A Texas appellate court recently upheld a decision to prevent a ban on the sale of delta-8 tetrahydrocannabinol (THC) products in the state. Tex. Dep’t of State Health Servs. v. Sky Mktg. Corp., No. 03-21-00571-CV, 2023 BL 341460, 2023 TX App Lexis 7448. The decision allows cannabis companies to continue selling delta-8 THC goods in Texas and establish a reputation for their brands. In contrast, delta-9 THC remains federally illegal and banned from sale under the Controlled Substances Act. Delta-8 THC and delta-9 THC are distinct cannabinoids (i.e., compounds) in the cannabis plant. However, the legality of the delta-8 industry remains clouded in smoke. This case, and its counterpart in Virginia, could have a significant impact on brand owners’ ability to establish rights in their cannabis-related trademarks.
What is Delta-8, 9, 10?
In 2018, Congress enacted the Farm Bill, which distinguished prohibitions on marijuana from hemp. The former would remain illegal, while the latter would not. The Farm Bill defines hemp as “the plant Cannabis sativa L. and any part of that plant, including … all derivatives, extracts, cannabinoids, … with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis” (emphasis added). Notably absent is any reference to delta-8 THC.
With this advantageous change in the law, the hemp industry has thrived. The value of hemp production was estimated at $824 million in 2021 according to the U.S. Department of Agriculture. See Value of hemp production totaled $824 million in 2021. Hemp is often used to create a variety of products including rope, paper, clothing, and insulation. Conversely, marijuana is primarily used for its psychoactive effects.
There are numerous cannabinoids found in the cannabis plant. The most well-known, whether or not consumers know it by name, is delta-9 THC. Delta-9 is the primary psychoactive cannabinoid responsible for the “high” associated with marijuana. But other cannabinoids, like delta-8 THC and delta-10 THC, also have psychoactive effects. These cannabinoids are generally considered less psychoactive. See e.g., Cannabis-derived products like delta-8 THC and delta-10 THC have flooded the US market. As more hemp businesses enter this burgeoning market, it is important to ensure consumers have the ability to distinguish between them. Trademarks, i.e., the brand name, logo, or other insignia that identifies the source of goods or services can accomplish this goal.
The Benefits of Registration
A trademark can signal to consumers a connection between a product and a trusted source. Registering a trademark with the United States Patent and Trademark Office (USPTO) provides nationwide priority for the owner as to the goods or services included in the registration. Registration also provides the ability to sue competitors in federal court for using a trademark that consumers may find confusingly similar. Securing a federal registration can impede competitors from exploiting a trademark owner’s hard-earned goodwill and brand-loyalty.
The USPTO will not register a trademark for federally illegal goods or services. But cannabis companies may be able to register their hemp related trademarks. The USPTO issued Examination Guide 1-19, which states that applications for hemp related trademarks must meet the requirements of the Farm Bill. We’ve already seen registrations for cannabis related goods that contain less than 0.3% delta-9 THC.
A hemp related trademark registration could allow the registrant to prevent a competitor from using a confusingly similar trademark. This is important as competitors may try to pass off their lower quality goods as if emanating from the registrant, crimping the trademark owner’s goodwill. A registration can stave off this damage or allow the trademark owner to pursue recompense and an injunction against the competitor. And so, a hemp related trademark registration can be valuable for cannabis companies.
Different Treatments of Delta-8
Texas is one of several states that does not allow for the medical or recreational use of marijuana. But Texas, among other states, has seen a blooming delta-8 THC market. See Texas court upholds injunction allowing delta-8 sales. Concerned with the effects of delta-8 THC, the Texas Department of State Health Services implemented a ban on the sale of goods containing the compound.
Sky Marketing Corp., a Texas company that operates as Hometown Hero, provides delta-8 THC goods, in part as an alternative to those who use opioids or other drugs. See CBD, delta-8, THCA: Texas hemp shop raid highlights legal, safety issues. Concerned about the affect the ban would have on its business, Hometown Hero challenged the ban as being incongruous with the Farm Bill.
A Texas district court found in Hometown Hero’s favor and entered an injunction preventing the ban from going into effect. The Texas appellate court upheld the decision holding that the ban was not effectuated through the proper channels. At this stage, the substantive issues have not been addressed. While the case is pending, companies like Hometown Hero can continue to sell their delta-8 THC goods in Texas.
In contrast, a Virginia court allowed a ban on cannabis to go into effect. The Virginia ban assesses whether a product is considered hemp based on the “total THC” in the product, including both delta-9 and delta-8 THC. Therefore, hemp would be banned unless the combined THC concentration was less than 0.3%.
The plaintiffs in Virginia sought an injunction against this ban, arguing that the Farm Bill preempted the Virginia law. They asserted that the Farm Bill defined hemp solely based on its delta-9 THC makeup. Unconvinced, the Court in the Eastern District of Virginia issued an order that the Farm Bill did not prevent a state from regulating hemp more stringently. Therefore, the Farm Bill did not preempt a state law banning products based on their total concentration of THC. N. Va. Hemp and Agric. v. Virginia, No. 1:23-cv-1177, 2023 U.S. Dist. LEXIS 195168 (E.D. Va. Oct. 30, 2023). The case is currently pending in the Fourth Circuit.
Delta-8 THC goods may be compliant with the Farm Bill. This may allow for cannabis companies to accrue rights in trademarks used in connection with those goods. The USPTO rejects applications for goods with high delta-9 THC concentrations and related services. But registration may remain an option for goods with a low delta-9 THC and high delta-8 THC concentration.
Delta-8 Trademarks v. Delta-9 Trademarks
The offering of goods or services in commerce can allow for trademark rights to accrue at common law. So, even if federal registration weren’t available, cannabis companies may establish common law trademark rights by providing delta-8 THC goods or services. On the other hand, cannabis companies that provide delta-9 THC goods not in compliance with the Farm Bill cannot, at the federal level, because those goods are federally illegal. Sellers of delta-8 THC products may be able to use this distinction to establish rights in trademarks and have them enjoy priority over their counterparts, including companies that hope to join the market once delta-9 THC is rescheduled, if ever.
At the federal level, delta-8 THC providers may find success at the USPTO when attempting to register their hemp related trademarks. If a product has a low delta-9 THC concentration but a high delta-8 THC concentration, it may be compliant with the Farm Bill. And so, the trademark for such goods may be registered with the USPTO.
Ensuring that an application indicates that the goods meet the Farm Bill’s requirements could reduce the risk of a refusal by an Examiner. Some applications for hemp related goods have registered because of a limitation to those with not more than 0.3% delta-9 THC. It’s also important to ensure that applicants are candid with Examiners, so the chances of registration aren’t half-baked. We previously discussed this in a separate post. See Blunders That Made ‘Bakked’ Cannabis TM Go Up In Smoke.
Given the divergent views of the states, it can be difficult for companies in the cannabis industry to establish priority and determine whether to apply for federal registration. As a result, cannabis companies must be wary of what rights may be established concerning their valuable brands.
