J. Blake Johnson is vice-chair of Crowe & Dunlevy’s Cannabis Industry Practice Group.


By Paula Burkes

J. Blake Johnson is vice-chair of Crowe & Dunlevy’s Cannabis Industry Practice Group.

Oklahoma’s medical marijuana market fraught with pitfalls

Q: In just the first few days since applications were made available, the state has received more than 1,000 applications for marijuana business licenses, which is significantly more licenses than other medical-marijuana states have granted. Can just about anyone get a medical-marijuana business license in Oklahoma?

A: Under Oklahoma’s law, the industry is theoretically accessible to anyone who meets certain minimal qualifications and pays a modest $2,500 application fee. Nonetheless, we don’t expect that all of those who apply for a medical marijuana business license will be long-lasting participants in the market. Even with a permissive licensing scheme, the cultivation, processing and distribution of medical marijuana remains cost and labor intensive. The unique regulatory challenges faced by the medical marijuana industry compound the ordinary effort and expense required for a new business to succeed. Those participants who survive the early years of the industry’s evolution will be the ones who take seriously the predicaments posed by a frequently changing legal landscape and make plans to ensure they can effectively adapt.

Q: What are the first things one needs to consider when starting a medical marijuana business in Oklahoma?

A: Entity formation is an especially important. Selection of the appropriate business structure depends on the circumstances of each investor. Asset protection typically requires assembling a series of interacting business entities to reduce overall exposure. Competently organizing matters at this stage is also important to tax planning. Because of the extraordinarily punitive treatment of marijuana businesses by federal and state tax law, business operators who do not effectively plan to reduce this liability risk face a tax bill that could put them out of business before they break even on their investment. Importantly, industry participants should be suspicious of any lawyer who claims to be an “expert” in these areas. The legal cannabis market is simply too new and too changing — in Oklahoma and elsewhere — for anyone to claim such expertise. The best qualified attorneys in this arena are those who have dedicated themselves, and remain vigilantly dedicated, to keeping up with real-time developments in both Oklahoma’s and America’s increasingly sophisticated cannabis industry.

Q: What is the most overlooked legal concern for medical marijuana businesses?

A: Intellectual property. First, most “ganja-preneurs” likely share our belief that liberalization of federal marijuana law is inevitable, if not imminent. When prohibition ends, we should expect state-level protectionist measures (like Oklahoma’s requirement that all marijuana sold in the state be grown here) to wither as well. When those restrictions erode and enormous corporate players are free to dominate the entire U.S. market, business owners will be forced to consider whether they own any assets of value to be sold or licensed to these giants. If they do own any valuable assets, they will likely be in their intellectual-property portfolio. Owning a well-developed and well-protected brand may be the difference between businesses that are simply run out of the market and those able to reap reward for their hard work and ingenuity. For this reason, we discourage all clients from selecting purely descriptive trade names (e.g., “Oklahoma Cannabis Club”) that will be extremely difficult to protect. Second, brand wars are common in emerging industries and soon will cause frequent litigation in the medical-marijuana community. Already, cannabis businesses in Colorado and California have been the targets of trademark-infringement suits by large corporate interests like Gorilla Glue and Tapatio. Before pouring coveted resources into any branding strategy, every medical marijuana business should consult an intellectual-property attorney to avoid ending up on the wrong end of one of these expensive lawsuits.

Previously published on The Oklahoman, September 12, 2018.