Monthly Archives: April 2015

But What does it all Mean Man?: CARERS and Interstate Lawsuits, a Messy Patchwork of Quasi Solutions

In my last post, I created and described a framework for discussing marijuana reform that I claimed could solve many of our problems. This week I’m going to tell you how that framework could become useless in an instant. Enter the Compassionate Access, Research Expansion, and Respect States (CARERS) Act. While the CARERS act is not law yet, or even close to law (it only has a few sponsors and hasn’t been put to a vote yet) it might dispense with the current lawsuit by Nebraska and Oklahoma (the “NO” states) alleging that Colorado is violating federal law by regulating adult-use marijuana. At the same time as it solves this problem, the CARERS Act might create a host of other problems for the NO states in particular and marijuana regulation in general.

As most readers know, in 2012 Colorado voters passed Amendment 64, legalizing recreational marijuana. The Attorney Generals of NO allege that the legalization of recreational marijuana in Colorado has created adverse consequences for their state. The lawsuit asks the federal government to step in and prevent Colorado from regulating marijuana. In effect, the NO states are saying no to Colorado’s legalization. Yet, it seems unlikely that NO are simply suing Colorado to save the mountain state from itself. In its reply, Colorado explains that the NO states are simply trying to reach across their border to change Colorado law.

While it hasn’t passed into law, if it were passed, the CARERS act would render the lawsuit moot. It would reclassify medical marijuana as Schedule 2, allow VA doctors to recommend medical marijuana, and, most significantly, it would remove federal prohibition in states which have any regulatory scheme about medical marijuana. This is weirdly analogous to the Perry/Windsor issue on gay marriage, when the Supreme Court held that the federal government must recognize gay marriage but made no requirements on the states to do so.

As it stands currently however, the CARERS Act has no requirement for the quality or comprehensiveness of regulation. A state like California, with no statewide regulation, would be no different than Colorado, which has significant regulation, at least in regard to medical marijuana. CARERS may be one of the only things the federal government could do that would simultaneously remove prohibition and worsen the tangled patchwork of regulation states are creating.

Consider a baggie of medical marijuana from Colorado. It would be legal to possess in Colorado, both according to state and federal law.However, the same baggie would be federally illegal if it simply moved over the border to Nebraska or Oklahoma (assuming they don’t enact a legalization scheme of their own). In this situation, Colorado would be incapable of violating any federal law. Medical marijuana would be legal the second it enters Colorado.

But what would happen if the baggie were recreational instead? CARERS only contemplates medical marijuana, not recreational. This obviously implicates enforcement issues – it may be impossible to distinguish between medical marijuana and recreational marijuana in the field.

It’s likely that NO would still have an argument if they were able to demonstrate that recreational marijuana from Colorado was crossing their border. What about if Colorado followed California’s model of making medical marijuana regulations extremely lax? This seems to be a likely result – if a federal system comes into place that allows medical marijuana but doesn’t define what it is, many states may want to shift to an expansive medical framework like California’s current medical marijuana scheme. If Colorado were to adopt California’s model post-CARERS, NO would not be able to say that Colorado’s laws would be preempted.

Let’s just take a moment to consider the implication of CARERS: It favors a completely unregulated medical market where anyone can get a club card over a highly regulated recreational system.

But it gets even messier than that. Remember that CARERS makes medical marijuana federally legal if there is any medical regulation. The text of the bill doesn’t say anything about the form of marijuana legalized, just that state rules need to be followed. While a court could (and almost certainly would) limit CARERS, it creates a whole host of  other problems. Let’s look at what would happen in Georgia, which just legalized only medical CBD oil. Again, this is speculative, but the way the CARERS statute reads suggests that in Georgia, marijuana would be de-scheduled to the extent that it complies with state law, but beyond that still federally illegal. If Georgia is specific about its regulation for producing CBD oil, a misstep in a lab could be a minor license violation at the state level, but a felony at the federal level. This is for lack of a better word, weird.

At the same time as creating these messy situations, CARERS would make it harder to categorize and discuss marijuana reform. The wide reach of CARERS would make the framework for analyzing different reform schemes unhelpful. If a state has the explicit permission to regulate medical marijuana how they see fit, any method of regulation will suffice. This suggests that the federal government would approve of both State Regulation and State Participation, as I defined them in my earlier post.

However, it leaves the problem of defining “regulation” and “medical.” Would a state with Total Decriminalization be one where marijuana is federally legal? The way the word “regulation” is used in CARERS is ambiguous, and could go either way.

A likely post-CARERS marijuana reform scheme could be medical with broad entry requirements, and with no limitation on the level of state involvement. If, for federal purposes, all forms of marijuana regulation are functionally the same, then the clear lines drawn by my framework would cease to provide something useful.

While neither the lawsuit nor CARERS has come to fruition, the world that they would create is perplexing and uncertain, especially along the border of green and non-green states. If preemption is not a successful cause of action, then what can a state do to limit the influx of marijuana from non-green states? I’ll cover that in my next post. Stay tuned…

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You Gotta Pay To Play

“You gotta pay to play”, said an entrepreneurially minded man in t-shirt and jeans after reviewing applications for new members to his medical cannabis collective. John Doe is an owner of a medical cannabis dispensary called San Jose Medicinal. Located in downtown San Jose, San Jose Medicinal is one of 89 dispensaries in the city of San Jose that faces closure as a result of Ordinance No. 29420 adopted on June 17th, 2014. The ordinance, which takes effect in July 2015, revises regulations for medical cannabis dispensaries in San Jose to the point that an overwhelming majority will be forced to shut their doors permanently. Before diving into the intricacies of the new ordinance, it’s important to first understand the local framework this ordinance fits into.

Proposition 215 gave Californians the right to access and use medical cannabis by adding section 11362.5 to the California Health and Safety code, also known as the Compassionate Use Act of 1996, on November 6th, 1996. The Compassionate Use Act was the beginning for Californians’ rights to use cannabis for the treatment of certain ailments including “cancer, anorexia, AIDS, chronic pain, spasticity, glaucoma, arthritis, migraine, or any other illness for which marijuana provides relief.” With this act, patients who are recommended cannabis and doctors who make those recommendations are free from criminal penalties by state authorities. In this sense, this provision served as a medically exempted provision from the criminalization of cannabis set out in the health and safety code’s section 11357. The Compassionate Use Act of 1996 opened the door for access to medical cannabis, but it would be another eight years until further medical marijuana regulation was enacted.

Before 2012, municipalities had already been setting local regulations pursuant to typical zoning practices. As described in Big Creek Lumber Co. v. County of Santa Cruz, “Land use regulation in California historically has been a function of local government under the grant of police power contained in article XI, section 7.” In 2012, however, zoning medical cannabis dispensaries became much more explicit and specific with the addition of California Health and Safety Code Section 11362.83. This provision establishes that, “Nothing in this article shall prevent a city or other local governing body from adopting and enforcing any of the following: (a) Adopting local ordinances that regulate the location, operation, or establishment of a medical marijuana cooperative or collective.” While most municipalities have to some extent tailored medical cannabis zoning laws to fit their local needs and values, the case of The City of Riverside v. Inland Empire Patients Health and Wellness Center, Inc. is a prominent precedent in California that illustrates this provision of the California Health and Safety Code effectively.

