The United States Patent and Trademark Office (“USPTO”) is at odds with the ever-growing marijuana industry. While marijuana legalization was a big winner in November’s elections, with seven states legalizing either medical or adult recreational use of the drug, the burgeoning industry may run into some problems obtaining trademarks for marijuana products and related devices. The lack of trademark protection could slow down or inhibit the growth of the industry as the lack of trademark protection limits entrepreneurs’ ability to stop infringement and protect their rights. Continue Reading
According to a prominent cannabis advisory firm, the cannabis industry raised over a $1 Billion in investment dollars in 2016. These investments included public companies on the TSXV (cultivation and extract company), NYSE (REIT) and NASDAQ (pharmaceutical company).
What does this mean?
Majority of large investments are going into real estate and pharmaceutical company – as these investments are not subject to the strict regulatory environment restricting ownership of companies that cultivate and sell cannabis. Big money will continue to flow to “non-plant touching” business in 2017; however, I expect a fair amount of consolidation in the cultivation and retail sectors.
Yesterday the DEA published a final rule providing for a new drug code for “Marihuana Extract” . The DEA states that this will allow them to track quantities of “Marihuana Extract” separately from marijuana to aid in the compliance with relevant drug treaties. This new rule is set to become effective on January 13, 2017. The DEA’s new definition for “Marihuana Extract” includes: “an extract containing one or more cannabinoids that has been derived from any plant of the genus Cannabis, other than the separated resin (whether crude or purified) obtained from the plant.”
What does this mean?
Fundamentally this does not represent a change in federal law, as cannabinoids extracted from “marihuana” (as defined in the CSA) are federally illegal. However, the plain language of the new definition does appear to expand the CSA’s reach to cover cannabinoids extracted from the genus Cannabis not just “marihuana”. This means that cannabis businesses that have imported permissible parts of the plant Cannabis sativa L., are now also likely prohibited from extracting cannabinoids from such plant material.
NOTE: Given the varied implications, my firm is further analyzing the implications to the cannabis and pharmaceutical industries. We will provide an update when appropriate.
There has been a lot of speculation about what a Trump administration, and particularly a DOJ lead by Jeff Sessions, will mean for our burgeoning Marijuana industry. The short answer is nobody knows, and given the fact that the Trump team seems intent on using obfuscation as a strategy, I don’t think we will have any clarity on this issue any time in the near future.
The better question then becomes, what does the industry need to be prepared for? I’m working from the assumption that state-regulated marijuana is not coming to an abrupt end, but that we should expect greater attention from the DOJ in the coming years. Sloppy and apathetic operators will be most at risk. Though larger brands will also want to be wary of becoming a political trophy. Leases and other agreements need to better contemplate enforcement actions. Inventory tracking, pro-active employee and sales policies, and strict compliance with your state regulatory regime will be of paramount importance.
Our industry has seen an incredible increase in sophistication and maturity over the last 6 years. As of now, it looks like that pace will need to quicken if we want to continue to thrive.
California, Massachusetts, Nevada and Maine approved adult-use marijuana initiatives last night. Florida, North Dakota and Arkansas also approved medical marijuana initiatives. Unfortunately, Arizona failed to garner enough support to pass adult-use. Clearly, these votes are a watershed moment for cannabis reform in the United States. As I have stated before, California passing adult-use marijuana will likely signal the true beginning to the end of federal prohibition of marijuana. However, Donald Trump also pulled off a monumental victory for the GOP and won the White House which has created uncertainty for the industry.
What does this mean?
With the approval of adult-use marijuana in the states, the percentage of Americans living in states where marijuana use is legal for adults rose above 20 percent, from 5 percent. A recent Gallup Poll found nationwide support for legalization at 60%, the highest it likely has ever been. Florida passed its’ initiative by a 71% – Florida also voted for Trump.
As we all know, Trump is a wild card but he has not publicly taken any prohibitionist stance on cannabis. Trump recently was quoted as: “In terms of marijuana and legalization, I think that should be a state issue, state-by-state,” Trump told The Washington Post. “… Marijuana is such a big thing. I think medical should happen — right? Don’t we agree? I think so. And then I really believe we should leave it up to the states.” Continue Reading
According to a report from the Marijuana Policy Project, the state-legal medical and adult use marijuana industry in Colorado had a $2.4bn economic impact on the Colorado economy in 2015. Most importantly, the marijuana industry is credited with funding approximately 18,000 direct and ancillary full-time jobs in 2015. While this only represents a small percentage of Colorado’s overall GDP (approx. $300 billion), the size of this industry is substantial and the world is taking notice.
What does this mean?
The obvious answer is new jobs are being created and operating businesses are generating substantial revenue. However, this news is not all positive. As the size of the marijuana industry in Colorado continues to expand, so will the problems that the industry will face. While business owners in the space are not billionaires or even millionaires as everyone thinks, that fact will not stop aggressive plaintiffs attorneys from identifying potential claims against industry participants. Expect an increase of product liability claims, customer slip and fall claims, Americans with Disabilities Act (ADA) claims, shareholder lawsuits, etc. Owners need to be prepared to ensure they are in a position to defend these lawsuit by making sure they are adequately insured and hire professionals to provide adequate advice on how to best mitigate these issues now. Waiting for the lawsuit to come will be too late.
