Protect Your Cannabis Company Before It’s Too Late
Updated: Mar 12, 2019
Your marijuana business is your baby. You’ve invested blood, sweat, and tears into getting it off the ground and up and running.
But your work isn’t over.
Every day, cannabis companies lose market share, lawsuits, and money, or close down altogether because they’re not properly protected.
Here’s how to protect your cannabis company.
How to Protect Your Cannabis Trade Secrets
Your business is your baby, probably because you’ve developed a unique process, formula, or practice — aka a trade secret — that’s the underpinning of your success — unless someone else steals it from you. That’s the problem with trade secrets, they’re only protected for as long as they’re secret.
Identify and Secure
Before you can protect anything you need to know what needs protecting. Go through all of your documents to identify what should be kept secret and label them as confidential, or stamp as trade secret. Some things that may constitute trade secrets include standard operating procedures, recipes, formulas, methods for cultivation or extraction, training manuals and other documents that contain information that is unique to your business and provides value.
You should also implement a confidential documentation process to keep future documents secure.
In your process, it’s important to monitor where those documents are stored. Invest in encrypted technology to maintain their confidential nature, only share confidential proprietary information with those who need-to-know, and regularly review your process for security gaps.
Monitor Internal Access
More often than not, trade secrets are stolen by employees or contractors, and not by external parties. However, if you take the proper steps from the get-go, you can considerably reduce the risk.
Sit down with your organizational chart to determine which positions will be working with trade secrets, and require that all those employees complete training on maintaining confidentiality and sign a non-disclosure agreement (NDA). Don’t DIY this process; have a licensed attorney draft an airtight NDA and employment agreement provisions related to confidentiality and protection of trade secrets, and advise on the creation of company policies that outline what happens if company information is mishandled.
You should work with an attorney when dealing with employee policies because there are strict laws governing confidentiality and non-disclosure agreements.
This is not a one-and-done process. Provide your employees and contractors with refresher courses, communicate regularly about confidentiality issues, and hold exit audits with employees who are leaving the company to ensure they return any trade secret materials.
Create External Confidentiality
Before you enter into any partnerships, vendor agreements, or licensing deals, you’ll want to create a plan to protect your trade secrets.
With an outside entity, your contracts should include a strict confidentiality provision, especially if you’re outsourcing any product production or process.
Create procedures and plans specifically for the third parties you’re working with instead of giving them direct access to your company data or documentation. Conduct reviews of your relationships with external sources and have open conversations about the expectations on both sides surrounding trade secret protection.
How To Protect Your Cannabis Company Branding
It can be difficult to put a dollar valuation on your company’s branding, but it sure is expensive to have to rebuild the branding identity and awareness you’ve cultivated — especially if you’ve been in business for a while.
Before investing the time and money into building your visual brand assets — like logo, mascot, etc. — do your research to ensure you’re not accidentally infringing on an established brand, even if its in a totally different industry! If your brand is based on a parody, you may still be infringing on someone else’s brand.
Unfortunately, the internet is filled with horror stories from business owners who received stolen design work on design marketplaces and content websites, so you’ll need to do your due diligence before investing in design work as well. Buyer beware!
Likewise, before you settle on a catchy mission statement or tag line, carefully consider whether your messaging is borrowed or repurposed from a bigger brand. Copyright law is just as powerful as trademark law, and it’s brankrupted more than one company that didn’t do its due diligence.
If you’re not sure whether your branding is 100% original, consult a licensed business attorney familiar with both the cannabis industry and trademark law.
How To Protect Your Marijuana Business Trademark
When it comes to intellectual property, compared to trade secrets, trademarks are far easier to protect. There’s a registration process and a process for enforcement if someone uses your trademark without authorization from you.
But, unfortunately, that doesn’t mean trademark is simple or straightforward.
Federal Trademark Protection Potential Problems
The United States Patent and Trademark Office (USPTO) handles the federal application and approval of marks. The application criteria and eligibility requirements alone may leave you confused, which is why so many business owners hire an attorney to consult on their options.
Unfortunately, even if you follow their instructions to the T, your application can still be rejected; this is especially true for cannabis companies due to two common reasons:
1. The USPTO finds the mark to include “immoral or scandalous matter”
2. The USPTO sites a failure of the application to make “legal use” of the mark in commerce
In short, because cannabis is still federally classified as an illegal substance, the USPTO may deny your application; if you try to be clever with the wording to avoid raising suspicion that your company trademark relates to cannabis, you can still be denied.
State Trademark Protection Potential Problems
Where federal trademark problems abound, depending on your state, you may be able to find some trademark protection for your cannabis brand and logo from the state office. This is, of course, great news… but only for some states.
Not only because some states have yet to pass cannabis decriminalization laws, but also because not all state trademark offices were created equal, and are certainly nowhere near the level of the USPTO.
Many state trademark offices simply do not have the resources — funding, staff, etc. — to conduct a complete review of every trademark application that comes through the department. In fact, some don’t have the resources to review applications at all, and simply grant approval immediately upon submission.
This means your state-approved trademark certificate of registration only serves as evidence your application was filed, and not a valid or enforceable legal presumption — which could land you in legal hot water down the line.
BOTTOM LINE: Don’t Wait for a Lawsuit
As pretty much any attorney will tell you, the best defense is one you already have. Don’t wait to consult legal counsel on trade secrets, non-disclosure agreements, trademarks, or licensing agreements. Litigation might be the end of business for you.
Once you have a problem, it’s likely already too late. Prepare now to avoid losing money and market share later.
Avoid costly legal issues with an honest and easy legal consultation. Schedule a call to find out how to better protect your cannabis company.