The Role of Intellectual Property in Cannabis Company Valuation … By Robert Hoban

If you’ve ever caught an episode of ABC’s “Shark Tank,” you’ve no doubt heard billionaire Mark Cuban and his cohorts ask entrepreneurs: “do you have a patent or other intellectual property protecting it?” This is because a company’s value increases substantially when its ideas, methods, or technology are properly protected under the law.  

 

Cannabis industry companies, whether they be involved in the hemp, marijuana, or cannabinoid supply chains, require a wide array of Intellectual Property (IP) rights to protect their innovations. These include trademarks, patents, copyrights, trade secrets, and the like. Presently, patents and trademarks constitute the most substantial source of IP protection for most cannabis companies.

 

IP is a commonly utilized label referring broadly to rights in several forms of intangible property. IP generally includes patents (which protect novel technology); trademarks (which protect branding; copyrights (which protect written works of authorship); and, trade secrets (which protect a company’s proprietary information). Each of these types of rights performs a different function, and the wise cannabis entrepreneur uses them, alone and in combination, to maintain market exclusivity, build their brand, and increase business valuation. As the cannabis industry is global in scope, these sorts of protections require a glimpse of international IP protection as well. 

 

Patent rights protect technology, which is broadly defined as the application of scientific principles intended to solve technical problems. There are four types of patents: utility patents, design patents, plant patents, and plant variety protection certificates.

 

Trademarks are words, designs, sounds, colors, or combinations thereof, that are used in combination with the sales of goods or services, as a means of identifying their source. These rights attach and accrue with use, but registering a trademark ensures a broader, and standardized, level of protection. Trademark protection is impacted by the legality (or illegality) at the federal level of the subsector of the cannabis economy, as described above.  

 

Copyrights protect the original works of an author. Copyrights are used to protect creative works. Copyrights protect, not the underlying idea or information, but the manner in which they are expressed. This includes things like books, reports, and certain compilations of factual information. 

 

Trade secrets are generally a construct of contracts. These are defined as proprietary information that confers an economic advantage by virtue of the information not being generally known. Trade secrets can protect proprietary knowledge not known to the general public. In cases where technology is not patentable, or where an inventor wishes to protect their technology for an indefinite period, trade secret protection may be the best option.

 

International IP is similar, but perhaps a bit more specific, as it may relate to the cannabis industry. The World Trade Organization has affected the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. The TRIPS agreement provides benchmark standards for many types of IP. Similar to the US, TRIPS IP protection covers patents, trade secrets, copyrights, and trademarks. Yet, the most common types of TRIPS IP are utility patents, Plant Breeders’ Rights (PBR), which are intended to protect the commercialization of new varieties of cannabis plants developed by traditional breeding, and plant patents. 

 

No matter where you are located, and no matter which facet of the cannabis industry you inhabit, there are certain IP protections available to you. IP law is a highly specialized practice, and IP protection can make or break a company and its valuation of M&A prospects. Thus, it’s imperative to tread carefully, consult learned IP professionals with cannabis experience (like the attorneys that comprise Clark Hill’s IP practice), and ensure that all protectable aspects of your enterprise are protected accordingly.   

Last Month in the Cannabis Industry Group

What Biden’s Marijuana Pardons Signals for Federal Cannabis Reform

This month, Co-Chair of the Cannabis Industry Group Sander Zagzebski sat down with CEO of The Liaison Group and Executive Director of National Cannabis Roundtable, Saphira Galoob and Grupo Flor Chairman of the Board and attorney, Gavin Kogan to discuss Biden administration’s move to pardon those with federal marijuana possession convictions and start an administrative process to review the scheduling classification of marijuana under federal law impacted, how this announcement might mobilize the opening of financial services for cannabis companies through the SAFE Banking Act, and what this means for those currently incarcerated for marijuana possession violations from a practical perspective.

New Jersey Cannabis: Finance, Real Estate, IP and Legal

Cannabis is expected to continue its torrid pace of growth on the East Coast. The Garden State is leading that charge and the four most challenging aspects are finance, real estate, IP and legal. Next month, Clark Hill’s Robert T. Hoban and Adam Fromm, will sit down with Steve Ernest of Chicago Atlantic Group and Amanda Ostrowitz, Esq, of Slap Consulting, to discuss their successes and challenges in navigating New Jersey’s Cannabis regulations, the state’s application process, securing real estate, and financing in turbulent capital markets.

Updates to New Jersey’s Adult-Use Cannabis Rules Would Expand Licensee Opportunities

By: Robert T. Hoban and Devin H. Malone

In February 2021, New Jersey became one of the 19 states to legalize cannabis for recreational use. The bill, A21 – “The New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act,” regulates the use and possession of recreational marijuana and decriminalizes marijuana and hashish possession for individuals 21 years old and above. Since A21 became law, New Jersey has made efforts to adopt rules via the Cannabis Regulatory Commission (“CRC”).

Upcoming Events

Colorado Cannabis Chamber of Commerce

On October 27th, connect with the cannabis industry’s most influential professionals from all sectors of the industry at the launch of the Colorado Cannabis Chamber at Meow Wolf in Denver, CO. Clark Hill is a proud sponsor of this event being held in a completely immersive and interactive artistic environment.

MJ Biz Con

Clark Hill’s Cannabis Industry Group will be hosting a gathering of top cannabis industry leaders, executives, and experts at MJBizCon 2022. The event will be held from 4-7pm on Thursday, Nov. 17th. We invite you to join us at the happy hour which will feature a world-class cannabis networking opportunity, custom cocktails, and delicious bites at the exclusive swanky hideaway lounge, The Barbershop.

GCNC Happy Hour

The Global Cannabis Network Collective is hosting a C-Suite Connector Event sponsored by Clark Hill during MJBizCon 2022 in  Las Vegas. The happy hour will be from 6-8pm on Wednesday, Nov. 16th in the Arts District, 10 minutes from Convention Center Space. While space is extremely limited, global networking is key. Priority will be given to those operating multinational businesses. RSVP at the link above.

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