Monthly Archives: March 2015

Building Big Marijuana: Marketing and Advertising for the Brave

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In my early days as a young entrepreneur I was under the illusion that building a great product was all it took to find success. This might be true for some, but for most, creating a great product or service is only half the battle. The other half is sales – marketing, advertising, and getting consumers to believe that there is nothing else in the world that they would rather do than buy your product or service.

Crafting a solid marketing plan is the first step toward making sales magic happen. To begin, technological innovations of the twenty first century provide an abundance of ways to market a product or service. There’s the traditional television or radio advertisements, newspaper ads, cold calls, or even billboards. On the internet there’s search engine optimization (SEO), Google ads, blogs, websites, and social media. As any salesperson will explain, there’s no universal silver bullet to get a product or service to stick with a target demographic. A great place to start with any marketing plan is to ask the question: “What is the best way to reach my target market?”

But what if I wanted to sell a product or service in the marijuana industry? The game changes. The question now becomes: “Is it possible to reach my target market?” Ultimately, the answer is yes, but not without careful consideration of legal risks and regulations.

For example, in Colorado, recreational marijuana advertisements are only permitted if the medium can show that more than 70% of the audience is over the age of 21. This goes for television, radio, print media, internet, and just about anything else you can think of. Brick and mortar stores can only advertise outdoors solely for the purpose of identifying the location of their store and cannot place ads that specifically target out of state tourists.

As for the last real frontier – the internet – the Colorado Code goes in depth as to what a marijuana business may accomplish online. Principally, a Colorado marijuana business is restricted from advertising via mobile phones, unless they are marketing through an installed app where the device owner is 21 years of age of older. Additionally, pop-up advertising on the internet is banned as well.

Can the Colorado government really make rules like these? What about freedom of speech? In June 2014, High Times, the well known marijuana culture magazine, filed a federal lawsuit arguing that Colorado’s laws violate its First Amendment right to free speech. In general, the First Amendment protects commercial speech as long as it concerns a lawful activity and is not misleading. Comparable laws have been declared unconstitutional in the past. In 2001 the Supreme Court in Lorillard Tobacco v. Reilly rejected a Massachusetts ban on tobacco billboards that fell within 1,000 feet of a school. By applying the traditional intermediate scrutiny analysis for commercial speech, the Court found the government’s interest in enacting the law was not substantially related to the government’s interest of protecting minors, and the Massachusetts law was struck down.

In Colorado’s case, the laws in question (such as the 70% rule) are more restrictive than the limits overturned in the Lorillard ruling, and would likely be struck down as well. However, there is one key difference between Colorado’s marijuana marketing laws and the ones overturned in Lorillard– through the eyes of the federal government, the sale of marijuana is an unlawful activity. Consequently, in 1980 the Supreme Court ruled in Central Hudson Gas & Electric v. Public Service Commission that the First Amendment does not protect “commercial speech related to illegal activity.”

So where does this leave us? At this point in history, First Amendment freedom of speech claims and the Federal Government in general are unlikely to threaten Colorado’s marijuana marketing and advertising regulations because of the precedent set in the Central Hudson case. However, aside from the U.S. Constitution, Colorado has its own state constitution equipped with commercial free speech provisions. If a claim was filed against the state of Colorado, there is a chance that the advertising regulations would be struck down as unconstitutional. This question remains unanswered by the courts.

As for Washington, the marketing and advertising landscape does not appear to be much better, and maybe worse, in terms of how, where, and what marijuana companies can market. To begin, like Colorado, a retail cannabis business only gets one sign visible to the public and cannot include any statements that are false or misleading on any of their products. Additionally, marijuana advertising cannot promote overconsumption of cannabis, represent that marijuana has curative or therapeutic effects, or appeal to children.

Probably the harshest provision of I-502 states:

 “No advertisements for marijuana or marijuana infused products can be placed — in any form or through any medium — within 1,000 feet of a school, playground, recreation center, child care center, public park, library, or game arcade open to those under the age of 21.

Statutory language such as “in any form or through any medium” allows the state of Washington to decide what exactly qualifies as a “form” or “medium.” Fortunately, the Washington Liquor Control Board provides an FAQ that provides guidelines on interpreting provisions from I-502. To summarize, Washington considers traditional advertising outlets such as television and radio as “mediums” which are constantly within 1,000 feet of a school. These restrictions severely limit a marijuana business’s ability to advertise its products and services via traditional advertising avenues without the risk of being prosecuted. However, similar to Colorado, some if not all of these rules and regulations could be subject to a freedom of speech unconstitutionality argument against the state.

What of the Medical Marijuana States? In California, Proposition 215 and the partnering regulations say nothing about marketing and advertising, so it must be legal… right? Wrong. As quick as California is to allow medical marijuana, in recent years federal law enforcement officials are just as quick to enforce Federal law, which prohibits people from placing ads for illegal drugs, including marijuana, in “any newspaper, magazine, handbill or other publication.” Various U.S. Attorneys throughout California have vowed to enforce federal law against wrongdoers. However, some have not. The Sacramento Bee, a printed publication out of Sacramento, CA, has been running ads for medical marijuana affiliates since 2011. By charging up to $2,000 per full-page ad, the business of marijuana advertising is far too lucrative for them to ignore—and is apparently worth the risk of federal prosecution.

While smaller publishers in California continue to take these types of moneymaking risks, bigger, deeper-pocket corporations are feeling the sting of the Feds. Just ask Google, who paid out a $500 million dollar settlement in 2011 for displaying advertisements that led to illegal imports of prescription drugs. Although Google has never tested the waters by running marijuana ads, Google, Facebook, or any of their affiliates do not allow anything marginally related to marijuana (including e-cigarettes) in their ad programs.