In May of 2013 the city of Riverside set a precedent for the use of California Health and Safety Code section 11362.83 as it chose (via its local ordinances) to set a moratorium on cannabis dispensaries. Violation of this ordinance was deemed to constitute a public nuisance (See Inland Empires). Claiming that existing medical cannabis dispensaries were in violation of the local ordinance and therefore a public nuisance, the city of Riverside then filed for injunctive relief against the dispensaries (Id). In place of John Doe defendants, the city of Riverside then named Inland Empire Patients Health and Wellness Center as their defendant (Id). The trial court found in favor of the city.  Inland Empire Patients Health and Wellness Center appealed the ruling until it was decided in the California Supreme Court (Id). In the California Supreme Court, the city of Riverside argued that the dispensary was operating in a business and manufacture park zone, and that operating a medical cannabis dispensary was not a permitted use of land in this zone (Id). While this was cited as the specific zoning violation, the city had actually not zoned any areas in which medical cannabis dispensaries could operate (Id). The California Supreme Court affirmed the rulings of the trial and appellate courts (Id). While Riverside could not ban dispensaries by citing federal pre-emption, the Court felt that this local zoning ordinance did not directly conflict the rights granted under proposition 215 (Id). This case is our first precedent of a way in which local control, here under 11362.83, can be applied.

11362.83 gives the city of San Jose local control. The ordinance provides for regulations at all levels of the medical cannabis industry and sets out land use regulations that have had significant impacts on medical cannabis dispensaries. Perhaps the most striking is the restriction the city has placed on medical cannabis dispensaries in certain areas. Not only does this raise the question of where the city will technically allow them, it is also curious that medical cannabis dispensaries are zoned differently than the other medical facilities like medical or dental offices despite being recognized as occupying the same field. Along these same lines, the ordinance adds blanket bans on medical cannabis dispensaries in certain areas. For example, dispensaries will be banned in the “International Business Park” boundary. This area is defined as “the corporate limits of the City of San Jose bounded by Interstate Highway 880, Montague Expressway, Trade Zone Boulevard, the Union Pacific Railroad line, Murphy Avenue, and Brokaw Road.” For those less familiar with San Jose, this spans the majority of the downtown area. The ordinance also prohibits the use of land for medical cannabis dispensaries in the Edenvale Area Development, which they cite as spanning 2,312 acres. These are just a few examples of provisions found in the new ordinance. Nevertheless, some are more problematic than others.

I had the opportunity to interview owners and volunteers at several different medical dispensaries, and was able to hear specifically which of these land use provisions were proving problematic to their ability to remain in business now, and after July of this year (I will not mention the specific individuals by name so as protect their identities). The first dispensary I spoke with was San Jose Medicinal, located on First Street in downtown San Jose. The first person I spoke to works as a budtender at the dispensary. Upon asking about the ordinance, he insisted he was a volunteer and could not recall anything about the dispensary’s current legal status, or how the ordinance has and will be affecting them. He referred me to John Doe, who cited the 1,000 foot ordinance as the reason why the San Jose Police Department is attempting to shut them down. San Jose Medicinal is alleged to be 997 feet from St. James Park. It is therefore deemed to be in violation of the ordinance, despite fulfilling other difficult criteria such as being located on the second floor in a downtown commercial zone.

San Jose Medical Group is currently appealing the city’s ordinance, and the designation of St. James Park as a “park” as it was intended to be defined. They are arguing that the legislature intended to define “park” as a place where children play. Since there are no playgrounds in St. James Park, and the homeless frequent the park and bathe in its fountain to the point where e. coli has been found there, it is safe to say that children are not playing there. As such, the city should not consider it a “park” from which the 1000 foot requirement should be drawn. When I inquired as to why Mr. Doe felt the city implemented these provisions, he could only respond, “you gotta pay to play”.

The next collective I spoke with was Lux Meds/Red Clover/San Jose Patients Group located on south Autumn street in San Jose. Immediately you may have noticed the hyphenated name. According to Jane Doe, these three medical cannabis dispensaries have been forced to partner together to survive in light of land use issues incurred by the new ordinance. San Jose Patients Group, for example, used to be located on the 800 block of the Alameda (aka highway 82) in San Jose near the new Whole Foods. Some residents in the area had been making complaints that amounted to nuisance, which in turn caused the San Jose Police to measure their distance from the Dispensary. Measuring directly, over a river that lies in between the houses and the dispensary, the San Jose Police found San Jose Patients Group to be operating within 1000 feet of these residences.

Before launching into ordinances other municipalities passed to compare with San Jose’s, this example already presents a striking issue with the new ordinance. The 1000 feet separation requirement is set in place as a buffer zone between the dispensaries and the community so as to separate the community in the event some undesirable circumstance, usually crime, arises. While 1000 feet is a good per se rule for a buffer zone, this should also mean that a dispensary could operate within the 1000 foot area if attended by some other buffer that would separate the dispensary from the community at large. Like a moat to a castle, a river in between a dispensary and residences would keep the potential social ills separate from the community that would otherwise suffer from them. This notion is supported by Santa Cruz County’s policy (stay tuned for details in my article discussing Santa Cruz!), which allows for a medical cannabis dispensary to be located within the buffer zone upon proving that they will not be the cause of harm.

While the thousand foot requirement is perhaps enforced beyond the extent of its original intent, the culprit could also arguably be the way in which this distance is measured. The language of the ordinance requires the measuring to be done “in a straight line from the Parcel boundary of the sensitive use to the nearest exterior wall of the Collective’s Building envelope”. Contained in this single sentence are a couple of ways in which the language of the ordinance can undermine the underlying intention of keeping a buffer zone between medical cannabis and people like children and those with substance abuse issues. The first is that the distance is measured in a straight line. As mentioned above, something like a river is a great example of a physical barrier that works to achieve the intended separation between medical cannabis dispensaries and places of “sensitive use” (like schools and playgrounds). When something like a river creates an interruption in medical cannabis’s ability to reach sensitive use areas, so too should the distance be measured. If an unintended ill like crime were to attempt to reach a sensitive area, it would have to go around the river first. If the state feels that 1000 feet is the distance after which unintended social harms dissipate, it should therefore follow the path of their theoretical criminal, and also have to go around the river first. To take it a step further; in theory this river, or mountain, or other sort of barrier could be insurmountable, impassable, and the dispensary would still not be allowed to operate if located within 1000 feet as the bird flies. Yet, it is not the birds we worry about.

Also problematic in this language is how the distance is measured to the parcel boundary. Theoretically, this could mean that a school, or rehabilitation center, could have property that spans a lengthy estate of several miles, and a medical cannabis dispensary would not be able to operate within a thousand feet of its edge, despite being miles away from the people the ordinance is trying to protect.

Jane Doe raises another serious issue caused by the restrictive rezoning found in the new ordinance. As of July of this year, zoning changes will only allow for medical cannabis dispensaries to be zoned in one area of San Jose.  Located in a warehouse district near Monterey road and Curtner Road, the ordinance sweeps the medical cannabis industry to south central San Jose. In this district, Jane Doe estimates the average square footage of each building is around 20,000 feet. According to Doe, the partnered three collectives are already having trouble getting enough business to support being in operation in a 5,000 square foot building. She fears that being forced into significantly larger spaces will be an automatic death sentence for smaller medical dispensaries, and will require a practically insurmountable restructuring and partnering of more successful medical cannabis dispensaries. Her fear is not without foundation. Rather than grandfathering current dispensaries’ rights to operate, San Jose shut all 89 dispensaries down, with the option to reapply for licenses. As of the time of writing this article, only six dispensaries have found the new legal environment in San Jose viable enough to apply for a new license.

