New cannabis businesses must demonstrate proof of compliance to myriad laws and regulations as part of the initial license application process. And once a license is issued, it is easy to prioritize day-to-day business operations over ongoing compliance reporting requirements especially when sales are booming and compliance requirements are multi-layered, vague or obscured in non-cannabis specific programs and regulations.
But seemingly benign neglect of some minor reporting requirements can have major consequences to new and established businesses alike.
This article explores five compliance reporting requirements that cannabis businesses may not know about, and suggests ways to maintain a strong compliance posture across all regulatory agencies.
All licensed growers are required to prove compliance to state pesticide usage regulations. However, expectations on how and when to provide that proof of compliance vary greatly from state to state. Furthermore, the responsibility of education and enforcement for pesticide usage in the cannabis industry often falls to non-cannabis specific agencies such as state departments of agriculture or environmental compliance.
For example in California, cultivators must report detailed monthly pesticide use reports via the State’s Agriculture Weights/Measures Division reporting portal, while Washington State regulators simply expect cultivators to keep records locally on site and provide them when requested.
With so many places to look, the best place to start your pesticide reporting requirement search is with your local agriculture department. They should be able to answer your questions and provide you with a list of resources to help you better understand how to comply with state pesticide usage and reporting regulations.
Hazardous Materials Reporting
Like pesticide use and reporting, hazardous waste handling and reporting requirements are complex and vary state to state. In fact, there may even be nuanced variations in handling requirements at the county level. The best approach to ensure compliance with a complicated set of regulations is to start by consulting your local county fire department. They will have the most specific set of rules for hazardous materials handling and reporting and can help you develop a site-specific compliance plan.
Two OSHA reporting requirements
Depending on how your cannabis business is classified, you may be required to keep injury and illness incident records and provide reports to the Occupational Health and Safety Organization (OSHA) for specific time periods.
Contact your business insurance provider’s loss prevention representative for more information about how your business is classified, which specific OSHA reporting requirements apply to you, and how to stay in compliance with applicable OSHA requirements.
A note of caution here: OSHA non-compliance penalties can be steep and “I didn’t know I was supposed to do that” is not an acceptable defense when it comes to explaining any OSHA violations.
Labor Law Notification Requirements
Federal labor law requires that you notify employees of their rights. At a minimum, you post information regarding wages and hours, child labor, unemployment benefits, safety and health/workers’ compensation and discrimination in a conspicuous place where they are easily visible to all employees. Some states requires additional information be posted in a similar manner, so it’s important to be sure that those notices are posted along with the federal requirements.
This is a simple, yet easily overlooked, requirement for all businesses, regardless of industry. Ask your insurance provider for a copy of the notice to print and post right away (if you have not already) for a quick compliance win!
These five reporting and notification requirements may seem tedious, overly complicated and burdensome in the face of day-to-day business operations, but compliance to these requirements not only protects your business and employees, it also enhances the overall reputation of the industry. The good news is that regulatory agencies welcome a proactive approach and are happy to work with cannabis businesses to provide guidance and information for developing compliance plans.
Plant Breeders’ Rights: Protection For New Plant Varieties
Unlike the Patent Act, Canada’s Plant Breeders’ Rights Act does provide intellectual property protection for whole plants. Plant breeder’s rights are available for new cannabis plants, whether they are the product of genetic engineering or more traditional cross breeding.
The applicant must also propose a name (referred to as a “denomination”) for the new variety that is acceptable to the Commissioner.The Plant Breeders’ Rights Act focuses on the material used to propagate a new variety of plant, such as its seeds. The owner of a plant breeder’s right can stop others from selling, producing or reproducing the propagating material, conditioning the propagating material for use, exporting or importing the propagating material, repeatedly using the protected variety to commercially produce another variety, and stocking the propagating material for the purpose of doing any of the above acts. The owner can also assert these same rights to stop another’s activities as they relate to another plant variety that is essentially derived from the protected variety. The owner can also recover for the damages it suffers as a result of any infringement. For cannabis plants, the term of a plant breeder’s rights endures for 20 years from the date of its issuance.
To register a plant-breeder’s right, a breeder provides an application to the Commissioner of Plant Breeders’ Rights Office, which is part of Canadian Food Inspection Agency.
To be registrable, the plant variety must be new, meaning that the propagating material has not been sold in Canada more than 1 year prior to the application (or elsewhere more than 4 years prior to the application); it must be distinguishable from all varieties that are known to exist at date of filing of the application; it must be sufficiently homogeneous, meaning that its relevant characteristics are predictable and commercially acceptable; and it must be stable in its essential characteristics over successive generations. Registration under the Plant Breeders’ Rights Act provides plant breeders’ rights in Canada only. However, Canada is a signatory to a treaty (UPOV) that allows an application originally filed in Canada to provide priority for registration in other member countries, and vice versa.The Commissioner also has the power to require the performance of tests on a sample of the propagating material, such as to verify its stated characteristics.
