From Illicit to Legit: Trademark Strategies for California Cannabis Companies in a Legalizing Landscape

Building a strong brand is a challenge for any company. For many businesses—particularly those selling consumer-facing goods—brands and trademarks are high-dollar assets. Figuring out an appropriate trademark strategy is crucial and requires careful offensive/defensive planning, budgeting, and an approach that allows for growth. In addition to all this, cannabis companies face unique vulnerabilities, given the tension between federal and California laws regulating cannabis businesses and the uncertainty of an ever-shifting regulatory regime. Advising cannabis companies on maximizing trademark protection can be tricky and requires a patchwork approach involving federal trademark applications, California state trademark registrations, and use-based tactics.

A federal trademark registration comes with many rights and privileges, and is the strongest protective mechanism available to brand owners. It allows for constructive nationwide trademark rights—as opposed to the territorial limitations inherent in common-law use alone—and it comes with remedies and evidentiary presumptions that make initiation of and success in lawsuits possible. It also gives teeth to a brand’s enforcement efforts.

The problem faced by cannabis companies when considering federal trademark applications resides in the middle of a triangular statutory bind between the Lanham Act, the Controlled Substances Act (CSA), and California statutes that have legalized medicinal and recreational cannabis. The United States Patent and Trademark Office (USPTO) interprets the Lanham Act as allowing only for the registration of trademarks used lawfully in commerce. The Lanham Act defines commerce as “all commerce which may lawfully be regulated by Congress.” 15 U.S.C. §1127. What this means is that the USPTO only sees lawful use as the basis for a trademark registration. See Gray v. Daffy Dan’s Bargaintown, 823 F.2d 522, 526, 3 USPQ2d 1306, 1308 (Fed. Cir. 1987); In re Midwest Tennis & Track Co., 29 USPQ2d 1386, 1386 n.2 (TTAB 1993) ; In re Stellar Int’l, Inc., 159 USPQ 48, 50-51 (TTAB 1968). Given that the sale of cannabis violates the CSA, the USPTO rejects trademark applications for use in connection with cannabis products and services. Meanwhile, for a California cannabis company permitted by California law to offer cannabis products and related services—i.e., allowed to do business legitimately—it’s tough not to be able to take advantage of federal brand protection.

A successful workaround is peripheral trademark registration. If a company is selling cannabis, it’s usually also selling products or services that are federally legal and fall outside the prohibitions of the CSA. For instance, a cannabis dispensary could operate under a particular trademark, and under that same trademark, likely also offer (in connection with the dispensary) online information regarding the health benefits of cannabis. A trademark application for the provision of online information is perfectly registrable. An added bonus is that if competitors see trademark applications on file for a given mark, this can serve as a deterrent, a type of early-stage prevention of infringement.

California State Registrations

A state trademark registration is another protective device cannabis businesses should have in their brand protection toolbox. Many states that have legalized medical and recreational cannabis allow for the registration of trademarks for use in connection with cannabis products and services. On January 1, 2018, California joined those ranks and now allows trademark registrations for cannabis goods and services. They’re inexpensive ($70-$75/application in California), and they become a matter of public record, meaning they put the world on notice of a company’s claim of trademark rights. A California trademark registration also provides the owner with a legal presumption that the trademark is valid and enforceable, enabling vigorous brand enforcement rights. The biggest drawback is that a company must be using its trademark at the time of registration—intent-to-use applications aren’t allowed in California or any other state, although the state of Washington allows advance reservation of a trademark.

Common Law Use

One of the great things about the American trademark system is the ability to develop common law rights in a mark as soon as use of that mark begins. For cannabis companies, this is the third mechanism essential to employ for optimal brand and trademark protection. By using a mark as a source identifier, companies will gain common law rights in the mark. The benefits are exclusive control of the mark, the ability to stop infringement, and the chance to develop a reputation for being a strong brand enforcer. One caveat: common law rights are limited to the geographic territory where the marks are used. If a cannabis brand is only using its marks in California, use alone hinders its ability to enforce against infringement in Arizona, Oregon, Washington or any other state where cannabis is legalized. To the extent possible, encouraging cannabis companies to develop broad, lawful, multi-state use strategies at the outset, or at least developing an advertising strategy in other states, will increase a brand’s enforcement reach and diminish the struggle of having to establish rights anew each time the brand enters a different state.

While not ideal, the landscape for trademark and brand protection for cannabis companies has multiple viable options. Taking a creative approach in developing a dynamic strategy can create strong cannabis brands with robust enforcement possibilities. Weaving a web of trademark protection will give cannabis companies the leverage to enforce their brands and enable them to take advantage of opportunities in the billion-dollar cannabis market without having to wait around for federal legalization of cannabis.