March 17, 2017

By Oliver Herzfeld and Jared Mermelstein

Marijuana’s classification as an illegal substance makes brand protection under trademark law problematic and uncertain. But it is not impossible for cannabis companies to protect their brands. It just takes some creative problem-solving!

As a growing number of states permit activities specific to the possession, use, production and distribution of marijuana, cannabis-related businesses are becoming more prevalent. This pervasiveness has led to increasing competition among cannabis brands and a rising need to differentiate themselves from their competitors. Regardless of whether their products are high-end, discount, organic or medicinal, cannabis businesses, like all companies, want their brands to communicate something to their customers. For example, the quality of the product, the effects and attributes of the product, the benefits of its farming process (e.g., environmentally friendly) or the type of lifestyle the brand represents. According to Evan Horowitz, Co-Founder and CEO of WeedClub.com, "Branding will be the difference between success and failure in the emerging legal cannabis business. The thing that customers really want is consistency, which is something we expect from brands. Establishing a cannabis brand as a consistent source of relief, relaxation or inspiration will result in repeat orders and word of mouth marketing that is worth its weight in gold. Currently, there are only a few recognizable brands in the market." Brand investment and cultivation provides many benefits including:

1. Recognition: A strong brand name helps consumers recognize and remember the branded products and keep them “top of mind.”
2. Loyalty: When people are happy with a brand and have a positive experience with its products, they are more likely to become repeat customers and choose the branded products over competing products.
3. Awareness: Branding has the effect of increasing consumer awareness of the branded products among potential brand buyers, creating greater reach and affinity to new consumers and consumer permission and interest in brand extensions to new categories.
4. Credibility: A strong brand name tends to enhance the credibility of the branded products with customers.
5. Quality and Value: Branding increases the perceived quality and value of the branded products which can lead to a willingness to pay higher prices for such products.

Therefore, it is easy to understand why cannabis companies would seek to protect their brands in much the same way Coca-Cola or Pepsi protect their respective brands: by registering the brand name as a trademark with the U.S. Patent and Trademark Office (USPTO). If only it were that simple! The problem is the USPTO refuses to grant federal trademark registrations to cannabis brands. Under the U.S. Trademark Act, to be eligible for federal trademark protection, a mark must be lawfully used on goods or services in interstate commerce. This prerequisite effectively prevents the registration of marijuana brands (whether medicinal or recreational in nature) because the U.S. Controlled Substances Act (CSA) classifies marijuana as a Schedule I illegal substance that is unlawful to buy, sell or even possess. As such, a trademark applicant cannot show that the goods are lawfully used in commerce.

Although marijuana’s classification under the CSA makes brand protection under trademark law particularly problematic and uncertain, it is not impossible for cannabis companies to protect their brands. It just takes some creative problem-solving. The following are a few suggestions and best practices to maximize the likelihood of protection of marijuana brands:

Avoid Infringement

The first step that any brand owner should take prior to investing in brand development or using a mark in commerce is to conduct a thorough trademark search of the same and similar names that are (i) already federally registered, (ii) registered with state trademark offices, and/or (iii) unregistered, but being used in commerce by third parties. The aim is to make sure the brand owner’s use will not infringe upon anyone else's trademark rights. Searches should include similar marks because a mark need not be exactly the same as a competing mark to be deemed infringing; it just has to be “confusingly similar.” If a mark meets the “likelihood of confusion” legal standard, the mark’s owner will be prohibited from using the mark in the relevant categories, and any such use would be deemed trademark infringement. Although anyone can perform a Google search for a proposed brand name, a smarter choice would be to engage competent legal counsel to perform a more comprehensive search as described above.

Use In Commerce

Once a thorough search has been completed and a proposed brand name is cleared for use, the owner should commence using it in a trademark capacity in commerce as soon as possible. In the U.S., one’s right to use a mark is conditioned on being the first to actually use the mark in commerce in a particular geographic territory. Federal trademark registration is not mandatory. In general, registering a mark in the U.S. will not permit an owner to use it, nor will a failure to register a mark in the U.S., by itself, prohibit an owner from using it. To be clear, federal registration will provide a variety of benefits such as (i) a presumption of nationwide ownership of the mark for the goods and services listed in the registration, (ii) certain procedural advantages such as the right to sue for infringement in federal courts and, in certain cases, the right to obtain statutory damages (without having to prove actual damages) and attorney fees, and (iii) the ability to record the registration with the U.S. Customs and Border Protection so it will block imports that are counterfeits at no cost to the brand owner. However, federal registration is discretionary, not mandatory, since simply using a mark in commerce in the U.S. provides brand owners with the benefits of trademark protection under common law against third party infringers. The key requirement to secure, finalize and retain ownership rights is to actually and continuously use the mark in commerce.