When will this hostile legal environment change? Will it ever change? To continue the Big Tobacco comparison from my earlier post, over a multi-decade tenure the tobacco industry has been repeatedly hit harder and harder by marketing and advertising regulations. In 1997, the Tobacco Master Settlement Agreement banned outdoor, billboard, and public transportation advertising of cigarettes in 46 states. It also prohibited tobacco advertising that targets young people and the usage of cartoons (such as Joe Camel) in association with their products. The most recent regulation – The Tobacco Control Act – was signed into law by President Barack Obama in June of 2010 and limits audio ads to no music or sound effects, and video ads to static black text on a white background. The days of the infamous “Marlboro Man” are long gone as big tobacco companies rely mostly on price discounts paid to cigarette retailers or wholesalers to reduce the cost of cigarettes to the consumer. Last year, this category accounted for 73.7 percent ($9.21 billion) of the Tobacco industry’s marketing expenditures.

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If the marijuana industry grows into the new Big Tobacco, marijuana marketing and advertising may suffer the same restrictive fate. However, in states like Washington, where marijuana is being regulated by the same state agency that regulates alcohol, there remains hope that the marijuana industry could shift into being treated more like alcohol than tobacco.

Fortunately, the alcohol industry in the United States remains mostly unscathed by broad sweeping regulations on marketing and advertising. We’ve all seen the annual Budweiser commercial on Super Bowl Sunday where the golden retriever puppy makes friends with a Clydesdale horse.


The tear-jerking tale of two animal friends is enough to melt one’s heart and always leaves me wondering – was that a beer advertisement? Apparently it served its purpose because I remember the commercial vividly—as well as the fact that Budweiser was responsible for it. In the Big Tobacco industry, commercials like this are long gone. But in the world of Big Alcohol, companies like Budweiser have no problem creating marketing campaigns that appeal to and capture the interest of the American mainstream.

In the United States, the alcohol industry utilizes self-regulatory bodies that decide standards for the marketing of alcohol. Similar to the Colorado marijuana industry, the current standard is that alcohol advertisements can only be placed in media where 70% of the audience is over the legal drinking age. As long as the alcohol companies stay above 90% compliance with the 70% rule, ”particular attention” is not warranted by enforcement agencies such as the Federal Trade Commission (FTC). Additionally, unlike the undeveloped marijuana industry, the sub-industry behind staying compliant with alcohol regulations is seasoned and sophisticated, allowing alcohol companies to pinpoint and gain access to their target demographics with great accuracy and minimal fear of infraction. The FTC has even gone as far as to recommend the use of social media platforms as advertising outlets because of the detailed information they keep about the age of their users.

If nationwide support continues to grow, it’s not obscene to think that marijuana could follow the same path as alcohol. Don’t forget, less than a century ago alcohol was illegal, and through years of planning, refinement, and compromise the now $400 billion per year industry has found a way to make it all work.

The marijuana industry in the United States is no longer in the shadows. Although unpredictable, the best glimpse at its future is to examine the current state of the industry and align it with trends in comparable industries. From a business perspective, this type of forecast helps navigate risk and identify opportunity for those who dare to take the plunge. If I wanted to start-up in the industry tomorrow, here are several approaches that I might take with marketing and advertising:

Approach 1

If I started my own marijuana business today, one approach I could take to marketing and advertising would be to limit or choose not to market my product or service at all and focus on building a great product. I would bet on regulations like those in Colorado and Washington being struck down as violative of freedom of speech and hope that the marijuana industry moves in the direction of Big Alcohol instead of Big Tobacco. This would keep me above the law, my business afloat, and keep me poised to market and advertise to the masses if and when the regulations change. The problem with this approach is that I would be allowing my bolder competitors to gain an edge on me while they attain a first-to-market competitive advantage and market to a pool of eager marijuana consumers.

Approach 2

A second approach would be to follow whatever everyone else in the industry was doing in my particular state and try to blend in with the crowd. I’d also seek out a strategic business partner or hire someone experienced with marijuana compliance. This might be expensive, but of much less cost than trying to run a business from prison. In states like Colorado and Washington where rules and regulations are more defined, I might take some calculated risks in an attempt to gain access to untouched consumers by skirting the grey area of the rules. For example, I might put up a professional looking billboard (out of harm’s way those under 21) that listed my business name and where to find out more about my company. At first hint of legal trouble, I would scale back. If possible, I would consult industry experts before taking any significant risks.

Approach 3

And finally, if I were a savvy millennial ganjapreneur – in tune with the latest trends of the internet, social media, and technology in general – I would use the internet to find the best and least risky marketing channel to my potential customers. Websites and apps like Weedmaps and Leafly provide private web platforms that allow direct access and advertising to people who are looking for marijuana products and services. The best part about it all is that these companies do all the hard legal work in ensuring that they stay in compliance with state laws so that I wouldn’t have to. I would get on Twitter, Facebook, and possibly Instagram, and promote my brand and company directly to the consumers. As long as social media platforms choose not to privately censor media relating to marijuana (something I’ll discuss in a later post), the cost and benefit are hard to beat.

As the marijuana industry continues to grow and expand across state lines, staying up to date with the ever-changing laws and regulations and how they are being applied is a strategy that I would utilize on a daily basis. Any combination of the aforementioned approaches could ultimately pave the way for success. However, the volatile nature of the marijuana industry bears a stark reminder – in this industry there are no guarantees.

 
Jeff Madrak for Drug Law and Policy – Follow us on Twitter @DrugLawPolicy

Excise Tax: What is it good for?

A recent Huffington Post headline read “Legal Marijuana Has Already Generated $15 Million For Schools”. The funds are appropriations from Colorado’s marijuana tax revenue. The appropriations weren’t the result of magic, but were instead the result of specific terms in Colorado’s Amendment 64 that levied an excise tax on recreational marijuana and specifically dedicated that revenue to schools. An excise tax is a tax on the sale or use of a particular good or service. It is more commonly known as a sin tax and is typically attached to goods or services deemed to be harmful or otherwise discouraged (e.g., alcohol, tobacco, and gambling).

An article from the Canna Law Blog outlines four government purposes for levying excise taxes: “1) generating revenue; 2) tailoring the tax burden to those that benefit from the services the excise tax funds; 3) controlling externalities; and 4) discouraging consumption of potentially harmful substances individuals might over-consume absent taxation.” The third and fourth purposes are the most relevant to an excise tax on marijuana, with the primary focus on controlling externalities such as youth use, prevalence of illicit markets, and marijuana abuse.

