As the cannabis delivery market represents a ripe post-pandemic opportunity, those companies considering adding cannabis delivery to their roster of services should have a Los Angeles marijuana business lawyer on retainer.

The mass shutdowns of the COVID-19 pandemic saw huge spikes in all kinds of delivery services, as the public was eager to avoid shopping center crowds. Grubhub, DoorDash, UberEats, Instacart and Drizly soared. Meanwhile on the cannabis front, the CA-based cannabis delivery app Eaze saw its customer base jump by 70 percent. In the last 12 months, Eaze execs estimate a California cannabis order was placed every eight seconds. Our state accounts for the lion’s share of the $17 billion in legal pot sold in the U.S. last year.

The Snoop Dogg-backed Eaze has more than 800,000 customers and has made millions of deliveries since its founding seven years ago. However, it’s far from the only delivery service option. An increasing number of these centers offer delivery to smaller regions.

However, as our Los Angeles marijuana business lawyers know, there can still be significant red tape.

Legal Considerations of California Cannabis Delivery

For example, California drivers delivering cannabis products direct to consumers must be W2 employees of the dispensaries. Further, vehicles are required to be open, like a scooter. Other states require cameras. It’s also prohibited to delivery cannabis with food or with alcohol.

Despite the challenges, companies like Uber are apparently already considering their options, anticipating marijuana legalization at the federal level at some point. Uber recently acquired Drizly, an alcohol delivery service whose sister company, Lantern, manages cannabis delivery. Lantern, now an independent subsidiary, was the first cannabis delivery service in Colorado.

But one definite upside to the founding of new cannabis delivery services is the potential for smaller firms to gain hold due to reduced financial barriers – something that could allow more minorities to enter the market.

Cannabis Delivery Logistics

Many dispensaries are smaller businesses, mom-and-pop-type operations. They may not have the capabilities internally to facilitate logistics.

As noted by logistics magazine FreightWaves.com, the biggest barrier thus far to cannabis delivery logistics is the block on banking. Rules making traditional banking platforms inaccessible, as well as a patchwork of laws from state-to-state, prevent economies of scale and require all sales and delivery remain local. For the time being, cannabis companies remain mostly cash-based enterprises.

Federal legalization could allow companies to branch into the online marketplace and connect with third-party logistics partners that could assist with supply chain management and last-mile delivery of orders.

3PL operators might have the ability off the bat to better integrate existing retailers into the delivery market, with real-time tracking ability and experience in managing supply chains.

It’s imperative that when the time comes, any such contract should be drafted and reviewed by an experienced cannabis lawyer.

As far as when federal legalization might happen, it seems increasingly likely. Some are pinning hopes that President Joe Biden will sign an executive order decriminalizing, descheduling or rescheduling marijuana. If he does not, there is still the potential of the SAFE Banking Act, which is still pending.

The bottom line is that as restrictions to cannabis soften and legal obstacles fall, the prime focus will increasingly be on distribution.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, ancillary companies, patients, doctors and those facing marijuana charges. Call us at 949-375-4734.

Additional Resources:

Uber and the delivery war could be headed to cannabis dispensaries, May 30, 2021, By Cameron Costa, CNBC

The Fresno County Superior Court earlier this month upheld the California law allowing licensed marijuana delivery companies to offer services anywhere in the state. Further, the ruling affirmed that while cities and counties can forbid these operations, enforcement is up to local government agencies.

What does this mean for marijuana delivery businesses? As our attorneys see it, they have one of two options:

• Take the risk of battling with local governments trying to enforce their local bans on cannabis companies (including delivery services).
• Cease delivery services to those areas.

Those that want to take their chances and continue operating in markets where cannabis shops are banned may need to be prepared to litigate this – one local government at a time. That spells particular trouble for mom-and-pop operations, which have already been struggling with cumbersome regulation, taxing, lack of banking/credit services and black market competition.

The lawyer for the 25 local government plaintiffs in the case declared the ruling a victory for their side, saying it “clearly” underscores the rights of counties and cities to ban or regulate cannabis deliveries from outside companies.

Even though the ruling was first reported as a “victory” for marijuana delivery services, this was a bit misguided. The fact is, the ruling was a hair-splitting one that essentially stated the state law regulates licenses and not local jurisdictions, so the court did not find a conflict. That doesn’t necessarily mean delivery services can operate anywhere regardless of local law. They can try, but they are risking a lawsuit.

It will be imperative for delivery operators to invest the time, money and legal resources ensuring that delivery is legal in every location where they operate if they want to avoid run-ins with police and local government agencies. If you plan to operate a marijuana delivery company in California, you will need to know the specific local law in each city to the letter.