Not only does rezoning the industry in such a way that shuts down 89 of a city’s businesses have fiscal ramifications for the municipality but it also creates the risk of diversion to illegal markets.

As we move forward in comparing what is currently happening in San Jose to the ordinances passed in other municipalities, it is crucial to remember that the people have the right to voice their approval or lack thereof, and can bring about real change in their communities. By looking at other municipalities, we can make an informed evaluation about this ever changing legal environment. Be informed and decide for yourself, because what you decide can have a very real impact on the community you live in, and set precedents for the generations to come. Join me for my next article, as we look to a county in Washington who also faced the decision of how to zone a decriminalized marijuana industry to fit the needs of their community.

Current Regulation of On-Site Marijuana Consumption in Other States: What can California learn?

With the legalization of marijuana in four states and the District of Columbia, policymakers and citizens have had to address the important question of where we should allow adults to consume legal marijuana. Within a legalized state, where marijuana possession and consumption is a commercial act rather than a criminal one, it is important that potential marijuana smokers have clear rules delineating where they may and may not consume marijuana. How policymakers have and will address this question says a lot about how a state’s relationship with marijuana will develop, what forms its legal marijuana market will take, and if retail point of sale consumption businesses (RPOSC) will be allowed within the new marketplace.

Current municipal medical marijuana regulations in California, and the vast majority of Colorado and Washington municipalities, expressly ban on-site marijuana consumption at dispensaries and cannabis clubs. As I’m highlighting with this article, this has created issues both for adults who come from out of state and are staying at hotels or other multi-unit buildings, and citizens of the state who do not own single-family dwellings that are exempt from state anti-smoking ordinances (see, e.g., Colorado’s Clean Indoor Air Act and its medical marijuana amendment, and Washington’s Inititative 901 which extended the state’s smoking ban to indoor locations like bars and restaurants).

Such state and municipal smoking bans, originally aimed at tobacco smokers, have largely been interpreted to also cover medical and legal marijuana smoke, although a few municipalities in California, like San Francisco, have passed resolutions strengthening the smoking bans while clarifying that valid medical cannabis dispensaries are exempt. Indicating further progress, Anchorage, Alaska recently became the first U.S. municipality to expressly allow “hash cafes” by regulation, alongside the group of “cannabis lounge/bars” that have popped up in Colorado Springs, Colorado.

However, placing limits on where to consume cannabis is an ongoing issue for the vast majority of the municipalities in Washington and Colorado since their marijuana laws went into effect. While Colorado allows anyone 21 and older to purchase marijuana at licensed retail stores, they simultaneously ban the on-site consumption of marijuana or marijuana byproducts on dispensary grounds, while also providing authority via the Colorado Constitution Article 18 Section 16-6(d) for landlords and other property owners to ban/regulate marijuana usage and possession on their private property.

Colorado’s legislation also left room for cities and municipalities to craft specific regulations for their area. For example, both the city of Denver, in section 24-408 of its municipal Health and Sanitation code, and Boulder,  in section 6-16-8(a) of its Health, Safety, and Sanitation code, promptly took the opportunity to clarify Colorado’s ban of public consumption to extend to specific on-site consumption bans for retail locations. Washington also bans on-site consumption at licensed marijuana retail locations (section 14(5) of the enacting legislation).

The result of the already existing smoking bans, plus the ongoing battles around official definitions of “public consumption” written into regulations drafted by local municipalities, have led to cannabis consumption being largely restricted to private single dwelling homes, even in states that have legalized marijuana’s possession and consumption. The lack of places to consume cannabis has even been reported to lead to an increase in negative outcomes for marijuana users: without a place to smoke or vaporize cannabis, they instead eat an edible, which for inexperienced users can be problematic.  (An article on the difference between smoking marijuana and eating marijuana edibles notes that onset of effects can take anywhere from a half to two hours versus the near instant impact of smoking or vaporizing). But should consumption be limited to the privacy of a specific type of home, to the exclusion of people who don’t have similar access? For the marijuana market, what does that mean for adults who wish to travel into the state for potential “marijuana tourism” and for individuals who don’t live in or have access to places where they can consume cannabis products legally?

In Colorado, tourists travelling into the state to engage in cannabis tourism are limited as to where they may consume their newly purchased marijuana. A secondary market has sprung up offering “marijuana tours,” where a tour van or limo drives paying customers from dispensary to dispensary in a manner similar to a wine tour, thereby allowing the passengers to enjoy their purchases in between destinations within the “privacy” of the vehicle.

For a marijuana tourist, the question of where to sleep after such a tour is important. As noted above, the Colorado Constitution allows private property owners to ban marijuana use and possession on their properties. This includes hotel owners who may wish to prohibit individuals who are merely in possession of marijuana from staying on their premises, not just those who wish to consume it there. The Colorado Clean Indoor Air Act limits smoking in hotels to 25% of the available rooms, so even if entrepreneurial business owners wanted to establish a marijuana-friendly hotel, they would still be limited in their ability to do so. Washington has a similar 75% for rooms in a hotel under their smoke-free requirement in its Clean Air Act, although the Washington Lodgers Association, a trade association for the states hoteliers, has made no additional recommendations besides suggesting that hotels promulgate a clear marijuana policy for their guests. Despite the lack of clear rules, online searches for hotel rooms in legal marijuana states have soared close to 50% as more and more people see marijuana-friendly states as viable vacation sites, providing willing and entrepreneurial hoteliers a growing market to cater to.

In addition to the current businesses mentioned above, it seems there are opportunities to alleviate these consumption issues through the responsible development of businesses allowing on-site consumption. RPOSC businesses such as “budpubs”, “cannabars”, and “vape lounges” that I mentioned earlier in the article and in my first post could simultaneously alleviate public-use issues, generate additional tax revenue for the state, and serve as lynchpins for economic redevelopment.

Currently, in legalized states and for California’s medical system, municipalities may lawfully restrict the locations where dispensaries exist. For Colorado, the combination of local zoning restrictions prohibiting dispensaries within residential and main street zoning areas, plus a required 1000 feet separation from schools, childcare and rehab facilities, has resulted in dispensaries usually being located in the outskirts of urban areas generally zoned for commercial and industrial uses. Some observers, like Professor Jeremy Németh from the University of Colorado Denver, have pointed out this often means dispensaries are located in socio-economically disadvantaged areas, whose residents are unable to mount the “not in my backyard” campaigns to local civic and economic leaders in order to have the dispensary located elsewhere (Read the full paper . While retail point of sale consumption businesses will no doubt face similar outcries, being able to elucidate the beneficial elements of redevelopment through “green” entertainment districts with RPOSC locations to these areas will certainly help create a positive response. Already, elected officials have realized the value of retail medical marijuana facilities in their localities: Professor Németh’s paper mentions Oakland Councilwomen Rebecca Kaplan, who cites medical marijuana businesses as a key driver of revitalization of the Uptown neighborhood in Oakland that had previously been vacant and underdeveloped. This same value, if properly regulated, can be derived from RPOSC businesses as well.

For the creation of RPOSC businesses to be beneficial to the quality of life and economic health of a community, there must be a comprehensive system for zoning and regulating where these businesses can exist. This must include plans in advance for limiting the potential negative side effects such as public over-consumption, smell, and increased loitering and foot/vehicle traffic, and maximizing the positive benefits they can bring to a community through increased land values, increased economic activity continuing into secondary markets like entertainment venues and restaurants, and  more  jobs.