At first glance, levying an excise tax seems to be an obvious choice. But, as I argued in my last post, there are a lot of “unknowns” about how the marijuana market will respond to legalization. There is also an issue with whether the marijuana market is well-suited to an excise tax. While market research is limited, current research shows marijuana to be largely inelastic in demand. That means that market demand doesn’t change dramatically with price changes, so raising the price via taxation won’t decrease demand. Teens aged 12-17 are the only group showing any relative price sensitivity. If these numbers are true, an excise tax on marijuana won’t help control many externalities and won’t discourage consumption because people will be happy to pay more, not consume less. Even if consumption didn’t decrease, however, revenue generated from an excise tax would benefit California and could be earmarked for programs that aim to improve social welfare such as, education, youth substance use prevention, and more. This article explores some of the ways a marijuana excise tax revenues can improve social welfare and also explores some of the important drawbacks that an excise tax would have on California’s overall marijuana market.

California has experience levying excise taxes on alcohol, gasoline and tobacco products. An excise tax on marijuana is likely next in line given our familiarity and the precedents among states with recently legalized marijuana. Colorado, Oregon and Washington all implemented excise taxes on marijuana. As mentioned earlier, Colorado implemented a marijuana excise tax that specifically reserved the first $40 million raised each year for school infrastructure. Oregon and Washington, on the other hand, dedicated their excise tax revenue to a variety of different programs including, but not limited to, school funding, research on marijuana’s health impacts, youth education, enforcement of new regulations, and similar programs focused on reducing externalities. California should prioritize funding research with tax revenue given the lack of reliable data currently available. There is great need for scientific research that analyzes the health and intoxication effects of the 80 plus compounds in marijuana, the development of reliable testing modules for quality control, and also DUID. Sociological research is also important because marijuana’s current illegality severely limits our ability to gather reliable data on consumer usage patterns, the true size of the market, user quality of life, and long-term social outcomes (e.g., user productivity, mental health, and increases in overall usage).

An excise tax on recreational marijuana has both positive and negative implications for society. On the positive end, the funds collected from excise taxes can be dedicated to a particularized cause. For Colorado it is school infrastructure; for Oregon and Washington it is a host of various social programs. Either way, the excise tax revenues guarantee funds to specified causes that aim to improve social welfare.

The downside to sin taxes is that, by its nature, the tax is typically associated with the sale and/or use of a particular good or service, which presents a very costly issue for marijuana businesses. Ordinarily, businesses can deduct the costs of doing business—such as materials, rent, advertising, etc.—from revenues, meaning that they pay tax only on profit. Under federal law 280E, however, marijuana businesses cannot claim these deductions. Instead, they have to capitalize those costs and report them as cost of goods sold (COGS) once the product is actually off the shelves. However, COGS only includes direct costs of production and labor: it does not include all costs.

Given the state of federal law, recreational marijuana businesses subjected to a state excise tax will most likely not be able to deduct those taxes from their federal bill—meaning that they will have to pay for it twice. Let’s say the wholesale cost of an ounce is $50 and a retailer has to pay $50 in excise tax when she buys it from the grower. The retailer then passes the cost on to the consumer and adds $50 in profit, making the total cost of the ounce $150 ($50 to he grower, $50 excise tax, $50 markup). But even though the profit is only $50 in this scenario, the retailer cannot deduct the cost of the excise tax and instead has to pay tax on $100 ($150 revenue minus only the cost of the goods from the grower, $50). The retailer pays the excise tax and then, when that cost is passed on to the consumer, the reimbursement for the excise tax has to be reported as income. This is not a problem with excise taxes, but more a problem of excise taxes combined with 280E.

One negative aspect of these federal costs is that they force businesses to impose much higher pre-tax prices. High prices post-legalization could prove to be costly for society by way of preserving the dominance of the black market. Marijuana businesses also suffer huge profit losses due to the combination of the federal tax costs and state imposed tax burdens, such as excise taxes. These combined costs may make it difficult for such businesses to survive tax season, never mind make any profit. There have been suggestions that a potential cure may be as simple as imposing the excise tax on marijuana production so it could be included in COGS, but it is unknown whether the federal government will accept such clever maneuvering. For now, federal deduction exclusions remain a very real detriment to marijuana businesses profit margins and their ability to thrive in this burgeoning market.

Why should we care about whether marijuana businesses profit? For starters, the livelihoods of Californians depend on the state’s economic success. In 2013, California was ranked the 8th largest economy in the world. That makes for a very large pool of employees and individuals dependent on California’s economic health. Moreover, according to the ArcView Group, California’s legal marijuana market is the largest in the U.S., worth an estimated $1.3 billion. Colorado has a smaller market but legalization still created upwards of 10,000 new jobs for Coloradans. Even if California market estimates are optimistically high, the numbers and experience in Colorado reveal that marijuana business failures post-legalization could have crushing results for Californians. Thousands of individuals who invested their lives and money to this burgeoning industry would be thrust into unemployment or, worse, driven to the black market. All things considered, it would be prudent for us to examine the consequences federal deduction exclusions have for California’s economy post-legalization.

The takeaway from today’s discussion is that there are social but also economic harms that a marijuana excise tax can offset or exacerbate if not thoroughly considered in tandem. Additionally, an excise tax is just one mechanism by which the positive outcomes discussed today can come to fruition. The state could also achieve these through other forms of taxation or by funneling a portion of the funds from licensing fees into research or other worthy causes. As my title suggests, the discussion of levying an excise tax on marijuana really boils down to the question, “What is it good for?” Recall the metaphor of the marijuana tax seesaw from my first post. The consideration of a marijuana excise tax has a similar seesaw; this seesaw has competing social interests on either end. On one end we can generate funds for projects that increase social welfare (sociological research, reducing/preventing youth access, elimination of marijuana criminality), and on the other, we can increase socio-economic health (encourage new businesses, move black market participants into legal market) by generating less tax revenue to allow new (local) marijuana businesses to thrive. To remix a Motown hit song, “sing it with me, Excise tax- huh- what is it good for?…” Unlike Edwin Starr, we cannot unequivocally claim “absolutely nothing,” but it is still a worthy question to ask.

