The marijuana industry has exploded since the legalization of the plant for medical use (and recreational use in states like Colorado and Washington). There are currently twenty eight states that have legalized the use of marijuana for medical purposes and eight of them and Washington, D.C. have also approved recreational use. The rush to enter this vast new market has resulted in an explosion of dispensaries and the market value in 2016 was estimated at 7.1 billion dollars. In 2015 in Colorado alone, sales of recreational and medical marijuana totaled 996 million dollars.
Yet, the industry is hamstrung. On a federal level, marijuana is still classified as a Schedule I drug, meaning that the Controlled Substances Act considers it to be void of any medical benefits. This has caused legitimate marijuana businesses in legalized states to encounter branding issues as they attempt to act like legitimate businesses. Federal trademarks, for example, cannot be awarded to businesses that grow or distribute marijuana. Yet the ability of firms in this market to distinguish themselves from their competition and protect their unique image in an ever-growing throng of dispensaries is crucial. So, in an industry that is only going to grow faster as more states move towards legalization, how can firms take the important steps to branding themselves?
Some have taken the route of deception. In a 2016 Trademark Trial and Appeal Board decision, a Washington-based retailer attempting to secure a federal trademark for the name “Herbal Access” was denied on the grounds that it sold marijuana. Yet the retailer did not come clean about that. Instead, it tried to conceal the fact that it sold marijuana and labelled itself as an “herb store”. This was seen through immediately and the retailer did not obtain the desired trademark. Furthermore, more legal issues emerged later on because of the store’s insistence on lying about its true nature despite advertising the sale of marijuana on its official website. Trademarks have been denied based on implications made that either there is no sale of marijuana when there actually is, or even that there is sale of marijuana when there really isn’t.
For entrepreneurs attempting to tap the marijuana market, the short run is important to consider. For now, marijuana is not legalized at the federal level, and so marketing must be contained within states where it is. It is advisable that businesses simply register marijuana-related aspects of their brand under state law.
Sources:
Connors, Tiffany Scott, and David Spellman. “Branding Marijuana Businesses: Lessons Learned From In Re Morgan Brown.” The Licensing Journal. Vol. 36. New York: Aspen, 2016. 5. Web. 22 Mar. 2017.
http://www.businessinsider.com/where-can-you-legally-smoke-weed-2017-1
http://medicalmarijuana.procon.org/view.resource.php?resourceID=000881
http://www.medicalmarijuanainc.com/about/industry-overview/
9 Comments
The Trump administration has made it clear that they do not support the recreational use of marijuana. The Obama administration would almost always allow state laws governing cannabis operations to take precedent over their federal counterparts. Any Federal power Trump attempts to exercise will lead to interesting debates on Constitutional law.
Yes, the federal framework in regards to recreational marijuana is important to consider. But if recreational marijuana is popular at the populist level and Trump sees his popularity continue to decline, then maybe his agendas might shift. All of this is complete speculation, but for now it is certain that this legal issue regarding marijuana is the ultimate test of this industry’s survival and the potential emergence of power players (which we don’t currently see, not even at state level).
There are so many interesting aspects of this industry poised for explosive growth. At least initially, it will be one that is heavily taxed and regulated which could serve as a difficult barrier to entry for many potential cannabis entrepreneurs. Firms sometimes have to be creative to legally operate. For example, I know in DC marijuana is legal for personal recreational use but having a business to sell it is prohibited. However, there is a delivery service where you can buy an organic juice or lemonade for $20, 40$ or $60 and the juice will come with a corresponding amount of weed on the side. In their eyes, they are technically giving the weed away. I’m sure others have found similar loopholes to be able to sell the coveted plant.
In Professor Goldsmith’s class on economic social issues, we spent a little bit of time discussing the emergence of the legalized marijuana market. What was interesting to me was the complexity of it all, especially in regards to “regulating.” As mentioned above, it will be very interesting to see what becomes of this industry under the new administration.
The complexity of regulating marijuana is a fascinating subject. Will different forms of THC have to be sold in different locations or at different times of day? Will firms be taxed depending on the strength of their product?
I liken trying to start a marijuana dispensary in the current climate to opening a brewery during prohibition. Not a lot of opportunity to expand, unable to nationally advertise, and a stigmatization that discourages potential consumers. That being said, I think the current wave of legalization will eventually (10 years? 20?) reach the federal level. Once that happens it will be interesting to see if the industry consolidates itself into a few major players or continues to be a fairly competitive market.
I honestly shocked that the federal government has not legalized medical marijuana yet because of all of the benefits it will get from taxes. That being said I agree with Matt that it will be interesting to see what happens when marijuana is legalized with the multiple players in the industry. I think the large ones that have the most revenue to spend on advertisements will be the ones to succeed.
Indeed, the biggest challenge that the cannabis industry faces is its illegality at the federal level, which makes it hard for local dispensaries and shops to create national brands. As long as cannabis is still illegal at the federal level, the Patent and Trademark Office will continue to deny the requests of marijuana retailers to register trademarks for their cannabis-based products. To protect against infringement, these cannabis companies have now turned to trademarking their ancillary products and services, for example vaporizers, tobacco jars, and apparel lines. While this strategy isn’t foolproof, it does offer some level of protection for legitimate cannabis companies.
I might just be misinterpreting the article, but is it legal for firms to advertise in their own states (assuming obviously it has been legalized in that state)? If so, I feel like some of these markets are big enough where if firms successfully market themselves they can do well. Washington and Colorado are massive states with large populations. I feel like a company can expand around the state even if it cannot outside it…. yet.
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