If California legislators and city government officials look to the already prosperous examples of craft breweries, wineries, wine bars and brew pubs, they may realize a successful model already exists, currently overseen by the California Department of Alcoholic Beverage Control, to regulate future on-site consumption businesses. However, future RPOSC establishments in California must confront another regulatory hurdle besides zoning: our state and local indoor smoking bans.

As mentioned above, Colorado and Washington both ban the indoor smoking of tobacco through their state clean indoor air acts. Additional amendments later extended these provisions to also cover marijuana. However, within both acts are a few exceptions. For instance, Colorado has exemptions for “cigar-tobacco bars” and workplaces not open to the public with 3 or fewer employees in section 25-14-205 of their Clean Indoor Air Act, while Washington provides almost no exemptions beyond that for private residences and certain private workplaces under section 70.160.060 of their Clean Indoor Air Act.

In Colorado, this exemption for workplaces not open to the public has been used by at least one private marijuana lounge, Club Ned in Nederland, Colorado. According to Club Ned’s attorney Jeff Gard in an article published about the club, the major hurdle to opening a cannabis café was the state’s Clean Air Act. But he found inspiration from the way Veterans of Foreign Wars posts allowed members to smoke indoors: if they could structure their business as a private, members –only club, with restrictions such as membership dues, having a certain percentage of their revenue coming from those dues, few employees, and members bringing their own cannabis, they could operate within the Clean Indoor Air Act. After working out additional zoning issues with the town of Nederland, the club opened in April 2014 and has operated successfully ever since.

Because similar restrictions on indoor smoking exist within California’s Clean Air Act, along with similar exemptions for tobacco shops and smokers’ lounges, any RPOSC businesses in California would have to fall under existing regulations or seek to have additional exemptions created for them. In order to qualify as a smoker’s lounge or tobacco shop under the California Indoor Clean Air Act, the business’s “primary purpose” must be the smoking or sale of tobacco products. The California Attorney General in 2011 issued an opinion on this meaning by clarifying that food or alcohol cannot be served at a smoker’s lounge or tobacco shop, or it alters the primary purpose of the establishment away from tobacco sales or consumption, thus losing its exemption under the Clean Air Act. Similarly, the California Attorney General also found that bars and taverns with 5 or fewer employees were not exempt from the Act and thus could not allow smoking within the building. Unless new exemptions are created for any potential marijuana RPOSC businesses, the above restrictions provide tough but not insurmountable restrictions on creating and running a potential marijuana lounge.

Another potential avenue for a marijuana RPOSC business comes from the idea of a “vaporizer lounge,” which could potentially avoid the restrictions on smoking inside businesses. However, with the rising popularity of e-cigarettes, California has been wrestling with the idea of banning their use entirely. A recent bill in the California Senate by Senator Mark Leno of Sacramento would seek to broaden the definition of “tobacco product” in the current anti-smoking laws to include electronic cigarettes in order to ban them in bars, restaurants, hospitals and other workplaces. However, there appears to be an exemption for medical marijuana, as the bill states that its “provisions do not affect any law or regulation regarding medical marijuana.” What effect this would have on the potential for legal marijuana on-site consumption businesses is unknown, but either way, requiring that RPOSC businesses only allow vaporizing of marijuana would be a possible compromise clarified by the legislature and/or a loophole in the law for businesses to exploit.

In my next article, I will focus in-depth on the growing handful of RPOSC businesses in legalized states that are currently dealing with similar zoning and regulatory issues, and what lessons can be learned by future similar businesses and municipalities in California as to where and how to zone where such RPOSC businesses can exist for the betterment of both the business and municipality.

The First Cannabis Initiative Has Been Filed: The California Craft Cannabis Initiative and the Justice-Involved

In my last post, I signed off with a promise to begin the conversation about economic barriers. This is not an article about economic barriers. Consider this article a bonus. On April 14, 2015 the California Craft Cannabis Initiative was filed, the first recreational cannabis initiative filed in California. Now, before you get too excited, just because the initiative is filed does not mean it will be on the ballot in 2016. The proponents of the initiative still have a quite a few hoops to jump through before that happens. Still, this is very exciting for all of us at DLP because we have the language of an actual California initiative to consider and discuss. Better yet, an initiative that addresses many of the topics being covered by the Drug Law and Policy Blog.

The California Craft Cannabis Initiative (CCCI) came with a few surprises. Sure, there were the well-considered regulations tailored to meet the Cole memo but there are also a few more radical ideas that you don’t see in Colorado’s highly regarded regulations. For example, there is no local control for growing your own cannabis in the CCCI (meaning more conservative counties would not be able to restrict their residents from growing at home), there is a “craft” distinction for those growing less than 100 plants, and craft cultivators may label their product according to the appellation of the region in which it was grown (if that appellation is on the official list that would be compiled by the commission).

There is a provision allowing for the California Cannabis Commission, which would be created by the language of the initiative, “to develop a licensing system by which cannabis may be purchased, sold, served, consumed, and otherwise disposed of in licenses premises in a manner similar to licensed premises serving alcoholic beverages.” This is another departure from Colorado’s regulatory choices. It is exciting to see some outside of the box thinking within the initiative. Contrary to the apprehension of some, allowing “bud pubs” could go a long way to address public safety concerns.

Most relevant to my coverage at the Drug Law and Policy Blog were the licensing and criminal record-related provisions. Specifically, the CCCI vests the commission with the authority to issue licenses and charge related fees. This can include a criminal history check, but “prior criminal history relating to cannabis use, distribution, cultivation, manufacture, or other cannabis-related activity, regardless of jurisdiction, shall not be considered in the granting or denying of a license pursuant to this chapter.”

This proposed regulation is much more forgiving than Colorado’s current licensing scheme, which prevents individuals with “Controlled Substance felony convictions” within ten years of their application date from receiving retail marijuana licenses. There is an exception for felony convictions for possession or use of marijuana, but not for distribution and cultivation. The CCCI includes all marijuana-related offenses in its explicit exception to the ability to check criminal history. It appears the drafters of this initiative understand the value in keeping barriers for those currently working the black market to a minimum.

Additionally, and more astounding in its breadth, is that the CCCI establishes the entirety of Chapter 6.7, The Craft Cannabis Act, as retroactive. The language is very clear in the initiative, stating: “this Chapter shall be retroactive.” Cannons of statutory interpretation apply to voter initiatives and the intent of the statute is determined by examining the plain language. If the CCCI were to be passed by the voters, it would be clear based on the plain language of the initiative that the voters intended the initiative to be retroactive.

Now, the retroactivity would apply to the whole chapter, including the portion of the CCCI that legalizes cannabis in California: “Notwithstanding any other law, the cultivation, processing, transportation, distribution, sale, possession, and use of cannabis is authorized by persons 21 years of age or older.” By establishing the legalization of cannabis in California as retroactive, the drafters of the CCCI have opened the door for attempts to expunge records and potential resentencing of those serving sentences for marijuana-related crimes.

Proposition 47, which passed last November and amended portions of the Penal Code to make specified crimes misdemeanors instead of felonies under California law, also applied retroactively. Unlike the CCCI, Proposition 47 specified the methods by which people currently serving sentences and people with a criminal history based on convictions of these crimes could be resentenced. After voters approved the initiative, requests for resentencing and expungement of criminal records flooded the already cash-strapped court system. Prop 47 allows for a three-year window for people to apply for resentencing but provided no funding for the courts or public defender offices to cope with the workload.