Alexa Quinn for Drug Law and Policy

Follow Drug Law and Policy on Twitter @DrugLawPolicy or Alexa @aquinn_dlp.

You can also contact Alexa Quinn by email: aquinn.dlp@gmail.com.

State Registered Cannabis Trademarks: (An) Amoral Dilemma

I called my mother the other day. I figured that, as an adult, it was time we had the talk; I asked her what she thought a trademark was. “It means,” she said, “that nobody else can use the same thing.” Sure, but why would we have laws about that? “Because… oh I don’t know, because somebody cares.” After some discussion, it became clear that my mother had both a normal level of interest in Intellectual Property law and held a common misconception. My mother was under the impression that trademark law is for the benefit of corporations.

Because our government is “for the people,” it follows naturally that trademarks are also for the people. In a previous post I wrote that the government grants exclusive rights if some important public good is served. The exclusive use of a mark is not protected for the sake of business but for the sake of the consumer. This information is invaluable to consumers because it allows us to choose between spending our dollars on local, sustainable, organic, humane farmers and butchers and more affordable alternatives with a glance at a package. Thus, when you go out and purchase some first-rate dance gear the branding lets you know the source. When you’re stuck in the middle of Nowhere, Oklahoma, you can rest assured that your can with the familiar Coca-Cola trademark is still a Coke™ because of trademark law.

A corporation can build goodwill and leverage its reputation to add value to its products. If a consumer knows nothing about watches, it’s possible they may be led to believe a Rolex is a good watch because of Rolex’s reputation. While trademarks may serve a corporation’s financial interest, keep in mind that a bad reputation is equally protected. What we, the people, get out of enforcing marks is clear identification of the source of goods. The quality of that source, or its “branding,” is not part of the deal. There are a number of reasons that the USPTO might deny a trademark, but the “morality clause” is most pertinent to marks related to cannabis.

The Lanham Act, the federal level statutory scheme for trademarks, has a “morality clause.”  In the language of section 1052(a), any mark that is “immoral, deceptive, or scandalous matter” can be denied registration. A deceptive mark clearly undermines the goal of keeping the consumer properly informed as to source. This means marks that misrepresent not only the company name but also geographic source, material composition, or sponsorship of some individual, etc. would be considered deceptive and denied registration.

When it comes to scandalous material, an examiner might “know it” simply when they “see it,” in the manner of Justice Stewart’s famous intuitive approach. A morality judgment is treacherous territory, doubly so with the weight of law behind it. It is no surprise that courts have, as the trademark manual of examining procedure puts it, “included immoral matter in the same category as scandalous matter.” Inevitably, scandalousness and immorality judgments will lead to disagreement, and such a subjective standard is not, in my opinion, useful legislative drafting. Retooling the language is probably best, but that is a legislative prerogative, not the purview of lawyers or courts. For a thorough examination of scandalousness and the caprice of the USPTO, I recommend an excellent (and often amusing) journal article by Anne Gilson LaLonde and Jerome Gilson (for those in the know, yes, those Gilsons). Generally, drug-related marks are denied for scandalousness because of the promotion or association with illegal substances under the Controlled Substances Act. There are some cases, like Cocaine Anonymous (note the circled R indicating a registered mark – not “™” which is for unregistered marks) or Marijuana Symposium, where the context specific use is considered within the gamut of federal drug policy. There are ways around USPTO difficulties with trademarking cannabis products, but I think the apparent contradictions in whether a mark is granted or not can be resolved in a different way, without upsetting the status quo.

See, you can also register a trademark at the state level. The Lanham Act, as mentioned, is the federal scheme. Each state has its own version of the Lanham Act that will give statewide trademark protection. Given the patchwork legal status of cannabis in the United States, a state-by-state approach makes a lot of sense. Unfortunately, the statutory language of 47 of those states replicates the morality clause from the Lanham Act verbatim (for a full list check out footnote 3 in the Gilson article). It’s easier to list the outlying states Colorado, Maine, and Wisconsin — than the majority. Of these, Maine comes the closest to a morality clause, denying any mark that “[c]onsists of or comprises language that is obscene, contemptuous, profane or prejudicial… [or i]nappropriately promotes abusive or unlawful activity” (emphasis added). Setting aside Maine’s oddly detailed trademark legislation on potatoes, oils, and sardines, could a mark for a company whose product is cannabis be an “appropriate” promotion of a federally unlawful activity? I think so.

In a state with a morality clause in its trademark statute (like California), is it scandalous to identify a good that is legal in that state but remains illegal under federal law? My answer looks to the late, great, Judge Traynor. In one of his more famous opinions, Reich v. Purcell, Judge Traynor discusses how the “forum must search to find the proper law to apply based upon the interests of the litigants and the involved states.” Judge Traynor was deciding a conflict of laws problem in torts, but his reasoning can be applied here. More succinctly, scandalousness and morality rejections should be based on the weighed interests of the state and federal governments, not a subjective interpretation of those words as applied to a “substantial composite of the general public.”

In a state where cannabis is totally decriminalized, regulated by the state or where the state participates in the market, the public view about offensiveness of a mark is difficult to ascertain.  While some groups will surely find no moral/scandal objection to cannabis marks, other groups may find cannabis use scandalous but consider regulation a better solution than outright prohibition.  Additionally, the minority may still prefer prohibition and retain scandalousness objections to any cannabis related mark. While scandalousness objections to trademark registration perhaps cannot be resolved, there remain amoral public interest considerations.  A given state’s interests and the effects of granting a trademark in that state should be weighed against the interest of the federal government, especially noting that whole supremacy thing. If a state grants cannabis trademarks and, by extension, allows for companies to potentially build goodwill and brand loyalty, will that promote the use of cannabis?  Will branding push companies to cultivate a more positive reputation through higher quality products, or safer products and safer use environments?

