Advocacy California Law

California Intellectual Property Licensing: Our Comments to the Bureau of Cannabis Control

california cannabis intellectual property licensing BCC
These proposed BCC laws can be a mistake.

As we’ve been running a blog about for the final couple of weeks, the Bureau of Cannabis Control (BCC) just lately launched modifications to the proposed laws for hashish licensees, one of which successfully prohibits all licensing, white labeling and manufacturing agreements between two events the place one of these events is just not a licensed hashish enterprise. In our publish on this modification, we urged stakeholders to submit written feedback to the BCC expressing their opposition to the rule change. We additionally famous that we might be submitting formal feedback as a agency on behalf of our shoppers and are publishing these feedback right here. Our hope is that the BCC understands the damaging implications this rule change may have on the business right here in California, and we might be following the rule adoption course of intently to see how this shakes out.

Under is the full textual content of our November 2 letter to BCC, minus the letterhead and signatures. We’ll proceed to dialogue with affected events and regulators on this significant situation as alternatives allow. Please proceed to be a part of us in making your voices heard!


Lori Ajax, Chief
Bureau of Cannabis Control
P.O. Field 419106
Rancho Cordova, CA 95741

Re:       Comments Relating to Modifications to Textual content of Proposed Laws for All Bureau Licensees §5032-Business Cannabis Exercise

Pricey Ms. Ajax,

On behalf of Harris Bricken McVay Sliwoski, LLP and our shoppers collaborating in California’s hashish business, we submit our feedback to the Bureau of Cannabis Control’s Modifications to the Textual content of the Proposed Laws for All Bureau Licensees.

Our feedback are restricted to Part 5032 pertaining to “commercial cannabis activity.” This part proposes to increase the definition of “commercial cannabis activity,” which can be carried out solely between licensees, as follows:

  • 5032. Business Cannabis Exercise

(a) All business hashish exercise shall be carried out between licensees. Retail licensees, licensed retailers and licensed microbusinesses approved to interact in retail gross sales might conduct business hashish exercise with clients in accordance with Chapter three of this division.

(b) Licensees shall not conduct business hashish actions on behalf of, at the request of, or pursuant to a contract with any individual that isn’t licensed underneath the Act. Such prohibited business hashish actions embrace, however are usually not restricted to, the following:

(1) Procuring or buying hashish items from a licensed cultivator or licensed producer.

(2) Manufacturing hashish items in accordance to the specs of a non-licensee.

(three) Packaging and labeling hashish items underneath a non-licensee’s model or in accordance to the specs of a non-licensee.

(four) Distributing hashish items for a non-licensee.

Particularly, we take concern with the enlargement of the definition of “commercial cannabis activity” to embrace “Manufacturing cannabis goods according to the specifications of a non-licensee” and “Packaging and labeling cannabis goods under a non-licensee’s brand or according to the specifications of a non-licensee,” as this modification will successfully prohibit all mental property licensing agreements between licensees and non-licensees. We’ve not encountered such a prohibition in another state during which hashish is legalized and controlled, and we consider that this modification would stifle the business and get rid of many, if not most, of the manufacturers presently on dispensary cabinets in California.

Intellectual property licensing agreements are utilized extensively all through nearly each business. We’ve got assisted shoppers with many licensing offers all through the state, none of which have been meant to circumvent hashish laws or cover possession or monetary pursuits. The truth is, our interpretation of the “financial interest holder” rule has been that the licensor in every of these licensing offers together with a royalty element the place the licensor receives a share of income or income from the licensee should already be disclosed to the applicable state regulatory company as a “financial interest holder” in a licensee.

There are various the reason why mental property licensing agreements make sense for a licensed operator, and why entry to mental property past that owned by licensed operators advantages shoppers:

  • Many licensed operators shouldn’t have the assets to develop new applied sciences, merchandise, or model identities and mental property licensing can present a mechanism for increasing and enhancing their product choices.
  • Many corporations and people that personal mental property, resembling recipes, methods, processes, and model identities wouldn’t have the assets to get hold of native and state permits or are based mostly in jurisdictions that don’t permit business hashish exercise. Intellectual property licensing can present a mechanism for these corporations to present their mental property to licensed operators and grow to be absolutely disclosed monetary curiosity holders in these licensed operators by taking a royalty based mostly on product gross sales.
  • For entities that personal a number of operations, it typically additionally makes authorized sense to make the most of an IP holding firm (that isn’t a licensed entity) to maintain and handle the group’s IP portfolio for the avoidance of IP possession disputes and liabilities, amongst different causes.
  • Licensed mental property expands the capacity of licensed operators to present a larger selection of manufacturers and merchandise to shoppers.

