Critical dos and don’ts for cannabis licensing agreements

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As international demand for cannabis merchandise continues to warmth up, extra corporations are pursuing licensing agreements to shortly launch their manufacturers in fast-growing markets.

The difficult offers are among the many most intimate within the business with companies agreeing to share intently held enterprise secrets and techniques with companions, together with mental property (IP), product formulations, logos and extra.

Here’s a breakdown of some prime factors that specialists say you need to hold prime of thoughts as you’re crafting your agency’s licensing settlement:

  • Leaning on template licensing agreements can show a mistake.

Executed nicely, the agreements permit companies to faucet know-how and shortly increase a model’s attain into new U.S. and international markets, stated Chuck Smith, CEO of Dixie Brands.

The Denver edibles firm has used licensing agreements to develop into a worldwide model with partnerships throughout the United States, Australia, Canada, Mexico and New Zealand.

But the offers can be fertile floor for a number of authorized snafus that may pose huge dangers – together with pricey litigation and the potential for your organization to lose its IP, cautioned Alison Malsbury, mental property lawyer with Harris Bricken/Canna Law Group, a Seattle agency that focuses on the cannabis sector.

“The biggest problem that comes up is that some of these deals are thrown together using template licensing agreements from traditional business sectors,” Malsbury stated.

“That doesn’t work in the cannabis space, because there are so many unique issues to consider and companies really have a lot at stake.”

  • Knowing your IP and trademark legal guidelines is vital.

Among probably the most difficult points dealing with the cannabis business is a agency’s potential to show precisely what IP it owns, Malsbury stated.

“Far too regularly, cannabis companies come to us with proposed licensing deals where basic due diligence quickly reveals the licensor simply does not own what it claims to own,” Malsbury wrote in her weekly CannaLaw weblog.

Because of the plant’s federally unlawful standing, the U.S. Patent and Trademark Office gained’t situation logos for cannabis and many MJ-related merchandise.

Without that safety, dealmakers should adhere to state-based trademark guidelines.

States even have adopted guidelines that adjust relying on a licensing deal’s construction.

In some states – together with California and Oregon – offers crafted with royalty-payment buildings tied to income or revenue will set off monetary interest-holder guidelines that always include further reporting tips.

“When you chose your deal structure, attention to the nuances of the laws in each state is critical, because there just is not tried-and-true boilerplate framework for these deals,” stated Lily Colley, nationwide advertising director for Colorado-based edibles maker Incredibles.

“Literally, every new deal in this industry teaches us one more thing.”

  • Assuming your new enterprise associate has the whole lot coated may end up in vital pressure.

From advertising and promoting budgets to investing in software program platforms and IT , the perfect licensing agreements map out precisely what every get together – the licensor and licensee – might be accountable to execute and pay for, Colley stated.

Earlier this yr, the agency launched a licensing settlement with Liberty Health Sciences as unique producer and supplier of its cannabis merchandise throughout Florida.

“Often, one of the things that causes the most trauma in a lot of these deals is that one partner assumes the other partner has it covered,” Colley stated.

Items left unaccounted for in an settlement can result in “large deficits and undue tension” between enterprise companions.

“The end result is that brand and the products suffer in the marketplace, which is the top thing everyone wants to avoid,” she stated.

  • Talking concerning the potential that issues gained’t work out upfront is sensible.

Examples of well-intended licensing offers gone dangerous proceed to pile up within the cannabis business.

This month, Canopy Growth ended a licensing settlement with Bedrocan International after a dispute that despatched the 2 companions to arbitration over “support” of Canopy Growth’s mental property.

Earlier this yr, Evergreen Licensing and its founder, Brian Vecchio, filed a lawsuit towards Tommy Chong and different enterprise companions alleging the superstar tried to chop the corporate out of income tied to a licensing deal that had been in place for almost three years.

“You really want to make sure you enter these deals with someone who is committed to being a guardian of your brand,” Colley stated.

Her prime recommendation: “Outline your divorce upfront.”

She suggests “getting in the weeds, early” within the deal-making course of to “make sure you align on what your end goals are early on.”

Both events must be prepared and prepared to map out a plan – comparable to arbitration – to cope with conflicts that come up.

“If you can’t be willing to talk about difficult things like how you’re going to leave each other if things don’t work out,” Colley stated, “it’s probably a signal that it might not be a strong partnership.”

  • A morality clause can stave off potential embarrassment.

Increasingly, celebrities have gotten the face of a number of the fastest-growing cannabis manufacturers.

Adding a morality clause to your licensing settlement guards each licensees and licensors towards conduct that manufacturers need to keep away from being related to, Malsbury noticed.

And it doesn’t need to be restricted to legal acts.

“Through a morality clause you can outline the situations in which certain conduct would be problematic,” she stated.

“You always want the ability to cut ties when you’re partnering with others that have engaged in conduct that’s problematic or has the ability to harm your business or brand.”

Lisa Bernard-Kuhn could be reached at [email protected]


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