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Why Comply: A Closer Look At Traceability For California’s Cannabis Businesses

By Scott Hinerfeld
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Compliance should be top of mind for California’s cannabis operators. As the state works to implement regulations in the rapidly-growing cannabis industry, business owners need to be aware of what’s required to stay in good standing. As of January 1, 2019, that means reporting data to the state’s new track-and-trace system, Metrc.

What Is Track-and-Trace?

Track-and-Trace programs enable government oversight of commercial cannabis throughout its lifecycle—from “seed-to-sale.” Regulators can track a product’s journey from grower to processor to distributor to consumer, through data points captured at each step of the supply chain. Track-and-trace systems are practical for a number of reasons:

  • Taxation: ensure businesses pay their share of owed taxes
  • Quality assurance & safety: ensure cannabis products are safe to consume, coordinate product recalls
  • Account for cannabis grown vs. cannabis sold: curb inventory disappearing to the black market
  • Helps government get a macro view of the cannabis industry

The California Cannabis Track-and-Trace system (CCTT) gives state officials the ability to supervise and regulate the burgeoning cannabis industry in the golden state.

What Is Metrc?

Metrc is the platform California cannabis operators must use to record, track and maintain detailed information about their product for reporting. Metrc compiles this data and pushes it to the state.

Who Is Required To Use Metrc?

Starting January 1, 2019, all California state cannabis licensees are required to use Metrc. This includes licenses for cannabis: Proper tagging ensures that regulators can quickly trace inventory back to a particular plant or place of origin.

  • Cultivation
  • Manufacturing
  • Retail
  • Distribution
  • Testing labs
  • Microbusinesses

How Does Metrc Work?

Metrc uses a system of tagging and unique ID numbers to categorize and track cannabis from seed to sale. Tagged inventory in Metrc is sorted into 2 categories: plants and packages. Plants are further categorized as either immature or flowering. All plants are required to enter Metrc through immature plant lots of up to 100/plants per lot. Each lot is assigned a lot unique ID (UID), and each plant in the lot gets a unique Identifier plant tag. Immature plants are labeled with the lot UID, while flowering plants get a plant tag. Metrc generates these ID numbers and they cannot be reused. In addition to the UID, tags include a facility name, facility license number, application identifier (medical or recreational), and order dates for the tag. Proper tagging ensures that regulators can quickly trace inventory back to a particular plant or place of origin.

Packages are formed from immature plants, harvest batches, or other packages. Package tags are important for tracking inventory through processing, as the product changes form and changes hands. Each package receives a UID package tag, and as packages are refined and/or combined, they receive a new ID number, which holds all the other ID numbers in it and tells that package’s unique story.

Do I Have To Enter Data Into Metrc Manually?

You certainly can enter data into Metrc manually, but you probably won’t want to, and thankfully, you don’t have to. Metrc’s API allows for seamless communication between the system and many of your company’s existing tracking and reporting tools used for inventory, production, POS, invoices, orders, etc. These integrations automate the data entry process in many areas.As California operators work to get their ducks in a row, some ambiguity and confusion around Metrc’s roll out remains. 

Adopting and implementing cannabis ERP software is another way operators can automate compliance. These platforms combine software for point of sale, cultivation, distribution, processing and ecommerce into one unified system, which tracks everything and pushes it automatically to Metrc via the API. Since they’ve been developed specifically for the cannabis industry, they’re designed with cannabis supply chain and regulatory demands in mind.

As California operators work to get their ducks in a row, some ambiguity and confusion around Metrc’s roll out remains. Only businesses with full annual licenses are required to comply, leaving some temporary licensees unsure of how to proceed. Others are simply reluctant to transition from an off-the-grid, off-the-cuff model to digitally tracking and reporting everything down to the gram. But the stakes of non-compliance are high— the prospect of fines or loss of business is causing fear and concern for many. Integrated cannabis ERP software can simplify operations and offer continual, automated compliance, which should give operators peace of mind.

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The UK Starts Prescribing Cannabis

By Marguerite Arnold
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It is official. British doctors as of November 1, 2018, can now write prescriptions for medical cannabis. But what does that really mean? And is this truly a victory or merely an opening in the fierce resistance to and outright battle against cannabinoids as medicine?

A Real Victory Or Another Stall?

Many in the advocacy community in Europe are profoundly split. On one hand, yes, the British decision, like other sovereign medical cannabis reforms in Europe over the last two years, is a victory. The British government, like many before it, has thrown in the towel on denying basic access to medical cannabis. But what does this mean, especially in a country which may well be facing shortages of basic food products and other kinds of medications in under half a year if things continue to blow up on Brexit and there is no “people’s vote” to save the day?

Cultivated product would, normally, be slated to come from Portugal and Spain where Tilray and Canopy in particular have set up cultivation centers. If things continue to head to a negotiated Brexit, it is inevitable that imported cannabis would fall into the same category of everything else set to come into England by boat or lorry. It is highly unlikely that the NHS would authorize full payment for cannabis flown in from Canada. Especially with British Sugar’s existing cannabis plantations in Norfolk as well as the budding cultivation deals now finally flowering all over the country if not in Ireland.There are many who expect that medical cannabis will actually save public healthcare systems a great deal of money.

Brexit Is The Bigger Worry, So What About Cannabis?

It may also seem to some that access to cannabis is the least of the country’s worries. Actually this is a discussion deeply embedded in the politics and drama in London and Brussels right now. It is also at the heart of Brexit itself. Namely the propaganda associated with European divorce that ran along the lines of “saving the NHS.”

In fact, the legalization of medical use in the UK, just as it is in countries across Europe (Germany being the best and most current ongoing example) will do much to shine a light on how creaky and outdated the medical provision system really is here. Especially when it comes to approving new drugs for large numbers of people quickly. This was, ultimately the goal of public healthcare. See penicillin, not to mention most inoculation drugs or vaccines for childhood diseases (like Polio).

