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The Little-Mentioned Consequence of Selling Marijuana

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As more and more states legalize marijuana, businesses selling the leafy green weed are, um, cropping up. But marijuana still remains illegal under federal law, and that creates a potentially significant problem for entrepreneurs aiming to sell the crop: the inability to register a federal trademark.

REUTERS | Anthony Bolante

Related: Dixie Elixirs Wants to Become the First National Marijuana Brand

Trademarks -- words or graphics that denote the source of a particular good or service, such as Apple, Verizon, Microsoft -- can often be a company's most valuable asset. Trademarks are usually registered at the national level through the U.S. Patent and Trademark Office, or USPTO. This process provides several protections and rights to the trademark holder.

Specifically, trademark registration awards the rights to use a particular trademark nationwide, to file for injunctions to stop unauthorized use of trademarks and to file trademark or service mark infringement claims for money damages. Registration also prohibits the importation of goods that might infringe on the trademark. The holder can appeal to U.S. Customs.

But the conundrum is that companies offering certain categories of brands are prohibited from federally registering a trademark at all. And businesses selling marijuana for medicinal and recreational use, as allowed by their state governments, are in just such a category.

Many states have legalized marijuana for medicinal uses; and some, such as Washington, Oregon, Alaska and Colorado, have even legalized marijuana for recreational use. But marijuana is still illegal at the federal level due to the federal Controlled Substances Act.

The Obama administration has stated that it will not challenge state legislation that permits the sale of recreational marijuana; however, uncertainty reigns as to whether the Department of Justice will prosecute the sale of recreational marijuana.

Even if the Justice Department continues to turn a blind eye to some uses of marijuana and not enforce the federal laws associated with such uses, the USPTO is not part of Justice and is permitted to register trademarks only for products that have been lawfully "used in commerce." This prevents trademarks associated with goods, such as incorrectly labeled dietary supplements, which are clearly not legal.

Similarly, the USPTO is likely prohibited from federally registering a trademark for the name of a particular strain of marijuana to be used in conjunction with the sale of that strain. While this might sound like a death knell for the protection of brands associated with marijuana, there are a number of potentially effective workarounds.

First, although a legal marijuana business cannot file for federal trademark registration associated with the actual sale of marijuana, it can apply for federal trademark registration of its brand name when that name is associated with ancillary services or products, such as clothing.

Related: What the Craft Beer Industry Can Teach Entrepreneurs About Trademarks

For example, if a company sells baked goods, no pun intended -- and some of these items contain marijuana, and some don't -- the company could file for a trademark in reference to the branded items not containing marijuana. That way, subsequent use of the mark by another business could potentially be challenged as an infringement because the trademark's use is likely to confuse purchasers.

That scenario is almost as good as a trademark registration associated with the actual sale of marijuana.

The second workaround is the option to apply for federal trademark registration based upon an "intent to use" a trademark in commerce. This is effectively not a full trademark, as the above described benefits and rights granted to a trademark registrant do not become effective until the mark is lawfully used in commerce.

But, the benefit of filing an "intent to use" trademark application is that it may dissuade other businesses from using the mark themselves.

Another aspect to consider is that although federal registration is still unavailable, state trademark registration is generally available in states where marijuana has been legalized. State registration is often better than common law registration because it confers the right to use the trademark statewide, rather than in the geographic locations where it has actually been used.

State trademark registration, however, does not give the trademark holder the right to use the mark nationwide or to seek an injunction for uses that it claims infringe upon its trademark.

Ultimately, although the USPTO is unlikely to allow federally registered trademarks associated solely with the sale of marijuana, the alternative options described here still protect the trademarks of those businesses lawfully selling marijuana.

The field of marijuana enterpreneurship, however, has only just begun. So, stay tuned, even if you don't toke up.

Related: Why Your Company Needs an Up-to-Date Marijuana Policy