The Impact of Cannabis Rescheduling on Trademark Law

Jacob J. Golan, Jonathan Hyman & Jonathan Menkes, Attorneys at Knobbe Martens

On April 30, 2024, U.S. Attorney General Merrick Garland sent a shockwave through the cannabis world when he circulated a proposal that would shift marijuana from Schedule I to Schedule III under the Controlled Substances Act (“CSA”). If implemented, this would end marijuana’s decades-long classification alongside substances such as heroin and LSD. Under the current legal framework, the U.S. Drug Enforcement Administration (“DEA”) has the ultimate authority to reschedule cannabis after an extensive factual inquiry in cooperation with the Food and Drug Administration (“FDA”). On May 21, 2024, the DEA issued its formal notice of proposed rulemaking for the rescheduling. Currently, comments must be submitted electronically or postmarked on or before July 22, 2024. There will then be administrative hearings, DEA review, and final rulemaking. This process can last from months to years, and can be stymied by activist lawsuits seeking to block the rescheduling effort. The most recent rescheduling of a substance under the CSA was in 2014.  It moved hydrocodone-combination products from classification as a Schedule III substance to classification as a Schedule II substance.  In that case, the formal rulemaking process lasted five years.

The proposed rulemaking sets out the following eight factors for deciding whether to control or reclassify a substance under the CSA:

The drug’s actual or relative potential for abuse; Scientific evidence of its pharmacological effect, if known; The state of current scientific knowledge regarding the drug or other substance; The drug’s history and current pattern of abuse; The scope, duration, and significance of abuse; What, if any, risk there is to the public health; The drug’s psychic or physiological dependence liability; and Whether the drug is an immediate precursor of a substance already controlled.

Under the CSA, the substance scheduling system dictates not only the legality of a substance’s use but also influences other legal frameworks, including federal trademark registration. The U.S. Patent and Trademark Office (“USPTO”) has historically refused to register trademarks for cannabis goods or services on the ground that lawful use in commerce is required for trademark registration. Because cannabis remains illegal under the CSA, any commercial use of a trademark that includes cannabis goods or services is necessarily unlawful. The fact that 24 states have legalized recreational cannabis, and 38 states have legalized medicinal cannabis, does not impact the USPTO’s current trademark examination standards, which are derived from federal law.

Cannabis brand owners should monitor this potential reclassification process and assess how it will impact their ability to protect their trademarks. The reclassification of cannabis to Schedule III could upend the USPTO’s longstanding barrier to the registration of cannabis trademarks. The USPTO might decide to allow applications previously barred under the CSA or remove consideration of the CSA altogether. Even if it did so, the USPTO might still use the FDCA’s provisions as a separate hurdle. Removing, or limiting, consideration of the CSA when examining trademark applications could open the floodgates for numerous cannabis-related trademark registrations, provided the goods comply with the requirements of the new classification, and comply with all other requirements for obtaining a registration.

Alternatively, the USPTO might maintain the status quo and continue citing the CSA as a bar to trademark registration, but allow limited exceptions for products compliant with the new lower schedule. Schedule III is not full legalization. Companies seeking to produce and sell cannabis under this lower classification will still have to meet certain standards, including registering with the DEA, ensuring secure storage, maintaining accurate and accessible records, conducting initial and biennial inventories, and following DEA guidelines for prescription refills and drug disposal. This would change the outright rejection by the USPTO to conditional acceptance based on adherence to regulatory requirements. Conditional acceptance could be particularly impactful for new market entrants, as trademark applicants might be allowed to file under an Intent-to-Use (“ITU”) basis, with the opportunity to demonstrate compliance at a later stage. This flexibility could significantly aid startups and existing businesses looking to expand into cannabis-related markets, ensuring they can secure trademark protection contingent on subsequent compliance.

Additionally, the fate of pending applications in the wake of cannabis reclassification poses another complex issue: will the USPTO allow applicants to amend their effective filing dates to align with the new legal landscape? This is what the USPTO did following the enactment of the “Farm Bill” that legalized hemp-derived products. This could affect the priority of trademark rights, i.e., who was first in line to apply for a trademark. This is particularly true for applicants that file an ITU application for a mark that is the same or confusingly similar to other trademarks for related goods or services. For example, if the USPTO requires that Company A (who filed their trademark 12 months ago) amend its effective filing date to the date that the new law came into effect and Company B (who filed 2 months ago), then Company A will not necessarily have clear priority over Company B. This could create more uncertainty for how the applications will be examined and who is awarded priority.

Given these changes, cannabis-related brands must stay informed of the shifting legal conditions and prepare to act swiftly once the reclassification takes full effect. This involves closely monitoring the rulemaking process, evaluating the status of pending trademark applications, and preparing to file new applications that comply with the anticipated new regulations. This also involves considering other forms of intellectual property protection, such as copyright protection and state trademark filings, to ensure that a company’s brands and proprietary content are being protected.

The proposal to reclassify marijuana as a Schedule III drug under the CSA may initiate a significant transformation in how cannabis-related products are regulated and protected. Even though the rulemaking process could take several months, if not years, to complete, the USPTO’s potential shift to conditional acceptance of trademarks used in connection with these products presents both opportunities and challenges. Businesses operating in or entering the cannabis market should strategically assess how these changes are likely to impact their business and their bottom line.

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About the co-authors

Jacob J. Golan, Ph.D. is an associate at the law firm of Knobbe Martens, where he counsels clients in the biotechnology, agrotechnology, and medical device and therapeutics fields in obtaining IP protection.

 

 

Jonathan Hyman is a partner with Knobbe Martens and co-chair of its CBD and legal cannabis practice. He is also co-chair of the firm’s Advertising, Media and Entertainment practice group. Mr. Hyman’s practice includes advising clients on trademark and copyright issues, IP licensing, rights of publicity, advertising, and other IP matters.

 

Jonathan Menkes is also a partner with Knobbe Martens, where he serves as co-chair of the firm’s CBD and legal cannabis practice and advises clients on strategic global trademark counseling and brand protection matters, as well on developing enforcement policies and procedures to combat online infringement.  Mr. Menkes also assists clients with licensing, domain name acquisition, multi-national settlement and co-existence agreements and IP assignment agreements.