One of the great ironies of cannabis legalization in Europe of course is that it is also often shining a light on how far this concept, not to mention funds for proper delivery, has been allowed to lapse. There are many who expect that medical cannabis will actually save public healthcare systems a great deal of money. That is if it can finally make its way into widespread medical distribution.

UKflagAnd cannabis is a drug like no other. Why? Despite all the pharmacization of the plant that is going on right now as producers are being forced to produce pills and oils for the medical market, cannabinoid treatments will not be pushed so easily into “orphan” status – since whole plant products can treat a range of diseases. This is important in terms of supply and negotiated prices down the road. But in the short term, cannabis is falling into a couple of strange categories created by organized public healthcare, insurance mandates (both public and private), the demands being placed on producers in this space to act more like pharmaceutical companies, limited public spending budgets, and a changing demographic where chronic conditions treated by cannabis are a whole new ballgame. Namely patients are living longer, and not necessarily old.

So while it is all very well and good for British doctors to begin to write prescriptions for cannabis, merely having one does little good for most patients. In fact, this usually means the battle is only half won.

Why?

National Healthcare Is Still Functional In Europe

As foreign as it is to most Americans, most European countries operate more or less the same way when it comes to healthcare. First of all, all of the national systems in operation in Europe today, including the UK, were set up in the aftermath of WWII to recover from devastation most Americans, especially today, never experienced personally.

These healthcare systems were set up to first and foremost be inclusive. In other words, the default is that you are covered. 90% of populations across Europe in fact, including the UK, are covered by their national healthcare systems. “Private” health insurance actually only covers about 10% of the population and in some countries, like Germany, is mandatory once annual income rises above a certain level.

However this system is also based on a very old fashioned notion of not only medical care, but treatment of chronic conditions. Namely, that most people (the mostly well) face low prices for most drugs. Further, the people first in line to get “experimental” or “last use” drugs (as cannabis is currently categorized in Europe no matter its rescheduling in the UK), are patients in hospitals. With the exception of terminal patients, of course, that is no longer the case.

Patients in the UK can expect to face the same kinds of access problems in the UK as in Germany.That is why, for example, so many disabled people began to sue the German government last year. They could not afford treatment until their insurer approved it. Monthly supplies in legal pharmacies are running around $3,000 per month for flower. Or about 8 times the total cash budget such people have to live on (in total) on a monthly basis.

In fact, because of this huge cost, approvals for drugs like cannabis do not actually happen at the front line of the insurance approving process, but are rather kicked back to regional (often state) approvals boards. As a result, approval for the right to take the drug with some or all of the cost covered by insurance, is actually limited to a much smaller pool of people right now – namely the terminally ill in hospital care. In Germany, the only people who are automatically approved for medical cannabis once a doctor writes the prescription, are the terminally ill. For everyone else it is a crapshoot. Between 35-40% of all applications in Germany are being turned down a year and a half into medical legalization. Some patients are being told they will have to wait until next year or even 2020.

And once that prescription is actually approved? Patients in the UK can expect to face the same kinds of access problems in the UK as in Germany. Namely pharmacies do not readily stock the drug in any form.

In the meantime, patients are turning back to the black market. While the online pharmacy discussion is different in the UK than Germany, which might in fact make a huge difference for the right approvals system, most patients in the UK still face a long fight for easy and affordable access covered by public healthcare.


Disclaimer: Marguerite Arnold is now in negotiations for a pilot of her digital prescription and insurance pre-approvals and automization platform called MedPayRx in several European countries including the UK, Germany, and a few others.

Danish Cannabis Pilot Program Reaching End Of First Year

By Marguerite Arnold
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While it has gotten decidedly less English-speaking press than other countries in Europe on the front edge of cannabis reform, Denmark’s pilot four-year cannabis program is moving along nicely. It is also, without all the fanfare and hullabaloo seen in other EU countries struggling with how to approach cannabis normalization, about to reach the end of its first year.

The four year program was authorized to begin on January 1, 2018.

Major Canadian cannabis companies have been establishing operations in the country since late last year. Spectrum (a division of Canopy Cannabis), jumped the shark early, as it did in Germany. On December 5, 2017, three weeks before the executive order went into effect, Spectrum announced a first of its kind Danish joint venture with a forty thousand square-meter grow facility. Others have followed since then.

Licenses are required for every step of the process. In other words, producers must receive a license to legally cultivate cannabis for medical purposes. Those wishing to distribute must also have such products admitted to the formal list of medicines that can be distributed domestically. Manufacturers are also not allowed to distribute their product to any entity except pharmacies, hospitals and other manufacturers with a license to distribute.

Exports are also tightly controlled. Any medication on the approved pilot list cannot be exported. Further, it is only legal to export to two countries from Denmark – namely Canada and Holland.

A Direct Comparison To Other European Medical Cannabis Programs

Denmark is the first member of the EU to set up a trial program specifically for cannabis, although the Danish “experiment” looks in many ways like what will emerge in Germany. Unlike in Germany, however, the process is getting off to a smooth start.

Germany, which was primed to do the same as of March last year, has struggled since then with establishing a domestic cultivation process. That said, distribution (particularly from outside the country) is already off to a flying start. The difference, however, is that distributors in Germany who have a license to distribute a restricted narcotic product, can distribute cannabis too, without additional licensing. See Aphria’s recent purchase of CC Pharma with distribution to 13,000 pharmacies in Germany. Imports will actually be the name of the game here for some time to come as the cultivation bid is widely accepted as being too small to even meet existing demand. This will be the reality going forward as the government is required to purchase all cannabis bought by tender bid.