While I am sure we are all fed up with the current presidential election cycle, the upcoming vote in California to approve recreational marijuana has the potential to be a watershed moment for the national marijuana industry and warrants discussion. In addition to California, Massachusetts and Maine both have legalization initiatives on the ballot next month that seem likely to pass. Arizona and Nevada are also voting on recreational marijuana, with polls showing Nevada voters evenly split.
What does this mean?
Market participants are flocking to California in the anticipation of a medical and adult-use marijuana market of $22 Billion in just a few years. The vested interest of these businesses and the state of California will likely demonstrate to our federal legislators that federal laws need to be changed to accommodate the will of the people.
A successful vote in California, along with Massachusetts, Maine and possibly Nevada, will likely signal the true beginning to the end of federal prohibition of marijuana. Ending federal prohibition will still take a herculean effort from industry participants to help craft an appropriate solution that not only addresses industry concerns but the public, health and safety of our communities in a thoughtful manner.
From my perspective, first on the list should be modifying 280E of the IRS tax code to allow for state-legal marijuana business to take business expenses as a deduction. This will free up capital for the industry and allow the industry to be on equal footing with all other legit business in America.
Jeff Tyler put together a great segment for yesterday’s Marketplace podcast concerning the growing size (and sophistication) of the marijuana industry. This is one of many recent stories from larger media outlets that, like the industry itself, is moving away from the novelty of marijuana and treating it like any other business segment. You can listen to it here.
As mentioned in the Marketplace piece, there is more and more talk in the industry about how the little guy is doomed. That local growers and providers will eventually be overtaken by corporate marijuana. I don’t think this is inevitable. The little guy can survive, and even thrive, in a mature and corporatized marijuana industry. . . if we get federal regulation right.
Getting federal regulation right for the marijuana industry is to follow in the footsteps of alcohol. There is (surprising to many) very little regulation concerning alcohol at the federal level, leaving the states and local municipalities to primarily regulate brewers, distillers, distributors, liquor store and bars. Some states are more permissive than others, and county or local laws vary within each state. The result is a mess of regulations across the country. That mess can be frustrating, but it hasn’t stopped national and international beverage companies from being highly successful. It has, however, helped the craft brewing industry get and keep its foot in the door at local levels. Conveniently for the little guy, mirroring the alcohol regulatory scheme is one of the most politically feasible paths forward at the federal level.
Don’t get me wrong, we represent organizations that are aiming to be one of the few marijuana mega-operators (and some of them will undoubtedly make it). But we also represent sophisticated entities that provide ancillary services to licensed operators. Maintaining a disbursed and vibrant group of local licensed operators is beneficial for the long term health of the marijuana business ecosystem. Fortunately, the current mess of state regulations will be helpful in maintaining that diversity should the federal government take a minimalist approach with regard to the marijuana industry.
On August 12, 2016, the DEA published a policy in the federal register (81 Fed. Reg. 53846) designed to increase the number of entities registered under the CSA to grow marijuana to supply legitimate researchers in the United States. The DEA has concluded that the best way to satisfy the current researcher demand for a variety of strains of marijuana and cannabinoid extracts is to increase the number of federally authorized marijuana growers. While the new policy does not entirely make clear what entities may apply to become federally authorized marijuana growers, it seems that “commercial enterprises” may apply. Specifically, the policy states that “under the historical system, there was no clear legal pathway for commercial enterprises to produce marijuana for product development. In contrast, under the new approach… persons may become registered with DEA to grow marijuana not only to supply federally funded or other academic researchers, but also for strictly commercial endeavors funded by the private sector and aimed at drug product development.”
The DEA will evaluate each application to determine: (1) whether adding such applicant to the list of registered growers is necessary to provide an adequate and uninterrupted supply of marijuana to researchers in the United States; and (2) whether the proposed registration would be consistent with the public interest. Among the factors to be considered are whether the applicant has previous experience handling controlled substances in a lawful manner and whether the applicant has engaged in illegal activity involving controlled substances.
What does this mean?
Importantly, the DEA has concluded that in lieu of requiring the growers to operate under a contract with NIDA, a registered grower will be permitted to operate independently, provided the grower agrees (through a written memorandum of agreement with DEA) that it will only distribute marijuana with prior, written approval from DEA. This is still unproven and there is no certainty that the private sector will be able to take advantage of this.
The USDA retracted its previous policy today and has permitted the organic certification of industrial hemp by certified agents accredited by the NOP, if produced in accordance with USDA organic regulations. For imported hemp, existing regulations and guidelines continue to govern whether products may be certified as organic.
What does this mean?
Industrial hemp cultivated under Section 7606 of the Agricultural Act of 2014 (Farm Bill) that authorizes institutions of higher education and state departments of agriculture to establish industrial hemp research pilot programs in states where the production of industrial hemp is legal can now be certified organic. This is a positive step for the industry and it is further evidence that industrial hemp will hopefully be legalized in the near future.