The short answer is yes, for now. Until the law changes, you need to operate as a nonprofit. You should also prepare yourself for for-profit operation so that your business is not caught off guard when the law does change. There is a great deal of misinformation and misunderstanding about how cannabis businesses are allowed to be organized in California. California Health & Safety Code § 11362.765 is the law of the land, stating in part: “nor shall anything in this section authorize any individual or group to cultivate or distribute cannabis for profit.” Note that this section was not repealed or replaced by any provisions in SB 94 (our Guide to SB94 is available here). Appellate decisions have interpreted this language to mean that all cannabis cultivation and distribution in the state is required to be conducted on a non-profit basis, and that anyone cultivating or distributing cannabis “for profit" is subject to criminal sanctions (currently a misdemeanor in most cases, with potential jail time and fines).
While there has been much debate over LA’s recent Draft Regulations, not much has been stated clearly about how to prepare for the LA license application process. You can read more about the draft regulations here, here, and here. Below is some guidance from our Los Angeles Cannabis Attorneys. As you know from our previous posts on SB 94, you will need City or County authorization in order to apply for a State License. The areas you can start preparing for fall into a few main categories: real estate, taxes, corporate documents and financial planning.
Now that California is set to give licenses to cannabis operators, you may be wondering -- can cannabis companies get trademarks yet? The answer is more complicated than you may expect.
Your instincts are right; it’s time to start planning for the future. And to do that, you need to develop a brand that you can protect and your consumers can depend upon.
Yet the U.S. Patent and Trademark Office has expressly, and repeatedly, affirmed that that it will deny registration of any “marijuana” or “cannabis” related goods or services. You can read that decision here. The basis for this policy is the Controlled Substances Act; so long as the sale of marijuana is classified as federally illegal, the USPTO considers the use of such marks in commerce as “not lawful” and thus not entitled to protection. Proposition 64 and California’s medical marijuana laws, as changes in state law, do not affect the Board’s policy regarding federal registration. That means that properly licensed cannabis companies that sell cannabis-related goods and services in 100% compliance with California law are still not engaging in a “lawful” use in commerce according to the USPTO. Cannabis companies seeking protection from California run into the same problem as Sacramento has decided to follow the USPTO’s policy.
However, there are still ways for a cannabusiness owner to protect their intellectual property assets. One emerging strategy is to trademark a number of other goods and services that use your mark, but do not use or primarily facilitate use of the federally banned substance itself. These types of goods can range from t-shirts to oils – anything that does not constitute “drug paraphernalia” that “is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful under the CSA.” Registering trademarks for these ancillary goods and services puts the owner in a better strategic position for the future; when federal restrictions finally lift, the owner will have a strong claim to the mark as residing in their “natural zone of expansion.” This tactic puts the trademark owner on the offensive, putting any would-be pirates and infringers on notice.
There is reason to keep an eye on the California Legislature, too. Soon enough, owners may be able to use the state trademark registration process. Though state trademarks will not convey national-level protection, they will cover the state of California. Recently, the California Legislature has considered adding statutory language in AB-64 that would provide new trademark classes in California for:
- (500): for goods that are cannabis or cannabis products, including medicinal cannabis or medicinal cannabis products.
- (501): for services related to cannabis or cannabis products, including medicinal cannabis or medicinal cannabis products.
We are doing a series of posts on cannabis trademarks and cannabis IP. Check back for more next week.
This past Monday, the Los Angeles City Council held an open meeting of its Rules, Elections, and Intergovernmental Relations Committee on the subject of the city’s cannabis regulations. Our LA cannabis lawyers were present to comment on the new draft and urge the City to take a reasonable, fair, and business-oriented approach to regulation. To the disappointment of many of Los Angeles' cannabis stakeholders, the city has not yet drafted its final cannabis ordinance, and has yet to even set a date for the completion of said ordinance. Though under Measure M this was supposed to pass by September 30, that deadline is about to come and go.
As the LA Times reported, the current situation and the new draft regulations leave the city’s existing marijuana businesses (particularly existing cultivators and manufacturers) in a precarious situation. Without a clear path toward legally sanctioned operations under the new cannabis ordinance, their businesses could be forced to shut down to avoid violating the law. Beyond the obvious financial hardship, inconvenience, and legal risk, this unclear state of affairs for marijuana activity presents a business hazard: With real estate prices in Los Angeles at record levels, a property that’s zoned for cannabis activity, but not allowed to operate, can quickly become a white elephant with overhead expenses large enough to drive its owner out of business.
Council members responded to the concerns of those in attendance, saying that, although they had not made an official recommendation to the city on how to proceed, they hoped to find a solution that satisfied the existing industry’s needs. Politically, the situation is a difficult one: While it makes sense to give marijuana operators priority in licensing commensurate with their compliance with previous laws, detractors argue that this could be interpreted as rewarding grey-market or outright illegal activity. Either way, some constituents are bound to be unhappy. Moreover, the situation is characterized by pervasive uncertainty: this regulation is still a draft, and there could be still more changes on the way before a final ordinance is passed.
For Los Angeles to pave the way for a sustainable legal cannabis industry, the council members will have to respond to these concerns – and do so quickly, before the uncertainty of the current situation takes its toll on existing cannabis businesses.
On September 22, 2017, the City of Los Angeles released Revised Draft Requirements for Commercial Cannabis Activity in the City. Our LA cannabis lawyers have analyzed the regulations and compared them to the June 2017 draft, and there are drastic differences that will affect large portions of the thousands of cannabis operators within the City.
The major change is that only dispensaries will be allowed to apply first - under Priority licensing - to the City. Originally, cultivators and manufacturers that could prove they had been operating since before January 1, 2016, were going to be able to apply along with dispensaries who had a 2016 or 2017 business tax registration certificate from the City (BTRC). Now, all cultivators and manufacturers will apply in the Social Equity or General Processing round, which will be held at the same time.
