By David Branfman, Branfman Mayfield Bustarde Reichenthal LLP
We have just returned from the International Cannabis Business Conference® in Vancouver, B.C., Canada – an action-packed one day conference with networking events at the front and back ends. All in all, the combination of a tight one-day conference with networking opportunities at the front and back ends made this event a very pleasant and worthwhile alternative to the now too common mega-cannabis conferences. The following are some of the highlights from the panel discussions we think you will find interesting and useful. (If your time is really short – and although we found it all very useful – we have highlighted in yellow some of the really interesting parts of the discussions).
Intellectual Property Is at the Forefront:
Several of the panelists mentioned how important intellectual property (“IP”) such as trademarks/copyrights/patents/trade secrets is to their businesses in particular and the industry in general. In fact, one of the panelists stated that developing and acquiring cannabis-related IP is one of his company’s top 3 core strategic initiatives in the next few years.
This is a very positive change from the reaction we received 10+ years ago when we first started providing IP services to cannabis entrepreneurs; back then we were looked at like we were visitors from another planet with two heads and six legs. So it’s gratifying to see that we accurately predicted the importance that IP and IP law would become as the legal cannabis economy evolved.
But like just about everything in business, nothing stays the same and it’s always critical to keep adapting and innovating. And so as we come closer to the end of 2019 and the beginning of 2020, now is as good a time as ever to look inward and take stock of your inventory of IP assets (trademarks, Internet domain names, copyrights/content, trade secrets and patents) and make sure you’ve taken appropriate steps to protect and monetize them. Let us know, of course, if you have any questions about how to gather the info you need and what to do with it.
Lori Ajax and the California Bureau of Cannabis Control:
Given that this conference was primarily focused on the Canadian market, it was interesting that Lori Ajax from the California BCC was the leadoff speaker at the conference. Why Lori? Because Canada can learn a lot from what California has done right and wrong these last several years as Canada expands its adult-use cannabis program.
Highlights of Lori Ajax’s interview:
- Access to legal cannabis: Access still an issue; thus in California a licensed cannabis retailer can deliver anywhere in California. However, some anti-cannabis California cities are suing to prevent this. Others are accepting it. Encinitas – a suburb of San Diego – has revised its laws to allow cannabis delivery with the city even though it doesn’t currently have any licensed storefront retail shops. And….Encinitas has a ballot initiative coming in the November 2020 election to allow for up to four cannabis retail stores and some cultivation and distribution facilities.
- Number of Licensed Cannabis Businesses in California: So far California has about 6500 licensees across the supply chain; but there are more distributors than retailers.
- Number of California Local Jurisdictions: Because there are almost 550 cities and counties in California, BCC has a challenging job coordinating the state rules with local rules and regulations.
- On-site Consumption: Some cities allow on-site consumption at retail shops, but it’s a city-by-city decision that requires approval by the local jurisdiction.
- Educating the Public: In order to help educate the public about the importance of purchasing cannabis products from licensed retailers, the BBC is getting active on Twitter with #weedwise and has set up a website for consumers to be able to check whether a retailer they intend to buy from is licensed: www.CApotcheck.com. The BCC even created a PSA (Public Service Announcement) about how to obtain a cannabis license with Cheech Marin playing the part of a BCC official: https://youtu.be/jQ0OK06ZTP4
- Vaping Illnesses: The recent rash of illnesses linked to vaping has been traced to the unlicensed market – not the legal market.
- Conflicts Between Wine and Cannabis Industries: A rift is developing between wine and cannabis: some grape growers are upset about “terpene drift” affecting the wine terroir while at the same time some cannabis growers are concerned about the pesticides grape growers can use that they can’t that may be affecting the purity of the plants they grow.
- Banking: California is still struggling to get banks and credit unions to bank the industry, but banks are still resistant to get in. Last month the BCC collected $3 million in cash for licensing fees - the BCC wants out of the cash business too! Starting a state bank? Lori was not optimistic that’s going to be a solution any time soon: it will take too long to get up and running.
- Criminal justice reform: San Francisco has retroactively expunged over 9000 criminal defendants’ records; a representative from San Francisco recommended that other jurisdictions call the SF DA’s office for info on how they can do the same thing.