The other place to watch right now is Greece. The country has also moved quickly to establish a cultivation program in the last year. The difference between Denmark and Greece however, is that the export game (along with medical tourism) are clearly on the agenda.

Regardless, the success of the Danish “experiment” is one that other European countries could well look to as other countries proceed down the road to cannabis normalization and legalization, even if at first, and for probably the next four to five years, as a medical product.

New Taxes for California Cannabis Industry

By Jasmine Davaloo
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Welcome to the evolving world of cannabis legislation and taxation in California. With the recent 2018 midterm election, a green wave of new laws and regulations has washed ashore, and Taxnexus, a cannabis tax compliance service provider for cannabis businesses, has analyzed the results, looking for insights to guide cannabis business owners in 2019.

In summary, the trend of local counties and cities imposing new cannabis taxes on dispensaries, distributors and cultivators continues, but with some important lessons being learned.

A Brief History of California Cannabis Tax Regulations.

The legalization of cannabis in California brought with it cannabis excise tax and cultivation taxes with the hope of bringing in significant amounts of income in cannabis taxes. The state had projected $185M in cannabis tax revenue for the first six months of 2018. Although California has since collected tens of millions of dollars fewer than anticipated, it did bring in over $135M in the first and second quarters from a brand new industry.

Local governments are able to collect these taxes directly from cannabis businesses.  With the green light from the state and the need for a new source of revenue, many local governments followed suit and passed laws to impose taxes on cannabis businesses operating in their jurisdictions. The need for additional revenue is even greater for localities that allow cannabis business operations given that the state takes virtually all of the state-imposed cannabis taxes while the local government entities are burdened by the related costs of regulations and enforcement at the local level.

Cannabis business taxes have an extra allure for local jurisdictions. Unlike local sales and use taxes, the state does not require local cannabis business taxes to go through the state before a portion of it gets funneled back to the localities. Local governments are able to collect these taxes directly from cannabis businesses.

Since January 1, 2018, many local jurisdictions have come onboard and placed ballot measures for their voters to decide whether to tax cannabis businesses. According to research conducted by Taxnexus, by the end of the second quarter this year, there were over 500 different local cannabis tax rates in California.The new cannabis tax measures are also continuing the trend of widely ranging local cannabis tax laws.

Midterm Results Continue Overwhelming Support for Cannabis Industry

With over 50 cannabis tax measures placed on the November 6 local ballots, most of which passed with overwhelming support from voters, the number and variation of local cannabis business taxes continue to grow. This demonstrates the continuing trend of local governments welcoming cannabis businesses, the evolving voter attitude toward recreational cannabis, and perhaps most importantly, the localities’ desire to take their cut of the new industry’s tax revenue.

The new cannabis tax measures are also continuing the trend of widely ranging local cannabis tax laws. Given that the Medicinal and Adult-Use Cannabis Regulation and Safety Act granted local jurisdictions control over deciding their own cannabis business regulations, there is no statewide uniformity. Here are a few examples of the cannabis business tax measures that were on local ballots on November 6:

San Francisco

While some local jurisdictions were quick to impose cannabis taxes, others have delayed in taxing their local cannabis businesses. San Francisco’s Proposition D, which received a 66% voter approval, won’t go into effect until January 1, 2021. It imposes taxes on cannabis businesses that do business in the city, whether or not they are physically located there. The new cannabis business taxes are as follows:

  • For cannabis retail businesses, 2.5% of gross receipts up to $1M and 5% of gross receipts over $1M.
  • For cannabis non-retail businesses, 1% tax of gross receipts up to $1M and 1.5% of gross receipts over $1M.

These taxes do not apply to the first $500,000 of recreational cannabis gross receipts nor revenues from medical cannabis retail sales. The measure allows the Board of Supervisors to adjust the tax rates up to 7%. The cannabis businesses taxes are expected to generate $5M to $12M in cannabis tax revenue, and will go into the City’s general fund.The new tax measures underscore the lack of uniformity in local cannabis business taxes throughout the state. 

Emeryville

Emeryville passed a new cannabis business tax measure to increase its current nominal rate. Measure S imposes a cannabis business tax of up to 6% of gross receipts. This is estimated to generate $2M in tax revenue to be used for unrestricted governmental purposes.

Oakland

Oakland is among the few local jurisdictions that placed a measure on its November 6 ballot to lower its existing cannabis business tax rates. Previously, Oakland imposed a 5% tax on medical cannabis and a 10% tax on recreational cannabis, for all cannabis activities throughout the supply chain. These are among some of the highest cannabis tax rates in the state and are squeezing out small operators. Although Oakland has long been seen as the leader in California’s cannabis industry, the high taxes are making it difficult for its cannabis businesses to compete with nearby cities that charge lower taxes. While the city acknowledged the hardship its high taxes imposed, it maintained that it could not lower the rates on its own and required the voter approval. On November 6th, Oakland voters passed Measure V by 78%, which gives the City Council the authority to lower the city’s cannabis tax rates through an ordinance. To give additional relief to the cannabis businesses in the city, this measure also allows them to deduct the cost of raw materials from their gross receipts- something they cannot do on their federal tax returns. Furthermore, local cannabis business taxes can now be paid on a quarterly basis instead of one annual payment at the beginning of each year, which was severely burdensome for most businesses.

Lake County

Voters in Lake County approved Measure K by a majority vote to tax cannabis businesses in the unincorporated county effecting January 1, 2021. The county was previously only taxing cultivators at $1 to $3 per square footage depending on the method of cultivation. These rates will be reduced to $1 per square footage for cultivators and nurseries, and other cannabis businesses will be taxes between 2.5% and 4% of their gross receipts.

Mountain View

While there is a maximum of four cannabis businesses permitted to operate in Mountain View, over 80% of voters approved Measure Q to tax them. The measure imposes up to 9% of gross receipts to fund general city purposes, with an estimated annual revenue of $1M.Some have even set the effective dates of their cannabis tax laws several years out to allow their local cannabis businesses an opportunity to establish roots and drive out the black market.