The applicant must also propose a name (referred to as a “denomination”) for the new variety that is acceptable to the Commissioner. The Plant Breeder’s Rights Act puts limits on what may be chosen as the denomination. Among other things, the denomination cannot refer to characteristics the variety does not have, suggest that it is derived from another variety or bred by a particular breeder when this is not case, or comprise laudatory descriptives that could cause confusion. The denomination cannot be used or registered as a trademark and, once accepted by the Commissioner, must be used by all traders when selling the propagating material, even after the expiry of the plant breeder’s right. Indeed, the Plant Breeders’ Rights Act makes it an offence to misuse or misapply the name. The same denomination will be used for the same variety in all UPOV countries.
The application process can involve some back-and-forth with the Commissioner, as well as the opportunity for others to oppose the registration. The Commissioner also has the power to require the performance of tests on a sample of the propagating material, such as to verify its stated characteristics.
A unique feature of a plant breeder’s right is that it can be enforced even before the Commissioner finishes his or her review against infringers who are given notice of the applicant’s application.
As of this writing, there are three registered denominations of cannabis plants under the Plant Breeders’ Rights Act. Chris Griffin has registered “Big C” – cannabis sativa subsp. indica; and MedReleaf Corp. has registered MR2017001 and MR2017002, both being varieties of cannabis sativa. It is expected that further registrations will follow.
There are some important limitations to the plant breeder’s rights. Farmers who harvest the plant variety on their “holdings” are given a privilege: they can store, produce and reproduce (but cannot sell) the variety on such holdings. The Commissioner also has the power to issue compulsory licenses when a protected variety is not available to the public at reasonable rates. Further, the plant breeder’s right is not infringed when the protected variety is used for non-commercial or experimental purpose.
In Part 4 of the series, Naiberg will discuss trademarks and how cannabis businesses should go about protecting their brand identity in Canada. Stay tuned for more!
Patents: Protection For New And Inventive Technology
Patents, which are issued in accordance with Canada’s Patent Act, provide their owners with the right to have a Court prevent anyone else in Canada from making, using, selling, importing or exporting what is claimed as the patent’s invention. The owner of the patent enjoys this monopoly for a period of 20 years from the date the patent is applied for. A patent is infringed even if the infringer arrives at the invention independently, without actual copying. If a patent owner brings a lawsuit and the Court finds infringement, the Court will typically order the infringing activity to cease and require the infringer to pay the owner a suitable amount of compensation.
There are several drawbacks to applying for a patent from the point of view of the applicant.Patents are meant to protect only inventions, meaning novel, non-obvious and useful solutions to practical problems. In the cannabis field, such inventions could include engineered genetic sequences or new plant cells that lead to useful improvements in the whole plant, new cultivation processes, new methods of extraction, new methods of storage or means to enhance stability, new formulations for administration, and new uses for the plant. It would not be uncommon for a cannabis producer to hold a suite of different patents that cover a whole range of innovative technologies and innovative business methods.
Not all classes of technical innovations are protectable by patent. For example, patents are not available for a whole cannabis plant because no patents are allowed on higher, multicellular organisms. Patents are not issued for genetic sequences or cells that are the result of cross breeding. Patents are also unavailable to monopolize methods of using cannabis as a medical treatment. That said, patent agents are skilled at casting innovations in areas such as these in terms that do provide some patent rights.
To obtain a patent, the applicant hires a patent agent to prepare and submit an application to the Canadian Intellectual Property Office (CIPO). An examiner at CIPO reviews the application for compliance with the statutory requirements and enters into a correspondence with the applicant’s patent agent in a process known as a patent prosecution. Third parties also have the opportunity to oppose the grant of a patent on limited grounds. The prosecution may continue for a period of years before the application is either allowed to issue to patent, or is ultimately rejected. Separate patent applications must be filed in every country in which patent rights are sought, though there are international treaties that facilitate these separate filings and preserve early priority filing dates.there can be a significant cost in obtaining patents, particularly if patent rights are sought in multiple countries.
It is important to emphasize that if an invention had been disclosed to the public more than one year before the application for the patent is filed, a patent cannot issue. Cannabis producers must therefore ensure that disclosures of their innovative work be controlled, including when working with partners. This can typically be handled with the use of appropriate non-disclosure agreements.
