Basically, the illegality doctrine is a principle arising out of English common law (first articulated by American courts way back in 1775) that basically says courts don’t have jurisdiction over claims that arise from acts that are illegal. So for example, if someone is unlawfully selling heroin and robbed, the victim may have no recourse for restitution of the stolen heroin or trafficking funds – because they were illegal in the first place.

With regard to cannabis company patents, there have been a flood of new state-legal marijuana brands and products on the market in recent years. But protecting those unique patents and trademarks has proven extremely challenging because of the illegality doctrine. Patents and trademarks are protected under federal law – which also considers the underlying substance they’re trying to protect as illegal.

However, as our Los Angeles marijuana business lawyers can explain, that may not be the last word on it.

Take, for instance, the case last year of Gene Poole Technologies, Inc. v. Coastal Harvest, LLC. This was a decision handed down by the U.S. District Court for the Eastern Division in California. This was a noteworthy case because up until then, no federal court had addressed whether it would allow state-legal cannabis companies to pursue patent protections. Here, the court held that the illegality doctrine was not a bar to enforcing a California cannabis product patent.

The outcome of this case wasn’t a guarantee, particularly given that in a number of other non-patent cannabis cases in federal court, the effectiveness of the illegality doctrine as a defense has been a bit of a mixed bag.

For instance, a number of bankruptcy courts have held that cannabis company businesses – in clear violation of the Controlled Substances Act – weren’t entitled to the same bankruptcy protections as other companies. But then in a federal breach of contract case involving a state-legal cannabis company (Siva Enterprises v. Lance Ott) , the court held that it did have jurisdiction because it wasn’t being asked to consider any remedy that might compel one side or the other to violate federal laws on controlled substances. The actual production or sale, in that case, was not at issue.

So future claimants need to tread carefully, because despite the Gene Poole ruling (wherein the Siva ruling was cited), other federal courts aren’t necessarily bound by that finding – especially as it hasn’t even been cleared by the regional appellate court. Unless/until the law changes or the U.S. Supreme Court decides, the success of a cannabis company patent protection claim may depend on the regional precedent.

If you have questions about pursing cannabis patent protection or defending against such a claim, we can help.

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:

Fighting The Cannabis ‘Patent Trolls’ – This Company Is Filing IPRs Against Gene Pool Technologies, Sept. 9, 2022, By Vuk Zdingjak, Benzinga Staff Writer, Benzinga.com

More Blog Entries:

Potential Complications for California Cannabis Company Real Estate Lending & Commercial Leases, Dec. 22, 2022, Los Angeles Cannabis Lawyer Blog

In Wm. Wrigley Jr. Company v. Terphogz, LLC, the Chicago-based candymaker of Skittles launched an advertising campaign that involved the slogan, “Taste the Rainbow.” The advertising and packaging for their fruit-flavored candy shows the slogan with a large S logo. The company alleges that a cannabis company in Medocino is selling merchandize under the name Zkittlez, with illustrations of its goods advertised as looking very similar to the Skittles candy. On its website, which sells cannabis-related items and goods nationally (as well as to residents of Illinois, where plaintiff is based), it sells goods under the brand name Zkittlez, with the similar logo.

The defendants say they do not engage in cannabis sales, but rather license the intellectual property rights to cannabis companies in California nd Oregon. Defendants say they don’t engage in business in Illinois, run targeted advertising there, or run any companies or have professional contacts there. Three of the board members have never been to Illinois. Plaintiffs say, however, that prior to the website being shut down in May 2021, the Zkittlez branded goods were available for shipment to the entire U.S., with recorded gross proceeds somewhere around $32,000. The Wm. Wrigley Jr. Company is seeking treble (triple) damages for the alleged copyright infringement.

The defendants have tried to get the case dismissed. However in November, a judge rejected their motion to dismiss, meaning the case is continuing through the courts.

The plaintiffs here have a strong case, alleging not only trademark infringement, but also undermining of their entire brand, given that unlike their candies, cannabis products cannot safely be consumed by children for recreational purposes.

