What if it’s Rescheduled? Intellectual Property Questions for Cannabis Businesses

UPDATE: On August 9, 2016, the DEA concluded that further research is needed prior to rescheduling marijuana. Therefore, it will remain as a Schedule I controlled substance.

Cannabis is big business in California, and it’s getting bigger. California currently represents nearly half of the nation’s $5.7 billion cannabis industry with $2.7 billion in sales in the last year alone. California’s Medical Marijuana Regulation and Safety Act (MMRSA; summary here), passed in late 2015, creates a comprehensive state licensing system for the medical cannabis industry.  This November, the state will vote on Proposition 64, the Adult Use of Marijuana Act (AUMA; read more here), which would permit adults ages 21 and older to possess, transport, and use up to an ounce of cannabis for recreational purposes. On the federal level, there is speculation that cannabis might become a prescription drug in all 50 states by executive branch or Congressional action to reschedule cannabis from Schedule I to Schedule II of the Controlled Substances Act (CSA). This blog post discusses the potential impact rescheduling cannabis would have on cannabis businesses that have invested significant resources in developing and protecting their intellectual property. 

 

Trademark Registration: Is the Direction Changing?

In connection with growth of cannabis businesses in California and nationwide, we’ve seen a huge rise in federal trademark application filings, many of which have been successfully prosecuted and registered. But intellectual property protection is difficult for cannabis businesses facing a constantly shifting patchwork of federal, state, and local laws that varyingly prohibit, or enable and regulate, the manufacturing and distribution of cannabis products.

Just last month, for example, the Trademark Trial and Appeal Board of the United States Patent and Trademark Office (USPTO) issued a decision that may fundamentally shift the way attorneys seek to register cannabis businesses’ trademarks (read more about this decision and its implications on the National Cannabis Bar Association’s blog). Likewise, cannabis companies must tread carefully when describing, labeling, and marketing their products so as not to run afoul of local, state, or Food and Drug Administration (FDA) regulations.

Despite progress on the state level, cannabis remains classified in Schedule I pursuant to the CSA, meaning Congress believes it has no currently accepted medicinal use and a high potential for abuse. State cannabis industries like California’s are able to exist largely because the executive branch has issued memoranda—the Cole and Ogden memos—indicating that companies that comply with state regulatory schemes are a low enforcement priority for the Department of Justice. But the legal landscape is changing, and businesses and attorneys alike need to be prepared.

Rescheduling of Cannabis?

Rumors have spread that the Drug Enforcement Administration (DEA) intends to reschedule marijuana (or components of it) to Schedule II, which would allow for the development and sale of cannabis medical products regulated by the FDA and other federal agencies. Also a bill pending before Congress, called the Compassionate Access, Research Expansion, and Respect States Act (CARERS Act), would, among other things, reschedule cannabis to Schedule II while preserving existing state medical cannabis industries.  

Effect of Rescheduling on Existing Businesses and State Laws

What impact might the rescheduling of cannabis have on existing medical and adult-use cannabis businesses? Certainly we would see the intellectual property protection strategies and labeling compliance obligations of existing state medical and adult-use cannabis businesses dramatically change if the DEA removes cannabis from Schedule I.

1. Labeling & Marketing?

If the rumors prove true and the DEA places cannabis on Schedule II, the FDA will be responsible for overseeing the labeling and marketing of cannabis-based drugs. While the FDA will not be tasked with licensing prescribers and manufacturers (this falls within the purview of the DEA and possibly the states), the FDA’s control over the labeling and marketing of cannabis-drugs will effectively allow it to prohibit sales of cannabis drugs other than those it has specifically approved and enforce this prohibition in a civil action.

2. Federal Preemption of State & Local Laws?

The extent to which the FDA’s potential regulations for cannabis-based drugs will preempt state and local laws regarding the labeling and marketing of medical and/or adult use cannabis is beyond the scope of this blog post, but it’s not unreasonable to expect that FDA regulations will implicitly preempt at least state medical cannabis labeling laws through field preemption. Courts have repeatedly found that state “failure to warn” laws are preempted by FDA regulations because the FDA has promulgated an extensive regulatory scheme that governs all aspects of pre-marketing and post-approval activities for prescription drugs, and conflicting state and local requirements could render this regulatory scheme ineffective. In other words, when it comes to pharmaceutical labeling and marketing, the FDA occupies the field.

The FDA’s likely preemption of state medical cannabis laws may create substantial barriers for existing cannabis companies, for example, by requiring them to seek FDA approval before marketing or selling any medical cannabis product. Cultivators and manufacturers may be forced to select new brands in order to continue selling their now-pharmaceutical, i.e., “rescheduled” products. Pharmaceutical names are highly regulated and scrutinized by the FDA to ensure that these names do not cause or contribute to medication errors. Proposed names are subjected to a rigorous screening process, and will be refused if they are “overly fanciful” or make any misleading claims about the products’ efficacy or superiority.  Existing cannabis brands like DOSEY DOUGH, CANNARELIEF, and DOCTOR GRASS almost certainly wouldn’t be accepted by the FDA.

3. New Horizons for Trademark Registration?

The rescheduling of cannabis might provide new opportunities for cannabis businesses, new or existing, to obtain intellectual property protection—in particular federal trademark registration. So long as cannabis remains on Schedule I, cannabis businesses cannot obtain federal trademark registrations covering any products that contain cannabis and are instead limited to seeking protection over ancillary, federally-lawful goods and services. But if cannabis is rescheduled, companies could seek federal trademark registration in connection with actual pharmaceutical cannabis goods like capsules, topicals, and tinctures.

While names must be approved by the FDA before they are used to sell pharmaceuticals, the USPTO’s approval and registration process of medical brands is entirely separate, and is subject to only a slightly heightened level of scrutiny. Thus, businesses whose brands would not be approved by the FDA may nevertheless be able to obtain a registration at the USPTO. These companies would not be able to actually sell their cannabis products until they receive FDA approval, but they may file applications to protect these brand names based on an intention to use the mark up to three years after their application is allowed.

4. Other Business Opportunities?

Finally, what about existing cannabis businesses that are not interested in selling federally-regulated, pharmaceutical drugs? Ironically, these businesses’ current trademark rights may leave them well-positioned to successfully pivot into related markets. For example, many cannabis companies have trademark registrations that would cover their goods and services if they begin selling e-cigarettes or body care products, or offering educational and agricultural consulting services to pharmaceutical companies that will be seeking expertise in the cultivation, chemical processing, and manufacture of cannabis products.

Takeaways: Be Alert & Cautious

As with so many issues facing the legal industry, rescheduling of cannabis to Schedule II would present yet another murky, unknown, and potentially risky field, which lawyers must cautiously navigate with and for their clients. It is imperative that in doing so, we work together with experts across a range of specialties. Here, any rescheduling efforts will necessarily implicate pharmaceutical law experts, regulatory experts, constitutional experts, and, of course, intellectual property experts, among others. Keep your eyes on CEB’s Marijuana Law Hub for up-to-date information.

 

Amanda Conley is a founding partner of Brand & Branch LLP, a boutique law firm based in the Bay Area that provides intellectual property legal services to cannabis, food, beverage, and technology companies. Brand & Branch helps cannabis industry businesses protect and enforce their intellectual property rights and comply with local, state, and federal laws regarding the marketing and labeling of cannabis products. Find out more at www.brandandbranch.com (link). Amanda is also a founding member of the National Cannabis Bar Association, and the Founding Chair of the Bay Area chapter of Women Grow.

 

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