The prospect of market exclusivity makes the filing of patent applications a must for cannabis businesses, including those just starting out. For a start-up, simply filing a patent application projects that the company has value and a clear vision of its business. Venture capital often seeks companies with patent applications on file because the applications can mature into assets which can be monetized either by protecting a market for the owner, or through assignment or license to others.
cannabis researchers and producers have already filed hundreds of patent applications in Canada. There are several drawbacks to applying for a patent from the point of view of the applicant. Unlike the case for a trade secret, an applicant for a patent must make full and correct disclosure of the invention and how to use it in the patent itself. This disclosure will allow competitors to understand the applicant’s technology. The public disclosure provides a blueprint for competitors to build upon the patent’s disclosure, and to design around it to avoid infringement. Also, and unlike trade secrets, patents have an expiry date after which the public is free to practice the invention. The Commissioner also has the power to issue compulsory licenses to third parties in several circumstances, including when the demand for the patented article is not being met on reasonable terms. Further, the patent right is not infringed when the patented invention is used for non-commercial or experimental purpose. Finally, there can be a significant cost in obtaining patents, particularly if patent rights are sought in multiple countries.
Disadvantages or not, cannabis researchers and producers have already filed hundreds of patent applications in Canada. These applications relate to a wide range of inventions in the cannabis field including new cannabis resins and oils, methods of producing cannabis having improved properties, specific new growing processes, new harvesting methods, new extraction techniques, new formulations for human and veterinary use as foods, medicines and supplements, new delivery devices, new purification methods, new analytical methods, and new stabilization methods. Interested companies can access these disclosures from the public record.
As cannabis companies rush to obtain patent monopolies for their technologies, minefields are created for operating companies. Cannabis producers should obtain reports on what patent applications exist and might be asserted against their operations if and when these applications mature to issuance. With that intelligence in hand, the cannabis producer can understand what threats can be safely ignored and what patents must be addressed by assignment or license, by ‘design around’ or by developing an argument as to why the patent is invalid and thus unenforceable.
Editor’s Note: In Part 3 of this series, which will be published next week, Naiberg will discuss plant breeders’ rights and protecting new plant varieties. Stay tuned for more!
The cannabis industry is evolving as more states begin to legalize; as the legalization of cannabis grows, the industry will need more well-informed dispensaries and dispensary employees.
Unfortunately, there are employees in dispensaries without proper training and some are put in positions to recommend specific strains to patients that may not be accurate. Getting proper training is important, no matter which cannabis job you want to pursue.
More Training Is Needed
Currently, there are no national standards for training dispensary employees, there is not even a licensing code. Therefore, it is important for owners to investigate state laws and understand legal minimums for worker education.
There are states, like Massachusetts, which requires a $500 fee for employee registration. There are other states that require cannabis employees receive a certain number of education hours on specific topics, like patient confidentiality.
Overall, more than fifty percent of cannabis dispensary staff has reported receiving some type of formal training and only twenty percent of staff members have received medical cannabis training.
Dispensary staff should receive training on how and when to make appropriate suggestions to patients. Any successful dispensary owner will acknowledge that employee education pays off in reduced loss, increased sales and avoided fines. There are more benefits to employee training than just these and there are steps owners can take to ensure they are getting the most out of their business and employees.
Setting up a System
When a dispensary has protocols in place that show how the business operates, the company will have consistency and organization. No matter the task, all team members must follow specific procedural protocols.
Mostly, mistakes are made when steps are missed or misunderstood by new employees, but with proper and thorough training, this can be avoided. Owners should be investing in a POS software system that is straightforward; this will reduce training time and make it easier for new staff to be familiar with the system.Having budtenders that can educate and connect with the customers on a personal level is invaluable
Teaching budtenders to adopt a soft sell technique will be the most effective when it comes to increasing sales. Many customers seeking relief using cannabis are not going to respond to a hard sell technique, as this comes off pushy or aggressive.
There are going to be customers who are unsure of what products they want; theses customers will need guidance, and training employees to make suggestions based on what the customer is looking for is the best sales practice.
Having budtenders that can educate and connect with the customers on a personal level is invaluable; dispensaries that do this will have repeat customers.
More States Legalizing, More Dispensaries and More Employees
As the United States heads towards cannabis legalization, slowly but surely, we need to be prepared to train workers. When you have a dispensary that you have already spent millions of dollars on the application process, you don’t have time to be messing around with employees that are not serious.
There are many different options anyone in the cannabis industry can seek out to educate themselves more in the business.Those distributing cannabis must take their duties as seriously as pharmaceutical technicians, because in a sense that is what they are doing. They are giving information on the prescription or drug to a customer that is using it for an intended a purpose.