A recent analysis by The New York Times revealed striking similarities in the packages of cannabis company products and the larger candy company brands. For example, a sour gummy product uses the same color scheme and design for its “Cannaburst” that Starbursts candies use. Same with another cannabis gummy when compared to the Life Savers package. The red flags that these are not candies are in words like “THC” and “medicated” on the front. But those differences alone are unlikely to protect these companies from trademark infringement litigation – which can have substantial costs.

What’s interesting is that similar cases in the past involving companies like Hershey seemed to result in marijuana firms backing down. However, it now seems to be a renewed surge in this kind of practice.

It’s unclear why, but we know this practice is somewhat longstanding. Before marijuana was legal, there was little concern about things like trademarks of “Big Candy” corporations. The “Cap’n Punch” companies of the world – and their consumers – all pretty much took it for the joke it was. Not to say it was legal then, but these companies were never that large to warrant a great level of scrutiny anyway. That has since changed. As longtime Los Angeles cannabis attorneys, we strongly advise legal cannabis purveyors to consult with an experienced legal team before launching any kind of product – particularly one that might be mistaken for another brand.

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:

Big Candy Is Angry, May 21, 2021, By Valeryia Safronova, The New York Times

Labeling lawsuits against CBD and THC product makers are increasing. As our Los Angeles cannabis attorneys can explain, it is imperative that companies ensure the level of THC and CBD in their products aligns with what is advertised. In this case, the lawsuit alleged the potency of these compounds in the products were “drastically” different from what was publicly claimed.

FDA Studies CBD, THC Product Contents

Recently, the U.S. Food and Drug Administration submitted a letter to Congress indicating numerous CBD products that the company tested that contained far more – and sometimes less – than the amount of cannabidiol that was advertised. Some of the testing revealed certain products contained THC (the psychoactive compound in cannabis) that wasn’t supposed to be in them.

Of the more than 100 products (tinctures, oils, capsules, edibles, drinks, and pet products) the FDA tested prior to the report, 18 had less than 80 percent of the CBD they were advertised to have. Slightly less than half were within 20 percent of the amount of CBD advertised. A significant number – 38 – had more than 120 percent of the CBD advertised. Many also contained trace amounts of THC, though they weren’t supposed to contain any.

The FDA chose a random sample of products to test from a pool of internet and trade journal advertisements, companies that had previously been cited by the FDA for making health-related claims about their CBD products and participants in various industry events. The testing size was limited, a fact the FDA noted as well and pointed to as cause for a more intensive, longitudinal study.

Hemp and CBD industry insiders are concerned by the findings, but know that as a whole, providers and manufacturers hold themselves to high standards. Part of the problem is the lack of FDA regulation for CBD and hemp products, which has resulted in a patchwork of state-level rules and enforcement. That may soon happen, as members of the House Appropriations Committee has allocated $5 million for the federal food and drug regulator to continue its review of CBD products, expressing concern for misleading health claims.

Last year, with assistance from researchers at the University of Mississippi, the FDA completed analysis on cosmetic products containing hemp, finding that a dozen of more than 100 tested contained THC – even though that element wasn’t specified in the label. A couple of those products contained 120 percent more CBD than advertised.

While there is little question the industry requires more work to ensure products with CBD and THC meet product labeling guidelines, one bright spot worth noting is that in the FDA’s testing for heavy metals such as cadmium, mercury, lead and arsenic, none were found in any quantity that posed a significant health concern to consumers.

Potency Rules for California Cannabis Products

California law has established testing regulations to ensure the package labeling matches the potency of each product. The law requires products to be tested for THC, THCA, CBD, CBDA, CBT and CBN. The potency level is considered “passing” if it is within +/- 15 percent of the amount indicated on the label.

This is in addition to testing for solvents, pesticides, microbiological impurities and heavy metals.

California law limits the amount of THC in edible cannabis products for recreational use to 100 milligrams. These limits are not in place for medical marijuana products, which require a medical marijuana ID card to purchase.

