Minnesota’s recreational cannabis industry is finally budding. Growers have devoted substantial time and resources to their cultivation process. Sellers have invested heavily in market research. This information can give cannabis business owners an edge in a highly competitive market. The law refers to such unique information as trade secrets.
Trade secret theft is a problem in many industries. When it happens, a business can go to court to stop a competitor from using the confidential information and may be able to recover damages. But to win, the business must show it took reasonable steps to protect the information.
Trade secret in the cannabis industry
In Minnesota, a “trade secret” is defined by statute as a formula, pattern, compilation, program, device, method, technique, or process that:
- derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and
- is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Minn. Stat. § 325C.01, subd. 5. If that definition isn’t very helpful, think of these classic examples: McDonald’s “secret sauce” and the Colonel’s 11 herbs and spices. Neither are patented, but the exact recipes are kept confidential, so other food chains can’t copy them.
But what does it mean for the cannabis business? Minnesota courts have not weighed in yet. But states with similar trade secret laws and flowering medical and recreational cannabis industries offer some hints.
Courts in other states have found aspects of growing, cultivating, and harvesting—or unique combinations of those processes—to be trade secrets. For example, a Washington state court held the “cultivars” a cannabis producer grew through phenohunting (propagating plants with the most desirable traits) could qualify as trade secrets because developing them required substantial time and resources. Biochron, Inc. v. Blue Roots, LLC, 529 P.3d 464, 475–78 (Wash. App. 2023).
Likewise, courts have found growing procedures, like the specific combination and timing of nutrient application, harvest practices, and even trellising of the marijuana plants to be at least potentially trade secrets. Id.; Mission Pennsylvania, LLC v. McKelvey, 212 A.3d 119, 137 (Pa. Commw. Ct. 2019).
On the sales side, a New York court held it was plausible that a company had trade secrets in the “specialized knowledge of market opportunities” and “analyses detailing the strengths [and] weaknesses of various [cannabinoid] manufacturers” because they could lead to greater market share. Lavvan, Inc. v. Amyris, Inc., 2021 WL 3173054, at *3 (S.D.N.Y. July 26, 2021).
Steps a cannabis business can take to protect its trade secrets
A business forfeits its trade secrets by not taking reasonable steps to maintain their secrecy. What is “reasonable” is fact specific, but there are common steps any marijuana business can—and should—take to protect any information that gives it a competitive advantage:
- Identify and Label: Clearly identify trade secrets and mark them “Confidential.”
- Limit Access: Restrict access on a need-to-know basis and segment information across systems.
- Secure Systems and Spaces: Use passwords, encryption, access controls, and secure communication tools; lock physical storage (including rooms) when not in use.
- Use Confidentiality Agreements: Include confidentiality terms in employment and vendor agreements; use NDAs when needed.
- Update Policies: Include a confidentiality policy in the employee handbook and revisit it annually.
- Train Employees: Cover confidentiality during onboarding and through annual refreshers.
- Implement Exit Procedures: Collect devices, revoke access, and confirm return of sensitive information when employees and contractors separate.
- Monitor and Audit: Periodically audit who has access and track suspicious activity.
- Be Prepared to Enforce Rights: Move quickly when misappropriation is suspected, including through legal action.