Cannabis users come in many different ages and aliments. It is important for budtenders and dispensary owners to understand the backgrounds of each customer to increase their up-sale potential.
While compassion isn’t something you can learn online or in a classroom, it is always a good idea to remind others to be compassionate. The budtender that asks the right questions, takes time with each patient to care for them and goes over practical products for the client will be the budtender with the most sales revenue.
There are many different options anyone in the cannabis industry can seek out to educate themselves more in the business.
Some platforms are available online and are filled with important content that can teach you about different aspects of the cannabis plant and industry. These classes can prepare employees or owners for success.The most important training will be the training of patients
There are courses that can educate you in how to cook and healing with cannabis. You can also learn about laws on a state-by-state basis when you are enrolled in a cannabis-training program. The cannabis industry is large and growing; entrepreneurs, lawyers and caregivers can learn about the growing movement and expand their knowledge on this topic.
The most important training will be the training of patients, who will be navigating between the world of western medication and the new option of medicinal cannabis.
There are obviously many positive things that will come from the legalization of cannabis, one of the biggest being more options for pain management patients. There is a misconception that people are using medicinal cannabis as an excuse to get high; however, many patients in most states are over the age of 50.
In 2016, it was estimated that 650,000 Americans were using cannabis in compliance with the laws of their state. As legalization grows to a national level, we are going to need to be educating patients.
It is important for citizens to talk to their doctors about methods they believe will work best for them. It is necessary to communicate strains that are ineffective or unsatisfying. Keeping a cannabis journal is a good way to know what dose and strain you benefit from the most.
There are many ways patients can be educated in the cannabis industry, and dispensaries that encourage patient education will grow customer loyalty. The person who knows the facts and is confident in their information will be more successful than the person who guesses.
Be sure you, your staff and your customers know the laws, strains and can accurately answer questions about cannabis.
Thomas Jefferson University’s Lambert Center for the Study of Medicinal Cannabis and Hemp announced recently that it is co-sponsoring the third annual JAZ Tank Challenge: CannaVATION Edition.
Jefferson Innovation’s 2018 JAZ Tank Challenge: CannaVATION Edition is currently accepting submissions of innovative business models for a chance to compete on October 3, where finalists will each present their business ideas in a 10-minute pitch. Winning submissions could get one free provisional or utility patent application and business and clinical consulting services. The competition will be accepting submissions through August 20, 2018.
Finalists will compete for a $10,000 grand prize, legal support and business consultation services. According to the announcement, in addition to the grand prize winner, up to two other teams could win $5,000 in financial support, one free provisional or utility patent application and consulting services as well.
According to Zoe McKinley, director of entrepreneurship and social impact initiative at the Lambert Center, the competition is designed to have a national focus, not just on the Pennsylvania cannabis industry. “We are excited to shine a spotlight on Pennsylvania, and Thomas Jefferson University specifically, as a hub for research in medical cannabis, but like the competition, the Lambert Center has a national and even international focus,” says McKinley. She says this is also the first year that the JAZ tank is exclusively focused on cannabis.
Jefferson’s Chief Innovation Officer, Dr. Rose Ritts, notes “the competition is about creating a platform for emerging concepts to get a toe-hold on the path to potential commercialization. Anything that will improve patient access or outcomes …or improve the industrial hemp market in the U.S. is definitely of interest,” says Ritts. “We welcome companies to jump into the Challenge, and we also welcome investors or anyone thinking about getting into this space to be in the audience for our event on October 3.”
The challenge is an annual healthcare startup competition, where new businesses with particularly innovative ideas and technology solutions for the legal cannabis space submit their business models to a panel of judges for review. “This event will bring together the most inventive minds to pitch their solutions to stakeholder problems in the still-emerging medical and medicinal cannabis and industrial hemp industries,” reads the announcement. The Lambert Center is seeking applicants in a wide variety of business areas, including patient access, product design, plant science, information management, horticultural technology, sustainability, transportation, security, workforce training, community outreach, banking and public education.
Lambert Center Director Charles Pollack, MD sees the massive growth potential of the legal cannabis industry. “At our Center we are dedicated to identifying new approaches to developing cannabinoid-based therapies that help patients with various debilitating symptoms and diseases,” says Pollack. “Our JAZ Tank Challenge may identify the next great idea in medicinal cannabis.”
