Supplement Perspectives
lawsuit

The Ballad of Weedy: A Semi-Fictional Legal Tale

Attorney Erica Stump and her paralegal, Don West, Jr., examine what happens when a fictional company wants to launch a supplement containing CBD oil.

Cannabis, also known as marijuana, generally refers to the cannabis plant used as a psychoactive drug. The psychoactive part of cannabis is tetrahydrocannabinol (THC). Another of the 483 compounds is cannabidiol (CBD). Yet another of the compounds is hemp. Currently there are four states that allow for the legal recreational purchase of marijuana in the U.S.: Alaska, Colorado, Oregon, and Washington. 

Additionally, there are another 18 states plus the District of Columbia that have approved some provision for medical marijuana purchase and possession. Yet, with almost half of the country allowing the use of marijuana in one form or another, it is listed as a Schedule I controlled substance. The Controlled Substances Act (“CSA”) prohibits, among other things, manufacturing, distributing, dispensing, or possessing certain controlled substances, including marijuana and marijuana-based preparations. 21 U.S.C. §§812, 841(a)(1), 844(a); see also 21 U.S.C. §802(16) (defining “[marijuana]”). 

According to the Drug Enforcement Agency (DEA), Schedule I controlled substances have no currently accepted medical treatment use in the United States and are therefore illegal to use and possess. However, CBD’s federal legal status is unclear. Hemp does appear to be allowed and not in violation of the Controlled Substance Act. The conflict in the positions of the states and the federal government creates a confusing regulatory landscape for visionary entrepreneurs who are pushing their brands in this rapidly emerging market.

A Case Study

Let’s explore a few of the pertinent issues by way of a hypothetical company we will call Acme Weed (AW). AW would like to distribute a new product that contains CBD oil as one of its ingredients, selling it under the brand name Weedy. AW is currently selling its Weedy product in Colorado and Washington, thus, no issues regarding legality in those states exist.

Does AW face federal regulatory issues from the DEA? Clearly marijuana is illegal on a federal level. However, what about CBD?

The DEA’s position on CBD is unclear. A lawyer in Colorado, Robert Hoban opined in a public opinion letter that was submitted to the United States Patent and Trademark Office (“PTO”) to overcome a refusal of a trademark application that CBD does not violate the DEA. The opinion letter contains a well thought-out analysis of the various issues surrounding the legality of CBD. 

However, the DEA has not explicitly stated that it agrees (nor is it likely to do so). Closely related to this issue is whether the PTO  will grant a registration for a product that contains CBD (or marijuana)1. Sections 1 and 45 of the Lanham Act provide that registration of mark may be refused if the use of the mark on the identified goods is not a lawful use in commerce. Thus, any goods or services to which the mark is applied must comply with all applicable federal laws. The CSA clearly prohibits the manufacturing, distributing, dispensing, or possessing certain controlled substances, including marijuana and marijuana-based preparations. In fact, the PTO has regularly refused registration of various marks identifying goods containing “cannabis,” which is clearly not a “lawful use in commerce” in accordance with the Lanham Act. 

However, if AW is only selling its products in one of the four states that has legalized recreational use of marijuana –or in one of the other 23 states that allows for medicinal marijuana use, said use is lawful, but only on a state level—can AW obtain a federal PTO registration for its mark Weedy for registration of a product containing cannabis?

Probably not. The PTO has consistently refused registration of marks for goods containing marijuana or THC or cannabis. 

What if AW is going to try to register its Weedy mark for a product containing CBD or hemp? 

Maybe. The PTO has taken the position that said use is unlawful pursuant to the Controlled Substance Act, but due to the murkiness of the status of CBD’s federal legality, the PTO has also allowed and approved certain applications containing CBD. There is inconsistency in the applications. It seems certain, however, that the PTO will issue an office action asking for more information. The factor that the PTO analyzes is the original source of the ingredient itself—if the ingredient was derived from synthetic sources or a cannabis plant. Moreover, if the mark itself outright references or includes pot, weed, marijuana, or cannabis as a part of the mark, the PTO is likely to refuse registration. Thus, a federal registration with the PTO for CBD is an uphill battle. Another option for a company like AW is a state trademark application/registration in the individual state(s).

Does AW face any regulatory issues from the FDA for its Weedy CBD-containing product? 

The relevant question is whether CBD is Generally Regarded as Safe (GRAS) for use in food and beverages or whether CBD products comply with the Dietary Supplement Health and Education Act of 1994 (DSHEA). The FDA has issued warning letters to at least six cannabis companies, some of the products were claimed to contain CBD. In each case, the FDA found that these companies’ websites promoted its products as “intended for use in the cure, mitigation, treatment, or prevention of disease.” As such, the FDA stated that the products must be regulated as drugs under the FD&C Act. 

Is there a way that AW can market and sell its Weedy product and avoid FDA scrutiny? 

Maybe. The warning letters focused on the claims made by the companies. The prudent thing to do would be to avoid claims that promote the product to cure a disease, empowering the FDA to define the product as a drug. 

Can Weedy be certified organic? 

"Organically grown" refers to food grown and processed using no synthetic fertilizers or pesticides. Pesticides derived from natural sources (e.g., biological pesticides) may be used in producing organically grown food. The U.S. Department of Agriculture (USDA) is the federal agency that oversees claims related to “organic” and has issued standards for labeling organically-grown crops. These same standards would apply to cannabis crops. However, the issue again becomes complicated due the federal prohibition against marijuana and the unknown legality of CBD. Thus, like the PTO, the USDA cannot certify any cannabis products as organic.  

So, in states where marijuana is legal (for either recreational or medicinal use), what can a company claim in terms of organic? 

Technically they can’t because the USDA’s rules do not permit a company to use the term “organic” without certification and compliance with federal rules. Colorado is currently dealing with this issue. The state Attorney General office is reviewing complaints of companies claiming that sellers are misrepresenting their products as organic or organically grown. Fraud penalties under the Colorado Consumer Protection Act include fines up to $10,000 per violation. This is an issue that other states are certain to face, leaving business owners working with the unknown.   

This brings up yet another potential legal issue that companies face–if AW is claiming that its product is “organic,” in addition to the state Attorney General, does this give rise to consumer or competing businesses causes of action or lawsuits? For instance, could a competitor file a claim under the Lanham Act for false advertising by claiming “organic”? 

Probably not for the reasons described above in that the Lanham Act governs the registration (and use) of trademarks for products that are federally used in commerce and it does not govern unlawful or illegal use. However, each state likely has some sort of a comparable state cause of action for both consumers and competitors to provide a remedy for false claims, thereby potentially giving rise to a cause of action in those states where the sale of cannabis is lawful.  

In an area of much regulatory uncertainty, one thing is certain: there are many legal obstacles that a business owner selling marijuana-containing products in states where it is legal or selling CBD-containing products faces. It is advisable to carefully consider the issues and risks before launching a product in this field. 

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1.) In April of 2010, the PTO created a new trademark category, “Processed plant matter for medicinal purposes, namely medical marijuana.”  It only took three months and the USPTO removed the category claiming it had been a mistake.  During that time period in 2010 over 250 cannabis-related applications were submitted and 57 of those applications listed the new category specifically.

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