Further, while the public’s subjective reasoning cannot be ascertained, the codified policy (in this hypothetical) would be one that does not criminalize cannabis. Examiners and their supervisors could decide trademark eligibility by looking to established interests instead of subjective review of “scandal.” Admittedly, changing from “scandal” to “public interest” analysis sounds like jumping out of the bog and into the mire. I think that however scandalized someone feels (or doesn’t) about the Redskins trademark, he or she can concede that our public interest has long proscribed racism, prioritized eliminating discrimination, and promoted equality. Revoking the Redskins trademark arguably serves those ends. This approach also clears up how the USPTO ultimately granted a trademark to an apparently scandalous mark. An image that may scandalize the public by depicting our nation’s flag as a condom was acceptable because of the goal of characterizing the fight against AIDS as patriotic.

Luckily, the interests of the federal government have been clearly set forth in the somewhat notorious Cole memo. The eight priorities listed in that memo can easily be satisfied while serving state interests. A state can serve its own decriminalization regime without subverting these priorities, which explains how a mark can be “scandalous” on a federal level but not in a particular state. Further, the federal government has an interest in allowing states to establish their own unique priorities and policies. This “laboratory of democracy” that respects the individualized needs of specific regions is part of why we have a federal system in the first place. The real question then becomes whether granting trademarks serves a given state’s interest.

Among many details I have glossed over, there is a third option for trademarking: simple use of a mark in commerce grants common law protections without any registration at all, state or federal. This protection is limited to the geographic region of use and depends on common law, which varies by state. California is geographically large and if the consumer is to develop some sense of cannabis products, simple common law protection is assumed not to suffice because a northern California company could use the same mark as a company elsewhere in the state and potentially confuse consumers in between, especially if the market expands rapidly, as it has in Colorado.

If a company cannot build goodwill with its brand it can only really market objectively measurable characteristics like potency and price, not quality. Research indicates that price increases discourage kids from using cannabis more than adults. Granting trademarks would allow corporations to more fully leverage their brand, which would increase pricing of their products – and might decrease potential youth possession and use (which would assuredly remain illegal, just as it is for tobacco or alcohol). There are, of course, risks associated with allowing marks that may be targeted at or appealing to children. An interest analysis supports denial of those types of marks as well, since protecting children is an established interest of both the states and the federal government.

California’s interest might best be served with a model like that of wine, where users of cannabis can pay top dollar for some renowned brand rather than merely finding the cheapest and strongest “high” on the market. Trademark granting should not be based on ambiguous ideas like moral and scandal but on the purposes behind trademarks, which rest on the interests of the individual consumers and states involved.

HUD Has Cleared the Smoke: It Is Now Safe for Landlords and Public Housing Agencies to Come Down

By now, most have heard the typical story. An elderly woman is diagnosed with cancer. With her doctor’s recommendation, she has turned to medical marijuana to help treat the effects of her ailments. But she also relies on federal housing assistance to pay rent. Sooner or later her landlord will give her notice informing her that she’s being evicted from her federally-subsidized housing unit because she is in possession of an illegal substance. She will likely go through unlawful detainer court proceedings. Upon losing her eviction case, she will have nowhere to go, her symptoms will worsen, and she will face homelessness.

This is the situation faced by many Americans who need medical marijuana to treat their illnesses. California’s Compassionate Use Act allows patients to possess and cultivate marijuana for personal medical use. Landlords rely on the fact that marijuana is currently still illegal under the federal Controlled Substances Act to justify eviction of tenants for possessing an illegal substance. In most cases landlords rely on unsubstantiated neighbor complaints and suspicions about marijuana usage as the basis for their evictions. Many tenants plead for a second chance to remain in their units and in some cases are willing to forego medical marijuana all together in exchange for not losing their housing. But landlords are generally unwilling to reconsider the eviction action, often indicating that they have to follow federal law or risk losing their federal funding.

Approximately 4.8 million households in the United States receive financial assistance through the federally subsidized housing programs of the United States Department of Housing and Urban Development (HUD). HUD programs target low-income individuals living with disabilities and are aimed at creating affordable housing opportunities. This article will focus HUD’s Housing Choice Voucher Program (Section 8) to demonstrate the high degree of discretion afforded to landlords receiving HUD funding. This article will also clarify why these eviction actions are in fact NOT required by federal law and explain the misunderstandings that landlords either knowingly, or unknowingly, rely on when they evict tenants from federally-subsidized housing.

Section 8 is a rental assistance program that provides rental subsidies for low-income households. The program is generally administered by city and county agencies known as Public Housing Agencies (PHAs). Low-income individuals and families apply to their local PHAs and go through an extensive application process set forth in order to qualify for assistance under Section 8. When an individual or a family is approved to participate in the program, they are deemed “voucher holders.” Voucher holders find a unit they would like to rent and then request that the PHA enter into a contract with the landlord to provide a partial payment of the rent. The PHA then inspects the unit and enters into a Housing Assistance Payment (HAP) contract with the landlord. The Voucher Holder is responsible for the remaining portion of the rent depending on their subsidy amount.

HUD provides PHAs with funds to administer the Section 8 Program; PHAs are in turn required to comply with HUD regulations and requirements in order to continue receiving funding. Despite these statutory mandates, PHAs are afforded a significant amount of discretion and authority. One HUD regulation provides that “the PHA must adopt a written administrative plan” that establishes local policies for administration of HUD programs. For example, a PHA administering Section 8 can define the local criteria for admission into the program and can adopt local policies for denial and termination of assistance.

Once they enter into a HAP contract both the PHA and the private landlord are bound by HUD regulations. One such regulation is the Quality Housing and Work Responsibility Act of 1998 (QHWRA). QHWRA requires landlords to “establish lease provisions for continued assistance in federally assisted housing that allow the owner to terminate the tenancy or assistance” for anyone found to be in possession of an illegal substance. Thus, under QHWRA, landlords must, at all times, retain the right to evict or terminate assistance. The significance of this regulation is the fact that landlords are clearly not required to evict or terminate assistance but rather that they are required to preserve their discretion when such situations arise.

