How do you protect intellectual property rights in an insanely lucrative, nearly legal market poised to detonate the CPG industry?
Although 2020 domestic legal cannabis sales exceeded $20 billion, and despite being legal in 38 states, cannabis remains 100 percent federally illegal under the Controlled Substance Act of 1970.
With federal legalization looming, and a dazzling array of “infused edibles” on the verge of dominating the shelves, grasping the complex cannabis regulatory landscape and the intricacies of patents, trade secrets, and federal and state trademarks is essential to ensuring growth, fortifying assets, and nurturing future business opportunities.
CANNABIS VS. HEMP
The Controlled Substance Act currently lists “marijuana” next to heroin as a Schedule I controlled substance having “a high potential for abuse” and for which there’s “no currently accepted medical use in treatment” and “a lack of accepted safety for use” “under medical supervision” (21 U.S.C. §812(b)(1)). The Controlled Substance Act prohibits marijuana’s cultivation, distribution, dispensation, and possession and, pursuant to the U.S. Constitution’s Supremacy Clause, state laws conflicting with federal law are generally preempted and void. U.S. Const., Art. VI, cl. 2; “Wickard v. Filburn,” 317 U.S. 111, 124 (1942) (“…no form of state activity can constitutionally thwart the regulatory power granted by the commerce clause to Congress”).
A fast-growing, sustainable, and inexpensively produced plant, hemp includes varieties of Cannabis sativa L. containing less than 0.3% of the plant chemical Delta-9-THC (Agricultural Act of 2014, 7 U.S. Code §5940). Hemp yields more than 25,000 oil and fibrous products, including cannabidiol (CBD), which offers broad health and wellness uses, serves as a food additive, and is contained in many beauty items.
On December 20, 2018, the Agriculture Improvement Act of 2018 (“Farm Bill”) was enacted legalizing hemp and its derivatives and removing cannabis plants containing no more than 0.3% Delta-9-THC on a dry-weight basis from the Controlled Substances Act and the DEA’s purview (7 U.S.C. §1639o(1)).
Even with its removal from the Controlled Substance Act’s “marijuana” definition, certain hemp-derived products might still violate the FDA-enforced Federal Food, Drug, and Cosmetic Act (FD&C Act), including food, beverage, and dietary supplements infused with hemp-derived CBD.
Also, in December 2018, the FDA recognized hulled hemp seed, hemp seed protein powder, and hemp seed oil as GRAS (“generally regarded as safe”), indicating that those products may legally be marketed in human foods.
CANNABIS RETAIL REALITIES
Because the Controlled Substance Act prevents cannabis from being sold outside of each respective legalized-cannabis state—no interstate cannabis commerce can occur—state regulators like Washington State’s Liquor and Cannabis Board (LCB), and not federal agencies like the FDA, regulate cannabis-related businesses.
Whether deemed “medical” (purchasable only with state-issued card to treat resident’s statutorily defined “covered medical condition”) or adult-use (purchasable by anyone over 21 from any state with a valid identification), cannabis takes four forms: “flower” that is smoked; “oil” ingested by vaporizing; “concentrate” inhaled after heating to a high temperature; and “infused” products that can range from eye drops to foods and beverages. With few exceptions, medical and adult-use cannabis items are identical and only delineated by permitted potency and their purchasers (medical card patients, or adult use consumers).
Each state where legislation has opened the door to sale of cannabis foods and beverages has its own set of regulations. For instance, in Washington State, permissible “marijuana infused edibles” are defined by the LCB’s as “low-hazard foods” not supporting “bacterial or toxigenic growth.” This includes like non-refrigerated baked goods (cookies, brownies, fruit pies, tarts, etc.), chocolate candies, and sugar- or syrup-based confections (molded chocolates, fruit rolls, roasted coated nuts, nonbaked bars or granola products, etc.), flavored and/or carbonated lemonade-style beverages, dry mixes (ground coffee, leaf tea, soup mixes, beverage mixes, seasonings, etc.), jams and jellies, roasted nut butters, honey and syrups, and vinegars.
INTELLECTUAL PROPERTY PROTECTION
First, if sufficiently documented, trade secrets can be protected. “Trade secrets” encompass internal data, formulations, scientific data, and business know-how, but require documented and enforced “internal policies” like employment, non-disclosure, or distribution agreements.
Second, as long as not running afoul of the FD&C Act, patent protection may be secured for cannabis and hemp CPGs. “Patents” protect inventions (such as manufacturing methods, formulations, delivery devices, software, and packaging) and require novelty and non-obviousness—i.e., no prior third-party sales or publications describing invention (35 USC §101, et seq.).
Third, in states with legalized cannabis, both Common Law and State Trademark registrations may be available. A “trademark” may be a logo, word mark, or a special and well-known product design. These are protectable at both the state and federal level, and may arise under common law through usage (i.e., if first use can be proven, the first user typically enjoys superior rights). Although state level trademark registration requirements vary, most deem registration as a “publishing” method which creates a common law granted trademark right.
Fourth, although federal trademark registration for cannabis- and hemp/CBD-infused products is still unavailable, federal trademark registration is obtainable for certain hemp products compliant with the Farm Bill, including skincare preparations and cosmetics. Federal trademark registration is achieved by filing an application with the U.S. Patent and Trademark Office (USPTO), which prohibits granting a trademark registration for federally illegal material like cannabis (15 USC §1051(a)&(b), in re: Brown, 119 USPQ2d 1350, 1351 (TTAB 2016)).
However, federal trademark law does not prevent filing a trademark application—it just restricts the USPTO from registering the mark. Thus, filing of an application forms a “publication,” creating an official record of the applicant’s attempt to assert rights under the trademark law, and indicates either use or intention to use the mark.
Fifth, while the actual CPG may be ineligible, certain legal cannabis-related activities may achieve federal trademark registration, including clothing featuring a cannabis-related trademark (T-shirts, hats, etc.) and cannabis- and hemp/CBD-related content like educational information, news, blogs, and entertainment (like podcasts).
Thus, if securing a federal trademark registration for legal activities, those rights may preserve future product and services under the same registered mark for “related” goods and/or services that, while unlawful as of application’s filing, later become lawful.