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Entries in marijuana (3)

Monday
Jul092018

Tax Franchisee Terminated for Sharing Space With CannaBiz

Franchise LitigationFranchise Litigation

by Matthew J. Soroky

818-907-3022

 

In Devore v. H&R Block, the franchisor H&R Block was found to have lawfully terminated a franchisee for violating an in-term non-compete covenant, because the franchisee permitted its office manager and prior operator of the franchised business to offer tax return preparation services as part of his separate cannabis consulting business, all within the same office space as the franchised business, for multiple years. 

Cannabiz Tax Franchise

When the prior operator, Gordon Gates, sold the H&R Block office to the franchisee, he agreed to accept a portion of the purchase price during a three-year “earn out period” and to remain the office manager of the H&R Block until the purchase price was paid in full.  During those three years, the franchisee permitted Gates to operate “Cannabiz Accounting” from the H&R Block office. The business focused on cannabis consulting, but generated approximately 50 to 60 tax returns. None of the revenue generated by Cannabiz Accounting was reported to H&R Block. 

Gates eventually relocated offices, but he kept the franchisee’s principals and other employees of the H&R Block offices listed on his company website, which was then renamed “Gates & Associates.” The discovery of the franchisee’s names prompted the franchisor to terminate the franchisee, and to demand an accounting and payment of royalties due as a result of the breach.

Gates’ relationship with the franchisee was found to be a clear violation of the franchise agreement’s prohibition against direct or indirect engagement in a competing business. That section prohibited the franchisee from “engag[ing] directly or indirectly…in any business which offers any product or service the same or similar to [income tax preparation services] … within 45 miles of the Franchise Territory.” 

The franchisee argued that it did not engage in the competing Cannabiz Accounting business because it neither controlled nor received revenue from it. The trial court rejected this argument because it was undisputed that the franchisee breached the agreement by providing Gates with office space. 

An in-term non-compete covenant in a franchise agreement is typically broad enough to prohibit all conceivable forms of direct and indirect competition with the franchisor. Franchisees may be surprised to learn there are other, more subtle ways a franchisee may indirectly breach this covenant.  

 

Matthew J. Soroky is an attorney in our Franchise and Distribution Practice Group.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Friday
Sep222017

Lighting Up Legislation: Regulating Recreational Marijuana in California

Environmental Litigation AttorneyEnvironmental Litigation Defense Attorney

Stephen T. Holzer

818.907.3299

 

California voters legalizing the use of recreational marijuana under Proposition 64, also known as The Adult Use of Marijuana Act (AUMA) last November is just the beginning. Deciding how cannabis will be grown, sold and consumed involves a lot of deep thinking by state and local legislators.

For one thing, AUMA has been replaced by the Medicinal and Adult-Use Cannabis Regulation and Safety Act, or MAUCRSA. The new law created one system of laws to regulate both medicinal and adult recreational use.

As we near the end of September, we realize two things: 

  1. Retailers are already stocking shelves with decorations for December holidays – it’s called “Christmas Creep” – a phenomenon that seems to arrive earlier and earlier each year.

  2. This year, “Cannabis Creep” is encroaching on the state too, as growers, distributors, potential retailers and consumers all keep their eyes peeled for the latest local and state laws regarding the purchase and sale of marijuana and marijuana-related products. Just think of the state government stocking up the legal shelves with bills and licensing requirements. 

Here’s a look at what’s happening currently in Los Angeles and state laws.

Regulating Marijuana Business Interests

State licenses for marijuana businesses are required, while many cities in California will also require approvals if not their own licensing. Los Angeles for example, requires city approval.

Los Angeles’s Proposition D, approved in 2013, will go up in smoke in January. The old ordinance prohibited sales of pot within the City unless the business dealt in medical marijuana and met certain other guidelines, like registration with the City Clerk. Proposition D will be repealed by Proposition M as of January 1, 2018.

Proposition M gives the L.A. City Council authority to enact and revise regulations regarding medical and recreational marijuana; enforce laws or collect fines; and tax sales.

Los Angeles Zoning: The City Planning Commission passed a Los Angeles ordinance to establish zoning regulations affecting pot growers, distributors and sellers. The primary rule under this ordinance to remember is the 800 ft. rule – no selling within 800 feet of schools, drug or alcohol treatment and rehabilitation centers, public libraries, public parks, or other cannabis retailers and microbusinesses that sell marijuana on site.

There are other zoning rules for Los Angeles: generally speaking, licensed sellers are allowed to sell in retail zones, and licensed cannabis product manufacturers are permitted to make products in manufacturing zones.

Cultivators though, have much more stringent rules pertaining to outdoor growth vs. greenhouse or nursery growth. See the info starting on page 9 of the L.A. ordinance link above for more information.

The California government developed a website to keep everyone straight at the state level: California Cannabis Portal (CCP).

As of now there are three branches of marijuana government: the Bureau of Medical Cannabis Regulation (BMCR, the main regulatory office), CalCannabis Cultivation Licensing (branch of the state’s Department of Food and Agriculture, also referred to as just CalCannabis), and Office of Manufactured Cannabis Safety Branch (MCSB is part of the state’s Department of Public Health), all post updates here.

State Licensing: According to CCP, applications for licensing are coming soon.