The number of dispensaries that will qualify for priority has been expanded to include dispensaries in compliance with the current medical marijuana laws that have a 2015 or later BTRC, in addition to those that have a 2016 or 2017 BTRC (the original group that would receive priority). You can read more about the prior draft here.
Additionally, cultivators and manufacturers who could prove operation before 2016 under the June regulations were going to be able to receive certificates of compliance that allowed them to continue operating. This is no longer the case. Only dispensaries that are preexisting and meet the criteria will be authorized to continue operations under the current draft.
Under California’s SB-94 (aka MAUCRSA), the retail sale of marijuana products to consumers is only legal if the business owner holds a license for cannabis distribution. Since this covers all sales of cannabis products, from marijuana proper to derivatives like hash oil and CBD, these licenses are in high demand. Many clients often ask our cannabis lawyers what happened to the Transportation license. This was a license type under the MCRSA but that provision was repealed in SB 94 and the activities covered by the old Transportation license have now been merged into the Distribution license. So, the state license is now for the same activity but under a different name.
In order to qualify for the state license, your business must first hold a local license (or local authorization), which can only be granted by the municipality the business intends to operate in. For those eager to enter the world of cannabis distribution, the question is: which cities are giving out these licenses? Here are a few cities that have distribution in their ordinance and are either already issuing distribution licenses or are on the road towards doing so:
- California City
- Cathedral City
- Desert Hot Springs
- Long Beach
- Los Angeles (expected* but we will have to wait for the Ordinance to be sure)
- Nevada City
An ordinance does not necessarily mean that it will be easy to secure a license. Many cities put heavy restrictions on how many distribution licenses will be granted, and the regulations that must be complied with are robust.
Regarding Los Angeles, all indications appear that LA will allow this cannabis activity. However, the City has until September 30th to promulgate an ordinance, and we will not know for sure until we see the final version. The fact that they have included distribution in the draft location ordinance (which you can read more about here and here) and in the operating requirements suggests that they will. Stay tuned for updates from our LA cannabis attorneys as the City’s local regulations take shape.
One of the hot topics within the LA cannabis community is priority licensing. In this post, our LA cannabis attorneys will explain what priority licensing is within the city’s licensing schema, and who qualifies for it. A recently released survey from the State Department of Agriculture found that there were 2,718 cannabis operators in LA County interested in obtaining licensing for their business. Of course, the County of LA still has a ban in place on all cannabis activity which applies to unincorporated areas. For those operators who are located within the City, you may qualify for priority licensing if you were conducting cultivation or manufacturing within the city limits before January 1, 2016 and can prove it; or, if you are a dispensary and can show a valid 2016 or 2017 BTRC for your place of business. You can read more about what evidence you can use to qualify for priority here and more about LA's zoning requirements here. In other words, you don't have to have been around for centuries, as long as you can show continuous operation from the past 21 months and meet the City's other requirements.
Los Angeles cannabis lawyers are often asked "but what about CBD?"; this post is part 2 of our series on the extract.
As a derivative of cannabis, CBD is currently considered a schedule I controlled substance. However, although cannabidiol has psychoactive effects, it’s very different in effect to other, better-known cannabinoids such as THC; CBD doesn’t produce a mentally altered state or any type of euphoric ‘high.’ Instead, its main purpose lies in its wide variety of therapeutic uses. The Huffington Post writes that “CBD is a powerful anti-epileptic, anti-depressant, anti-inflammatory, anti-nauseate, sleep aid, muscle relaxant, sedative and anti-proliferative.” In other words, distilled CBD is a broadly useful form of medical marijuana that comes without traditional marijuana’s ‘drug-like’ effects. This explains why the FDA is willing to label it “beneficial.”
Of course, the medicinal value of CBD doesn’t exactly come as a surprise. As the NORML foundation writes in its statement on the FDA’s request for comment, “Seventeen states explicitly recognize [...] CBD as a therapeutic agent. Safety trials have determined the substance to be non-toxic and well-tolerated in human subjects and even the head of the US National Institute on Drug Abuse has publicly acknowledged that CBD is ‘a safe drug with no addictive effects.’” In other words, CBD is already widely understood to be beneficial. However, having the Food & Drug Administration call it “beneficial” may prove useful to the effort to have it legalized.
Despite the acceptance of CBD use in individual states, the current policy of the U.S. Justice Department, as led by Trump administration Attorney General Jeff Sessions, is to treat all forms of marijuana as schedule I controlled substances. (For more information on the current legal status of marijuana, consult our “Do I Need a Cannabis Lawyer?” blog post and California Cannabis Law FAQ.) The DEA issued a clarification in December 2016 confirming its position that it considers CBD a Schedule I substance.
This statement by the FDA might complicate that strategy, as would a WHO decision in favor of easing international restrictions on CBD: If one branch of the federal government believes that derivatives of marijuana can be straightforwardly beneficial, another branch treating them the same as dangerous narcotics doesn’t seem reasonable. In this sense, the text of the FDA’s request may be an asset to U.S. groups seeking an end to marijuana prohibition.
Cannabis, via a wide variety of consumption methods and in a myriad of forms, has a long history of use as a pain reliever. In this post, our los angeles cannabis lawyers tackle the topicals and Type 6 non-volatile cannabis manufacturing licenses.
Yesterday the City of Los Angeles released new zoning for cannabis businesses. The blue and pink maps released in June have been updated. We now have zoning for volatile manufacturing and mixed light cultivation, which is a departure from the prior draft ordinance released in June. We predicted the City was leaning towards volatile manufacturing after they released a letter earlier this month, which you can read about here. Additional areas have been added to the permitted zones for commercial cannabis activity.