Marijuana is now legalized to some extent in 23 different states. Potential recreational legalization could even be upcoming in California. However, marijuana remains illegal on a federal level and has been since it was made a schedule 1 drug—alongside heroin and LSD—in the 1970 Controlled Substances Act. What’s more, state legalization has been explicitly ruled by federal courts to be no defense to a federal marijuana charge. Despite this, there are a huge number of marijuana dispensaries and associated businesses operating in the legal twilight zone between state and federal laws.
Their willingness to do this rests heavily on the unwillingness of states who have passed legalization laws to enforce federal drug laws when it comes to marijuana. The federal government can’t force the police force of a state to act in any particular way. Thus, while the federal laws regarding marijuana certainly trump any state laws and still could be brought to bear at any given time, their practical enforcement is much less simple. What’s more, after Colorado and Washington announced recreational legalization, the Obama administration announced a federal hands-off-policy in regards to legalized activity within states. This is far from a long-term promise, or anywhere near federal legalization. However, it has been enough for a booming industry to spring up around freshly legalized marijuana dispensaries—whether medicinal or recreational.
These businesses face quite a few challenges: heavy restrictions on how they can organize their business, complicated taxation issues, lack of banking services (the legalities of keeping money earned from marijuana in a federally insured bank are, unsurprisingly, complicated), difficult to enforce contracts, vulnerability to many types of civil litigation, the obvious threat of criminal charges if they get out of line, and—most importantly for this article—serious difficulties in receiving the protections of intellectual property (IP) law.
Trademark provides protection against others using your exact registered marks, or similar marks in a way that would confuse consumers. This makes trademark a must for most businesses. However, trademark law has historically rejected trademarks for use in illegal commerce. As marijuana is federally illegal, this makes it nearly impossible to get trademark protection on a federal level on marijuana products or services.
State trademarks do exist and can be registered, presenting an opportunity for such products or services in a few states. However, many states—such as California—have illegality rules coextensive with federal trademark law which may well serve to prevent state trademarks on marijuana products, just like their federal counterparts.
A common workaround, known as trademark laundering, is to put a trademark on products and services tangentially related to marijuana but still part of the business—shirts, etc.—in order to build a brand. That way, the trademarks are all on totally legal fare, avoiding the issues of trademarking marijuana and marijuana distribution services.
It should also be noted that the fact that marijuana-focused businesses can’t trademark things used in illegal commerce doesn’t mean they can’t be sued for trademark infringement for any un-trademarked branding they use. In fact, due to the illegal nature of marijuana, more famous marks have an easier time bringing a dilution claims—an offshoot of trademark infringement—against marijuana-focused as they can argue that association with marijuana tarnishes their brand. This would be enough by itself to support a claim of dilution.
Patent law—which provides legal protection for new, non-obvious, useful inventions—doesn’t have rules explicitly forbidding protection for marijuana related inventions like trademark law does. Man-made, marijuana hybrid strains—along with marijuana-related methods—could theoretically receive protection. However, by filing a patent for a method of manufacturing or cultivating marijuana—you admit to a federal agency that you are cultivating or manufacturing marijuana. Which is, again, illegal at a federal level. As you might imagine, this is not ideal for a patent applicant.
There is less than optimal alternative in trade secret law—a body of law which protects against the misappropriation of secret information which derives value from being secret and has been subject to reasonable attempts to maintain its secrecy.
Unlike trademark law, there isn’t a state version of patent law—it’s all federal. However, where marijuana is legalized, state law can offer trade secret protection. This being said, trade secret has many disadvantages as opposed to patent protection—first and foremost being that the protection ends once the secret is let out of the bag or independently discovered. The nature of trade secrets also seriously limits what you can expect to maintain trade secret protection for. If a business is selling something to the public, it’s hard to imagine it won’t be reverse engineered at some point.
Getting an Attorney
Perhaps above and beyond every difficulty already discussed in this article is the difficulty marijuana-based businesses face in getting a lawyer in the first place. Lawyers are often barred from aiding in illegal activity, which makes helping a marijuana dispensary or similar business a bit of a legal grey area. The potential of costing a law firm their ability to practice in federal court, makes the risks of working with marijuana businesses too much for many lawyers.
As the legal landscape around marijuana becomes clearer, with state BAR associations often explicitly stating the ways in which lawyers may assist, more lawyers are comfortable assisting these businesses—no longer fearing disbarment for their representation. However, there is a long way to go before the law is clear enough to alleviate concerns completely.
Marijuana IP Going Forward
Exactly how you feel about this gap in protection for the businesses that have sprung up around legalized marijuana likely hinges on how you feel about legalization in the first place. However, as it is, the lack of IP protection, lack of legal representation, difficulty making enforceable contracts, and lack of access to banks has combined to make the industry an unpredictable business that primarily relies on cash transactions. If there was ever a situation that seemed likely to lead to the issues critics of legalization fear—this is it. There has been a great deal of scholarly debate over how to move forward. However, as laws are clarified and legalization becomes more widespread, as seems to be the trend, these issues will likely be dealt with. When this happens, we’ll see exactly what a legalized marijuana industry can offer the economy.
Authored by Jonathan Lurie, LegalMatch Legal Writer and Attorney at Law