California has 540 city and county governments. As of last month, just 187 of them allowed licensed marijuana retail businesses. Another 42 allow for delivery services established outside of their jurisdiction to operate within their borders.

That said, it’s well-known that delivery bans are extremely difficult to enforce. Marijuana delivery services are barred by state law from advertising their cannabis company on the exterior of their vehicle. That means delivery service vehicles essentially look like any other. Police would have a difficult time distinguishing them from any other driver. Plus, whatever product is being delivered must be kept out of sight during delivery. If a stop is initiated, there will need to be reasonable suspicion that a crime has been committed. To search a vehicle without consent, law enforcement will need probable cause.

That’s not to say delivery drivers will be in the clear. We could expect to see sting operations set up. Penalties for violation of local ordinances may vary from city to city. In some localities, there may be a ticket, fine or other civil penalty. In others, we may see ordinances define violation as a criminal offense.

One hope we have is that this might be resolved through legislation. If state lawmakers approved a bill unequivocally granting marijuana delivery services the right to operate anywhere – regardless of local prohibitions – that could resolve the issue. It’s tough to say, however, whether that’s politically feasible.

More likely, a well-funded delivery service will need to poise themselves to challenge a local ban in court, the hope being the court would declare the ban unconstitutional or in violation of state regulation.

The bottom line is that licensed delivery operators (there are roughly 300 statewide) will need to decide – after careful consideration and consultation with their marijuana lawyer – whether to discretely continue normal operations or avoid the risk of a run-in with local law enforcement and halt operations in certain cities altogether.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, delivery services, ancillary companies, patients, doctors and those facing marijuana charges. Call us at 949-375-4734.

Additional Resources:

Court rules in favor of California’s statewide cannabis delivery policy, Nov. 19, 2020, Marijuana Business Daily

As our California cannabis attorneys know, some smaller marijuana dispensaries and delivery services are making the fatal mistake of assuming these huge, name-brand firms won’t take note if they piggyback on the larger firm’s brand recognition. This could not be farther from the truth. Marijuana trademark infringement is taken quite seriously by these big companies. Some have entire legal departments dedicated to identifying and addressing copyright and trademark infringement.

Although trademark infringement can be somewhat of a tricky area of legality for marijuana businesses because, as noted in a recent Los Angeles Cannabis Law Group blog, the U.S. Trademark Act has a specific clause requiring trademark registrants to attest their mark isn’t used to sell illegal goods. As it stands currently, marijuana is still illegal per the U.S. Controlled Substances Act.

Some cannabis companies can get around this provision by instead pursuing a copyright infringement case (depending on the circumstances), but a company like UPS taking action against a marijuana delivery service doesn’t have this problem.

It’s imperative for Southern California marijuana companies to discuss their branding and advertising strategies with an experienced Los Angeles marijuana attorney even before launching them because many of these issues can be subverted before they ever become a painfully expensive problem. We do recognize it can be difficult to overcome the intense challenges of markets across the country that are saturated (making wholly original names and logos increasingly difficult to generate) and disparately regulated (making finding which names are already in use tough).

For something like this, however, using a large brand name and logo like UPS and its iconic shield was doomed almost from the start. It is not a fight this tiny marijuana delivery upstart is likely to win. However, an experienced marijuana trademark infringement attorney may be able to help negotiate much lower penalties and perhaps work out a deal to avoid the need to close shop entirely.

Here, in UPS v. Kennedy, UPS is seeking several relief actions. These include:

An immediate injunction on using any copy or imitation marks similar to the UPS family of trademarks for any advertising, manufacture, sale, etc. of respondent’s products.

An injunction on any representation – direct or indirect – that UPS in any way is involved or endorses respondent’s products or services.

Requirement that respondent turn over any and all merchandise, logos, packaging, promotional materials, products, to UPS so that they cannot be used in the future.

Respondent transfer ownership and control of its website domain names bearing all marks, symbols, name or likenesses to the UPS brand of marks to UPS. (The company counted three domain names total.)

Repay plaintiff for actual damages, enhanced damages (per 15 U.S.C. § 1117 for willful violation of a registered trademark) and attorney fees.

Again, an experienced Los Angeles marijuana trademark attorney may or may not help a client prevail in such a case, but they can almost always help negotiate a better outcome than what would have been possible if the company chooses to go it alone. Do not discount the fact that simply closing shop will not be enough if a court decides a case in favor of a plaintiff and places a lien not only on one’s business but personal accounts.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 949-375-4734.

Additional Resources:

UPS v. Kennedy, Feb. 13, 2019, U.S. District Court for the Central District of California

More Blog Entries:

Cannabis Copyright in California: Protecting Your Budding Brand, Feb. 13, 2019, Los Angeles Marijuana Trademark Attorney Blog