Congratulations on successfully navigating the TN Department of Agriculture hemp grower/processer license application process. You are ready to hit the ground running! By now you have started cultivating your land and purchasing seeds and/or equipment for processing. All of these are great next steps, but there are certain legal considerations you need to take into account before operating as a business.
No matter what type of business or industry, all must consider the following four areas at some point in their business lifetime. It is advised – and preferred – to address these at the startup stage:
- Intellectual Property
- Corporate Entity Selection and Formation
We’ll walk you through each area and how it directly pertains to hemp and CBD business ventures.
Intellectual property refers to creations of the mind. Trademark, copyright and patent law are the subcategories of intellectual property.
Schaffer Law Firm does not practice patent law. There is a type of patent dedicated just to plants that you may need to look into to protect your hemp business. If you need more information on patent law, please visit our friends at Patterson IP.
Trademark is a brand identifier. It is a name or design that identifies your good or service to the rest of the world. There are common law, state and federal trademarks. In order to qualify for federal trademark protection, you must have the following:
- Your name or design
- A description of the goods or services the name or design identifies
- “Use in Commerce,” which means you have crossed state lines with the good or service.
A federal trademark provides the mark with the exclusive right to use that name or logo with regards to the particular good or service against all others.
As in other highly regulated industries (i.e. alcoholic beverages), the trademark landscape for hemp and CBD is shaping up to be highly competitive. A trademark is considered goodwill – an asset on your balance sheet. It can be very strategic and possibly very lucrative down the road to protect your hemp and CBD trademarks as soon as possible.
Copyright describes all types of creative works including photographs, books, visual art, music, etc. While it may seem like copyright is not applicable to hemp/CBD products, the website copy for your business would be protected under copyright. In addition, design trademarks can also be protected as copyright, essentially providing “double protection”.
Corporate Entity Selection and Formation
In any business that deals with regulated products, it’s essential to set your business up as some type of corporate entity. Your hemp or CBD business is no exception. A corporate entity provides a wall of protection between your personal assets (i.e. your house, car, etc.) and the rest of the world.
In Tennessee, we have several options to choose from: LLC, C-corporation, Sub-chapter S corporation, benefit corporation and nonprofit corporation. Each has advantages and disadvantages, and each requires specific documents to form it as well as maintain it.
In addition, the corporate setup process does not end with simply forming the entity with the TN Secretary of State. There are business license requirements, tax account requirements, register of deeds requirements, and others in order to be properly doing business in Tennessee.
Finally, what you decide to name your company could affect other areas of your business. In our experience, we have found banks are extremely hesitant to do business with any entity with the words HEMP or CBD in the corporate name. Schaffer Law Firm has experience in navigating these complicated and vague waters for our clients.
The types of contracts applicable to hemp/CBD businesses are more for internal use than with external third parties. If you are starting the business with partners, you will need a document that outlines the roles and responsibilities for each partner. See our book on business relationships, “Marriage Without the Sex”, for a deeper dive into partnerships.
High-level employees will also require employment agreements. Employees and their benefits and challenges will be addressed more fully below.
Waivers of liability, disclaimers and website agreements will definitely be a requirement for your hemp/CBD business. It is critical that these agreements are in place and are doing their part to protect the business and owners.
Employees can make or break a business. Most startup entrepreneurs do not have a need for employees in the first 1-3 years of business, but if the business wants to grow, employees are a must.
Some employees should have formal employment agreements that lay out their job title, responsibilities, pay, vacation and benefits, and most importantly, causal reasons for termination. This agreement may also contain confidentiality, non-compete and non-solicitation provisions. Both high-level and low-level employees should receive and be required to sign an employee handbook. For low-level employees who do not receive formal employee contracts, the handbook will outline causal reasons for termination. While TN is an “at will” work state – meaning employees can be hired and fired at will – if an employee is terminated without cause, or causal reasons for termination are not outlined in a document that the employee has signed or has acknowledged that they have received and read, (i.e. they were not a “good fit”) that employee can still file for unemployment with the Department of Labor.
Some businesses will not hire employees but will rely solely on independent contractors. While this model is permissible, it is ultimately not up to the employer whether someone is an employee or an independent contractor. If the IRS determines someone is an employee but they have been paid as an independent contractor, the employer will need to pay the taxes that should have been withheld from the employee’s pay. Unpaid interns are another very sensitive area that a business owner should seek advice from an attorney before putting an internship program in place.
Get Started in the Hemp/CBD Industry
While most entrepreneurs want to get right down to “doing” their business, it is crucial for them to sit down with an attorney to make sure they have all the proper infrastructure in place before they harvest a single crop. Schaffer Law Firm is proud to serve the entrepreneurial hemp and CBD community. Schedule your initial consultation with a Schaffer Law Firm attorney today!