Lompoc

Some jurisdictions have passed more creative cannabis business tax regimens than one rate applicable to the entire supply chain. Voters in Lompoc in Santa Barbara County approved Measure D2018 to authorize the city to impose following cannabis business taxes:

  • Up to $0.06 per $1 (6%) of recreational retail sales proceeds;
  • Up to $0.01 per $1 (1%) of cultivation and nursery proceeds;
  • An annual flat fee tax of $15,000 if net income is less than $2M of manufacturing and distribution proceeds;
  • An annual flat fee tax of $30,000 if net income is $2 Million or more of manufacturing and distribution proceeds;
  • A total aggregate tax of $0.06 per $1.00 (6%) of microbusinesses proceeds, not including medical cannabis transaction proceeds; and
  • No tax on testing.

Riverbank

There are signs that other localities that waited to jump onboard have learned from these high-taxing jurisdictions and opted for lower rates. There are even those localities that although they do not statutorily permit cannabis businesses to operate in their jurisdictions, they still want a piece of the action when it comes to cannabis taxes. The city of Riverbank in Stanislaus County currently does not allow cannabis businesses to operate without first obtaining a permit from City Hall and entering into a development agreement with the city that negotiates how much of their revenue the city would take. However, the voters just passed Measure B, which authorizes Riverbank’s City Council to impose a business license tax of up to 10% of gross receipts on cannabis businesses in the event the city allows cannabis businesses to operate within its city limits in the future. This tax has incentives other than the apparent potential of tax revenue. This guarantees the city a cut of the earnings of any illegal cannabis businesses, and serves as a protection in the event the permit and development agreement scheme the city has enacted is later found to be invalid.

The Chaos Continues

The new tax measures underscore the lack of uniformity in local cannabis business taxes throughout the state. Compliance is especially burdensome for delivery companies and multi-location and multi-license cannabis businesses. Cannabis businesses are required to keep up with new and evolving cannabis tax regimens, which, judging by the shortfall in cannabis tax revenues compared to their projections so far, is a difficult feat for these highly-regulated businesses.Of course, there are still some local governments that appear to have missed all the signs and have passed new high taxes. 

The overall trend in 2018, persisting through the midterm elections, is that more local jurisdictions are joining the cannabis tax bandwagon, and while the tax rates and structures are still all over the map, there appears to be some movement toward honing the cannabis business rates toward that “sweet spot.”

Cities like Oakland and Berkeley that immediately began to tax cannabis businesses at high rates have lowered or taken steps to lower their tax rates to keep their competitive edge and retain cannabis businesses within their jurisdictions. There are signs that other localities that waited to jump onboard have learned from these high-taxing jurisdictions and opted for lower rates. Some have even set the effective dates of their cannabis tax laws several years out to allow their local cannabis businesses an opportunity to establish roots and drive out the black market.

Of course, there are still some local governments that appear to have missed all the signs and have passed new high taxes. In due time, they, too, will give in to the market pressures and make necessary adjustments if they want to continue to benefit from the legal cannabis industry in their jurisdictions.


Taxnexus is an automated transaction-to-treasury cannabis tax compliance solution for the entire cannabis supply chain that provides point-of-sale state and local cannabis tax calculation, sales and use tax calculation, tax data management as the authority of record, and timely filing of returns with all applicable taxing authorities.

WSLCB

Washington State Regulators Crack Down On Diversion

By Aaron G. Biros
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WSLCB

For the second time in six months, the Washington State Liquor and Cannabis Board (WSLCB) took swift and severe action on a cannabis business licensee operating in the black market. The regulatory agency issued an emergency license suspension for Port Angeles’ North Coast Concentrates, which are effective for 180 days, during which time regulators plan on revoking the license altogether.

WSLCBAccording to a release emailed last week, the violation was uncovered during a routine traffic stop. “On September 20, 2018 an employee of North Coast Concentrates was pulled over by Lower Elwha Police, during the course of the traffic stop officers found 112 grams of traceable marijuana concentrates, three large jars and a large tote bin of untraced dried marijuana flower,” reads the release. “The products were not manifested in the state traceability system. Subsequent investigation by WSLCB officers revealed that the untraced product had been removed from the licensees grow operation and that the traced concentrates were returned from a marijuana retailer in Tacoma several weeks earlier.”

The release goes on to add that when regulators investigated the matter, they found text messages indicating the license holder’s complicity in the act. When the WSLCB suspended the license, officers seized “556 pounds of marijuana flower product, 24 pounds of marijuana oil and 204 plants from both locations.” Regulators say, “the severity of these violations and the risk of diversion” is the reason for the emergency suspension and product seizures.

According to the end of the release, The WSLCB issued one emergency suspension in 2017, and six in 2018. One of those was roughly six months ago in July when regulators issued an emergency suspension for a Tacoma-based cannabis business for the same reason as the most recent one- diversion.

The WSLCB release email from July
The WSLCB release email from July

The enforcement branch of the WSLCB acted on a complaint and inspected Refined Cannabinoids where they found “numerous and substantial violations including full rooms of untagged plants, clones and finished product,” reads a release emailed back in July. “During the course of the inspection officers discovered and seized 2,569 marijuana plants, 1,216 marijuana plant clones, 375.8 lbs. of frozen marijuana flower stored in 11 freezer chests, 3,423 0.5 gram marijuana cigarettes, and 97.5 lbs. of bulk marijuana flower without the requisite traceability identifiers.”

That July release also states that enforcement officers found evidence of diversion to the black market, in addition to the company not tracking their product. “Traceability is a core component of Washington’s system and essential for licensee compliance,” says Justin Nordhorn, WSLCB chief of enforcement. “If our licensees fail to track their product they put their license in jeopardy.”