State Registrations

States where marijuana is legal to one degree or another will grant state trademark registrations to cannabis marks used in commerce (assuming the marks otherwise qualify for trademark protection). Although state registration, like common law protection, is geographically limited, a state registration is enforceable throughout the entire state. Moreover, state registrations will provide brand owners with statutory remedies against infringers that are unavailable to those relying solely on common law rights.

Ancillary Products

A complementary strategy to those mentioned above is to take advantage of the trademark principle of the “zone of natural expansion.” The “zone” or trademark adjacency principle, establishes that a federal trademark will not only protect a mark in the class of products that a brand owner currently produces, but also affords protection for use of the mark on classes of products that a brand owner might reasonably be anticipated to produce in the future. For instance, a registration of a mark in international class 25 for apparel may preclude others from using a confusingly similar mark in international class 18 for leather goods because it is considered a “natural expansion,” as it is reasonably predictable for a clothing company to extend its product line into leather goods. The reasoning is that it is highly likely that the average consumer will believe that the same company created both products, so to protect against this type of confusion, a mark is deemed protected in its registered class as well as in adjacent classes. In order for a marijuana company to avail itself of this principle, it should begin to sell, and register federal trademarks for, a variety of ancillary products. For example, Tommy Chong’s brand, Chong’s Choice, applied for a trademark registration for vaporizers and tobacco jars (international class 35) presumably with the hope and expectation that protection will extend to Chong branded pre-rolled marijuana joints. Other examples include (i) a registered marijuana dispensary selling non-marijuana infused pastries (international class 30) to protect its brand name for “special” brownies or other edible marijuana products, and (ii) registering a service mark for providing consulting/educational services to the marijuana industry (the services themselves are not illegal and, therefore, permitted to be registered). Although none of the ancillary registrations provide direct trademark protection to a cannabis brand in relation to the plant itself, it does provide notice to other companies performing searches for a potential brand name that the owner’s mark is already in use, hopefully persuading prudent competitors to steer clear of the same or confusingly similar names. Additionally, if/when the USPTO does commence granting federal registrations for marijuana products (which may just be a matter of time), it is likely that companies with existing marijuana-adjacent federally registered trademarks will have priority. While, theoretically, adjacent trademarks in ancillary products should provide a marijuana brand a degree of protection under the doctrine of the “zone of natural expansion,” it must be noted that there is no clear precedent yet of cannabis-adjacent trademarks actually extending protection to marijuana products.

Trademark Licensing

Another less traditional and untested method of potentially enhancing both brand awareness and trademark protection is to extend a brand beyond state lines. We are not advocating selling or transporting cannabis products across state lines in violation of federal law. Rather, we are suggesting that brand owners consider licensing out their brand names to third party cannabis companies in other states in order to obtain state trademarks in numerous states concurrently. Any such licensing could include consulting services by the brand owner to ensure the licensees’ products remain true to the licensed brand’s quality, brand essence (i.e., the heart and soul of what the brand stands for), brand promise (i.e., what consumers expect from the brand) and key brand attributes (i.e., the set of characteristics that identify the physical, functional and emotional associations of the brand). In addition to building national brand awareness, this practice may also prioritize a brand if/when federal registration become available. According to Martin Cribbs, Vice President, Brand Management at Beanstalk, “Working with an experienced, trustworthy brand licensing agency can help emergent cannabis brands create a stable, legally-sound business infrastructure for sustainable growth. The most experienced agencies advocate for their brand clients by instituting best practices enjoyed by the world’s major consumer products companies."

Conclusion

Twenty-eight states and the District of Columbia (which together account for residency by 60% of the U.S. population) currently have laws legalizing marijuana in some form and, going forward, the number of such states legalizing marijuana is likely only to increase. Since trademarks are primarily intended to protect consumers, not the owners of the marks, from confusion about the source of goods or services that they purchase or consume (protecting the investment of brand owners is merely a welcomed supplementary benefit), it makes sense to promote consistent cannabis brand ownership rights across state lines. While competing state and federal regulations around the cannabis industry make investing in cannabis brand name marketing, consumer awareness and protection a risky and unstable terrain to navigate, the foregoing strategies can provide brand owners with actionable approaches to pursue some degree of protection while placing themselves in an advantageous position vis-à-vis the USPTO in anticipation of a future shift in federal trademark policy. Investing in such such strategies and protection now makes sense because, clearly, the cannabis market is not going to disappear in a puff of smoke.

Oliver Herzfeld is the Chief Legal Officer at Beanstalk, a leading global brand extension agency and part of the Diversified Agency Services division of Omnicom Group.

Jared Mermelstein is Associate General Counsel at Beanstalk, a leading global brand extension agency and part of the Diversified Agency Services division of Omnicom Group