Alert

Five Things Celebrity Athletes and Musicians Should Consider When Entering into Cannabis Branding Agreements

November 12, 2024

What do Megan Rapinoe, Kevin Durant, Shawn Kemp, Calvin Johnson, Willie Nelson, Wiz Kalifa, Margo Price, and Sublime all have in common? They all have created their own boutique cannabis brands. As cannabis has become more popular, celebrity athletes and musicians have taken notice and jumped into the game. This is true for both forms of cannabis, including marijuana and hemp. Marijuana is currently a Schedule I substance and illegal for medical or recreational use under federal law. Hemp, which is cannabis with less than 0.3% delta-9 THC, is tightly regulated but not prohibited. As celebrities increasingly enter this space, it is important that they are informed of both the risks and opportunities.

Key points to consider when entering into a cannabis branding agreement or investing in a cannabis business:

1. State Law Limitations

The first thing to consider when considering a branding deal is what is permitted at the state level. Marijuana remains federally illegal, and therefore, it is impossible to comply with federal law when distributing such products. If an athlete is investing in or entering into a branding agreement, they need to know what is and is not permitted. For example, ownership of plant-touching businesses is often restrictive and requires comprehensive applications with background checks. Branding agreements are also restricted in some states. For example, some branding agreements must be disclosed to regulators. In some instances, endorsements may be limited. States also tightly regulate the packaging, labeling, and marketing of marijuana products.

If an athlete or musician is considering working with a hemp product, the restrictions are generally going to be lighter. However, like marijuana, hemp products are regulated at the state level, and they should consider the legality of these products when performing due diligence.

2. Filing for Trademark

Registering trademarks for cannabis brands on a federal level requires registration with the U.S. Patent and Trademark Office (USPTO). This can be challenging given marijuana’s illegal status under federal law. Despite this apparent conflict, some trademark classifications may be available now to protect a cannabis company’s intellectual property, including its brand name, logo, trade dress, and more, when the description of goods and services does not list cannabis products specifically. For more on this topic, see our previous post, 2024 Cannabis Trademarks and Branding. Hemp products may qualify for registration with the USPTO by including specific disclaimers in the description of goods and services.

Given the limitations with the USPTO, it is important to seek protection at the state level, especially in states where recreational cannabis use is legal. State protection does not provide the broad national protection of the USPTO, but it will protect the mark in that specific state. It can also create a prima facie argument for trademark protection in the region and establish a date of first use in connection with marijuana if and when the USPTO begins to register federal trademarks for that use.

3. League Rules

Athletes are often subject to additional restrictions based on the leagues they participate in. For example, the NBA’s collective bargaining agreement allows a player to directly or indirectly own and control an entity that sells hemp-derived CBD but not a controlled substance like marijuana. A player may hold a direct or indirect ownership in a marijuana business so long as the player’s interest is passive (i.e., non-controlling), less than 50%, and the business operates in compliance with state law. Regarding endorsements, a player can endorse a hemp-derived CBD business or product but cannot endorse a marijuana product.

The NBA only provides an example of how leagues regulate their athletes’ involvement with a cannabis business. Each league will likely have different rules or policies governing their athletes, which must be reviewed prior to taking any action in the cannabis industry.

4. Quality Control

Marijuana products cannot cross state lines. If an athlete is selecting a marijuana business to work with, they should investigate the quality of the products grown, manufactured, or sold by a marijuana business. If an athlete has branding deals in place across multiple states, each company’s supply should be investigated. Unlike other products, which can be sold across state lines, marijuana products can only be sold within the jurisdiction they originate, and only if marijuana is legal within that jurisdiction.

Hemp derivatives can be sold across state lines, but the production of hemp products is somewhat unregulated at the federal level. It is important to investigate how these products are manufactured.

5. Financial and Contractual Terms

As with any contract, the devil is in the details. One thing to emphasize in a cannabis contract is payment terms. For example, some states may limit what percentage of profits a person can collect based on intellectual property agreements. Also, it is important that the contract clearly indicates that it is the responsibility of the marijuana or hemp business to produce safe and compliant products. Contacts between the celebrity and a cannabis business should include broad indemnification from any litigation that stems from the quality of products. Additionally, they should have the ability to terminate a contract if the deal is negatively impacting their brand or other endorsements.

The Bottom Line

If an athlete, musician, or any celebrity is interested in involvement with the cannabis industry, they should work with experienced advisors before diving in. McGlinchey’s team of cannabis and intellectual property lawyers can help minimize risk in the cannabis space.