Richard Naiberg
Quality From Canada

Protecting Intellectual Property in Canada: A Practical Guide, Part 6

By Richard Naiberg
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Richard Naiberg

Editor’s Note: This is the sixth and final article in a series by Richard Naiberg where he discusses how cannabis businesses can protect their intellectual property in Canada. Part 1 introduced the topic and examined the use of trade secrets in business and Part 2 went into how business owners can protect new technologies and inventions through applying for patents. Part 3 raised the issue of plant breeders’ rights and Part 4 discussed trademarks and protecting brand identity. Part 5 took a detailed look at copyright laws for cannabis companies and how they can protect works of creative expression.  

In Part 6, the conclusion of this series, we take a look at nine key takeaways from the series:We hope you enjoyed this series and found the information provided to be useful. If you’d like to learn more about intellectual property law in Canada as it relates to the cannabis industry, feel free to reach out to Richard Naiberg at rnaiberg@goodmans.ca 

Summary of Practical Considerations For Cannabis Producers

  1. Cannabis producers should establish procedures by which the technological innovations achieved by their employees are kept confidential and are quickly reported to management for consideration as to whether the innovation should be protected as a trade secret, by patent, by plant breeder’s right or not protected at all.
  2. If a trade secret protection is desired, the producer must invoke systems that limit knowledge of the secrets to those in the company with a need to know it, and make sure that departing employees understand their obligations of confidentiality and do not take any documentation of the secrets with them when they go.
  3. The nature of the innovation under consideration will drive the choice between a patent and a plant breeder’s right. Plant breeder’s rights only protect whole plants. Patents protect other innovations, subject to the limitations described above. Patents may be drafted to protect whole plants, albeit indirectly: a patent on genetic sequences or engineered cell can be infringed by a whole plant that incorporates those sequences or cells.
  4. The decision as to whether to file an application for a patent or a plant breeder’s right, and in what jurisdiction(s), should be made with careful consideration of whether the producer will employ the invention/variety in its business (and in what countries), as well as the potential value of the invention/variety to other producers who may eventually become licensees of the resulting patent(s) or plant breeder’s right.
  5. Cannabis producers must remain up-to-date on patent and plant breeder’s rights applications that are filed in the jurisdictions in which they operate so as to be in a position to identify patents and plant breeder’s rights that will potentially affect their freedom to operate. Such due diligence will also allow the producer to predict the technological and business focuses of their competitors.
  6. Cannabis producers must select a trademark that is immediately distinctive or can quickly become distinctive of its goods and services. The trademarks ought to be fully available, in the sense that they are not in use by any competing business in any of the jurisdictions in which the producer intends to do business. Ideally, the trademark ought to be available as a domain name to ensure that there is no confusion on the Internet.
  7. Once the trademark is selected, the cannabis producer should make consistent and extensive use of that trademark. The more consistent and ubiquitous the use, the stronger the producer’s brand and trademark will be.
  8. The owner of the trademark must routinely conduct searches to ensure that no third party is using a trademark that is similar that of the owner. If such unauthorized use is discovered, the owner must act quickly to restrain that use or potentially license the use.
  9. Cannabis producers ought to contract to ensure that they are the first owners or assignees of any copyright subsisting in the artwork, literature and websites the company creates or hires other to create. Producers ought also to obtain waivers of the moral rights of any authors of this work.

We hope you enjoyed this series and found the information provided to be useful. If you’d like to learn more about intellectual property law in Canada as it relates to the cannabis industry, feel free to reach out to Richard Naiberg at rnaiberg@goodmans.ca

Ellice Ogle headshot

Designing a Recall Plan for Your Company

By Ellice Ogle
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Ellice Ogle headshot

Bearing through four voluntarily recalls in the first two months since the transition window ended, the California cannabis industry showed its commitment to providing safe goods for its consumers. Recalls are considered the removal of products deemed unsafe at the point of retail. With unsafe product already on shelves, it is that much more important to have a thought out strategy if a recall need arises. Currently, the California Department of Public Health-Manufactured Cannabis Safety Branch is the only regulatory agency in the state of California with recall stipulations for California cannabis companies. Thus, the onus is on individual cannabis companies to initiate their own recall plans.

Why establish a recall plan if one is not compulsory? To start, a cannabis product recall is more challenging than recalls in other industries because of the classification as a Schedule 1 drug and the misunderstanding and stigma of the drug that promotes fake news. These considerations affect the way both the government officials and consumers perceive cannabis recalls – not preparing ahead of time could be devastating to your brand. Furthermore, a recall is not just a one day headache – in December 2017, the Inspector General of Department of Health and Human Services  found that food companies took 57 days on average to initiate a recall after the Food and Drug Administration (FDA) first learned a product was potentially hazardous. Not only is a recall tricky to navigate and time intensive, a recall can also be costly – a joint study by the Food Marketing Institute (FMI) and the Grocery Manufacturers’ Association (GMA) in the USA found that 77% of the study respondents estimated the financial impact to be up to $30 million dollars; 23% reported even higher costs. One major factor of the financial impact to consider is that many retailers do not remove only the affected products, instead sweeping entire lines and brands. To estimate how much a food recall would cost your company, researchers Moises Resende-Filho and Brian Burr developed a model to estimate the direct costs of a food recall. To take a step back, it is true that, while recalls can be tricky to navigate, time intensive and costly, recalls are generally infrequent. At the same time, you never know where or when a recall could happen. For example, your manufacturing process might be flawless, but a supplier may suddenly issue a recall or the retail facility is compromised. Moreover, not all recalls are equal – imagine that consumers would react differently to an undeclared allergen on the label versus a life threatening pathogen in a product distributed to patients with weakened immune systems. Ergo, it is strategic for every cannabis company (grower, manufacturer, retail, etc.) to have a recall plan to be ready for any type of recall situation.

