The Evolution of the Cannabis Industry:

Coming of Age: Why legislation is finally catching up with cannabis

While the world has been dominated by the Covid-19 pandemic during the past 18 months, one business sector that has quietly come of age during that time is the cannabis industry.

Nowhere has this been more evident than the United States. By the start of 2020, cannabis was the biggest growth industry in America. On election day cannabis was legalised in New Jersey, Montana, Arizona and Missouri and more than 100 million Americans now live in a state where it’s legal to use cannabis for recreational and medicinal use. Annual sales of cannabis are expected to reach $40 billion by 2025 with some quarter of a million people in the US in full time employment in the sector – making it one of the biggest sources of work in the country.

Along with the relaxation of state laws, federal law on cannabis legislation is expected to follow suit fairly soon. This will give the industry the potential to open the sector to investment that would make it an attractive business opportunity for global investors.

For many legal advisors, however, cannabis can still be difficult territory depending on how it is legally defined in a particular jurisdiction – along with how it is processed and used. These uses include medicinal, recreational or CBD (cannabinoid), which is a type of natural compound found in cannabis and hemp and not considered a narcotic by many (but not all) nations.

Furthermore, along with these unclear legal definitions regarding what is legal versus illegal comes the confusion around trademarks and patents. Can a business apply for them on a local level, when trademark law is enacted on federal level?

Joy Tea, a US CBD beverage company, is a typical example of the confusion surrounding the cannabis industry in the country. A business is unable to trademark a product that is not legal under federal law, even though it could be under state law. While hemp derivatives such as CBD were finally given the legal green light by the 2018 Farm Bill, the US Patent and Trade Office denied a trademark registration to Joy Tea because the Food and Drug Administration had no regulations in place allowing the legal marketing and advertising of CBD in food or supplements.

Joy Tea is now appealing this, and the case is being watched carefully by legal advisors in the US and abroad. Nevertheless, it highlights the confusion and grey areas that exist when setting up a cannabis-based business in the US.

Meanwhile, over the border in Canada CBD businesses are queuing up for trademarks. Indeed, since the legalisation of recreational cannabis in Canada in 2018, the trademark office has been inundated with trademark applications for cannabis- related goods and services. At the start of 2021 there were estimated to be some 7,000 applications and registrations in the country.

Unlike in the US, Canadian trademark registrations cover cannabis in lists of goods and services – and it’s not just for CDB products. With recreational cannabis now hugely popular in Canada, the Canadian Intellectual Property Office (“CIPO”) has entries for the range of cannabis products and services including ‘smoking cannabis’ ‘cannabis cigarettes’, ‘cannabis oil for food’ and ‘dried cannabis’.

Indeed, many businesses based in the US are moving to Canada to start production and trademark their product or service in anticipation of the loosening of US federal laws in the near future.

Further south in Mexico many businesses and legal advisors are also gearing themselves up for proposed legislation to legalise the recreational use of cannabis following a Supreme Court ruling in 2017 – although the bill of law has yet to be approved.

When permission is granted, this bill will allow different licences for cannabis including cultivation, processing, sales, research and import/export. It promises to be one of the most liberal cannabis regimes in the world, legalising cannabis countrywide and opening up a market of 120 consumers to businesses and entrepreneurs eager to enter the world’s biggest cannabis market. As with Canada, US companies are already looking south for big opportunities when the bill is approved into law.

In this Virtual Series IR Global Members discuss the enormous differences in attitudes to cannabis across jurisdictions that are as far apart as the US, Canada, Mexico, Europe and Japan. It’s one of the most complex issues for legal advisors and business people to navigate, as they try to enter what could potentially be one of the most profitable emerging business sectors in the world.