEHHA’s final statement of reasons says in part:

For purposes of subsection 25603(b), the short-form warning may only be provided on the product, which would include the immediate container (box, packaging) or wrapper for the product, but would not include other types of “labeling” as defined in subsection 25600.1(j).

In other words, it appears that the short-form, on-product warning in section 25603(b) is fine on actual products or their packaging, but not on websites, placards, etc. In that case, the full warnings from 25603(a) are likely required.

The rules also have specific requirements for the text size, the wording, the symbols that must be used, and as noted above, the placement. These rules can be complex for companies to remember, so it is critical for California cannabis companies to consult with experienced regulatory counsel prior to creating packaging or labeling to ensure that they comply with the CDPH regs and Prop. 65. That’s because Prop. 65 is a complex law and there can be many pitfalls—including litigation—for failure to adequately comply.

cannabis patent litigation
Did UCANN really get USTPO coverage for prior art?

About six months ago, we posted news of the first ever cannabis patent infringement case.  As a reminder, the case was initiated by United Cannabis Corporation (“UCANN”) in the United States District Court, District of Colorado against its in-state competitor, Pure Hemp Collective Inc. (“Pure Hemp”). The subject patent is U.S.P. 9,730,911 – “cannabis extracts and methods of preparing and using same,” which generally covers liquid cannabinol formulations using tetrahydrocannabinol (THC), cannabidiol (CBD), and various terpenes (the “911 Patent”).

Just six months into litigation, Pure Hemp has already responded by filing a Counterclaim and Motion for Partial Summary Judgment, which has yet to be heard. These filings have already raised several issues of first impression. While we plan to cover each of these issues on the blog, perhaps the most fascinating question relates to Pure Hemp’s prior art arguments, which could effectively invalidate UCANN’s 911 Patent altogether.

First, let’s back up with a high-level overview of the term “prior art.” In order to successfully obtain a patent, U.S. patent law requires the applicant to demonstrate that the invention attempting to be claimed is both (1) novel, and (2) nonobvious. Both these factors can be overcome by what is known as prior art – public knowledge, usage, or other types of disclosures. The European Patent Office puts it succinctly: “Prior art is any evidence that your invention is already known.”

Here, one of the key issues to be determined is whether the 911 Patent is obvious and could not be considered novel given the long-standing science and technology relating to cannabis extraction and preparation. In its filings, Pure Hemp makes that exact point by arguing that highly concentrated liquid CBD formulations are “ubiquitous” and “were not invented in this millennium.” One of Pure Hemp’s attorneys, Donnie Emmi, was quoted as saying he believed Pure Hemp had a good chance of invalidating UCANN’s 911 Patent if the Court agreed with their analysis.

Of course, it remains to be seen exactly what Pure Hemp plans to offer in support of its prior art argument. Typically, defendants in patent litigation produce years, sometimes decades, of scientific articles and other writings to demonstrate a given industry’s preexisting research and knowledge. It’s clear this wealth of evidence likely doesn’t exist for Pure Hemp given the general illegality of marijuana to date. This means the prior art could definitely be out there, but hard to definitively prove given that it was driven underground.

It’s also clear that that is about to drastically change for the cannabis industry. With marijuana now partially legalized in thirty-three states, each and every business is clamoring to get its newest formulations of cannabis patented before a competitor. The number of patents issued by the U.S. Patent and Trademark Office has more than quadrupled since 2016. It’s also worth noting that the parties are represented by reputable patent attorneys, and the Court seems to be paying close attention. This case will no doubt clarify and shape the field of cannabis patent litigation for years to come. Stay tuned!

california cannabis illegal grows newsom

We’ve been saying for the last year that as California’s legal marijuana program continues to roll out, the state’s enforcement against illegal operators will continue to ramp up. During his state of the state address on February 12, 2019, Governor Gavin Newsom announced that the National Guard will be utilized to eliminate unlicensed cannabis farms. On February 11th, Gov. Newsom signed General Order 2019-01 that will redeploy 360 National Guard troops from the U.S.-Mexico border to other state assignments by March 31st.

According to Newsom, some of those troops will be “redeploying up north to go after illegal cannabis farms, many of which are run by cartels, are devastating our pristine forests and are increasingly becoming fire hazards themselves.” The governor’s order authorizes the expansion of the California National Guard’s statewide Counterdrug Task force by at least 150 personnel and authorizes 100 personnel to conduct counter narcotics search and seizure operations targeting transnational criminal organizations around ports of entry. The order also notes that “since 2018, National Guard service members have participated in the seizure of 71,488 pounds of illegal cannabis.”

What remains unclear, however, is how the National Guard troops will proceed with implementing enforcement against illegal operations. California has had a long history of battling illegal marijuana grows and of dealing with the accompanying environmental destruction. Back in 2015, then-Governor Jerry Brown signed into law a measure that provided for steep civil penalties against marijuana grows that “damage the environment by dumping wastewater and chemicals, removing trees and killing wild animals.” The measure increased the California Department of Fish and Wildlife’s power over illegal marijuana grow operations on public lands, but the Department’s resources have still proved insufficient to eliminate these operations completely. In the year prior to the signing of this measure, state agents “found more than 135 dams or diversions in rivers and streams that resulted in the theft of about 5 million gallons of water for marijuana grows.” This law provided that fines of up to $40,000 may be assessed for illegally dumping certain kinds of hazardous materials into rivers and streams, and fines of up to $10,000 may be assessed for removing trees or trapping and killing wildlife. But unfortunately, the potential financial gains of continuing to operate illegally often outweigh the potential penalties.

And while the black market in California has no doubt been fueled by prohibition, even in the wake of legalization and regulation, the high barriers to entry for many small businesses hoping to enter the legal market will likely serve to keep that black market alive for many years to come. We anticipate that National Guard troops will be utilized to weed out unlicensed operators that are engaged in commercial cannabis activity in violation of MAUCRSA, likely prioritizing those trespass operations that are on public lands and/or causing environmental destruction, as many of these types of operations have ties to organized crime.

Operators still attempting to obtain licensure from the state need to play by the rules too, as operating a commercial cannabis business without a license is not legal. We’ve said it many times before that in order for state legalization to succeed in the long run, state and local governments need to take serious enforcement measures against black and “gray” cannabis markets in order to ensure that there is an even playing field for licensed operators burdened by licensing and regulatory compliance costs as well as heavy taxation. We see this move by Governor Newsom as a step in the right direction.