Today, California’s three state cannabis licensing authorities released proposed emergency licensing regulations for commercial medicinal and adult-use cannabis. The regulations are intended to reflect the law that was set out in California’s Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), and will replace the draft regulations that were released for cannabis cultivation, manufacturing, retail and other activities in April 2017 (you can read more about the prior regulations in our post here). These regulations will allow the state to start issuing temporary licenses to conduct commercial cannabis activities on January 1. Our San Francisco and Los Angeles cannabis attorneys are analyzing the new regulations and comparing them to the previous draft and we will do a more in depth post on what has changed very soon.
On November 5th, the City Council of West Hollywood put an end to a long period of speculation about the future legal status of cannabis in their jurisdiction, moving to allow recreational and medical marijuana dispensaries, delivery services. In particular, the WeHo City Council approved of allocating 8 licenses per type of cannabis activity (Adult-Use retail, Consumption Areas with On-Site Adult-Use retail, Delivery Services, and Medical-Use dispensary,) and confirmed this decision on the morning of November 8th. These activity types are of interest in themselves: Allowing retail spaces to provide an area for on-site consumption means WeHo might soon be the home of hip, Amsterdam-style marijuana cafés.
While this explains quite a bit about West Hollywood's approach, some aspects of the city's regulations remain unclear. For instance, the exact selection process for the 8 licenses per activity has not been decided by the City Council. Moreover, the zoning regulations for marijuana businesses have also not been finalized by the city. To address these questions, the City Council of West Hollywood will meet again on November 20th to discuss zones and grading criteria for licenses. The City Council has given itself a deadline of December 6th to resolve these issues, which it hopes to meet before the new laws come into effect on January 1st.
As it stands, what our cannabis lawyers know about the future process for license application selection is as follows: The top eight applications will be issued licenses based on merit. Some of the criteria in consideration for "merit" will include compliance with the city's social equity program, operating a pre-existing cannabis business that's in good standing in WeHo, or previous experience with a cannabis business elsewhere in the state. Again, these criteria have been merely discussed and not approved. Once the criteria are fixed, the city will essentially grade each application based on the standards they establish.
Since relatively few licenses will be granted, it is imperative for any marijuana business applicant in West Hollywood to not only meet the criteria set out by City Council, but also to provide adequate reasoning for why its merits qualify it to be chosen over the other applicants. The application period will be open in January 2018 for a period of 30 days; since the timeframe is so short, if you're interested in starting a cannabis business in WeHo, it's important to get started on the application process now.
Last week, our Los Angeles cannabis attorneys were at the City Council meeting where the Council moved to amend the Draft Regulations that were previously released on September 22, 2017. The Los Angeles City Council moved to amend the Draft Regulations released on 9-22-2017 to include a motion that will allow cannabis operators who meet certain requirements to remain open if they file for limited immunity within 15 days of applications opening. You can read more about the Draft Regulations from September in our previous posts here and here.
If you have been looking into protecting your cannabusiness' intellectual property, you may have heard the term “trade dress” tossed around. Trade dress is a legal term for the visual components, design/shape, and packaging of a product. It encompasses the “bells & whistles,” so to speak, and is generally intended to protect the overall visual appearance of a product, minus any elements that are functional. The name comes from its historical origins, i.e., how a product is “dressed up.” And even though trade dress is a commonly forgotten right, it is actually quite important when it comes to cannabis law.
Trade dress protection has been extended to everything from restaurant “atmospheres” (Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763 (1992); Fuddruckers, Inc. v. Doc’s B.R. Others, Inc., 826 F.2d 837, 843 (1987)) to the unique setting of a golf course’s “signature hole.” (Pebble Beach Co. v. Tour 18 I, Ltd., 942 F.Supp. 1513 (S.D.Tex. 1996)). The gist of it is the “dressing” must be distinctive enough that consumers identify the source of your product by looking at its total appearance and packaging.
So can cannabusiness owners get trade dress protection? As with many questions in marijuana law, the answer is yes and no.
Just as with a trademark, you have common law rights to your trade dress that you can assert in bringing a lawsuit against infringers that pass off their products as yours. The basis is section 43(a) of the Lanham Act, which establishes civil liability for false designations of origin. However, trade dress owners asserting common law rights in court have the additional burden of showing that the “dressing” serves a non-functional purpose. For this reason (as well as the statutory damages established in the Lanham Act) it is preferable to obtain trade dress registration beforehand wherever possible.
Here we run into the same issues as with trademark: CSA-based rejections. The USPTO has caught on to the emerging cannabis industry, and currently has four trademark examining attorneys that that look at all of the cannabis-based applications coming in. There are many ways around a CSA refusal, and many of the strategies we have discussed for trademarks apply here as well.
If you are thinking of trade dress protection already, then good news – you’re already ahead of the game. Speak with our cannabis law attorneys when you’re ready to take the next step!
Thanks to everyone who came to our first Freedom of Information session about Los Angeles Cannabis Licensing!
This weekend was the second annual The Edibles List Infused Expo in DTLA. As LA Cannabis lawyers, our firm is tracking the City's development of regulations and also California's. This weekend, the focus was on edibles.
As California prepares to start issuing cannabis cultivation licenses on January 1, 2018, the state is becoming more transparent regarding the exact requirements for legal cultivation under the new regulatory regime. Our cannabis lawyers are often asked how you can prepare for licensing - here is your answer. The California Department of Food & Agriculture’s just released a full checklist of requirements for the Cal. Cannabis cultivation application, now available in .pdf form on their website.
