A Roadmap for Generating Revenue with Intellectual Property Licensing
Kim Rael, July 20, 2021
As cannabis companies look for new growth strategies, many are seizing a golden opportunity: licensing their intellectual property. Offering licensees access to manufacturing processes, brands, copyrights, trademarks, patents, or technology for adequate consideration is a creative solution to the challenge of breaking into new territories. Licensing also enables companies and brands to expand despite restrictions on interstate commerce and limits on the number of cannabis business licenses in a given state or country.
Smart businesses are joining forces to grow. Much-hoped-for federal legalization likely remains years away; in the meantime, licensing offers multi-jurisdictional operation and asset-light value creation. While this strategy requires careful due diligence, the rewards can be positive and profitable.
How can cannabis companies take advantage of intellectual property licensing? Executives need to ask the following: What is your company best at? What drives the company’s economic engine?
The answers to these questions will help your company discern its unique place in the value chain. This is your differentiated offering to the industry, and it can be anywhere in the production process from seed to sale. The chain begins with plant genetics and includes growers, processors, ancillary businesses, and retailers/dispensaries.
Within the high-velocity cannabis industry, your company may have valuable intellectual property other companies can bring to market in new ways. By differentiating your company from the competition, you will create the value licensees seek. Heavy promotion of your “value add” to your licensees will expand your brand’s footprint far beyond licensing. Bottom line: True differentiation is value creation.
Licensing is like renting your intellectual property. Like any good landlord, companies should execute careful due diligence when researching potential tenants. Once your value-add is established, do the research to make sure any partner company is the right fit for you. Ultimately, the agreement must be advantageous for both parties.
Steps to a smooth transition
A smooth onboarding process is the best way to guide your licensees and ensure the partnership will be mutually beneficial. Every partnership must start with a discovery phase, where a mutual non-disclosure agreement is signed and both parties outline their goals and expectations.
Next is the design phase to specify how the intellectual property will be used in a mutually agreed-upon application. Following the design phase, an intellectual property licensor ideally supports its licensees with clear standard operating procedures to enable smooth onboarding and scaling. The final phase is growth, where licensors support their partners’ expansion into new markets and creation of more innovative products.
Once you have a strong understanding of your company and the unique differentiation you can offer licensing partners, it is vital to develop a robust content kit for your partners. This should include specific documentation about the intellectual property and other rights, content, and materials to be licensed. This kit may include, for example, patents, formulations, trademarks, designs, packaging, marketing materials, and standard operating procedures.
It is a licensor’s responsibility to ensure licensees are given the tools and resources they need to be successful. They will require a training process and materials for their employees, as well as ongoing engagement and support from your company. Your sales and media-relations teams will be integral to licensee success, because they can guide the narrative of the new market opportunity.
Ensuring the success of your licensees will open future licensing and expansion opportunities.
The licensing model at work
Solving a real pain point for your licensees is the only way to bring value to your partners—resulting in a win-win relationship. At Azuca, our mission is to solve onset, predictability, dosing, and delivery challenges for edibles. We created a range of safe, fast-acting, effective, tasty, and trustworthy formulations that allow consumers to experience a precise dose and predictable onset time every time they consume an edible. For manufacturers, our TiME INFUSION™ formulations are cost-effective and scalable. They deliver reduced active ingredient waste and are offered to partners in a cost-effective licensing structure. We have successfully licensed our fast-acting infusion methodologies, our branded products, and our wholesale bulk ingredients.
What doesn’t work
While licensing offers a great opportunity, bear in mind these business pitfalls: You cannot violate the Golden Rule—your company needs to treat other companies the way you would like to be treated. If the licensing agreement isn’t a win-win under which both partners experience growth and financial success, then it’s not a good fit. Additionally, misaligned expectations may yield a partnership that is dead on arrival. Sales projections, process maturity, and level of operational involvement should be understood and carefully negotiated and implemented for a successful collaboration. Finally, your company must stay true to its values.
Compliance, confidentiality, and a win-win outcome should be at the forefront of any licensing agreement. Expansion is hard-fought in the pandemic age, but creating collaborative licensing agreements with other companies can accelerate your growth and brand footprint.