Our new legal intern, Zen Yang Pan contributes this entry.
By Zhen Yang (Tommy) Pan
February 13, 2015
Legalizing Interstate Commerce Marijuana Use
As more states begin to legalize medical and recreational marijuana use, the trend of the market suggests that vendors want to commercialize its use. However, marijuana is legalized only under state laws, and its commercialized uses are illegal in interstate commerce (cross state trade) under federal law. That means that a small shop that sells cookies containing marijuana based in California cannot export its products to a shop in Arizona, despite that the states boarder one another. This makes expanding the marijuana business difficult if not impossible.
Ever the innovators, intellectual attorneys have began to formulate a way to help marijuana vendors bypass the federal law and immerse marijuana business into interstate commerce. Specifically, trademark law seems to provide a way in for marijuana businesses by using a vendor’s trademark. At a panel on the marijuana business this week, trademark attorneys discussed potential ways for marijuana vendors to insert their products into the stream of commerce through legal and cost effective ways.
Trademarks are best exemplified by company logos such as Nike, Amazon, or Apple. Although a hypothetical marijuana cookie shop with a trademark in its brand “The Pot Cookies” cannot enter the stream of commerce by expanding its business, it may be able to proxy its expansion through the use of franchise law or licenses.
Make no mistake, however, only one of these strategies would prevail.
One way for a vendor to introduce its products into interstate commerce is through franchise law. By giving a franchise to vendors in different states, the initial marijuana seller could potentially stay out of interstate commerce but still get its trademark into other states. By providing specific guidelines to the franchisee, the franchisor asserts quality control over how the franchisee operates the business to best represent the franchise. This method not only generates revenue for the franchisor in terms of royalties, but also helps further spread the franchise name across the country. Most importantly, all of this is done without the franchisor having to actually engage in interstate commerce.
However, with great powers also comes great responsibilities. Because a franchisor is required to set out specific guidelines as to how a franchisee must operate and must also actively conduct quality control over the franchisee, any legal concerns arising from a franchisee will be traced back to the franchisor. This will ultimately implicate the franchisor in legal matters across state boarders and would mean the violation of the federal law against commercialization of marijuana across state boarders.
The alternative, and perhaps the solution to successfully bringing the marijuana business into interstate commerce, is through licensing the vendor’s trademark. A license from a vendor to out-of-state vendors may be safer and more efficient than a franchise because there are not the same restrictions on the licensor to enforce its license. The licensor is not legally responsible for the business practices of the licensee and thus any legal implications arising from a licensee will not make its way across state boarders to the licensor. In this scenario, the vendor “Pot Cookies” may issue multiple licenses of its trademark or its recipes to out-of-state vendors and not implicate itself from their business practices.
The commercialization of marijuana is still in its early stages and the ideas presented here are only opinions of the writer and should not be considered legal advice.