Consult with an experienced cannabis business attorney in L.A. to ensure your company is doing everything possible to meet the potency, packaging and label requirements.

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:

Sampling Study of the Current Cannabidiol Marketplace to Determine the Extent That Products are Mislabeled or Adulterated, 2020, FDA

Voters in the Golden State agreed to legalize recreational marijuana use three years ago, and sales officially became legal at the start of last year. Prior to that, only sales for prescribed medicinal use was allowed. Although there was a great deal of anticipation about how legalization would unfold, our Los Angeles marijuana business lawyers know the transition to a legal market was rocky at best.

Despite troubles with the black market and untested regulatory rules (including rigid new testing mandates, heavy taxation and licensing that moves at a snail’s pace in some jurisdictions), the current market size is $2.5 billion, according to the analysis.

By 2024, it’s plausible the market could increase to $4.7 billion. By then, the entire national market will be about $20 million. This is important news to underscore, particularly given the somewhat depressing news of numerous lay-offs at cannabis companies large and small. Both investors and entrepreneurs need to know that cannabis will continue to be lucrative for years to come – but also that the market is likely to be incredibly competitive.

Working with an experienced cannabis lawyer can help ensure the longevity of your operation. Being properly licensed is just the beginning, especially when the drug remains an illegal Schedule I narcotic according to the federal government. That brings all sorts of complications when it comes to commercial real estate, agriculture, online sales and advertising/marketing. Marijuana businesses aren’t entitled to the same protections and benefits as other companies, even though they face many of the same obstacles to success.

Delivery companies are expected to do especially well, ever since the state declared that licensed marijuana retailers would be allowed to deliver their products anywhere statewide, even if local ordinances barred retailers from operating there. What we anticipate will likely happen as a result is that counties and cities reticent to allow stores to open within their borders will rethink their decisions, considering legal pot shops are no detriment to neighborhoods and local governments are only missing out on the tax revenues.

Estimates are there will be thousands of licensed retail stores throughout the state in just a few years.

The analysis polled Californians over the age of 21 to see how many answered in the affirmative as to whether they’d used the drug or related products in the last six months. Roughly 35 percent said they had. That’s lower than in neighboring Oregon, Colorado and Washington, where the percentages were 47, 41 and 40, respectively.

Part of this is no doubt thanks to the fact that our state jumped on the recreational cannabis bandwagon a bit late compared to the others, despite being the first in the country to allow medicinal marijuana. However, the fact that so many communities don’t have a local retail option (thanks to municipal bans) likely cuts into the potential consumer pool.

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:

California’s marijuana market will soon have ‘thousands of retail stores,’ report says, Oct. 30, 2019, By Andrew Sheeler, Sacramento Bee

Medical marijuana is currently legal in 33 states and 11 states allow recreational marijuana sales and possession. It’s now considered one of the fastest-growing job sources, with some more than $3 billion in projected sales in California alone (the biggest legal market anywhere in the world).

Still, lack of access to banking services has been one of the biggest sources of angst among legal marijuana business entrepreneurs. In addition to difficulty with day-to-day transactions and savings – and all the security issues that arise from being a cash-only operation – marijuana businesses have difficulty starting retirement plans for workers, obtaining insurance or federal bankruptcy protection.

Yet any bank that risks going into business with marijuana cultivation or retail operations is going to put itself in danger of federal money laundering or racketeering charges.

Congress Considering Safe Harbor Federal Banking Regulations

To address the these issues that have stymied marijuana businesses, Congress is weighing the Secure and Fair Enforcement (SAFE) banking act, one that would establish a “safe harbor” of sorts against the kind of federal banking prohibitions that prevent financial institutions from doing business with cannabis companies.

As it stands, the bill, which sailed through the House Financial Services Committee earlier this year, now has more than 200 co-sponsors. It’s backed by lawmakers and Cabinet members on polar opposite sides of the political spectrum, underscoring its common sense logic.