Mergers & Acquisitions:
The panelists included Patrick Brauckman (Pasha Brands, Executive Chairman); Jamie Pearson (Bhang, COO); Paul Pederson (Nextleaf, Co-Founder & CEO); and Bobbi Koz Paley (Art Assets LLC, Founder & CEO). Dean Arbit of Wagner/Dimas and bud.com was the Moderator.
- Bhang is now publicly traded after going public this past July. It was a painful process. It took a lot of paperwork and lawyers; it required very strategic plan They are looking to acquire companies that are value-add that fill in gaps that Bhang has needs for. They just acquired a beverage co.; it fit holes in their distribution plan.
- What are investors looking for when thinking about acquiring a cannabis business? For Patrick, it’s all about looking at management and how much control they have over their business and where their outside investors are coming from. Bobbi also looks closely at management as a threshold issue. Bhang will look at both public and private companies; it depends on whether the potential acquisition fills a need that Bhang has. But….a publicly traded company acquiring or investing in another publicly traded co. is very complicated.
- What sectors are growing the fastest? Paul’s co. is really looking at IP as a way of growing their co. Down the road, they believe more consumers are going to want more non-smokeable product. Dean believes that IP is going to really help differentiate products. Jamie believes consumers often don’t really know what they really want; it’s the cannabis company’s job to look and see what’s possible. For example, beverage companies are trying to figure out how to help consumers drink out with their friends and get high without getting drunk. Skin care and men’s grooming products are also likely to be significant sectors. For Bobbi, osteoporosis and endometriosis are real problems that need solutions.
- How Far Along is the Industry in 2019-2020? Patrick’s analogy is that the cannabis industry is currently just in the third inning of a nine inning game.
Nic Easley on Vetting Domestic Investments to Ensure Viability:
- Canadian Cannabis Market – State of:
- 2019 Estimated Cannabis Sales (Medical & Recreational): $2.6 billion ($U.S)
- 2024 Projected Cannabis Sales (Med & Rec): $3.4 billion ($U.S.)
- Cannabis prices are dropping: In 2018 Aurora Cannabis reported 21% net selling price drop for dried flower and 25% drop for cannabis extracts.
- Paying for shelf space: In U.S. paying for shelf space at retailers is becoming much more prevalent.
- Earlier this year WHO recommended rescheduling cannabis
- Nic’s prediction: On the federal level, medical legalization will come first in U.S. before recreational.
Our Conclusions: It’s no surprise to anyone who has been in the industry that the era of the mom and pop cultivators and MMJ dispensaries is either over or rapidly coming to a close. Likewise it’s probably no surprise that a number of very smart and passionate entrepreneurs – some of whom are industry veterans with years and decades of experience behind them and some of whom are very new to the industry – are working hard to try to make sense out of nonsense in terms of the patchwork of sometimes competing local, state and federal laws and regulations that are making it extremely difficult for the industry to normalize. What is concerning – although also possibly no surprise – is that almost two years after California adopted its adult use regimen there is still no real solution clearly in sight to the big problems of: (1) no reliable/predictable banking solutions; (2) the inability of regulators to put a meaningful dent in the illicit unlicensed cannabis market which makes it even harder for legit licensed cannabis businesses to survive; and (3) the onerous patchwork of rules and regulations that are still making it hard for legit cannabis business to survive – much less thrive. But at the end of the day there is also no doubt that consumer demand for legit and clean cannabis and hemp/CBD products is thriving and probably on the rise. We are therefore cautiously optimistic that the consumer demand will encourage the serious cannabis entrepreneurs and businesses to push, pull and prod all the necessary levers and buttons to solve the big three issues. We are also pleased to see how many industry insiders are finally starting to talk about and acknowledge the role that IP is playing and will continue to play in helping to determine which of the thousands (or tens of thousands) cannabis and hemp/CBD companies are going to survive the current market flux and disruptions. Thus as we come closer to the end of 2019 and the beginning of 2020, now is as good a time as ever to look inward and take stock of your inventory of IP assets (trademarks, Internet domain names, copyrights/content, trade secrets and patents) and make sure you’ve taken appropriate steps to protect and monetize them. Let us know, of course, if you have any questions about how to gather the info you need and what to do with it.
About David Branfman: David Branfman has been practicing law in San Diego County for over thirty years. Mr. Branfman’s practice focuses on intellectual property and entertainment law, including trademarks, domain names, copyrights, trade secrets, licensing, motion pictures & TV, and music. Find out more at: Branfman Mayfield Bustarde Reichenthal LLP