California Cannabis Companies Still Await Trademark Recognition

California is set to begin issuing licenses to cannabis businesses as early as January 1, 2018. There is sure to be adequate demand for cannabis right out of the gate, but demand alone does not guarantee a functioning market—especially one as heavily regulated as California’s cannabis market. At least one initial problem with that market is entirely foreseeable: cannabis businesses have inadequate assurances regarding protection of their trademarks. Considering how crucial trademarks are for creating value and enabling fair competition between products in the marketplace, this is a significant potential drag on the California cannabis market.

Status of Cannabis Trademarks under Current Law

There are two main problems facing cannabis trademarks. First, because the federal government considers the sale of cannabis to be unlawful, the U.S. Patent and Trademark Office (“USPTO”) will not grant federal registrations for cannabis trademarks. Second, California’s own trademark registry is also unavailable to cannabis trademarks, mainly because of a peculiarity of California law: the California Model State Trademark Law instructs the Secretary of State to use the USPTO’s system for classifying goods for trademark purposes. Because the USPTO has no classification that accommodates cannabis, the California Secretary of State doesn’t have one, either, so it refuses to register cannabis trademarks.

“Common Law” Trademark Protection Is Inadequate

While cannabis businesses will likely be able to assert “common law” rights to a trademark even without registration, that approach is suboptimal. Without a registration system, companies lack a framework within which to analyze and address trademark disputes. For example, registering a trademark provides notice to the marketplace of a company’s claim of an exclusive right over the trademark, and other businesses can then choose to respect that right. Also, in the event of a dispute, a registration serves as evidence of constructive rights and priority based on such constructive rights.

California’s Legislature Action Required

Since as early as mid-2016, California’s legislature seemed determined to fix this issue. In June 2016, the Assembly approved AB 1575, which would have, among other things, enabled the Secretary of State to register cannabis trademarks. The bill did not get through the Senate, however. The same provision was included in another bill, AB 64, that likewise failed to get through the Senate in 2017 before the legislature’s current recess.

Until the legislature finally passes legislation, the deficiency in California’s trademark laws will hamstring businesses looking to build valuable cannabis brands. That is a predictable and readily avoidable problem, and it is especially unfortunate given the heavy taxation and complex regulations that already present obstacles to profitability.

Stay tuned for future updates on this and other issues affecting cannabis businesses in California.

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