The Cannabis Branding Bind
The difference between success and failure in the emerging legal cannabis business
The booming Colorado cannabis industry hit a record high of $1.5 billion in 2017. As the market continues to flourish, the industry can expect further market segmentation. Indeed, companies are launching more products targeted at specific consumer groups: Consumers seeking luxury high-end experiences, cost-conscious consumers, businesses seeking medicinal isolates and smokers interested in exotic strains. Companies competing in these segments must distinguish themselves from others by branding.
As stated by Evan Horowitz, co-founder and CEO of WeedClub.com, "Branding will be the difference between success and failure in the emerging legal cannabis business.”
Typically, a company protects its brands through federal trademark registration. Obtaining a federal trademark registration confers a variety of benefits, including national protection for a trademark. This national protection prevents competitors from visiting a state, seeing a brand they like and copying that brand in their home state (a problem in the cannabis industry).
Unfortunately for cannabis companies, the United States Patent and Trademark Office (USPTO) refuses to grant trademark registrations on the basis of any activity that violates the Controlled Substance Act (“The CSA”) – including the making, selling or offering to sell cannabis-containing goods. It also includes providing services that are primarily intended to aid in the making, selling or offering to sell cannabis-containing goods. Even hemp-derived CBDs are covered by the CSA - the Drug Enforcement Agency’s categorization of hemp derived CBD as a Schedule-I substance survived a recent challenged in court.
How can a company protect its brands, in lieu of these restrictions? Companies typically employ two important strategies:
- NATIONAL REGISTRATIONS FOR LAWFUL ACTIVITIES
One strategy is to file on lawful activities. One way to accomplish this is to identify a trademark that is part of the brand image, use the trademark lawfully in commerce and obtain federal trademark registrations on that lawful activity. These activities may include selling smoker’s articles (provided they are not primarily intended to be used with cannabis), selling t-shirts, advocating for cannabis, etc.
- FILE FOR PROTECTION AT THE STATE LEVEL
Registering a mark with each state provides evidence of use and protection within that state. Each state has different requirements and procedures for obtaining a state trademark, however.
It takes more than just sound strategies. Legally sound implementation is just as important. Following are four tips:
- BE TRUTHFUL TO THE USPTO
This may seem like a no brainer, but pressures to obtain a federal registration have led some to knowingly make misrepresentations to the USPTO. Knowingly misrepresenting facts to the USPTO may result in obtaining a registration, but the registration is invalid. This will surely come to light when the business attempts to license or assert its trademark.
- KNOW WHAT CONSTITUTES A VIOLATION OF THE CSA
Companies must appreciate whether the activities they are engaging in violate the CSA. For example, aiding and abetting a violation of the CSA is a violation of the CSA. Not all Examining Attorneys at the USPTO, however, are aware of the nuances of the CSA. Thus, a company may obtain a federal registration that is ultimately proven to be invalid.
- CAREFULLY RESPOND TO THE USPTO WHEN IT ASKS FOR MORE INFORMATION
The USPTO investigates any company where the mark suggests cannabis, and it will require additional information regarding the nature of good and services. Parsing the question and answering that which is can be difficult, so read and respond carefully.
- KNOW THE LIMITATIONS OF STATE REGISTRATIONS
State registrations serve the function of providing evidence that a company has used the mark in the state. The mark, however, is not examined by an examining attorney. Others may have federal registrations that preempt your rights. Understand these and other limitations before relying too heavily on state registrations.
With these tips and legal advice, the rewards of developing a robust cannabis trademark strategy will no doubt be great as the cannabis industry continues to segment. Moreover, as more activities become legal, a strong trademark portfolio will position cannabis companies for national success.
Christopher R. Stanton is an attorney at the Denver office of Merchant & Gould. His practice covers all areas of intellectual property law with a focus on trademarks, licensing and patent prosecution, with a focus in Colorado’s ever-growing marijuana industry. He can be reached at firstname.lastname@example.org or 303.357.1647. www.merchantgould.com