Invest in legal infrastructure to protect market share

Don’t dive into cannabis without a foundation for success

Some states have legalized medical marijuana and others allow recreational use, yet the federal government still classifies marijuana as a Schedule I drug, alongside heroin, LSD and ecstasy. Although the U.S. attorney general rescinded the Cole Memo, ending the Department of Justice’s approach of non-interference with marijuana-friendly state laws, the Rohrabacher-Blumenauer amendment of the federal omnibus spending bill passed by Congress in March prohibits the Department of Justice from using tax dollars to interfere with the implementation of state medical marijuana laws.

The legal landscape around marijuana is ever-changing and can be downright confusing.

The marijuana market is an exciting industry with great potential. This market is expected to become a $50-billion-per-year industry over the next 10 years. While this exponential growth makes cannabis a very exciting industry, the legal pitfalls and unknowns present challenges not seen in other industries. Determining where to operate your marijuana business, what role you will play, how to comply with the licensing, reporting and tax requirements, how to properly package and market your products, how to best protect your business and your products with trademarks and patents, and how to make sure you aren’t violating the trademarks and patents of others are just some of the steps you need to take to get your business off the ground.

Much like 1933 when alcohol prohibition ended, there is a mix of state and local laws related to the business of marijuana. But one of the main differences between the post-prohibition environment for marijuana compared to alcohol is the position of the federal government. Marijuana is still illegal at the federal level, both for medicinal and recreational use. But more states are enacting laws to legalize marijuana, often leaving it to local jurisdictions to decide whether to allow such businesses or prohibit them.

While the seemingly unlimited potential of this exciting new market can be tempting, this is not one to just dive into without doing the necessary research and taking critical steps to give you the foundation for long-term success. The need for competent and knowledgeable legal counsel is critical, both at the early stages of your marijuana business and as you grow.

Two specific areas to consider are intellectual property infrastructure and product compliance infrastructure.

– Intellectual property: The cannabis brand wars have already started, and the patent wars are coming. The U.S. Patent and Trademark Office has already started issuing plant patents on innovative cannabis strains, and utility patents on cannabis-related products and processes. The companies that best invest in building their patent and trademark portfolios will be well positioned to dominate the cannabis industry post-prohibition.

– Product compliance: Marijuana businesses must prepare for defective cannabis product lawsuits, as well as product and Food and Drug Administration compliance challenges. The companies that best invest in building regulatory compliance infrastructure will be better positioned to grow market share without interruption. The Food, Drug, and Cosmetic Act gives the FDA broad regulatory powers over legal drugs and more limited power over the regulation of food. The FDA has begun cracking down on CBD and anyone making medical claims about it, and post-prohibition it will likely take up the torch in going after the thousands of people and businesses making medical claims about cannabis in their respective states — though that may soon change as the FDA is taking an increased interest in the medical claims and allegations surrounding cannabis.

The potential rewards from this new industry are exciting, but the challenges and pitfalls are very real. To become and remain successful, whether you are looking for a long-term business opportunity or looking to position your company to be purchased, the right legal infrastructure is critical. Much like you wouldn’t build a house without first drawing up the plans and laying a solid foundation, diving in to the marijuana industry without the proper infrastructure is a recipe for disaster.

 

Tom Zuber is the managing partner of Zuber Lawler & Del Duca LLP, which has offices in Los Angeles, Silicon Valley, Chicago and New York. He manages intellectual property disputes and deals around the world and counsels clients in relation to global intellectual property portfolios. He holds degrees from Columbia Law School, Harvard Government School and Rutgers School of Engineering. He can be reached at tzuber@zuberlaw.com.

 

Each month the experts at Zuber Lawler & Del Duca will tackle a new topic that is relevant to the marijuana industry, providing valuable information to help cannabis business owners build and grow their business. Zuber Lawler & Del Duca helps cannabis clients with mergers and acquisitions, intellectual property, product compliance, environmental compliance and litigation.

The September issue of Marijuana Venture will discuss the role of intellectual property, branding, trademarks and patents in the legal cannabis industry.

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