Kutak Rock Attorneys Secure Preliminary Injunction in First-of-its-Kind Cannabis Dispensary Trademark DisputeNews | May 27, 2020
A Kutak Rock team of attorneys representing Conway, Arkansas-based Harvest Cannabis Dispensary (“Harvest”) secured a preliminary injunction in a trademark dispute with Natural State Wellness Dispensary, LLC and Natural State Enterprises, LLC (the “NSW Entities”). The injunction prohibits use of the name “Harvest” in connection with other cannabis dispensaries and cultivation facilities in the state.
During a two-day evidentiary hearing conducted through the Zoom videoconferencing interface, Circuit Judge Susan Weaver rejected the NSW Entities’ contention that they had federal common-law rights to the name “Harvest” for the sale of cannabis, citing the continuing federal illegality of marijuana as a total bar to federal trademark rights. The NSW Entities claimed that they were licensed to use the name “Harvest” through their affiliation with Arizona-based Harvest Health & Recreation, Inc. (“HHR”), a publicly-traded company.
The Circuit Court of Faulkner County determined that because Harvest adopted its name in 2017 and diligently opened its facility in Conway in October 2019, Arkansas law provides Harvest with senior state-law trademark rights in the name “Harvest.” The Court further concluded that there is no federal protection for HHR’s cannabis trademarks, and that state-law trademark rights do not have a nationwide application.
According to Kutak Rock partner Andrew King, “The Faulkner County outcome is the first of its kind, where a local cannabis dispensary prevailed under state trademark law against a multi-state operator for which federal trademark protection is unavailable. This outcome could provide a road map for local cannabis companies in states where cannabis has been legalized.”
The Circuit Court found that the Arizona-based HHR and its affiliates had no goodwill in Arkansas before Harvest Cannabis Dispensary made its first sales in Arkansas. In part because there is no national market for the sale of cannabis, the Court rejected the NSW Entities’ contention that Arkansas was in HHR’s “zone of natural expansion.”
In its 11-page order, the Circuit Court noted that HHR disclosed to its investors that it will likely not be able to protect its cannabis product trademarks beyond the geographic areas in which it conducts business, and that it cannot register any United States federal trademarks for cannabis products. The Court found that the public is entitled to rely on those disclosures.
In a separate order setting a bond for the injunction, the Circuit Court acknowledged that the case presents novel legal issues and is a matter of first impression in Arkansas and nationwide. Nonetheless, “The Circuit Court’s decision was a matter of straightforward logic—there is no federal trademark protection for cannabis, and state-law rights are geographically limited,” explained Mr. King.