Under Senate Bill 94 which was chaptered in June, there will be two types of cannabis sales licenses in the state of California. Retailers selling recreational marijuana to adults should apply for A-licenses. Businesses selling medical marijuana should apply for M-licenses.

As noted, none of the state agencies are issuing licenses yet. The BMCR is the branch responsible for retail, distributor, lab testing and microbusiness licensing; and recommends business owners pursue approvals and licenses from city and county governments while they finalize the state process.

CalCannabis estimates the first cultivation licenses will be issued in January 2018. CalCannabis is working on a track-and-trace system to record supply chain movements.

The MCSB will offer several cannabis licenses, including Type 6 (non-volatile solvent and/or mechanical extractions) and Type 7 (volatile solvent extractions) licenses – neither of which will be available for a while, as the branch expects to be able to receive applications for licenses in January.

Pipe Dreams for Consumers?

Legalizing marijuana whether for medicinal or recreational use is a weighty endeavor – one that should be taken with great deliberation for the protection of all.

But given the fact that none of the state agencies are ready to issue licenses, and realistically, don’t seem to be able to do so until well after the start of the new year, the only lighting up consumers can look forward to in the near future is that of the Christmas and Hanukah lights in December.

At least those retailers are ready to roll.

 

Stephen T. Holzer is a Business Litigation Attorney and the Chair of our Environmental Practice Group. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Monday
Nov142016

Half Baked: The Brave New World of Branding Weed

 

Franchise Agreement LawyerIntellectual Property Attorney

by Tal Grinblat

(818) 907-3284

 

In last week’s election, California voters passed Prop 64, which means recreational marijuana can be sold and used by persons over 21 within the state.

Trademark Protections PotBut don’t get excited about the gold rush just yet. Recreational users won’t be able to buy from medical dispensaries without a prescription; and cultivators won’t be able to sell marijuana until they get licensed. Barring the unforeseen, we’re looking at January 2018 for the first legal sales transactions of recreational marijuana.

Still, entrepreneurs are examining the legal concerns related to the recreational marijuana trade now; and some have been setting up for voter approval long before the November 8th vote.

Rapper Snoop Dogg for example, is already running into problems, including an opposition in the Trademark Trial and Appeal Board over his application for Leafs by Snoop. He filed the application in November 2015 with the U.S. Trademark and Patent Office (USTPO).

Leafs by Snoop is a company whose intended mark is a 7-pointed green leaf. The mark is intended to be used on cigarette lighters, clothing and hemp products, and is already being used on marijuana products in Colorado.

The company opposing the application is Maple Leaf Sports & Entertainment (MLSE), parent company of the National Hockey League’s Toronto Maple Leafs. MLSE filed an opposition in the U.S. Trademark Office on November 7, 2016 claiming there is a risk customers will confuse Snoop’s mark with their own. Below is each company’s trademark for comparison. See: Trademark Trial & Appeal Board Opposition.

California Pot Approval Up in Smoke?

No matter what individual states decide regarding recreational or medical marijuana use, cannabis is still a Schedule I illegal drug in the eyes of the Feds. Since the USPTO is a federal agency, they refuse registering marks that identify illegal products and services. The agency generally assumes an applicant’s use of a mark will be for legal goods and services, unless:

(1) a violation of federal law is indicated by the application record or other evidence, such as when a court or a federal agency responsible for overseeing activity in which the applicant is involved, and which activity is relevant to its application, has issued a finding of noncompliance under the relevant statute or regulation, or

(2) when the applicant's application-identifies goods or services that are a per se violation of a federal law." In re Brown, 119 USPQ2d at 1351; see also Kellogg Co. v. New Generation Foods Inc., 6 USPQ2d 2045, 2047 (TTAB 1988).

So what are the ways companies may obtain trademark rights in marijuana related products?

from MLSE Notice of Opposition

Intellectual Property Protections for Pot Products

Entrepreneurs who want to cash in on cannabis have a few options for now.

1. The best way to protect a brand nationally, is through trademark registration at the USPTO. Though it is currently not possible to trademark product names directly related to marijuana, it is possible to gain approval if you follow the example of the Dogg:

Sell products besides marijuana – parsley, sage, rosemary & thyme, for example, and come up with a catchy name and logo that encompasses everything. While a company would not get protection specifically for marijuana products, it could get protection for tangential legal products it sells.

2. Register the trademark in states where marijuana sales are legal. In California, the Secretary of State’s Trademark Unit handles trademark registrations.

3. Use the mark. To obtain common law trademark rights, a retailer need only use their name, such as through sales in an online store (no, marijuana can’t be sold online, but other products can be), on packaging, and in advertising. No formal registration is required to obtain common law rights. Unfortunately, common law rights are limited, in that trademark rights are only obtained in geographies where the retailer has actually used the mark. 

Accordingly, a cannabis retailer in California may have a difficult time enforcing its trademark rights outside the state, should a retailer in another state decide to use the same or similar branding.

None of these three protection methods are fool-proof. The first is the best method as it provides nationwide rights, but barring that, a combination of options two and three will also afford some protections and are better than nothing. As for Snoop Dogg…we’ll just have to wait for the smoke to clear to see if Leafs by Snoop gets crushed by the opposition.

Tal Grinblat is an Intellectual Property Attorney and Shareholder at our firm. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

LEWITT HACKMAN | 16633 Ventura Boulevard, Eleventh Floor, Encino, California 91436-1865 | 818.990.2120