Take these 6 tips in designing a recall plan:

Food processing and sanitation
Product recalls due to manufacturing errors in sanitation cause mistrust among consumers.

Before a Recall

1) Be familiar with how recalls work by staying up to date with recalls

2) Write a recall plan. Select a recall template and fill in your company information, but also take into consideration any regulations on recalls at the federal, state, and county levels.

During a Recall

3) Record everything that was said and done. If there was no prewritten recall plan, during a recall is a good time as any to begin documenting all actions and communication – internal within the management team and external with business partners (suppliers, retailers) and external with the consumers.

4) Find the flaw in the product. Why is the product being recalled? This is important to know, whether it was your item or not, to better answer the next question of “What happens with the recalled product?” The most common causes for a recall in the USA are identified in the joint study mentioned above by the FMI and GMA.

After a Recall

5) Reevaluate the recall plan. Compare to a reputable third-party auditing standard (example here is Safe Quality Food Institute’s SQF Food Safety Code for Manufacturing Edition 8). Updates to the recall plan are inevitable and constant. The changes may be due to updates in company products, adjustments in the recall network or the experience gained when going through a recall. Also keep an eye out for updates to templates of recall plans. Conduct mock recalls with different recall origins.

6) Reevaluate the food safety plan. After finding the flaw in the product, identify the flaw in the process and improve. Examples to improve the food safety plan may be to: amend the supplier approval program, refine process flow, polish the sanitation program or revise the preventative maintenance program. The foundation of a recall plan is having a robust food safety plan to minimize the risk of running a recall.

FSC logo

Edibles Discussion Comes To Food Safety Consortium

By Aaron G. Biros
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The Food Safety Consortium, taking place November 13-15 in Schaumburg, Illinois, will host a series of talks geared towards the cannabis industry this year. The newly launched Cannabis Quality Track features a number of panels and presentations designed to highlight the many intersections between food safety and cannabis.

Jenna Rice, Director of Operations at Gron Artisan Chocolates
Jenna Rice, Director of Operations at Gron Artisan Chocolates

The track will have presentations discussing food safety planning in cannabis manufacturing, HACCP, GMPs, regulatory compliance and supply chain issues among other areas.

Ben Gelt, board chair of the Cannabis Certification Council, is moderating a panel titled What’s In My Weed? that will delve into issues like supply chain, production and other difficulties in creating cannabis products and the challenges inherent in teaching consumers to be more discerning.

Ben Gelt, Board Chair of the Cannabis Certification Council
Ben Gelt, Board Chair of the Cannabis Certification Council

Panelists will include:

Kimberly Stuck, Founder of Allay Compliance Consulting
Kimberly Stuck, Founder of Allay Compliance Consulting

Ben Gelt and the Cannabis Certification Council orchestrated the development of this panel to help promote their #WhatsInMyWeed consumer awareness and education campaign. “The Cannabis Certification Council believes consumer education campaigns like #Whatsinmyweed are critical to drive standards and transparency like we see in food,” says Gelt. “What better place to discuss the food safety challenges the cannabis industry faces than the Food Safety Consortium”

Before Kim Stuck founded Allay Compliance Consulting, she was the first Marijuana Specialist for a public health authority in the nation, where she was working with regulators in Denver, Colorado. She is currently a cannabis food safety expert and a Certified Professional of Food Safety (CP-FS) through NEHA. She has helped Colorado and California develop cannabis food safety requirements. “I will discuss pitfalls we have experienced in the regulation of cannabis in Denver and what mistakes not to make,” says Stuck. “I’d also like to talk about how to be prepared for when those regulators start to come in to facilities.”

Kristen Hill, MIP Director at Native Roots Dispensary
Kristen Hill, MIP Director at Native Roots Dispensary

Kristen Hill is the MIP Director at Native Roots, arguably one of the largest dispensary chains in the world. She oversees 30 employees in Native Roots’ MIP facility where product testing and quality assurance of products are all led under her guidance. Her background includes managing quality assurance and regulatory compliance with FDA regulations, among other areas. She said she’s particularly excited to talk about implementing manufacturing best practices in the cannabis space. “Cannabis is maturing and is beginning to shape operations around long standing best practices in other industries,” says Hill.

Leslie Siu, Founder and CEO of Mother & Clone
Leslie Siu, Founder and CEO of Mother & Clone

Leslie Siu brings to the panel 17 years of liquor, tobacco and pharma marketing and operational oversight plus global digital and experiential campaigns. Her company, Mother & Clone, produces infused, sublingual cannabis sprays. Based in Colorado, Mother & Clone’s team of biochemists are Merck alumni, currently working towards GMP standards in preparation for Canada, slated to be on shelf in the spring of 2019. Her main consideration for cannabis product development comes from what she has learned from the FDA in traditional industries- what they will and will not tolerate.

To learn more about the panel, other topics presented and see the full agenda for the upcoming Food Safety Consortium, click here.

East Coast Market Update

By Lindsay Engle
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There are going to be some states that are less progressive in the pro-cannabis movement, the same way there were states that were slow to move past alcohol prohibition. This is normal for any country moving towards change, better economic standing and safer healthcare.

There are only four states that completely ban recreational and medical cannabis altogether, and those states are Idaho, Kansas, Nebraska, and South Dakota. Although, there is no doubt that more and more states are moving towards a pro-recreational and medical cannabis stance. There are some states in the Northeast that are making strides to legalize cannabis.

Most of the states in the Northeast already have some form of medical cannabis law in the books already, but some are moving towards recreational legalization surprisingly quickly. Massachusetts already has legalized recreational cannabis and is setting up their regulatory framework currently while Vermont, New Jersey and New York, all of which already have medical laws, appear to be just steps away from legalizing it recreationally.

