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3 Recalls, 1 Month – Be Prepared!

For anyone in the California cannabis business, July 1, 2018 marked the beginning of a new era of cannabis regulations. In addition to more stringent packaging and labeling requirements, cannabis flower and cannabis products must also now be tested for a second more expansive list of pesticides, as well as residual solvents and foreign materials. While all testing labs adhere to the same set of regulations, there are no standardized methodologies for how labs test for cannabinoid concentration, composition, and contaminants. The lack of standardization is leading to inconsistent testing results and clearly presenting major problems for cannabis producers, evidenced by 3 voluntary product recalls announced within less than 1 month. On July 25th, The Bloom Brand voluntarily recalled a batch of cannabis products that contained Myclobutanil, a fungicide commonly found in food production. The Bloom Brand has not yet explained how the contaminated products made it past laboratory testing and into over 100 retail stores across California. Two days later on July 27, Lowell Herb Co., a producer of cannabis pre-rolls, voluntarily recalled a batch of products from 74 California dispensaries. Interestingly, the recalled product batch was initially cleared for sale after being approved by two different testing labs. However, two weeks after the batch was initially approved, results from a third test reversed the decision for failing to pass the state’s testing standards. The contaminant in question was not identified. On August 19, Venice Cookie Company initiated a voluntary recall of its cannabis-infused beverages due to a change in the passing grade of its compliance testing. The product batch initially passed testing in June, but a month...

Importance of Trademark Clearance

“Trademark clearance” is a process that identifies whether others are already using an identical or confusingly similar mark in connection with the same or related goods or services, and assesses the level of risk associated with use, registration, and enforcement of a mark. Comprehensive clearance is not as simple as searching for an identical mark on the United States Patent and Trademark (“USPTO”) database, registering the corresponding domain name, or registering the same business name with a Secretary of State. Moreover, in the burgeoning cannabis marketplace, marks registered at the state level can present a major red flag. Effective trademark clearance requires an understanding of how the principles of trademark law are applied. For example, it is important to appreciate that famous marks, such as APPLE, COCA-COLA, and STARBUCKS, enjoy a broader scope of protection, which means that famous mark owners can enforce their trademark rights against even unrelated products. A general misunderstanding about clearing marks is only considering registered marks; common law (unregistered) marks cannot be overlooked. While common law marks cannot be cited during the prosecution of an application at the USPTO, an owner of a common law mark can challenge ownership of a mark in an opposition or cancellation proceeding (or a lawsuit). Additionally, for many common law marks, it may not be readily apparent when the owner began using a potentially conflicting mark, and a problematic reference may require investigation to assess priority of ownership. Significantly, marks need not be identical to create a likelihood of confusion, as minor variations in marks may not be considered legally significant. Variations of a proposed mark, such as...

Brand Valuation

At its essence, a brand is what makes your company your company and includes the quality, functionality, pricing, and packaging, of your products and services, trademarks, logos, slogans, color schemes, as well as all associated communications, such as advertising, marketing, promotion, and your website. Properly cultivated, your brand is an intangible asset with tremendous value, based on established goodwill in the marketplace. In 2017, Forbes reported that the top 5 most valuable brands were Apple ($170 Billion); Google ($101.8 Billion); Microsoft ($87 Billion); Facebook ($73.5 Billion); and Coca Cola ($56.4 Billion). But how is brand value actually measured? There are three primary approaches to brand valuation: (1) Cost-Based Valuation: The brand is valued using the sum of individual costs or values of brand assets and liabilities. This method measures the accumulation of costs in building your brand since inception, e.g., expenditures for advertising, marketing and promotion, legal costs for brand licensing and trademark registration. The fundamental principal behind the cost approach is that a buyer would not pay more for an asset than it would cost them to build an equivalent. (2) Market Approach: This method assigns a value based on comparisons of transactions, such as brand license agreements or acquisitions, involving similar assets, for companies offering comparable products on the same scale. The Market Approach is appropriate when the asset is not necessarily unique and there are sufficient comparable transactions in the marketplace. However, given that most brands are unique in some way, the Market Approach is not widely used. (3) Income Approach: This method measures the value of a brand by referencing the present value of the...

Product Recall Plans for California Cannabis Manufacturers

Cannabis products are certainly not immune from a recall, as we have already seen in Colorado, Oregon, and Washington. In most industries, state and/or federal law dictate product recall protocol. Since cannabis remains federally unlawful, neither the Food and Drug Administration or other federal agency has regulations specifically concerning cannabis recalls. For California manufacturers, the California Department of Health’s (DPH) emergency regulations (see Section 40268) provides general parameters for cannabis recall policies. Various circumstances may trigger a cannabis product recall, such as detection of unlawful levels of pesticides, mold, or rot, reports of illness, mislabeled or improperly packaged products, or the product itself being unsafe (e.g., exploding vape battery). How a business conducts itself during a recall can either convey a high level of professionalism or expose inexperienced operational capability. Without a well-thought out and comprehensive product recall plan to help guide a company’s actions, recalls can be unnecessarily stressful and chaotic. If tragedy strikes, businesses must be able to act quickly, efficiently, and confidently to prevent or mitigate personal injury, as well as to limit damage to the brand’s goodwill and bottom line. As a condition of licensure, most states with commercial cannabis regimes require licensees to establish a product recall plan, but few states actually provide substantive guidance on what a recall plan should entail. California requires that manufacturers of cannabis products establish and implement written recall procedures for products determined to be misbranded or adulterated. At minimum, the DPH specifies such written recall procedures must: Identify factors that may necessitate a recall Designate personnel responsible for implementing the recall procedure and notifying the required state authorities...

California Emergency Cannabis Regulations

What’s New? The California Bureau of Cannabis Control (BCC) along with the Departments of Public Health and Food & Agriculture issued emergency regulations to fully implement the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) and provide guidance for California cannabis businesses heading into 2018. We have focused on the select regulations to generally determine how cannabis businesses will be affected as to: Packaging/Labeling Branding Advertising Product Recall Packaging/Labeling: Packaging and labeling requirements included in the regulations issued by the Department of Public Health require two types of labels for all cannabis products: primary panel and informational panel. Primary Panel The “primary panel” is defined as the part of a label that is most likely to be displayed, presented, shown, or reviewed by a customer at the point of retail sale. The primary panel requires multiple data points, for example: the type of cannabis/cannabis product, total milligrams of THC and/or CBD, and the universal symbol for cannabis: All text on the primary panel must be at least size 6pt font, but may require a larger font size so the primary panel is “in relation” to the size of the container.  Informational Panel The “informational panel” means any part of the label that is not the primary panel. The informational panel must present the requisite warning language as well as other required labeling information, including nutritional information for edibles. Information required by MAUCRSA or by the emergency regulations not specifically designated to the primary panel belongs in the informational panel. All text in the informational panel must be at least size 6pt font, but may require a larger font...