Through the Lambert Center for the Study of Medicinal Cannabis and Hemp, Jefferson is the first major university in the US to provide a comprehensive academic resource for the medicinal, medical and industrial applications and business of cannabis and hemp. The Lambert Center, the first of its kind in academia, provides “expert-developed, unbiased information to clinicians and patients about medical cannabis and cannabinoid-based therapies,” according to their website. They want to “support the development of entrepreneurial and socially responsible business and clinical approaches within the emerging medical cannabis industry and explore and develop new ways to use hemp in medical, industrial, and consumer products,” reads the website.
McKinley mentions they are looking for creative approaches to solving problems in the medical cannabis and industrial hemp industry. “These could be anything from new products or supply chain innovations to patient support tools to energy management systems that lower the environmental impact of grow facilities,” says McKinley. “We are hoping to see companies that have already launched, or are ready to very quickly.” The third annual JAZ Tank Challenge: CannaVATION Edition is accepting submissions through August 20. Click here for more information.
Pennsylvania’s medical cannabis program may be young, but the industry in that state is off to a burgeoning start. Back in 2016, the state legalized medical cannabis. In 2017, the PA Department of Health began accepting applications for licenses and announced the first 12 winning applications. On February 15th, 2018, medical cannabis became available for more than 17,000 patients that registered in the program.
In March of this year, Governor Tom Wolf announced two more dispensaries were approved to operate as well as another grower/processor licensee. At that time, the press release indicated more than 21,000 patients have registered to participate in the medical cannabis program.
Then in April, Governor Wolf announced Phase Two of their medical cannabis program, allowing the industry to grow even more. That allowed for 13 new grower/processor permits and 23 new primary dispensary permits, according to a press release, which moved the total up to 25 grower/processors licensees and 50 dispensary licensees.
On May 15th, Governor Wolf approved eight universities to participate in a groundbreaking program, allowing Pennsylvania to take the first steps towards clinical research for medical cannabis. This research program would be the first of its kind in the country, allowing research institutions to explore the drug. The excitement was put on hold, however, when a Pennsylvania judge halted the program with an injunction. A handful of growers and dispensary owners in PA filed suit to stop the program on grounds that it violated the original intent of the law. State Representative Kathy Watson from Bucks County, the author of the research program, called the suit “pathetic because it’s all about the money.” We’ll follow closely with any new developments as they come.
Steven Schain, Esq., senior attorney at Hoban Law Group, a global cannabis law firm, represents multiple cannabis-related businesses in Pennsylvania. He says the program’s roll out has been fast with solid growth. “Within two years of the legislation’s enactment, Pennsylvania’s medical marijuana program has exceeded expectations with controlled, sustainable and quality growth,” says Schain. “The Pennsylvania Department of Health established ambitious goals, which they met timely and created a statewide program servicing over 10,000 patients in record time. Looming ahead is New Jersey’s adult use program, the anticipated robustness of which could undermine vigorous sales in southeastern Pennsylvania’s marijuana-related businesses.”
On May 30th, Philadelphia welcomed their first medical cannabis dispensary, with a location opening up their doors to patients in Fishtown. Now reports are coming in that say more than 37,000 patients have registered to date, with over 16,000 who have received their ID cards and medical cannabis at a dispensary.
Even though the research program might be on hold for now, Pennsylvania’s medical cannabis program is growing at a fast pace. The market there has blossomed in just a few short months to a whopping 37,000-registered patients, according to a press release form Governor Wolf’s office. Some say an additional 200,000 patients could qualify. With the second phase in sight, it seems Pennsylvania is on track to become a hotbed for business and research, developing into a massive medical cannabis marketplace soon. Stay tuned for more updates.
Automation of processes can provide great benefits including improved quality, improved throughput, more consistency, more available production data, notifications of significant events and reduced costs. However, automation can also be expensive, overwhelm your workforce, cause future integration problems and magnify issues that you are currently experiencing. After all, if a machine can do work 100 times faster than a human, it can also produce problems 100 times faster than a human. Whether it is a benefit or a scourge depends largely on the implementation process.
There are thousands of possible technology solutions for just about any production problem. The trick to getting results that will work for your company is to use good engineering practices starting from the beginning. Good engineering practices are documented in various publications including ISPE Baseline Guides, but there are common threads among all such guides. What will the system be used for and what problem is it intended to solve?
The key is implementing a system that is fit for your intended use. As obvious as it sounds, this is often the most overlooked challenge of the process. In the grand scheme of things, it is a MUCH better proposition to spend more time planning and have a smooth operation than implement a system quickly and fight it because it isn’t a good fit for the intended use. The industry is littered with systems that were prematurely implemented and complicate rather than simplify operations. Planning is cheap, but fixing is expensive.