Northeast States Moving Towards Legalization

With Canada’s recent recreational legalization, a number of states just south of the border appear to be eyeing the issue for themselves. While some of these states have somewhat strict regulations in place, they look like promising emerging market opportunities.

New Jersey

New Jersey is closer than ever to legalizing recreational cannabis. Governor Phil Murphy built his campaign on the pledge to end cannabis prohibition. Murphy says having recreational cannabis legalized this year is his goal.

Murphy says that he wants legal recreational cannabis to be available because he believes it is a way to improve social justice in New Jersey and to bring the state new tax revenue. The biggest issue is what the legislation will look like and how it can be tied to expanding the states medicinal cannabis program.

New Jersey Governor Phil Murphy
New Jersey Governor Phil Murphy

Their current medical program, while still small in market size, appears to be gaining steam and growing in terms of patients getting access. Six months ago, The New Jersey Department of Health added a number of qualifying conditions patients can get a cannabis prescription for. The program still has its limits, like a 10% THC potency cap, small selection of types of products and other various restrictions.

New York

It was just last year when Governor Andrew Cuomo said cannabis was a “gateway drug” and he was opposed to legalization. After conducting a study on cannabis legalization, the result was a July Health Department report that determined the positive effects of legalization outweighs the potential negative impacts.

The debate between Andrew Cuomo and Cynthia Nixon in the gubernatorial race has highlighted their views of cannabis as well as other important issues; it’s important that New Yorkers vote in the primary election to have the best opportunity for the future.

If New York legalizes recreational cannabis, it could open up a huge new market. Medical cannabis users will likely see a price drop in their medication. Similar kinds of restrictions that plague the New Jersey market are also affecting medical patients in New York. Currently, smoking and edibles are both prohibited even for patients. Back in 2017, the state added chronic pain to its list of qualifying conditions, undoubtedly increasing the number of patients.

Companies with large amounts of capital are planting their flags in New York, like MedMen’s dispensary in Manhattan, even if the medical market might still be in its infancy.

MassachusettsOver the next six months, this market will be one to watch closely

Recreational cannabis became legalin the last couple months for Massachusetts, while the state legalized medical cannabis some time ago. Their medical program is relatively advanced compared to New York or New Jersey. Online registration, a large number of qualifying conditions, and a less restrictive business environment seemed to encourage a much larger number of patients and businesses supporting them.

Regulators in Massachusetts are currently consideringthe option of allowing delivery operations for the recreational market. The roll out for the recreational industry might seem somewhat slow, but regulators are tackling a wide range of issues and making considerable progress towards the highly anticipated recreational market opening. Just last week, regulators issued licenses to two cannabis-testing laboratories, and, according to the Boston Globe, the debut could be just weeks away.

While the industry and regulators get ready for the recreational debut, a recent crackdown on pesticide usehighlighted some of the growing pains that come with it. Over the next six months, this market will be one to watch closely as dispensaries begin selling recreational cannabis and the industry develops.

Vermont

The recent Canadian legalization of recreational cannabis will no doubt put pressure on states sharing a border with them to consider adjusting their laws.

Legalizing recreational cannabis will likely increase tourism to Vermont, the way other states saw an influx in tourism when they legalized. Unfortunately, Vermont has only decriminalized recreational cannabis. You can possess, grow and consume cannabis, but you can’t buy or sell it, which obviously restricts the ability of any business to enter the market.

Vermont Statehouse, Montpellier, VT
Image: Tony Fischer, Flickr

However, their legal medical program is relatively laissez-faire compared to other states in the region. They allow for cultivation at home or through a caregiver and there are a number of small businesses working under the legal medical program.

Maryland

Recreational cannabis isn’t legal in Maryland yet, but medical cannabis has been legal since 2014. It’s illegal for patients and caregivers to grow their own. Attempts have been made to make recreational cannabis in 2016, but the bill didn’t move forward.

Maryland’s industry was off to a rocky start, when the application process for businesses wanting to enter the market slowed to a crawl. This month, the state just approved four new medical dispensaries and one new processor for the market. The latest round of approvals brings the total to 69 dispensaries serving patients, while back in 2016, the state pre-approved 102 dispensaries originally.

Delaware Expect to see another attempt at legalizing via the legislature in early 2019.

Delaware is looking at the possibility of legalizing the recreational use of cannabis for adults over 21 years of age. Even though medical cannabis is legal, recreational use isn’t. Back in June, lawmakers in the state were close to recreational legalization but fell short of the mark by four votes. Expect to see another attempt at legalizing via the legislature in early 2019.

The Delaware Department of Health will continue to accept applications for medical cannabis cards, which is required for patients seeking to obtain their medicine from a compassion center. Patients are not allowed to grow their own cannabis. The state’s program has been operational for quite a while, and a small number of companies have established footprints in the state, like the Israeli brand Tikun Olam.

Pennsylvania

In 2016, Pennsylvania legalized medical cannabis. In contrast to some of the other states discussed earlier, PA is off to a more streamlined start. The second phase of their medical program allowed for more businesses to enter the market, a wider range of qualifying conditions and a larger number of patients registering. The industry is maturing here fast and could make for an exciting opportunity with recreational legalization potentially on the horizon.

A state lawmaker recently introduced legislation to legalize recreational cannabis. The bill would allow adults 21 and older to possess cannabis products such as edibles and up to six cannabis plants, but not more than three mature plants that are flowering.

The bill would call for the immediate release of people jailed for cannabis-related crimes. This would also allow anyone with a criminal history related to cannabis to have that expunged.

If the bill passes, the tax imposed is estimated to generate $500 million a year.

