You’ve experimented with watering, lights, nutrients, soil, and harvesting techniques. Your small, dedicated team has come together like a family, nurturing the development of your product like it is the king baby. You’re finally starting to realize a profit. Suddenly, a key employee hits you with notice of resignation. She has decided to go work for a cannabis producer that is closer to where she lives, and who, coincidentally, is willing to pay her $2 an hour more than you can afford and promise her four nights off a week.
As you begin to snap back from the shock of your close-knit team getting torn apart, you realize: that key employee is about to walk out with a goldmine of experience and training that you gave her. She has intimate knowledge of dozens of processes that are unique to your product line. Suppose she takes all of those thousands of dollars of training you invested in her, and she applies that to the competitor’s benefit?
That’s when you remember: you are covered in most states by local trade secrets statutes, and for the aspects of your business that are non-cannabis related, you have federal protection as of May 2016 with the Defense of Trade Secrets Act (DTSA). Through DTSA and the state-level statutes, a trade secret is anything that you consider to be a secret, and from which you derive profit. In other words – if you say an idea, a design, a process, a marketing plan, a billing process – almost anything — is a secret, and you make money from it, it is protected under trade secrets law!
Trade secrets are exposed at any time in the life cycle of your business, but critical hotspots occur when you tour your facilities with eager potential investors, when you discuss possible mergers and acquisitions with lateral partners, or when a key employee moves to work for a competitor. Cannabis business owners, especially those who are developing and producing products, can take three action steps to protect their trade secrets, but they must be done pre-emptively – long before you see trouble brewing.
- Make clear to all who gain exposure to your business what you consider confidential. You don’t want to proudly display your timers, lights, and watering systems, lest someone spot them and try to duplicate them in their own production lab. Don’t assume that all who smile and shake your hand will play as good sports.
- Err on the side of caution when you talk to investors. Early in discussions – even before they visit your retail or production operation, have them sign non-disclosure agreements (NDA). It won’t stop them from blabbing to their posse, but it will protect you if the matter gets turned over to the lawyers!
- Once you have decided that something is considered by you to be a secret and you derive income from it, make sure you take regular efforts to keep it under wraps. If it is an oil extraction process, make sure that the area is kept locked, with limited access, and clear records of the comings and goings of all who gain access.
- Make sure you have an employee manual that is written down. Outline the physical areas of your operation, and the concepts, ideas, and methods, that you consider to be unique to your operation. Have employees sign that they have read it and consent to it.
- Some states, such as Colorado, permit non-compete agreements. Non-competes generally do not hold up in court in other states, such as New York.
Don’t let the unique features of your business waft into thin air when your key employees leave, or when your potential business suitor takes what he can use from your business and leaves the rest. Identify features of your cannabis operation that are unique, take steps to keep them secret, and make sure that people know what you value as a trade secret.