Despite the clear discretion provided for by the statute, many landlords continue to act as if their hands are tied when confronted with an individual believed to be in possession of medical marijuana. As if the statutory language was not already clear enough, in 2011, HUD went the extra mile and released an official statement confirming to landlords that they are NOT required to evict tenants found in possession of marijuana in states that have legalized it for either medical or recreational purposes. The 2011 official statement specifically prohibits landlords from affirmatively permitting possession and use of marijuana but nevertheless instructed landlords to “establish policies which allow the termination of tenancy of any household with a member who is illegally using marijuana medical marijuana in federally-subsidized housing.” It also instructed landlords currently in HAP contracts to include, in their rental agreements, a similar provision reserving their right to evict tenants.

Being diagnosed with a life threatening disease should no longer result in homelessness. HUD has spoken; PHAs and landlords can no longer argue that they are at risk of losing their federal funding if they do not evict medical marijuana patients. The typical story does not have to have a typical ending. PHAs and landlords must be urged to consider the surrounding circumstances before they evict another patient suffering from a life threatening disease.

Let’s Go to the Cannabar: On-site Cannabis Consumption in California

Once only a distant dream of social activists and enthusiasts, the reality of completely legal marijuana in California now appears to be a distinct possibility with the upcoming 2016 election. (Recent polls here and here) If California goes the route of an increasing number of Western states, whose ranks swelled to four with the recent 2014 midterms (adding Alaska and Oregon to Colorado and Washington, who officially legalized in 2013), Californians will be able to legally purchase, grow, possess and consume marijuana without the doctor’s prescription currently required under Proposition 215.  Many important questions regarding the specifics of commercial marijuana cultivation and processing have been addressed by the legislatures of those previously enacting states, with more tweaking no doubt in store for California’s bill writers and legislators.

Fortunately for California, Colorado and Washington started their experiments with legalized marijuana markets first. This allows us glean important lessons and determine shortcomings within their regulatory schemes that California can improve upon if it votes to legalize. Specifically, the question of where to consume legal marijuana has dogged citizens and legislators alike in those first two enacting states. This presents an important opportunity for California to make its own mark on the progress of marijuana legalization, or more specifically, to determine the relationship California’s citizens want our state to have with legal marijuana consumption.

With this blog series, I will seek to shine light on the important issues behind that where question. I’ll detail the concept of what I call “retail point of sale consumption” (RPOSC), e.g. the consumption, smoking or otherwise, of cannabis on the site of a commercial venue created to socially enjoy marijuana. What potential forms those commercial entities eventually take is largely dependent upon how California crafts our regulatory schemes for marijuana, and what effects our current state and local anti-smoking ordinances will have on any potential RPOSC businesses; however, we can look to similar business entities (or the lack thereof) in Colorado, Washington (no longer operating as on site consumptions locations), and Amsterdam to gain a feel for what RPOSC could look like in California.

As mentioned, inherent to the where to consume legal marijuana question comes the important discussion of how California’s citizens envision their state’s relationship with marijuana. Do we see it as a “sin” product to be taxed and regulated similar to alcohol and tobacco? Or is there something socially or physically dangerous about marijuana consumption that warrants removal from the social/public sphere to a degree greater than alcohol or tobacco? While my classmates may dig deeper into those particular tax or moral questions, they are salient to addressing the utility versus social cost of allowing marijuana consumption to be brought out of the privacy of the home and into specific use lounges and social establishments.

If Californians decide that RPOSC is a good idea, what forms will it take? California could copy its current commercial marijuana entity, the medical dispensary, and perhaps expand currently existing exemptions for tobacco lounges (under state and local anti-smoking ordinances like AB13 enacted by the CA legislature in 1995) to allow marijuana consumption (via smoking, vaporizing, or eating) on those sites.

Marijuana businesses similar to actual cigar lounges could also be feasible, and do not depart far from currently existing business models. By age restricting access, and maintaining a closed venue with proper ventilation, marijuana enthusiasts could purchase marijuana buds or pre-rolled joints similar to a purchase made at a tobacco or cigar store, and stay to enjoy their purchase.

If Californians desire, they could embrace more commercially advanced forms of RPOSC. Marijuana “lounges” like “The Lazy Lion,” a lounge/social club in Colorado Springs, CO, sell daily or monthly “memberships” to access the private interior of the lounge. Inside, enthusiasts  have access to multiple video games systems and TV’s, an expansive selection of bongs and pipes, a DJ, different marijuana strains available for purchase, and a sophisticated concentrate (“dabs”) bar offering “happy hour” prices from four to five every day. Replace the marijuana sales with craft beer, and the above description could very well be about a well-appointed bar currently found in a California urban area where an individual may go to enjoy an alcoholic beverage.

To extend the bar example, the hypothetical California “cannabar”/ “budpub” could sell marijuana that they or those in their local area grew, noting to customers the particular flavors and production process for different strains in a similar manner as the vintner, brewer, or bartender may do for a wine, beer, or spirit. The “craft” model of beer in California and other states has created a lucrative and growing industry of breweries, gastro-pubs, and restaurants that has revitalized formerly undesirable areas in Oakland and San Diego, usually zoned for industrial/commercial uses; why can’t this same model be applied to marijuana production and sales, with a new generation of “bud-pubs” serving the same upscale, organic, locally-sourced food and marijuana from reputable local farmers and marijuana cultivators (or even the business’s personal grow) that current craft beer breweries and pubs tout?

Questions on the forms and functions that businesses offering RPOSC could take are important to answer if and before we legalize, as having a well-planned legalization scheme can benefit the state by providing firm rules for entrepreneurs and investors to rely on if they intend on investing any sums of money into RPOSC and other cannabis related businesses.