Cannabis businesses have gotten around the stringent federal laws by leaning on banks that are state-chartered, as well as credit unions that don’t answer to the U.S. government as a primary regulator. Even so, banking as a marijuana business is pricey, with some banks charging as much as $5,000 a month for their services.

Would Reform Make It Easier for Bud Businesses?

Still, there are some concerned that streamlined financial services could all but wipe out mom-and-pop pot shops. Many in Congress seem inclined to back the SAFE Banking Act not for the sake of their votors, but rather their donors.

After all, high-priced lobbyists like John Boehner, former House speaker, aren’t being paid by small-time operatives.

Already, we’re seeing the once-small-time industry blossom into a haven for big corporations. Retired football players, rappers, celebrities and investment firms are supporting large cannabis operations – to the tune of hundreds of millions or even billions of dollars. It’s being viewed as an untapped gold mine.

Some are concerned that what has long been an artisanal space will soon morph into a corporate one. Many Americans have been swayed to relax marijuana laws because, for instance, they don’t want to see their college freshman at risk of prison because they brought a bag of weed to share at a party. Big business wasn’t much considered as part of the equation for the average voter.

As marijuana lawyers, one concern we have is that if too many voters start to see the marijuana industry align with big businesses that most Americans may shy away from their support – which ultimately could threaten the cost of widespread legal status.

If you have concerns about how to establish solid financial services for your marijuana business, we can help. 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: Do We Really Want a Microsoft of Marijuana? By Christopher Caldwell, Sept. 1, 2019, The New York Times

Additional Resources:

Sonoma County challenges for pot supremacy as others turn away, July 17, 2017, By Peter Fimrite, The San Francisco Chronicle

More Blog Entries:

How the Retroactive Penalty Provisions of Proposition 64 Apply to Marijuana Convictions, July 27, 2017, California Marijuana Lawyer Blog

While it remains to be seen exactly when cannabis business licenses are issued, the state has taken an important step toward implementing an efficient licensing system. Government Technology reports that the state has selected software from Accela, Inc. to manage licensing for the cannabis industry. State Chief Information Officer Amy Tong says the software was chosen due to a competitive price quote, ease and flexibility of use, and its successful history within the industry and other state licensing entities. While this successful history does bode well for cannabis business licensing, it is, of course, no guarantee of success in meeting the state’s January 1 deadline.

Tong also notes that the software launch in January 2018 will likely not have full functionality for long-term needs, such as license renewal. Instead, the goal for January 1 is to be able to accept cannabis business applications through a web portal.

What This Means for Cannabis Businesses

While an efficient technology system is an important step toward issuing business licenses, there is no guarantee that state will, indeed, be able to issue business licenses on January 2, 2018. (January 1 is a state holiday.) State Representative Jerry Hill claims there is “a fair amount of skepticism” in the state legislature about whether the state will meet the deadline. The Desert Sun reports that one cannabis attorney does not think business licenses will issue in January 2018 for “a multitude of reasons”. These include the amount of coordination required between Proposition 64 and existing marijuana regulations, and the inevitable lawsuits against the state by organizations objecting to its regulations.

Cannabis business owners should be prepared against the contingency of not immediately receiving a business license on January 2, 2018. Financial reserves and strategic business plans can protect against interrupted operations. Business owners can also prepare now to apply for a state business license in January. Municipal and county permits should be attained in advance, and all supplemental documentation should be assembled and ready to attach to a state business permit application. Applications for state business licenses are expected to be available before the online portal launches in January. Owners should obtain applications as soon as possible to ensure that they are properly completed with all supplemental documentation.

It remains to be seen how soon and how effectively California implements its cannabis business licensing system. An experienced cannabis lawyer can help business owners to design flexible business plans which allow for delays in licensing without interrupted daily operations.

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

Additional Resources:

California Chooses Accela Software for Cannabis Licensing System, February 3, 2017 by Matt Williams, Government Technology

More Blog Entries:

Preparing the California Cannabis Industry for Recreational Use Regulations, July 9, 2017, by Cannabis Law Group