Eliminating the means of licensees to enter into mental property licensing offers with non-licensees harms each licensees and shoppers by proscribing the quantity of manufacturers and merchandise out there. It additionally appears that the Bureau’s objectives is probably not well-served by this proposed rule modification due to overbreadth of its scope. The intent of Sections 5032(b)(1) and (b)(2) seems to be stopping licensed entities from conducting hashish enterprise operations at the behest or at the path of unlicensed entities. The primary function of mental property licensing offers just isn’t to direct an entity how to conduct its enterprise, however to prohibit the methods during which the mental property could also be used, and to guarantee compensation to the proprietor for these restricted makes use of. The proposed modification to Part 5032 casts an unnecessarily broad internet that might prohibit all manufacturing, packaging, and labeling operations by a licensed operator that occur to use mental property owned by a non-licensed entity—a end result that doesn’t serve shoppers, licensed entities, or public security. Simply as a landlord shouldn’t have to be licensed so as to lease its property to a licensed hashish operator in trade for lease, an proprietor of a model or a recipe shouldn’t have to be licensed so as to license its mental property to a licensed operator in change for compensation.

Quite than turning into the first state to prohibit IP licensing in its hashish laws, we advocate that the Bureau as an alternative amend the following rule pertaining to monetary curiosity holder disclosure necessities to explicitly embrace mental property and manufacturing agreements the place the licensor receives a royalty as disclosable to the state (proposed language emphasised):

  • 5004. Monetary Curiosity in a Business Cannabis Enterprise

(a) A monetary curiosity means an settlement to obtain a portion of the income of a business hashish enterprise, an funding right into a business hashish enterprise, a mortgage offered to a business hashish enterprise, or another fairness curiosity in a business hashish enterprise besides as offered in subsection (c) (d) of this part. For the objective of this part, an curiosity in a diversified mutual fund, blind belief, or comparable instrument is just not a monetary curiosity. For functions of this division, an settlement to obtain a portion of the income consists of, however shouldn’t be restricted to, the following people:

(1) An worker who has entered right into a revenue share plan with the business hashish enterprise.

(2) A landlord who has entered right into a lease settlement with the business hashish enterprise for a share of the income.

(three) A marketing consultant who’s offering providers to the business hashish enterprise for a share of the income.

(four) An individual appearing as an agent, akin to an accountant or lawyer, for the business hashish enterprise for a share of the income.

(5) A dealer who’s partaking in actions for the business hashish enterprise for a share of the income.

(6) A salesman who earns a fee.

(7) A non-licensed entity that has entered into an mental property licensing settlement or manufacturing settlement with a business hashish enterprise for a share of the income.

From an possession and monetary curiosity holder perspective, mental property and manufacturing agreements are not any totally different than any of the preparations already referenced in Part 5004 the place a non-licensee receives a share of income from a licensed entity. Intellectual property and manufacturing agreements that stipulate that each one business hashish exercise shall be carried out solely by a licensed operator and that the non-licensee shall haven’t any management over the licensed entity shouldn’t be handled any in another way than leases, consulting agreements or some other settlement by which a non-licensee receives a royalty.

If the Bureau is as an alternative involved with the contents of these mental property licensing and manufacturing agreements, we advocate requiring disclosure of the agreements to the state, fairly than prohibiting them altogether or requiring the licensor to safe onerous native approval and eventual state licensing for a business hashish license they by no means intend to truly use. Washington State, for instance, which has some of the strictest laws pertaining to possession and monetary pursuits in hashish companies in the nation, requires that licensors entitled to a royalty in a licensing settlement be disclosed to and vetted by the Washington State Liquor and Cannabis Board (WSLCB), and that the licensing settlement itself be disclosed to and reviewed by the WSLCB.[1]

We respect the alternative to present these feedback to the Bureau’s proposed modifications to the textual content of the proposed laws for all Bureau licensees and can be comfortable to interact in a dialogue to determine a way for regulating these varieties of enterprise offers with out inflicting vital hurt to the business and to shoppers. When you’ve got any questions, please contact Alison Malsbury at alison@harrisbricken.com or Hilary Bricken at hilary@harrisbricken.com.

[1]RCW 69.50.395.

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Let’s hope that the Bureau considers these and different feedback thoughtfully and significantly as California continues to construct out its hashish program structure. We’ll hold you posted.