The most important step to getting an automated system that will work for you is also the first:
Defining “what” you need the system to do: User Requirements
With decades of experience in the automation industry, I have seen systems in many industries and applications and it is universally true that the definition of requirements is key to the success of the automation adventure. To clarify, the user requirements are intended to define “what” the system is required to do, rather than “how” it will do it. This means that persons that may not be familiar with the automation technologies can still be (and usually are) among the most important contributors to the user requirements document. Often, the people most familiar with the task that you wish to automate can contribute the most to the User Requirements document.
Some of the components of a User Requirements document typically include:
Purpose: What will the system be used for and what problem is it intended to solve?
Users: Who will be the users of the system and what is their relevant experience?
Integration: Is the system required to integrate into any existing or anticipated systems?
Regulatory Requirements: Is the system required to meet any regulatory requirements?
Functions: What is the system required to do? This may include operating ranges, operator interface information, records generation and storage, security, etc.
Performance: How many units per hour are required to process? What percent non-conforming product is acceptable?
Environment: What environment is the system required to operate in? Indoor, outdoor, flammable, etc.
Documentation: What documentation is required with the system to support ongoing maintenance, calibration, etc.?
Warranties/Support: Will you perform work in-house, or will the manufacturer support the system?
The level of detail in the User Requirements should be scaled to the intended use. More critical operations may require more detailed and formal User Requirements. At a minimum, the User Requirements could be a punch list of items, but a detailed User Requirements may fill binders. The important thing is that you have one, and that the stakeholders in the operation have been involved in its production and approval.Once completed, the User Requirements can be a very good document to have for prospective providers of solutions to focus their attention on what is important to you, the customer.
Equally important to the process is the idea of not over-constraining the potential solutions by including “how” the system will meet the requirements within the User Requirements. If it is required to use specific technologies for integration with other existing systems, it is appropriate to include that information in the User Requirements. However, if use of a particular technology (e.g. “wireless”) is not required, the inclusion may unnecessarily eliminate viable design options for systems that may address the requirements.
Once completed, the User Requirements can be a very good document to have for prospective providers of solutions to focus their attention on what is important to you, the customer. This helps to ensure that they focus their efforts in the areas that match your needs and they don’t waste resources (which translate to your costs) in areas that don’t have tangible benefits to you, the customer. It also gives you a great tool to “value engineer”, meaning that you can consider cutting design options that do not support the User Requirements, which can reduce project costs and timelines, keeping things lean and on track.
Further steps in the project are built around the User Requirements including system specifications provided by vendors, testing documentation and the overall turnover package. An appropriately scaled User Requirements document is a low cost, easy way to ensure that your automated system will serve you well for years to come. Alternatively, the lack of a User Requirements document is an all-too-common indicator that there may be challenges ahead including scope creep, missed deadlines and unacceptable long term performance.
By Alison J. Baldwin, Brittany R. Butler, Ph.D., Nicole E. Grimm 1 Comment
With legalization of cannabis for medicinal and adult use occurring rapidly at the state level, the industry is seeing a sharp increase in innovative technologies, particularly in the area of cannabis extraction. Companies are developing novel extraction methods that are capable of not only separating and recovering high yields of specific cannabinoids, but also removing harmful chemicals (such as pesticides) from the concentrate. While some extraction methods utilize solvents, such as hydrocarbons, the industry is starting to see a shift to completely non-solvent based techniques or environmentally friendly solvents that rely on, for example, CO2, heat and pressure to create a concentrate. The resulting cannabis concentrate can then be consumed directly, or infused in edibles, vape pens, topicals and other non-plant based consumption products. With companies continually seeking to improve existing extraction equipment, methods and products, it is critical for companies working in this area to secure their niche in the industry by protecting their intellectual property (IP).
Comprehensive IP protection for a business can include obtaining patents for innovations, trademarks to establish brand protection of goods and services, copyrights to protect logos and original works, trade dress to protect product packaging, as well as a combination of trade secret and confidentiality agreements to protect proprietary information and company “know-how” from leaking into the hands of competitors. IP protection in the cannabis space presents unique challenges due to conflicting state and federal law, but for the most part is available to cannabis companies like any other company.
Federal trademark protection is currently one of the biggest challenges facing cannabis companies in the United States. A trademark or service mark is a word, phrase, symbol or design that distinguishes the source of goods or services of one company from another company. Registering a mark with the U.S. Patent and Trademark Office (USPTO) provides companies with nationwide protection against another company operating in the same space from also using the mark.