These requirements represent an important shift in the state’s attitude when it comes to cannabis cultivation – in particular, the checklist shows that California plans for far more robust cooperation between state and local regulatory authorities than has existed in the past. As Merry Jane writes in an article about the checklist, “Unlike the current cat and mouse games canna-businesses play with local municipalities under the wild west rules of Prop 215, California’s new system will see increased coordination between state and local governing bodies by requiring licenses for cannabis operations at both levels.” Our Los Angeles cannabis attorneys have witnessed both the wild west and the implementation of the new system as cities and counties around California issue their own permits and licenses.
This two-level licensing structure also means that the process of applying for a cultivation license will be an arduous one, with applicants required to jump through a long series of bureaucratic hoops in order to attain legal status. The full State requirements, as listed in the checklist, are as follows:
- An existing local cultivation permit (optional, but recommended)
- Proof of the applicant’s right to occupy the property used for cultivation
- Business formation documents filed by the California Secretary of State’s office
- California State Water Resources Control Board permits and verification of water source
- California Department of Fish and Wildlife’s 1602 permit or a waiver
- California Department of Toxic Substance’s hazardous materials record search via their EnviroStor data-management system
- California Department of Fee and Tax Administration’s seller’s permit
- Labor peace agreement (for operations that will employ more than 20 people)
- Surety bond valued at $5,000
- California Department of Justice fingerprinting via its Live Scan service
The checklist also includes a list of local permits that may be required, including those issued by the municipality’s Building Department, Public Works Department, and Sheriff’s Office. The takeaway is clear; while Jan 1, 2018, may seem very soon to aspiring cannabusiness owners, getting a legal license to cultivate cannabis won’t be possible without a lot of paperwork.
Maybe you’ve heard about a bill going around the California Senate right now that would create a state trademark registration system for cannabis. That’s right, Assembly Bill No. 64 for “Cannabis: Licensure and Regulation” was introduced on December 12, 2016 by Assembly Members Rob Bonta (Dist. 18 - Oakland), Ken Cooley (Dist. 8- Sacramento), Reggie Jones-Sawyer (Dist. 59 - LA), Tom Lackey (Dist. 36 – LA/Kern) and Jim Wood (Dist. 2 – Humboldt-Mendocino). On June 1, 2016, the bill passed through the Assembly with 71 Aye votes and just one Nay (Travis Allen, Dist. 72-Orange Co.).
The bill has been amended four times already, and has bounced around several committees in the State Senate. Recently, it arrived before Appropriations Committee, where it currently sits being “held under submission.” That means it could still be a while before the bill makes it to a final version (or survives at all). As recently as September 1, it cleared the suspense file, where bills that cost the public more than $150,000 in a single fiscal year are often sent. Before that, AB-64 had already made it through the Committees on Public Safety and Business Professions and Economic Development. Appropriations has estimated a fiscal impact of one-time costs of $50,000 to taxpayers and $90,000 per year for the Secretary State’s Office to process trademark applications for cannabis products.
According to the authors of the bill, its purpose is “to address a series of policy and technical changes that remain following the passage of SB 94. Each of these issues are of critical importance to stakeholders in the cannabis space… [including] preserving intellectual property[.]” Assemblyman Bonta and his co-sponsors acknowledge the current situation and emphasize the importance of establishing a process by which cannabusiness owners can register their trademarks (in California, at least). The Senate Committee on Business Professions and Economic Development recognizes this as well, commenting that “Medical cannabis businesses have been developing innovative brands, but are unable to protect their intellectual property with trademarks because cannabis is prohibited by federal law. AB 64 allows the Secretary of State to issue state trademarks for cannabis and cannabis products.”
Here’s the relevant section of the California bill on cannabis trademarks as it currently stands:
(4) Existing law, the Model State Trademark Law, provides for the registration of trademarks and service marks with the Secretary of State and requires the classification of goods and services for those purposes to conform to the classifications adopted by the United States Patent and Trademark Office.
This bill, for purposes of marks for which a certificate of registration is issued on or after January 1, 2018, would, notwithstanding those provisions, authorize the use of specified classifications for marks related to medical cannabis and nonmedical cannabis cannabis, including medicinal cannabis, goods and services that are lawfully in commerce under state law in the State of California.
Section 14235.5 is added to the Business and Professions Code, to read:
(a) Notwithstanding Section 14235, for purposes of marks for which a certificate of registration is issued on or after January 1, 2018, the following classifications may be used for marks related to medical cannabis and nonmedical cannabis cannabis, including medicinal cannabis, goods and services that are lawfully in commerce under state law in the State of California:
(1) 500 for goods that are medical cannabis, medical cannabis products, nonmedical cannabis, or nonmedical cannabis products. cannabis or cannabis products, including medicinal cannabis or medicinal cannabis products.
(2) 501 for services related to medical cannabis, medical cannabis products, nonmedical cannabis, or nonmedical cannabis products. cannabis or cannabis products, including medicinal cannabis or medicinal cannabis products.
(b) For purposes of this section, the following terms have the following meanings:
(1)“Medical cannabis” and “medical cannabis products” have the meanings provided in Section 19300.5.
(2)“Nonmedical cannabis” and “nonmedical section, “cannabis,” “cannabis products,” medicinal cannabis,” and “medicinal cannabis products” have the meanings provided for “marijuana” and “marijuana products,” respectively, in Section 26001.
As you can see, the language has already been revised several times, and will likely undergo more changes before the bill reaches its final form – so stay tuned. In the meantime, contact us or consult our guide to California cannabis law for more information.
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.