Finally, despite our state’s long social history with marijuana, including the aforementioned Prop. 215, California was not in the first group of states to fully legalize. While placing out of the top four is not ideal if looking for Olympic medals, in California’s case, slow and steady could indeed win the race. But how can California win the race when starting years behind? The answer: create business-savvy marijuana laws that provide the greatest benefit to our state and local communities, while identifying and minimizing social costs. If RPOSC is balanced correctly and intelligently, our regulatory model could serve as an example for states and communities around the country to allow the safe, effective and lucrative operation of retail point of sale marijuana consumption businesses.

-Philip Brody for the Drug Law and Policy Blog

The Ganjapreneur’s Road To Something Bigger

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Imagine – it’s 2025 in California. Marijuana has been recreationally legal for almost ten years. You leisurely walk into the local gas station and purchase a pack of Marley Natural Special Blend – a brand of marijuana cigarettes. While you stand outside and light up, people walk by you as they file in and out of the store. No one says anything to you. No one calls the police. No one cares what you are doing. Marijuana has taken root in the mainstream American culture. Big Marijuana has risen.

So what exactly is Big Marijuana? Is it the same as Big Tobacco? The answer to this question depends on how “Big Tobacco” is defined.

Generally, Big Tobacco is a derogatory term referring to the industry that consists of the largest tobacco companies in the United States. Big Tobacco reached the height of its power in the early 1960’s and was known for its enormous spending on political influence. Its lobby centered attention on the notion that the science of tobacco was uncertain, and it called into question each medical and scientific finding that was released to the public.

Now on the decline, Big Tobacco corporations such as Phillip Morris, R.J. Reynolds, and Lorillard are credited with a long history of lying to Americans about the dangers of smoking. Their exploits include having doctors promote cigarettes as medicine and deliberately targeting children as “tomorrow’s potential regular customers.” Although Big Tobacco’s glory days have passed, it still remains a powerful entity, and is being used as the model to explain what the rising marijuana industry could one day become.

Will Big Marijuana follow the same path? This question is difficult to answer. However, certain parallels between Big Tobacco and the rise of marijuana in the United States are striking. Take, for example, the strategy employed by Big Tobacco of having doctors promote cigarettes as medicine. Is marijuana currently being promoted as a medicine? The legalization of medical marijuana in 23 out of our 50 states says that it is. What about the strategy employed by Big Tobacco of questioning each medical and scientific finding that was released? There sure seems to be a large variance of opinions about marijuana throughout the scientific and medical communities. Do you see the pattern? Or it is too soon to tell where the marijuana industry is headed? Or maybe you don’t care about the ethics of Big Tobacco, but you smell a business opportunity in Big Marijuana. You might be in luck.

As each year passes, more and more states and municipalities across the country are choosing to decriminalize marijuana and some are going a step further in choosing to legalize and regulate it. Nationwide support to end prohibition is increasing every day and money that was once being lost by enforcing the ban against marijuana is now being found through tax revenue from the regulation of marijuana’s distribution. In states like Colorado and Washington, millions of dollars are flowing from consumer pockets and into the hands of state governments and bold businessmen. In states where marijuana remains illegal, the black market continues to generate an exorbitant amount of untaxed profit for the opportunistic outlaw.

Whatever shape the marijuana industry may take in the future, it is clear that it is not going away. For a country that prides itself on its capitalist foundations, there is simply too much potential profit and opportunity for the marijuana industry to stagnate. As time moves forward, Big Marijuana will inevitably show its face, however beautiful or ugly it may be. If I – the entrepreneur, businessman, visionary – wanted to be that face, how would I get there?

In the hostile and dynamic legal environment that surrounds the marijuana industry, how would I advertise and market my company’s product or service to consumers? How would I expand my business across state boundaries? How would I protect my brand? How would I take on investments and stay on good terms with the IRS? And for all of this, is it even possible to build Big Marijuana?

These questions are daunting, and as the law changes daily the answers to these questions follow suit. But all hope is not lost. There are companies out there that have formed their own answers to these questions. Take Marley Natural, for example: the company that is planning on being the “Marlboro of Marijuana” plans to launch its first product in “Late 2015.”

If they can do it, so can I. In this multi-part series I will envision a potential framework of how a company might overcome some of these obstacles. Stay tuned for more.

Jeff Madrak for Drug Law and Policy – Follow us on Twitter @DrugLawPolicy

What About the Children? Three Ways Kids Feel the Effects of Marijuana Prohibition

Spend thirty seconds speaking to anyone about the issue of recreational marijuana and the topic of kids will almost inevitably come up. Youth use and accessibility are significant issues to consider in the recreational marijuana discussion; much like alcohol and tobacco, marijuana has a negative impact on juvenile and teenage development, the extent of which has yet to be completely determined. However, the popular argument against legalizing recreational marijuana that is based on the concern of youth use and accessibility is shortsighted, for a number of reasons. One reason mentioned above, and one that I won’t be spending much time discussing in my coming blog additions, is that the medical effects of marijuana on children is still very unknown. The American Academy of Pediatrics just this year released new policy statements that simultaneously called for the decriminalization of pot but opposed outright legalization of recreational marijuana. This may be indicative of a greater terminology problem (one which Drug Law and Policy is covering as well), but I think it is also valuably indicative of the sheer lack of conclusive knowledge and data on the topic. The various harms caused by marijuana to the population at large is a daunting and not well understood problem, let alone the specific harms affected on youth.

While the medical and developmental effects of marijuana on children may be difficult to measure, what are much easier to measure are the effects of current marijuana laws on youth. These effects, and the ways in which they might change if recreational marijuana is legalized, are what will be discussed and analyzed in my series.

To begin, it’s worth considering when it is that marijuana regulations and laws affect youth. For the purposes of this series, I am concerned about when youth are “caught.” Youth are undeniably affected in other ways by marijuana regulation (for example, their access to marijuana is tied pretty closely to whatever regulations are in place), but this series aims to focus on the ways youth are directly affected. So, the next logical question becomes, what do you mean by “caught?” The most obvious and extreme scenario is when a youth is caught with marijuana by the police or law enforcement. In this case, the youth faces a number of criminal charges depending on what kind of marijuana, the amount of marijuana, and where they were caught. The second half of this blog post will discuss the current make up of California’s criminal marijuana laws. Before that, I will quickly review two broad areas of impact to consider when discussing youth getting caught.