Additionally, trial courts are having to decide issues not specified within the statute such as whether an individual can have their DNA profile removed from the state’s offender database or if Prop 47 applies to juveniles. Ultimately, these cases will end up at the appellate level, with the California Supreme Court cleaning up any circuit splits. The California Supreme Court has already granted review to two cases involving the effect of Prop 47 on California’s “Three Strike” laws because circuits are currently interpreting Prop 47 as not retroactive in its application to Prop 36. The language of Proposition 47 did not specify that the initiative applied retroactively to findings made under Proposition 36, the Attorney General’s office has argued that the intent for Prop. 47 to apply retroactively cannot be inferred from the voter information guide, while defendants and academics argue that voters’ intent to decrease the prison population and reduce spending on incarceration is clear.

What can be learned from Prop 47? That even more specificity is required for things to run smoothly? Or that there will always be complications that cannot be planned for? Either way, if the CCCI were passed, there would be a lot to sort out. The CCCI invests the commission with “the power to make all regulations necessary and proper to effectuate the will and intent of the people in enacting this chapter, and may carry out or delegate the enforcement and administration of this chapter to other public agencies.” Among those regulations would be those necessary for effectuating the retroactivity of the legalization of cannabis.

Creating the necessary and proper regulations would be in addition to the specified tasks delegated to the commission, which include: issuing licenses, ensuring all cannabis sold is carefully inventoried and accurately labeled, regulating testing of cannabis and cannabis products, and terminating business operations of any business that is endangering public safety. First, the Lieutenant Governor must select the commission. The language of the initiative specifies selection must occur before January 1, 2017. From there, the commissioners have a year to begin issuing permits for the sale and cultivation of cannabis. But before issuing permits, the commission will have to make regulations to effectuate that task.

That is a lot of work. Hopefully, those with criminal records wouldn’t be put on the back burner during this time, where their criminal records could prevent them from receiving financial aid or public housing. Looking at what happened with Prop 47 we know that the courts would likely struggle with the additional caseload and lack of resources, a lesson the commission should consider if CCCI were passed.

Overall, the drafters of the CCCI seem to have considered those most affected by the prohibition of cannabis in producing this initiative by banning the commission from considering marijuana-related offenses in granting licenses and making the legalization of cannabis retroactive. We may never know how this would play out; this initiative may never get on the ballot and if it does, may not be passed by voters. This won’t be the only initiative we see in California for 2016; we will have to wait and see how other initiatives measure up.

Cigarettes and Booze: What They Can Teach Us About Regulating Cannabis

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As California voters prepare to cast votes at the 2016 ballot, it is time to draft an initiative that moves recreational cannabis into the legal sphere. Transitioning an illicit substance from the black market into the legal sphere is not a novel exercise for California (or the U.S. at large), just as prohibitionist posters (above) are not new. The Nation brought alcohol back into the legal market after over a decade of prohibition in the early 1930s. And, while tobacco never drew such dramatic attention, our recent history of anti-smoking sentiment has also taught us many things about which taxation and regulatory schemes are effective in minimizing harms correlated with harmful substances. Our past experiences regulating alcohol and tobacco provide us with useful insight into what regulatory schemes are effective and warrant future use. In many respects, the public feels the same way about cannabis as it does towards alcohol and tobacco products; we want to keep it out of the reach of children, prevent teen use, prevent over use or addiction, reduce criminal behavior associated with use, and encourage responsible marketing. While there are some important differences between cannabis and alcohol or tobacco, there are also some similarities between them, both of which offer lessons that cannabis regulators can apply throughout the recreational marijuana initiative drafting and subsequent rule-making process.

CIGARETTES

 Tobacco control in California over the past three decades is a good place to start the discussion. Throughout the late 1980s and 1990s California triumphed over the tobacco industry and minimized some of the harms of smoking through various taxation and regulatory schemes (ordinances such as smoke-free parks and smoke-free workplaces that reduced both secondhand smoke and rates of smokers, as well as advertising restrictions). The historic 1988 passage of Proposition 99 introduced a cigarette tax increase and a health education program against smoking and saw continued success in the decades that followed. Between 1988 and 1998 many anti-smoking regulations went into effect locally and statewide, and in 1998, California voters passed another cigarette tax increase via Proposition 10. While numerous tax increase initiatives failed to pass at the ballot throughout the early 2000s, anti-smoking regulations continued to succeed.  As a result of numerous anti-smoking regulations the California smoking rate reached a historic low by 2011.

A comparison of some aspects of the tobacco industry and what we know about the cannabis market is also very useful. One way tobacco is similar to cannabis is that both are largely inelastic. Empirical evidence estimates “the elasticity of demand for cigarettes is -0.3 to -0.5, implying that cigarette consumption is fairly insensitive to price but certainly not completely insensitive.” The elasticity of demand for cannabis is estimated to be -0.54. Recall that price elasticity of demand measures how much consumption of a good changes (in percentage terms) in response to a one percent change in the price of that good holding all other factors constant. The price elasticity of demand is generally negative, indicating that when price goes up, consumption goes down. A value between 0 and 0.99 is generally considered to be “inelastic” or less responsive to price changes because consumption drops (in percentage terms) less than the price rises (in percentage terms).

The reasons for the inelasticity of both products, however, are not necessarily the same. The inelasticity of tobacco demand is largely the result of tobacco’s highly addictive nature and the fact that many consumers cannot willingly quit the vice. The reason for marijuana’s general inelasticity is not as clear. Most studies on cannabis elasticity categorize users by “prevalence of use” without accounting for “total amount consumed,” thus are not very reliable when used to try to calculate true elasticity. That is, someone might still get high as often when the price increases but might consume less on each occasion. Such categorization is unreliable because cannabis users fall into various categories, each having different degrees of elasticity based either on price alone or based on price and other factors. Regardless of the reasons for the inelasticity, the fact that it exists is important to account for when deciding how to tax and regulate cannabis in a legal market.

Lesson One: Cigarette Use Is Mostly Inelastic, And While High Tax Increases Create Some Elasticity, The Result Still Fails To Meet The Objective Of Significantly Reducing Harms Associated With Smoking.

The main argument against implementing a high tax for cannabis is the fact that it is likely to be regressive and have disparate impacts on users. This notion stems from the many experts who consider the high taxes on cigarettes regressive since high taxes do not significantly lower the rate of smokers and disproportionately affect low-income users. Another argument stemming from experience with the cigarette market is that if the desired product becomes too expensive, consumers will find other products to curb their need for tobacco, creating a substitution problem. A high tax alone will not do much to curtail consumption in the long run. Economists, however, do recognize that if consumers are faced with a high tax increase (say 50-100%), their consumption patterns do change in the short-term. The highly addictive nature of tobacco, however, leads to users seeking out potentially more harmful, albeit more affordable, products to feed their addiction. For cannabis, the preliminary issue of “substitution” may present as a market shift toward demand for more dangerous and typically more potent canna-products (e.g., butane hash oils) or by driving users to the black market. Both substitutes are undesirable for meeting our measures of successful recreational marijuana legalization schemes. Accounting for cannabis and tobacco’s shared degree of general inelasticity, we can tip our hat to the lesson tobacco taught us and respond accordingly in our implementation of the legal cannabis market. A reasonable response would be to set the price inclusive of tax to be near the black market price, and to avoid significant limits on types of consumption (e.g., smoking, edibles, oils, etc.).

Lesson Two: California’s Best Outcomes For Reduction In Tobacco Use And Its Associated Harms Have Resulted From A Combination of Taxation and Regulatory Schemes.

