In the fall of 2021, an acquaintance of Alex Norman, the founder of a cannabis apparel and lifestyle brand called Budega NYC, reached out to congratulate him on making a deal to open several dispensaries in Southern California.

There was just one problem, Mr. Norman said: “It wasn’t me.”

Instead, an international conglomerate had claimed the Budega name, which Mr. Norman, 50, said was a nod to the longstanding role of New York’s neighborhood bodegas in supplying weed before legalization. It was the first of a series of copycats that have forced Mr. Norman, who lives in Brooklyn, to decide whether to wage costly legal battles to defend his brand, work out deals to coexist or start over with a new name.

Cases like his have played out across the country as states legalize cannabis and allow businesses to open stores and release products under similar-sounding names. What in another industry might be blatant trademark infringement is becoming more common in cannabis sales for a simple reason: dispensaries and greenhouses are excluded from federal protections because marijuana is still illegal under federal law.

Industry analysts say the state-federal divide on cannabis is fueling a rise in trademark disputes that is driving many small companies out of business, threatening efforts to draw consumers and entrepreneurs out of the illicit trade and into emerging legal markets like New York’s. Jessica Gonzalez, a cannabis and trademark attorney, said the trend will only accelerate if the federal government legalizes cannabis and companies begin competing for national dominance.

“It’s going to become a battle of the brands,” she said.

Legalization measures have fallen short in Congress, but the Biden administration has signaled that it plans to finalize a review by the end of 2023 that would include a recommendation on whether to loosen federal restrictions or fully decriminalize cannabis. Thirty-eight states have already legalized cannabis for medical use, and 23 have approved adult recreational programs.

Federal trademarks are awarded based on who is first to use a name, logo or other identifier in interstate commerce, such as a sale to a customer in another state. This favors companies with existing operations in multiple states because they already have the infrastructure to conduct sales across state lines that small businesses usually lack, Ms. Gonzalez said.

“Some will put up a good fight,” she said. “But in the end, they’ll have to weigh the cost between trademark litigation and rebranding.”

Both options are expensive and time-consuming. Most small businesses don’t have the money or manpower to wage legal battles that can drag on for years, with costs rising into the millions; rebranding involves finding new names and overhauling websites, social media and product packaging.

Catherine Franklin, a former chief executive of GG Strains, the maker of a popular marijuana variety formerly known as Gorilla Glue, said the company spent more than $300,000 to rebrand in 2017 as part of a trademark infringement settlement with The Gorilla Glue Company, an adhesive manufacturer. The impact of the lawsuit lingered long after the settlement, she added.

“A lot of people didn’t want to talk to us anymore because they didn’t want to incur the wrath of the adhesive company,” she said.

Intellectual property lawyers say they advise their cannabis clients early on to build portfolios for federal trademarks around ancillary products and services, like apparel and consulting, and to pursue state trademarks for plant-touching brands where it is legal. They also tell them to safeguard things like proprietary plant genetics, product recipes and preparation methods, which has helped some formerly illegal businesses transition to the regulated market through licensing deals that expand their reach and increase their revenue.

Mr. Norman had followed that advice when he started Budega in 2019, as New York moved closer to legalization. He applied to trademark the brand as an apparel company, but the federal Patent and Trademark Office rejected his registration after he failed to respond to an examiner’s notices that the name was too similar to another clothing company’s. He then retained a lawyer who helped him to trademark Budega NYC.

But that left the Budega name still available. And in 2021, ANM, Inc., a subsidiary of Halo Collective, a cannabis conglomerate founded in Oregon and publicly traded in Canada, applied to trademark the name for retail stores promoting and selling consumer goods. The application did not mention the stores would be cannabis dispensaries, which would have been disqualifying. The trademark was approved in May.

Mr. Norman has not decided whether to file a formal challenge. Having run a marijuana delivery service when it was illegal, he started the brand to build recognition for when he eventually opened a legal dispensary, or released a product line. He built a website, where he sells T-shirts and writes blog posts about the cannabis industry, and he has given several interviews about his past in the illicit market and his foray into the legal one.

In July, he received a retail license in New York on the basis of a prior conviction for marijuana possession and his subsequent ownership of profitable radio and consulting businesses.

Taking the initiative to build a following had seemed like a savvy business move for Mr. Norman, a Rutgers University graduate who once worked on Wall Street. But it has turned into a constant fight against copycats seeking to capitalize off Budega NYC’s name recognition, he said.

The owners of another similarly named business, Buddega NYC, received a retail license in April from cannabis regulators in New York, but changed the name after Mr. Norman complained to regulators that it was too similar to his trademark. Another called Budega Brand operates two unlicensed dispensaries in Manhattan and Queens.

Mr. Norman said the behavior would never be tolerated in the illicit market, where imitation might result in unwanted confrontation. But he said he was steadfast in his drive to go legal.

“No one’s going to out-New York me,” said Mr. Norman, the son of Cuban immigrants who abandoned a career on Wall Street and maintained his weed delivery service for 15 years, despite soaring arrest rates for marijuana that were concentrated in places like his Bedford-Stuyvesant neighborhood. “That, at the end of the day, is what I have to lean on.”

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