As many in the industry have come to discover, the USPTO currently will not grant a trademark or service mark on cannabis goods or services. According to the USPTO, since cannabis is illegal federally, marks on cannabis goods and services cannot satisfy the lawful use in commerce requirement of the Lanham Act, the statute governing federal trademark rights. Extraction companies that only manufacture cannabis-specific equipment or use cannabis-exclusive processes will likely be unable to obtain a federal trademark registration and will need to rely on state trademark registration, which provides protection only at the state-level. However, extractors may be able to obtain a federal trademark on their extraction machines and processes that can legitimately be applied to non-cannabis plants. Likewise, companies that sell cannabis-infused edibles may be able to obtain a federal trademark on a mark for non-cannabis containing edibles if that company has such a product line.
Some extraction companies may benefit from keeping their innovations a trade secretSince the USPTO will not grant marks on cannabis goods and services, a common misconception in the industry is that the USPTO will also not grant patents on cannabis inventions. But, in fact, the USPTO will grant patents on a seemingly endless range of new and nonobvious cannabis inventions, including the plant itself. (For more information on how breeders can patent their strains, see Alison J. Baldwin et al., Protecting Cannabis – Are Plant Patents Cool Now? Snippets, Vol. 15, Issue 4, Fall 2017, at 6). Unlike the Lanham Act, the patent statute does not prohibit illegal activity and states at 35 U.S.C. § 101 that a patent may be obtained for “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.”
For inventions related to extraction equipment, extraction processes, infused products and even methods of treatment with concentrated formulations, utility patents are available to companies. Utility patents offer broad protection because all aspects related to cannabis extraction could potentially be described and claimed in the same patent. Indeed, there are already a number of granted patents and published patent applications related to cannabis extraction. Recently, U.S. Patent No. 9,730,911 (the ‘911 patent), entitled “Cannabis extracts and methods of preparing and using same” that granted to United Cannabis Corp. covers various liquid cannabinoid formulations containing very high concentrations of tetrahydrocannabinolic acid (THCa), tetrahydrocannabinol (THC), cannabidiol (CBD), THCa and cannabidiolic acid, THC and CBD, and CBD, cannabinol (CBN), and THC. For example, claim 1 of the ‘911 patent recites:
A liquid cannabinoid formulation, wherein at least 95% of the total cannabinoids is tetrahydrocannabinolic acid (THCa).Properly crafted non-disclosure agreements can help further ensure that trade secrets remain a secret indefinitely.
Although the ‘911 patent only covers the formulations, United Cannabis Corp. has filed a continuation application that published as US2017/0360745 on methods for relieving symptoms associated with a variety of illnesses by administering one or more of the cannabinoid formulations claimed in the ‘911 patent. This continuation application contains the exact same information as the ‘911 patent and is an example of how the same information can be used to seek complete protection of an invention via multiple patents.
An example of a patent application directed to solvent-based extraction methods and equipment is found in US20130079531, entitled “Process for the Rapid Extraction of Active Ingredients from Herbal Materials.” Claim 1 of the originally filed application recites:
A method for the extraction of active ingredients from herbal material comprising: (i) introducing the herbal material to a non-polar or mildly polar solvent at or below a temperature of 10 degrees centigrade and (ii) rapidly separating the herbal material from the solvent after a latency period not to exceed 15 minutes.
Claim 12, covered any equipment designed to utilize the process defined in claim 1.
Although now abandoned, the claims of this application were not necessarily limited to cannabis, as the claims were directed to extracting active ingredients from “herbal materials.”
Other patents involve non-toxic extraction methods utilizing CO2, such as Bionorica Ethics GMBH’s U.S. Patent No. 8,895,078, entitled “Method for producing an extract from cannabis plant matter, containing a tetrahydrocannabinol and a cannabidiol and cannabis extracts.” This patent covers processes for producing cannabidiol from a primary extract from industrial hemp plant material.
There have also been patents granted to cannabis-infused products, such as U.S. Patent No. 9,888,703, entitled “Method for making coffee products containing cannabis ingredients.” Claim 1 of this patent recites:
A coffee pod consisting essentially of carbon dioxide extracted THC oil from cannabis, coffee beans and maltodextrin.
Despite the USPTO’s willingness to grant cannabis patents, there is an open question currently regarding whether they can be enforced in a federal court (the only courts that have jurisdiction to hear patent cases). However, since utility patents have a 20-year term, extractors are still wise to seek patent protection of the innovations now.
Another consideration in seeking patent protection for novel extraction methods and formulations is that the information becomes public knowledge once the patent application publishes. As this space becomes increasingly crowded, the ability to obtain broader patents will decline. Therefore, some extraction companies may benefit from keeping their innovations a trade secret, which means that the secret is not known to the public, properly maintained and creates economic value by way of being a secret. Properly crafted non-disclosure agreements can help further ensure that trade secrets remain a secret indefinitely.