 Some experts suggest regulations and policies such as “smoke free workplaces,” “strong graphic warning labels,” and/or “anti-smoking media campaigns” are more effective at reducing cigarette use, while others argue that tax increases are more effective. However, studies have confirmed that the combined approach is the most effective, but warn that its effectiveness depends on “the magnitude of the taxes and the amount of media campaign expenditures.” Given our decades of experience taxing and regulating similar markets (alcohol and tobacco), it would be reasonable for us to apply our knowledge and take a comprehensive approach to taxing and regulating the cannabis market. Excise taxes and scheduled tax increases will help limit youth access, as they are the most price sensitive user group. The taxes however, should be set low enough to extinguish, or at least largely diminish, the existing black market. Policies implementing minimum age requirements for purchase would complement higher prices and raise barriers to youth access.

ALCOHOL

 Lesson One: Prohibition Does Not Work.

This lesson is barely applicable since the current voter sentiment towards cannabis legalization implies that we understand this and want to implement a more effective approach. Commentators on prohibition explain that during prohibition, alcohol was technically illegal but lack of enforcement, ease of manufacturing and distribution, and prevalence of public use prevented prohibition from having meaningful effect. One study found that an unintended consequence of prohibition was earlier onset of a drinking habit, with young adults reporting the “formation of a drinking habit” at an average age of 21.4 (males) and 27.9 (females) in 1914 and age 20.6 (males) and 25.8 (females) between 1920-23, compared to 23.9 (males) and 31.7 (females) in the years following the repeal of prohibition. Another unintended consequence of prohibition was the proliferation of organized criminal and gang activity due to the demand for bootlegged booze. Although prohibition did correlate with a decrease in alcohol related deaths, especially afflictions associated with the liver, the movement overall is considered a failure. The price of prohibition was too high; the government lost a significant source of revenue while simultaneously increasing its enforcement costs, and many drinkers had to rely on bootleggers or sought solace in other substances (e.g., opium, cocaine, patent medicines, etc.).

Similar issues are found in the illicit marijuana market. California’s medical cannabis system has created a quasi-legal cannabis market that has motivated many to enter the market regardless of the costs. This has created a similar phenomenon like that found with prohibitionist criminals; people are lured by the potential profits and the lack of meaningful regulation has led to large scale criminal trespass grows.” These “trespass grows” cause significant environmental harm, increase risk of criminal violence, and compromise the safety of cannabis use (e.g., increased risk of molds/fungi in products, potentially easier access to children).

Lesson Two: Legalization Will Only Significantly Diminish The Black Market If The Legal Regulatory System Is Flexible, I.E., Is Continually Monitored And Adjusted In Response To Market Demands.

During the early 1930s many believed that alcohol regulation was impossible. The illicit market was believed to be too financially strong and the participation in the black market was too ingrained in American life. To the disappointment of many prohibitionist sympathizers, repeal of federal prohibition and alcohol regulation worked. Of course, it was not an immediate success on all fronts, but based on the factors we delineated earlier as defining successful regulation, it met or exceeded expectations. A comprehensive regulatory system took effect, which allowed limited public drinking venues, licensed vendors to sell to individuals for private use, and local control was permitted to determine rules about time and manner of use.  The multi-faceted system is said to have been successful because it redirected the focus away from the moral woes associated with drinking towards a publicly conscious user market.  Regulators listened to their advisors’ warnings that the moral and social woes associated with alcohol could not be solved through regulation, but would need to be solved through other government and/or private agencies “as part of broader educational and health efforts.”

Unlike the history of taxing cigarettes, the alcohol market has not been the victim of such persistent tax increases. Efforts to reduce the harms associated with alcohol consumption have largely been pursued through policy and regulatory regimes, such as, for example, the federal Alcohol Traffic Safety Act of 1983, which encouraged and subsequently led states to increase the penalties for DUI, and the Federal Uniform Drinking Age Act of 1984, which set the minimum legal drinking age (MLDA) at 21 years of age. Our earlier exploration of the tobacco market revealed that regulatory schemes like local ordinances or system-wide limits tend to have greater impact on consumer use patterns than a tax could achieve on its own. Moreover, California voters are not always easily swayed into approving new or increased taxes. This is seen in the few tax increases passed compared to the large number of passed ordinances (city/county bar license limits, hours of operation requirements, local smoking bans in public parks, etc.).

There are a lot of rumors that the cannabis black market won’t play well with a legal market and will undercut it, but the post-prohibition alcohol market shows us that these rumors may just be sensationalized reactions from opponents to legalized recreational cannabis. Today’s California cannabis market is situated much like the alcohol market was during the last years of federal prohibition.  Like alcohol during prohibition, the illicit cannabis market is thriving. Rough estimates regarding use indicate consumption in California is holding relatively steady in the last decade. In order to capture black market participants, the legal market will need to offer a multi-faceted approach to regulation much like that of alcohol. Different licensing and venue structures and options for more private use should be accommodated. Rather than try to solve every problem related to cannabis use, California should focus on regulatory schemes aimed at quality control, ease of adult access, consumer choice/autonomy, setting and enforcing minimum age requirements and other license parameters. Revenues from tax and licensing fees should be earmarked for grants to agencies to complete scientific and social research to study the effects of legalization. Regulations should adjust and respond to the market as we learn more about how it functions.

Lesson Three: The Cannabis And Alcohol Markets Share The 80/20 Phenomenon Of Consumption.

That is, 80% of the total amount consumed is consumed by only 20% of market participants. This is important because it informs regulators that a “one size fits all” approach will not be effective if the goal of the regulations is to control externalities (social harms). Various groups of cannabis users will not respond to regulations the same way. This is also true with taxation. Levying taxes on cannabis products will not affect the whole market in one way.  This is really a culmination of the lessons we learned from both tobacco and alcohol; mainly that a combined approach of taxes and regulations is most effective to reduce harms associated with harmful substances.

CONCLUSION

Today we’ve discussed some of the successes of alcohol and tobacco regulation and we’ve seen that while regulating illicit or harmful substances in the legal market is challenging, it is not impossible. If we keep our eyes toward reducing social harms and setting balanced regulation, introducing a legal cannabis market is feasible. Similar to the alcohol prohibition of the early 1900s, cannabis prohibition is not working. All of our fears about cannabis are being realized under prohibition. The only likely solution to our cannabis problem is to responsibly regulate adult/recreational use. Some of the lessons learned from alcohol and tobacco became repetitive. As a researcher, I cannot do much about that. But, as Californians, we have the opportunity to learn from our past. Let’s take what we’ve learned from regulating the alcohol and tobacco industries and apply our knowledge to the regulation of cannabis. Like everything else in life, the best result will come from taking an “everything in moderation” approach. The regulatory framework for cannabis should feature low to moderate taxes, time, place, manner restrictions, a range of licensing options, and public health education programs to instill responsible use among Californians.

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.

Making Green by Selling Green – Leveraging Intellectual Property in the Marijuana Industry

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Brendan Kennedy (pictured above, right) is not afraid. The man who heads Privateer Holdings – a cannabis focused private equity firm – has put his years of education and experience on the line to help shape the future of the cannabis industry. With the support of a management team full of seasoned professionals, Privateer has raised $82 million in pursuit of pioneering the impending business of big marijuana.

