Regulatory requirements can be a roadblock for every business in the United States, although the cannabis industry is often struck harder than the rest. Understanding your compliance obligations as a brand on its way to expansion is where success starts. You have to be aware of the permits required for operations specific to this sector, the agreements you are bound by with licensees, and the responsibilities both parties need to fulfill.
Let’s lay out the primary legal criteria for how to license a cannabis brand into other states and markets.
What is brand licensing for the cannabis industry?
In plain English, brand licensing is a deal whereby the licensor lets the licensee use a specific brand name, logo, or other developed intellectual property under stipulated terms. In the cannabis sector, this could mean licensing a brand name of the owner of trademarked goods in the recreational marijuana or therapeutic hemp categories.
The whole concept of cannabis brand licensing becomes so much more complex when state laws on different cannabinoid-containing varieties are taken into consideration. The thing is that what may be legal to market and sell in one state is not necessarily legal in another.
Regulatory requirements apply to all cannabis licensors and licensees, no matter which license type is involved:
- Exclusive licenses. This type of licensing allows the licensee to operate within a particular geographic area or market on unique terms.
- Non-exclusive licenses. This license gives a group of licensees permission to use your brand’s intellectual property (IP).
- Product-specific licenses. They put restrictions on the use of the licensor’s IP to a certain product category, such as edibles or tinctures.
The only right way to scrutinize the benefits and requirements of each licensing type is to talk to a team of lawyers.
Licensing challenges
Ever-changing laws are the major challenge of brand licensing in the marijuana sector. While numerous states have legalized the use of cannabis in some form, it’s not a black-and-white situation across the country. There are states that have banned any promotional activities and sales of marijuana. This lack of nationwide consistency creates challenges for businesses operating in more than one state:
- Requirements for brand licensing of cannabis can differ from state to state. Some states, like Colorado, call for special permits for brand licensing agreements. Others, including New York and California, are more laid back about control.
- Certain US states stipulate that license holders must be residents or have the majority of local ownership.
- Brand licensors have to deal with in-state manufacturers and distributors since cannabis goods might not be lawful when crossing state lines.
Federal restraints are another consideration. You should be careful in how you tackle IP protection and registration. Getting trademarks for cannabis-related products is somewhat tricky because trademark registration is a federal process, and federal law prohibits making goods related to marijuana.
License agreement for marijuana brands
Licensing agreements provide the framework for all brand partnerships. This document must set forth everything associated with the relationship between the licensor and the licensee without leaving anything unclear. Important points include:
- Clarifying what licensees are allowed to do with your brand’s IP, including specific products and branding elements
- Establishing quality control for branded and licensed products and services with the ultimate purpose of protecting brand reputation
- Setting out reasons why licensees must lock themselves to the observation of all laws and regulations, with checks put in place to ascertain such compliance
- Stipulating the royalties, fees, and payment terms, including the fixed amounts and any potential increases in commissions
Your license agreement must also include a termination clause. The termination conditions and post-termination responsibilities must be clear for all parties.
Maintaining compliance in brand licensing for cannabis
Brand licensing agreements revolve around ongoing actions that the licensor and the licensee must take for compliance. Both parties have to be careful when keeping inventory. Since state laws require all cannabis products to be traced from production to sale, any lack of compliance leads to serious consequences. It is important to put a system in place to keep tabs on product movements throughout the supply chain, ensuring that everything is documented correctly and passes through active channels. This will also help avoid disparities in inventory levels and what is reported during inspections.
On top of that, compliant advertising and labeling of cannabis goods are strictly controlled across the US, with guidelines covering almost everything from the minimum font size to claims about a product’s therapeutic value. If the licensee fails to label your products according to state regulations, they may be subject to a recall or civil or criminal action.
Carefully scrutinize every label, advertisement, and promotional element for compliance with relevant state law. As a licensor, you should make stipulations in your licensing agreement requiring compliance.
Finally, you must be ready for assistance and inspections. As a licensor, you have to make sure your licensee adheres to the conditions of your marijuana brand licensing agreement, even if they handle most of the manufacturing and distribution. This includes carrying out regular checks and looking over the records to ensure that your partner follows your brand’s IP rules without violations.
Final thoughts
Cannabis brand licensing is one of the best ways to break into new markets and amplify the commercial value of your business. Given the tight rules that apply to this sector, expanding beyond state boundaries is challenging. Licensing agreements allow you to get there without the hassle of owning production facilities and building 10-person legal teams to oversee the process. By licensing your brand, you can work with in-state partners to get your products rebranded and sold in new territories.
Even if you have identified never-before-seen opportunities for growth, keep in mind that the legal landscape is shifty. Compliance may be hard to maintain throughout the duration of your deal. However, if solid processes are in place and trust-based relationships are formed with licensees, your cannabis brand can reach new heights without the risk of fines and product recalls.