Regardless of the IP strategy extractors choose, IP protection should be a primary consideration for companies in the cannabis industry to ensure the strongest protection possible both now and in the future.
Last week, Oregon Secretary of State Dennis Richardson published his office’s audit of The Oregon Liquor Control Commission (OLCC). The audit uncovered a number of inadequacies with the regulatory agency, most notably the problems with their tracking system, designed to prevent cannabis form being sold on the black market.
The report highlights the need for Oregon to implement a more robust tracking system, citing reliance on self-reporting, overall poor data quality and allowing untracked inventory for newly licensed businesses. The audit also found an insufficient number of inspectors and unresolved security issues. According to The Oregonian, the OLCC only has 18 inspectors, roughly one for every 83 licensed businesses.
Auditors also found inadequacies in the application system, saying the OLCC doesn’t monitor third-party service providers and doesn’t have a process in place for reconciling data between the licensing and tracking systems. The audit found there is a risk that decisions made for the program could be based on unreliable data. It also found a risk of unauthorized access to the systems, due to a lack of managing user accounts.
This audit’s publication is very timely. Most notably because U.S. Attorney Billy Williams, who called Oregon’s black market problem “formidable,” convened a summit this week to examine how Oregon can prevent cannabis being exported to other states. According to the Oregonian, Williams said Oregon has an “identifiable and formidable overproduction and diversion problem.” The audit’s findings highlighting security issues are also very timely, given that in the same week, Oregon’s neighbor to the North, Washington, experienced a security breach in its own tracking system.
The problems with the Oregon tracking system’s security features are numerous, the audit says. They found that the OLCC lacks a good security plan, IT assets aren’t tracked well, there are no processes to determine vulnerabilities, servers and workstations not using supported operating systems and a lack of appropriately managing antivirus solutions. “Long-standing information security issues remain unresolved, including insufficient and outdated policies and procedures necessary to safeguard information assets,” reads the report’s summary.
The audit proposes 17 recommendations for the state to bolster its regulatory oversight. Those recommendations intend to address undetected compliance violations, weaknesses in application management, IT security weaknesses and weaknesses in disaster recovery and media backup testing. You can read the full audit here.
Last week, the Bureau of Cannabis Control issued the first licenses for California’s new market. The first license went to Moxie, a cannabis distribution company out of Lynwood.
As of the publication of this article, the Bureau, the state authority tasked with leading the regulation of the industry, has issued 43 temporary licenses. So far, four laboratories have received licenses, along with a number of retailers, distributors, microbusinesses in both medical and adult-use markets.
The labs to receive their temporary licenses so far are pH Solutions, Steep Hill Labs, Pure Analytics and ORCA Cannalytics. Judging by the number of temporary medical and adult-use licenses awarded so far, it appears the Bureau is trying to issue a similar amount for each sector, distributing the number of licenses between the two equitably.
You can find the list of licensees here, and search between the dates of 12/15/17 to 1/2/18 to get the most up-to-date list of licenses awarded. “Last week, we officially launched our online licensing system, and today we’re pleased to issue the first group of temporary licenses to cannabis businesses that fall under the Bureau’s jurisdiction,” says Lori Ajax, Bureau of Cannabis Control Chief. “We plan to issue many more before January 1.”
According to the press release, temporary licenses are only issued to applicants with prior local authorization in the form of a license or permit from the jurisdiction where the business is. Those licenses will become effective on January 1, 2018. The temporary licenses will work for 120 days, or May 1, 2018, after which businesses will need to have a permanent license to continue operating.
More than 1,900 users have registered with the Bureau’s online system, and more than 200 applications have been submitted, according to the press release.
The various regulatory bodies in California have worked diligently for months now to roll out proposed emergency regulations, setting strict requirements for manufacturers, growers, retailers and testing labs. Manufacturing regulations, including specific labeling, packaging and processing requirements, give a good snapshot of how regulators plan to move forward. Testing requirements could also be significantly firmer, with rules for documentation, sample sizes, sampling procedures, storage and transportation.
Yet when the adult-use sales become fully legal on January 1, 2018, those regulations will not be fully implemented.
Donald Land, a UC Davis chemistry professor and chief scientific consultant at Steep Hill Labs Inc., told The Associated Press, “Buyer beware.” There will be a six-month range where existing inventory will be allowed on the shelves, products that might not meet the standards of the new rules. So dispensaries will get half a year of sales before all products have to meet the new, stricter testing requirements.
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