Global M&A trends and risks
Powerful new forces shaping in the M&A landscape
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Global | Publication | February 2020
The cannabis sector is a growing and exciting sector. New geographical and product markets are progressively opening up around the world for the cultivation of cannabis for both medicinal and recreational use.
With any growth sector it is critical to determine how you can get the edge on your competitors. A key way to do this is through the creation of a Culture of IP. That is, a culture focused on capturing, managing and commercializing intellectual property (IP) as well as ensuring that your business activities are not impacted by a competitor’s IP rights.
First, it is important because IP is an asset which adds to the value of your business so the creation of a Culture of IP is a key plank in any business’ investment strategy. Secondly, it is important because it is critical to ensure that you have freedom to operate.
IP permeates all levels of the cannabis sector, from cultivation and processing of cannabis through to the use of cannabis. In this article, we focus on the creation of IP through innovation in the cultivation and processing of cannabis and in the use of cannabis medicinally; the creation of IP through brand and market positioning; and discuss how you can embed a Culture of IP to get an edge on your competitors.
Innovation is occurring at all stages of the cannabis sector, including the cultivation, processing and medicinal use of cannabis.
At the cultivation stage, we are seeing innovation aimed at increasing the cannabis yield and propagating cannabis plants that are disease- and virus-free as well as with the use of automation. Examples of each of these types of innovation include:
At the processing stage, we are seeing innovation in extraction methods. For example, Radient Technologies has developed a rapid, temperature-controlled extraction method which provides for instant controlled heating of the biomass to create a more efficient extraction process.
In the medicinal use of cannabis, innovation is occurring in many ways including delivery mechanisms. For example, Syqe has developed an inhaler specifically for the delivery of medicinal cannabis.
With new geographical and product markets progressively opening up around the world for the cultivation of cannabis for both medicinal and recreational use, stakeholders are looking to differentiate their market offering with their customers. An effective way to do this is through the use of brands which align with the attributes of your market offering and your target market. Strong brands have already emerged, and continue to emerge in the cannabis sector. For example:
The foundation of a Culture of IP is the capture of the business’ IP. This requires establishing systems to identify and protect the IP you are creating. IP comes in many guises including patents, trademarks, copyright and confidential information.
The IP that is being created will depend on the nature of the activity. For example, are you creating new and innovative processes or products? Are you creating brands for your processes and products, irrespective of whether they are new or innovative?
As we all know, typically we turn to patents to protect new and innovative processes or products. The key benefit of a patent is that it provides you with a statutory monopoly for a given period of time which prevents others from using the product or process that is the subject of the patent during that period. The quid pro quo is that the public benefits from being able to know about (but not use) the innovation in the published patent while the patent is on foot. However, the patenting route may not always be open to you or the best way to go. If this is the case, an alternative to the patenting route is to keep the innovation confidential. While, strictly speaking, confidential information is not a form of intellectual property, confidential information has always been considered as part of a business’ IP “armory.” The key benefit is that keeping an innovation confidential means that it is by definition secret. And there is no time limit on the confidential information (provided it remains secret), unlike a patent which has a statutory term.
The power of brands is ubiquitous. A strong brand assists to position your product and market offering with your customers. Brands are most effectively protected by obtaining registered trademarks in respect of the goods and services for which the brands are to be used. If registered trademark protection is not obtained, then you fall back on the general law of passing off to protect your competitors getting too close to your brand.
A key aspect of capturing IP, the significance of which is often overlooked, is who will own the IP. It is critical to get the IP ownership position right at the start. IP ownership will determine who has the right to use and financially benefit from the use of the IP.
IP ownership is particularly important, for example, in the following circumstances:
Capturing IP is only the start. IP is not static. So, it is important to manage your IP. Products and processes evolve. So, it will be important to reassess regularly whether these evolutions should also be protected through patents and/or confidential information. New geographical and product markets may also open up, requiring the filing of additional trademarks in these new markets or for these new products.
A Culture of IP also includes a commercialization strategy for your IP. A commercialization strategy frames the way in which you monetize and obtain a financial return on your IP investment. Broadly speaking, commercialization can take the form of keeping your IP for your sole use and financial benefit and/or permitting third parties to use your IP under license, so resulting in a royalty stream.
A Culture of IP is invaluable for any business, but none more so than a business involved in a growth sector such as the cannabis sector. Innovation is occurring at all stages of the cannabis sector, including the cultivation, processing and medicinal use of cannabis. Stakeholders are looking to differentiate their market offering with their customers, so now is the time to embed your Culture of IP.
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