Richard Naiberg
Quality From Canada

Protecting Intellectual Property in Canada: A Practical Guide, Part 4

By Richard Naiberg
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Richard Naiberg

Editor’s Note: This is the third article in a series by Richard Naiberg where he discusses how cannabis businesses can protect their intellectual property in Canada. Part 1 introduced the topic and examined the use of trade secrets in business and Part 2 went into how business owners can protect new technologies and inventions through applying for patents. Part 3 raised the issue of plant breeders’ rights and in Part 4, below, Naiberg discusses trademarks and how cannabis businesses should go about protecting their brand identity in Canada.


Trademarks: Protections For Brands And Goodwill

Cannabis businesses must not only protect their investments in their technical creations, but also must protect their brand identities. A cannabis producer can invest heavily in making a desirable, high-quality product, and can advertise and sell this product so as to generate customer interest and goodwill, but if the customer cannot distinguish the producer’s product from that of its competitor, this investment is for not. Trademarks become unenforceable when they are no longer distinctive.

A trademark provides its owner with the right to have the Court stop another entity from using the trademark, or using a similar trademark in a way that confuses the public. When the trademark is infringed, the Court can also make a monetary award in favor of the trademark owner.

Trademarks are identifiers of a particular source of manufacture and they can take virtually any form. Trademarks can be words, phrases, symbols, names, designs, letters, numbers, colors, three-dimensional shapes, holograms, moving images, modes of packaging, sounds, scents, tastes, textures, or any other distinguishing element. What a trademark cannot be is a mere descriptor of the goods or services themselves because such a trademark would prevent other entities from describing their products in their ordinary terms.

Trademarks can be registered, but they do not have to be. In choosing a trademark, the cannabis producer must balance competing impulses: the desire to choose a trademark that is suggestive of the product itself so as to have an immediate meaning to customers without need of an expensive marketing campaign; and the desire to coin a unique and striking trademark which is instantly eye-catching and memorable, but which must be advertised before customers can understand the product to which it refers.

For example, a depiction of cannabis leaf or a word that plays on the ordinary terms used to refer to cannabis will not make a strong mark that can be enforced against those who adopt something similar. On the other hand, a coined word, such as “Kodak”, may have no independent association with cannabis but, after a time, use of this mark in association with a cannabis product can create a very strong mark with a wider ambit of exclusivity.

All that said, even a very suggestive mark can serve as a trademark where the use of the mark is so longstanding and ubiquitous that the suggestive mark acquires a secondary meaning as an indicator of its source of manufacture. Cannabis producers can and should also consider adopting specific colors, scents or tastes of their products as trademarks, where appropriate.

Trademarks become unenforceable when they are no longer distinctive. For this reason, trademark owners must keep abreast of any use of trademarks similar to their own by third parties, and must act quickly to either license such uses or to restrain them.Cannabis businesses have been very busy applicants for trademarks. More than 1700 such applications are now on file, though a comparative few have yet been registered. 

Trademarks can be registered, but they do not have to be. When a company’s product or service becomes known to its customers or potential customers with reference to a mark through ordinary business use, a trademark has been created.

Registration does however provide certain advantages. Under the amendments to the Trademarks Act coming in 2019, a registered trademark can be obtained for without any proof of use or goodwill.  By contrast, and as noted above, an unregistered mark must be used and possess goodwill before it can be said to exist at all. A registered trademark provides protection for its owner across Canada. An unregistered trademark can only be enforced in the geographical area in which its owner has established its reputation. A registered trademark is protected from those who use it in a manner that is likely to depreciate the goodwill of the trademark. An unregistered trademark only protects against consumer confusion.

Registration under the Trademarks Act also makes it an offence to sell goods or services on a commercial scale in association with another’s registered trademark, or to traffic in infringing labels. Further, a trademark owner can request that the import or export of such goods in Canada be arrested. No similar rights accrue for unregistered trademarks.

Finally, a registered trademark is published at the CIPO web site, providing notice of its existence to new market entrants before these entrants commit to using a similar trademark. Unregistered marks are not always easily discovered and a new market entrant may commit to a mark before having any opportunity to discover that it is the unregistered trademark of another.

Registering a trademark is straightforward. The applicant prepares an application that identifies the applicant, the trademark and the goods and/or services with which the trademark is being used or is intended to be used. Once satisfied that the application complies with the Trademarks Act, CIPO publishes the application to allow potential opponents of the registration to come forward. If there is no opposition, or if an opposition proceeding is brought and dismissed, the trademark is issued.

There is an interaction between the Trademarks Act and the Plant Breeder’s Rights Act. As discussed above, when a denomination has been adopted for a plant variety under the Plant Breeder’s Rights Act, nothing similar can be adopted or registered as a trademark. This is so other traders may use the denomination in their sale of the variety after expiry of the plant breeder’s right.

Cannabis businesses have been very busy applicants for trademarks. More than 1700 such applications are now on file, though a comparative few have yet been registered. Trademark applications in this area are likely to increase further with the coming changes to the Trademarks Act and the removal of the requirement that applicants show use of the trademark prior to registration. Companies will be encouraged to apply for trademarks they may only be considering using, and for any trademarks that they think their competitors may be planning to use. There is some concern that the changes to the Trademarks Act will lead to the rise of trademark trolls.

Before adopting a particular trademark, the producer must do what it can to minimize the likelihood that a third party will assert that the trademark infringes the third party’s prior rights. Searches of Canadian and international trademarks, particularly United States trademarks, are advised. National intellectual property offices, such as CIPO and the United States Patent and Trademark Office, maintain easily searchable databases of registered and applied-for trademarks that should be reviewed. Search professionals can also assist in identifying trademarks that have never been the subject of a trademark application. With the result of the searches in hand, the cannabis producer can determine whether or not to proceed to adopt the contemplated mark and invest in its promotion.


In Part 5, Naiberg will explain how to use a copyright to protect works of creative expression. Stay tuned for more!