MJBizMag July 2021 - 15

licensing deals. In exchange for
payment (typically a royalty), the
licensor permits an out-of-state
licensed operator to produce and sell
cannabis products under the original
business' brand name.
Cannabis companies considering
such licensing arrangements should
consider several issues.
First, obtaining federal registration
of trademarks covering cannabis
products is presently impossible,
since the U.S. Patent and Trademark
Office routinely rejects such
applications as unlawful under the
Controlled Substances Act. State
trademark registrations are typically
not granted until the brand owner has
used the mark " in commerce " -that is,
to conduct business-in that state.
Therefore, in cannabis licensing
deals, parties should be mindful
of the precise scope of rights that
are being licensed. Brand owners
should be wary of providing robust
representations and warranties
regarding their trademarks since they
will not have federal registrations
covering cannabis products and
typically will not be able to obtain a
state registration in the market of
interest until the deal has closed and
after product launch.
Second, all trademark licenses
require that the brand owner exercise
quality control over the licensed products
for the license agreement to be
held valid and avoid abandonment of
trademarks through so-called " naked "
licensing. Obviously, shipping across
state lines is not possible. The parties
must think creatively about how to
conduct inspections in compliance
with applicable law.
Finally, the parties must consider
how to structure payments, including
whether sales royalties payable in
exchange for the trademark license
might trigger disclosure requirements
under state law. For example, royalties
based on sales revenues might result
in a brand owner becoming a financial
interest holder in its licensee,
triggering disclosure obligations.
Because state rules vary, appropriate
diligence needs to be conducted in
every state in which a brand owner
licenses its trademarks.
Stacie Nyborg counsels corporate and
individual clients, analyzing risks and
achieving their goals for the office
of Brownstein Hyatt Farber Schreck
in Santa Barbara, California. Airina
Rodrigues is a shareholder in the law
firm's Denver office, advising clients
on the development, protection and
commercialization of intellectualproperty
assets
July 2021 | mjbizdaily.com 15

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MJBizMag July 2021

Table of Contents for the Digital Edition of MJBizMag July 2021

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