Privateer’s quest for global dominance began in Canada, where they purchased a full-scale medical marijuana company called Tilray. In Canada, provinces are free to make marijuana-related laws without any conflict with Canada’s federal government. Unlike the United States, this means that marijuana companies are able to conduct extensive research into medical treatments, grow their product with the finest practices, and put their cash into banks. These types of benefits have allowed Tilray to accumulate a patient base of over 4,000 and growing.

Outside of Canada, Privateer owns Leafly – a website and phone app that allows users to rate and review different strains of cannabis and cannabis dispensaries. Known as the “Yelp of pot,” Leafly is responsible for upwards of 3 million visitors a month and a $425 million valuation.

Untitled And finally, there’s Marley Natural – Privateer’s newest endeavor and a forthcoming international cannabis product brand. By signing on the Marley family and using their name as the face of its products, Marley Natural hopes to capture the interest of the mainstream cannabis community and become the “Marlboro of marijuana.”

Going global or even interstate is no easy task in the marijuana industry. Confusion, vagueness, and difficulty are born out of poorly written regulations and unique issues that have no precedent. However, the progress Privateer has made is largely due to its stalwart practice of looking for answers in the fine print of the law.

To make it big, Privateer makes great use of intellectual property (IP) – patents, trademarks, copyrights, and licensing. To summarize, IP and licensing are tools for businessmen to protect their creations, justify research and development, and expand their businesses to reach new heights. As opposed to a tangible object such as a house or car, intellectual property protects intangible property such as creations of the mind, and these IP rights allow the owner to exclude others from using their piece of IP. In ultra-competitive industries like oil & gas, pharmaceuticals, and electronics, IP enjoys relatively straightforward rules and regulations for obtaining and enforcing rights. As for the marijuana industry, it’s not that simple. Let’s examine.

PATENTS

First, one of the most well known types of Intellectual Property is a patent. A patent is a bundle of rights granted by the government to an inventor, giving the owner the right to exclude others from making, using, selling, offering to sell, and importing an invention for a limited period of time, in exchange for the public disclosure of the invention. By providing inventors the prospect of an exclusive right to an invention, patents encourage innovation and safeguard research and development costs of creating new technology.

Patentable inventions include machines, pharmaceuticals, electronic devices, and the more natural variety – plants. From a botanist’s or even ganjapreneur’s perspective, this type of information begs the question: What if I wanted to patent a marijuana strain? If you want in depth legal analysis and policy perspective on this question, click here. If you want more of a big picture analysis, keep reading.

In theory, the USPTO could grant these sorts of strain patents because nothing in the federal law of patents expressly bars patent protection for illegal substances such as marijuana. There are even specialized law firms that claim they will help their clients through this process. However, the United States Patent and Trademark Office (USPTO) has not yet decided whether they will issue patents on marijuana strain varieties. This question may be answered soon, as there are several marijuana strain patent applications that are currently on file at the USPTO.

As a side note, if the USPTO did grant you a patent for a cannabis strain, enforcing it through the state and federal court system is another whole issue entirely – one that is even more difficult to predict and answer. This is because state and federal courts could be entitled to different opinions about how the law should apply to this type of issue. Stay tuned for more on this subject. The safer option might be to seek patent protection for ancillary marijuana technologies such as vaporizers or botanical technology that aids the growth of cannabis plants. Patents of this “paraphernalia” variety have made their way through the USPTO and been granted.

TRADEMARKS

The prospect of spending thousands of dollars to ultimately have a cannabis related patent application rejected may be too risky at this point in time. Fortunately, there is something much cheaper and easier to obtain that may very well be the solution to the shortcomings of marijuana patent law – a trademark. Once again, if you want in depth legal analysis and policy perspective on this subject, click here. If not, keep reading.

In general, a trademark is recognizable signdesign or expression which identifies products or services of a particular source. The purpose of a trademark is twofold – first to protect investments in marketing and advertising for a particular product or service, and second to protect consumers by ensuring that they know what they are getting from a particular brand. Trademarks are generally much cheaper (thousands of dollars less) and easier to obtain than patents, and, if used correctly, can be equally as valuable.

In order to register a trademark with the USPTO, the use of the mark in commerce must not be unlawful. To this day, the Controlled Substances Act makes it unlawful to:

“manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance; [… ] sell or offer for sale drug paraphernalia … mean[ing] any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance.”

So, it seems, anyone filing for cannabis related trademarks with the USPTO would be denied. However, a case study of Marley Natural proves differently. A quick search of the USPTO trademark database shows that Marley Natural has been awarded three different trademarks in late 2014 for the products they plan on selling this coming year.

A November 21, 2014 filing for the word mark “Marley Natural” grants a trademark for:

“Smoking accessories, namely smokeless cigarette and cigar vaporizer pipes, electronic cigarette refill cartridges sold empty, tobacco grinders, tobacco smoking pipes, tobacco filters, tobacco pouches, and ashtrays.”

A second filing lists:

“Chocolate; Chocolate bars; Confectionery; Food flavorings; Essences for nutritional purposes, except essential essences and oils; Sauces; Granola-based snack bars.”

And a third designates:

“Cosmetic and beauty care preparations for skin, body and hair care”

Although Marley Natural has yet to sell a product, their website products page claims that they will be selling cannabis and hemp infused lotions and balms, accessories and hand crafted limited edition products, and their own “heirloom” cannabis strains.

Marley Natural’s awarded trademarks compared to the products they plan on selling seemingly afford federal trademark protection to all of their products except one – “heirloom” cannabis strains. However, if someone were to start selling cannabis strains under the “Marley Natural” designation, even without a trademark, Privateer still might have a claim for infringement.

The standard for trademark infringement is whether there would be a “Likelihood of confusion among an appreciable number of ordinarily prudent purchases in the relevant market” Sleekcraft. Courts look to an array of factors to decide what “likelihood of confusion” entails, including “likelihood of product expansion” – finding infringement where there is a likelihood that the disputed product lines will collide & create confusion in the future.

Because Marley Natural owns trademarks for similar products that will be marketed in the same industry as their heirloom cannabis strains, Marley Natural might have a valid infringement claim if someone were to try and steal their mark.

However, the “likelihood of confusion” balancing test depends on more factors than just “likelihood of product expansion,” and it is unclear if federal courts would extend this type of protection to a substance that remains federally illegal.

Fortunately for Marley Natural, the USPTO is not the only solution to protecting a brand. While patents are exclusively registered on the federal level, most states afford statewide protection for marks that are filed with their respective secretaries of state. In recreational states like Colorado and Washington, a trademark seeker can pay less than $60 to obtain statewide protection of their mark. Interstate companies like Marley Natural can file a trademark for their cannabis strains in each state they plan on operating in to protect the integrity of their brand. Although not ideal, this type of legal patchwork is just part of doing business in the marijuana industry.

LICENSING

Privateer and its subsidiaries understand what it takes to protect their ideas and developments from competitors. But their real genius is in how they leverage their intellectual property to destroy the competition and expand their business. One of their best legal weapons is brand licensing.

In general, brand licensing is the process of creating and managing contracts between the owner of a brand and a company or individual who wants to use the brand in association with a product, for an agreed period of time, within an agreed territory. In the marijuana industry, brand licensing is one of the most viable ways to expand across state lines.

Pretend that Marley Natural begins selling its products in the recreational Colorado market. To abide by Colorado law, the marijuana that Marley Natural uses to manufacture its products must all be legally cultivated in the state of Colorado. To expand their business to the state of Washington, the most logical thing to do would be to transport their products via mail or freight from Colorado to Washington. However, Section 812 of Title 21 of the U.S. Code classifies marijuana as a Schedule I Controlled Substance. Because the U.S. Constitution gives the federal government authority to regulate interstate commerce, it has the ability to prosecute individuals for transporting marijuana across state lines, even if the transport is from one legal state jurisdiction to another. The problem is figuring out how to get their products, which are manufactured in Colorado, to the state of Washington – or some alternative.