One common way a youth is caught is at school by administrators or teachers. The consequences for youth getting caught with marijuana at school can vary, though two of the most serious consequences are obviously suspension and expulsion. The data on incidences of youth being caught at school is difficult to compile, for a few reasons. First, collecting data for any issue involving children is challenging thanks to many comprehensive privacy protocols protecting the identity of children. Second, schools are reluctant to formally report illegal activity on their campuses often out of concern for the consequences such reports will have on the children involved. No teacher wants to call the police only to have one of their students arrested in the classroom and face criminal prosecution. That reluctance could lead to school administrators suspending youth for simple possession and reporting the incident under a broader education code section.[1] Third, schools have been known to strong-arm youth into “voluntary withdrawal” from home school districts when they are found with marijuana or other contraband. The story plays out like this: Jose is caught with marijuana and called into the principal’s office. Pamela the Principal calls the campus police officer or local station. An officer comes to Pam’s office, explains to Jose that having marijuana on school grounds is a misdemeanor, selling to other youth is a felony, and that Jose can avoid criminal charges if he withdraws from the school. The outcome of Jose’s ordeal is that he was forced to leave his school because of a marijuana incident, but no trace of marijuana is mentioned in any kind of report. Finally, data on suspensions and expulsions due to marijuana possession is impossible to determine from the California Department of Education due to the language of the Education Code. The Education Code lumps all suspensions and expulsions related to alcohol, intoxicants, and any controlled substance, including marijuana, into one code section, 48900(c). Teasing out which offenses are for marijuana is impossible.

Another area of concern I plan to explore more deeply in a future post is the differing consequences for dependent youth. A dependent youth is any youth who is a dependent of the state, mostly foster children or children who have been otherwise removed from the care of their natural parents. These youth face a set of consequences different than those of their independent counterparts. While a child living with his or her natural parents who is caught with marijuana is likely to be grounded, perhaps have their allowance or car use privileges revoked, a foster child or child in a group home caught by their guardian is likely to end up in juvenile hall. Further, being convicted of a crime may require a change in a youth’s living situation and make them ineligible for certain programs and benefits. Policy and regulation of foster care varies by county or region in California, as do the policies of programs serving foster youth, like Court Appointed Special Advocates (CASA) and Foster Youth Success Initiatives (FYSI). Therefore, it may be difficult to conclude exactly how often and to what extent a marijuana offense disrupts a youth’s dependent status. Regardless, I will be attempting in the next couple weeks to compile some kind of sampling of the various policies and practices.

The third and final area of concern I will discuss today are the effects of a youth being caught with marijuana by police or law enforcement. When the police catch a youth with marijuana, the youth faces a number of different charges depending on where and when the youth is found. In California, marijuana possession was “decriminalized” by SB 1449, which Governor Schwarzenegger signed into law in 2010. The bill made possession of up to an ounce, or 28.5 grams, of marijuana an infraction, punishable by a $100 fine, and requiring no court appearances.[2] The infraction would appear on someone’s criminal record, but could be completely expunged after two years. This is great for adults and youth alike who are charged with “simple” possession. The problem, of course, is that possession is not always simple.

SB 1449 made possession of marijuana for personal use an infraction, however, it left open several exceptions that allow prosecutors to bring more serious charges in very similar circumstances. Norml.org has a great chart as a summary. One of the most glaringly problematic exceptions (at least to this reader when she first saw the bill) is that for both juveniles and adults, getting caught with under an ounce of marijuana on school grounds is a misdemeanor. I understand the reasoning behind leaving possession at school a misdemeanor—to discourage users and dealers from bringing marijuana to schools—however, the decision to make it a misdemeanor rather than an infraction for a youth to possess at school lacks some practical forethought. Namely, that kids spend a lot of time at school.[3] Further, kids generally feel safe at school in the sense that they consider it a familiar place where they experience some kind of ownership and belonging. When this sense of comfort is confronted with increased police presences on school campuses and teachers who may be mandated to report drug incidences to law enforcement, it becomes clear that its not a question of whether kids get caught with marijuana at school, but when. (This issue taps into a much larger discussion about the school-to-prison pipeline, which I can’t possibly dissect to any respectable degree on this blog. Here is an infographic that briefly explains the problem and conveniently punches you in the heart.) Additionally, SB 1449 left possession with intent to distribute or sell, of ANY amount of marijuana, a felony. So if the school security guard catches 16-year-old Carlos selling his friend a joint for a dollar, he could be looking at misdemeanor-possession and felony-sale charges. Even though marijuana was “decriminalized.”

Thanks to Proposition 47, it is no longer a felony to possess concentrated cannabis, however it’s clear there are still a number of ways youth can get wrapped up with some serious criminal charges involving marijuana, despite SB 1449’s efforts. The consequences for youth of a misdemeanor or felony conviction, or even an infraction to some extent, expand beyond the money fines and periods of incarceration. These many effects, as well as the ways in which they might change if California chooses to legalize recreational marijuana, will be discussed in this blog series in the coming weeks.

Clare McKendry for Drug Law and Policy – Follow us on Twitter @DrugLawPolicy

[1] California’s broadest Education Code section, 48900(k), “Disruption, Defiance,” was significantly narrowed in scope by AB 420, enacted in September 2014. Given the very recent nature of this legislature, and that California schools are halfway through their academic year, it won’t be possible for me to determine the impact of AB 420 on suspensions or expulsions for marijuana during my authoring this blog.

[2] Notably, reducing the charge to an infraction also distinguishes the offender’s right to counsel.

[3] The California Department of Education requires schools teaching grades 9-12 to offer 180 days with 63,000 minutes of instruction each year. That equates to 5.83 hours of instruction each day a youth is in school, and that does not take into account passing periods, lunch, and the general loitering that teenagers are so want to do.