In November 2020, Ferrara Candy Company, the maker of the well-known Nerds brand of candy, filed a lawsuit against Tops Cannabis in the U.S. District Court for the Central District of California alleging a variety of trademark and unfair competition claims under federal and state law. Ferrara has been producing Nerds candy since the 1980s and its products include the Nerds Rope candy.
Ferrara’s complaint alleged that Tops was selling edibles under the name “Medicated Nerds Rope” that were infused with more than 400 milligrams of THC.
In addition to allegations of trademark infringement and unfair competition, Ferrara also alleged trademark dilution under federal and state law. Dilution is a typical cause of action asserted against cannabis companies that usurp legitimate brands for use on look-alike products. (For more on dilution, see the article, “Stirring the Pot: Recent Trademark Infringement Claims from Major Brands In the Cannabis Field.”)
The complaint also noted that Tops’ conduct may violate California cannabis laws. In particular, under California law, cannabis edibles cannot have more than 10 milligrams of THC per serving, while the Tops product allegedly had 40 times the amount of THC per serving. Further, the Medicinal and Adult-Use Cannabis Regulation and Safety Act prohibits cannabis companies from selling products in packaging that is attractive to children. Such violations expose Tops and its owners to actions by state agencies.
On the same day it filed the lawsuit against Tops, Ferrara filed a substantially identical lawsuit against Inland Empire 420 Supply.
It remains to be seen whether Tops or Inland Empire 420 Supply will file an answer to the complaint or enter into a quick settlement to address each of Ferrara’s allegations.
– Human costs: The complaint alleged that in addition to consumers actually being confused as to whether Ferrara had authorized or licensed Tops to use the Nerds mark, there have been news reports that children had been taken to the emergency room after consuming the Medicated Nerds Rope cannabis products, apparently thinking they were candy. This is an important reminder for brand owners that there are incalculable human costs to selling such edible products, or any cannabis consumables, in packaging that resembles packaging of major candy manufacturers or is otherwise attractive to children — in addition to the high risk of being sued by major non-cannabis brand owners and risking enforcement actions from state regulators.
Product liability insurance will not likely cover claims for products sold in violation of state law. The legal exposure to a company selling cannabis products that approximate existing candy brands would be immense. Accordingly, cannabis brand owners need to be exceedingly careful when developing their brands.
– Labeling landmines: California, like many other states, has strict labeling requirements with which cannabis brand owners must familiarize themselves. These include, but are not limited to, requirements that the packaging: must be opaque and cannot show what the edible actually looks like; cannot be attractive to children; cannot make health claims; cannot unlawfully use “organic” in violation of state or federal law; must include the Universal Symbol for cannabis on each layer of packaging; and must include a Prop 65 warning if it contains an item on the Prop 65 list (chemicals known to the state to cause cancer or reproductive toxicity, available from the state’s Office of Environmental Health Hazard Assessment).
Although the law is not clear on what types of labeling qualifies as being “attractive to children,” California state guides provide the following examples: “cartoons, images popularly used to advertise to children, imitating candy labeling, and using the words ‘candy,’ ‘candies’ or a variation, such as ‘kandy’ or ‘kandeez’ anywhere on the label.” As such, Tops’ products could be at risk of violating state labeling laws.
– Brand reputation: Another business reason for edible producers to come up with their own unique branding and packaging is to ensure that the consuming public is not confused as to the source of those edibles.
Trademark law serves two purposes: ensuring that the public is not confused as to the source of the products in question and preventing unfair competition. Creating a strong and distinctive brand helps achieve these purposes and also allows the brand owner to stand out in a very crowded marketplace for producing products that are safe, reliable and enjoyable.
By usurping existing brands on cannabis products, companies expose themselves to liability for trademark infringement. Legitimate brand owners are hypersensitive to such misuses, and this case highlights that such companies are not afraid to sue to enforce their brands.