A solution to this problem is licensing. Marley Natural may not be able to use their Colorado cultivators and suppliers to help produce their Washington product. However, if they own a trademark for the Marley Natural brand in each state, they can license it to a separate business entity in Washington that is qualified to manufacture cannabis products in that territory. Marley Natural can dictate via licensing agreement how the Washington product using the “Marley Natural” name is to be produced, packaged, and sold. Additionally, they can offer consulting services to the Washington subsidiary to teach them how to manufacture their product and manage their business. The “heirloom cannabis strains” sold under the Marley Natural brand in Washington might not be the product of the same growers and greenhouses that are used in Colorado, but this alternative is one of the best available for marijuana businesses planning to expand interstate.

So let it begin. Thanks to intellectual property and effective legal techniques like brand licensing, the nationalization of the marijuana industry is imminent. Navigating the complicated legal landscape of the rules and regulations surrounding the marijuana industry may be difficult, but having the know-how to proceed with confidence could ultimately be the difference between failure and success.

Stay tuned for my next article on investing in the marijuana industry.

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

 

 

 

What About the Children Who Want to go to College?

As a graduating law student, I spend a lot of time thinking about my student loan debt. While the thought of how much money I owe the government occasionally paralyzes me with fear, I’ve grown to appreciate the fact that I qualify for many forms of financial aid and have to overcome virtually no obstacles when it comes to asking for educational loans.

Students with drug convictions, both adults and juveniles, have significant trouble obtaining financial aid. Had I been misfortunate enough to have picked up a marijuana or drug conviction during my time in school, it would have been significantly more difficult for me to secure student loans. Few students are aware that if convicted of a drug offense, they become ineligible for federal financial aid (grants, loans, and work-study) for certain periods of time, depending on the nature of the offense and when it happened. The following chart summarizes financial aid eligibility for drug convictions:

Offense Possession of Illegal Drugs Sale of Illegal Drugs
First 1 year of ineligibility from date of conviction 2 years ineligibility from date of conviction
Second 2 years ineligibility from date of conviction Indefinite period of ineligibility
Third Indefinite period of ineligibility Indefinite period of ineligibility

Students with drug convictions may be able to regain eligibility if they successfully complete an approved drug rehabilitation program or pass two unannounced drug tests, in which case they will not have to wait the full term of years to receive aid again. Regardless, if they are convicted of a drug offense while receiving federal aid, they may be held liable for returning the aid they received. The nature of financial aid distribution means that if someone were convicted on October 1, 2014 of a drug offense, then they would have to return proportional tuition and living expenses for the rest of October, November, and December, and any yearly aid that was distributed at the beginning of the school year. All these complications affect anyone receiving aid, regardless of his or her age.

But this is a column about the children. So I want to focus on those we’ve already become well acquainted with: justice-involved kids. I already discussed how justice-involved youth interact with marijuana prohibition through the juvenile courts, and now I want to consider how a marijuana conviction can continue to affect a child, even after they become an adult. Today we will consider the story of Luis, another fictional youth whose story is not unlike many I have encountered working in juvenile court.

Luis was a kid trying to do his best in some rough circumstances. He attended high school and graduated with his diploma just before his 18th birthday. He had been accepted to and planned to attend a great four-year state college, and he was very much looking forward creating a career for himself. Luis’s family was emotionally supportive of him and his college plans, but they weren’t going to be able to contribute financially. While Luis knew he was eligible for financial aid, he also knew making some extra money whenever he could was a good idea. So he started selling pot to some local college kids. One day, Luis was caught giving a friend half an ounce. Luis was arrested and brought into juvenile court.

Luis was lucky in that he was charged only with “giving a gift less than an ounce,” a misdemeanor under California law. He receives only probation. However, his college plans are now in jeopardy, since he is no longer eligible for financial aid. He is now faced with two options: he can either wait a full year to be eligible for financial aid again or pursue early reinstatement by way of a treatment program or random drug testing. Both options may, in the long run, still allow Luis to pursue his degree, but they both come at the high cost of time. Even if he pursues early reinstatement, random drug testing may not necessarily be expedient, and rehabilitation programs are often 45 days or longer. Any period of time preventing a prospective new college student from beginning their studies can be discouraging, especially if it’s a delay caused by an interaction with the justice system.

I gave the example of a misdemeanor marijuana crime for Luis’s story, but anyone convicted of a “drug offense” is subject to federal financial aid suspension. But what counts as a drug offense? It’s very unclear. When filling out the FAFSA (Free Application for Federal Student Aid), applicants are asked if they have ever “been convicted for the possession or sale of illegal drugs for an offense that occurred while you were receiving federal student aid?” A U.S. Department of Education regulation states that a “conviction means only a conviction that is on a student’s record,” however “record” is never defined. Under California law, simple possession of marijuana is only an infraction which does not appear on criminal records. A marijuana infraction may therefore technically affect student aid, but since it does not appear on a student’s criminal record, students arguably aren’t obligated to report it on their FAFSA applications since it does not meet the Department of Education’s definition of “conviction.” Juvenile convictions pose similar confusions, since juvenile courts do not technically “convict,” rather they “find petitions to be true” or juveniles “admit petitions.” Further, the same Department of Education regulation which authorizes the suspension of financial aid for any student convicted of offenses under federal or state law involving the possession or sale of illegal drugs further defines “illegal drugs” as those defined by section 802(6) of the Controlled Substances Act. Section 802(6), unsurprisingly, includes marijuana. More precisely, it includes all drugs labeled schedule I, II, III, IV, or V; marijuana is a schedule I drug. So it’s a reasonable assumption that the Department of Education intended to include marijuana offenses in suspension eligible offenses.

The question for California, and Californian students, therefore becomes: will legalizing recreational marijuana for adult use change anything? In the case of simple possession, it’s possible that it will. If adult use becomes legal, then no adult will be charged with simple possession again, since it will no longer be a state crime. But which “adults” will be included in any “recreational adult use” laws? Most likely, Californians will follow suit with Colorado and Washington (and soon Oregon and Alaska) and legalize for adults over 21. This means that adults under 21 and juveniles will still not be able to legally possess marijuana, and that if caught, may face possession charges. These possession charges, likely infractions, would be subject to the same level of confusion as simple possession infractions today. Convictions other than simple possession will likely remain suspension eligible, since as misdemeanors and felonies they are convictions under the Department of Education’s definition, and marijuana will continue to be an illegal drug as determined by the Controlled Substances Act. It appears as though the only solutions, when it comes to federal financial aid, may be national legalization or rescheduling marijuana out of the Controlled Substances Act.

It is worth mentioning that students who do not qualify for federal financial aid may still be able to qualify for state financial aid. I won’t go down the rabbit hole of what federalist issues are implicated if California were to pick up the tab for students disqualified from federal aid, but suffice to say that it is a possibility, albeit a complicated one. It is further worth mentioning that state financial aid is traditionally significantly smaller than federal aid. Therefore, were California to provide aid to students ineligible for federal aid due to marijuana convictions, a much larger amount of state aid may be necessary.

Next time I will be returning focus to our juvenile children, and examining the consequences marijuana possession can have for kids in the context of schools.

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