How Patents Affect the Value of a Cannabis License and Investor Interest

How would you like to have an undisputable competitive advantage – a monopoly over a certain aspect of your industry – for 14-20 years? You can have it with a patent. 

In simplest terms, patents provide uncontestable legal proof that you created something completely novel. With that proof, you also get long-term government protection of your invention, which you can use to gain a significant competitive advantage for a very long time.

In any industry, including cannabis, one of the most effective ways to get the attention of investors is to offer something useful and unique to the market that isn’t easy to duplicate, but when you show them that unique “thing” is legally protected for decades with a patent, then your business and your cannabis license become exponentially more valuable.

What is a Patent?

A patent from the U.S. Patent and Trademark Office (USPTO) gives you (the inventor) the legal right to stop others from making, using, or selling your invention for a specific period of time. In other words, as the inventor, you get a limited monopoly to exploit your invention by making, using, and selling it for profit in the commercial market.

There are some boundaries though. You can only get a patent for inventions that meet all of the following criteria:

  • Useful: The invention provides a benefit related to its functional purpose.
  • Novel: The invention is new, not known to the public, and not sold or used in public yet.
  • Not obvious: The invention is not easily predictable.
  • Enable someone with “ordinary skill in the art” to make it: The invention has to be producible. For example, if your invention is for a type of cultivation equipment, then a cultivation equipment manufacturer must be able to make it based on the information in the patent application.

To get a patent, inventions also have to be patentable subject matter, which Congress defines as:

  • Processes: A process is an action that requires multiple steps to perform.
  • Machines: A machine is a product, such as a machine used for cultivation.
  • Articles of manufacture: An article of manufacture is a product.
  • Compositions of matter: A composition of matter is a product, such as a medical marijuana product’s composition.

Once you determine if your invention can be patented, you need to determine which type of patent to apply for. 

Types of Patents

Depending on the type of invention you develop, you can apply for one of four types of patents:

1. Utility Patent

The broadest range of inventions get utility patents, which protect an invention of a process or method, a machine, an article of manufacture, a composition of matter, or an improvement of one of these. This patent protects an invention for 20 years from the date the patent application is filed.

2. Design Patent

This type of patent only protects the aesthetic value of a new, original, and ornamental design for an article of manufacture. For example, Coca-Cola is an item of manufacture that is protected as a trade secret rather than with a patent, while the iconic Coca-Cola bottle shape is protected with a design patent. A design patent protects an invention for 14 years from the date the patent is issued.

3. Plant Patent

Created new varieties of plants (not wild plants) can be protected with a plant patent. This patent protects an invention for 20 years from the date the patent application was filed.

4. Covered Business Method Patent

A business method patent protects a unique method, apparatus, or operation used to do or manage something related to products or services that provide useful, tangible, and concrete results (e.g. Amazon’s 1-Click purchasing system that was patented in 1999). It is not awarded often, so many inventors protect business methods as trade secrets instead. A business method patent protects an invention for 20 years from the date the application is filed.

Cannabis Industry Patent Examples

The number of cannabis industry patents continues to grow each year as the industry matures and businesses look for ways to gain a competitive advantage in the marketplace that the law allows them to own and defend. In fact, Aurora Cannabis launched a Science & Innovation business group in May 2021 with the singular goal of commercializing patented and patent pending technology that the company will use to develop cannabinoid biosynthesis and plant genetics.

Bottom-line, businesses are starting to invest a lot of money into inventions and protecting those inventions with patents.

The first thing many people think of when they hear the phrase “cannabis patents” is plant patents used to protect new varieties of the cannabis plant. However, cannabis plant patents are actually less common than cannabis utility patents (remember, the broadest range of inventions get utility patents). 

A general search of the U.S. Patent and Trademark Office database for utility patents related to “cannabis” displays 206 results, while the same search for plant patents only delivers 24 results. There are 19 design patent results, but many of them are for package and product designs in cannabis leaf shapes or with cannabis design imprints.

In terms of utility patents, these have been granted across the supply chain – to license holders and ancillary companies. From machines and equipment to methods of growing and extraction, patents have been granted. The USPTO has even awarded patents for food preparations and compositions of extracts.

Many of Cannabiz Media’s clients have won patent protection for their inventions in the cannabis industry. Some examples include:

  • Boveda, Inc. holds multiple patents to protect systems and methods for monitoring and controlling humidity and a container assembly to maintain a predetermined humidity for storing product.
  • Precision Extraction Corporation holds a patent for an extraction apparatus and a process for preparing extracts.
  • Greenbroz, Inc. holds patents for an apparatus and related methods for trimming dried cannabis flowers.
  • N2 Packaging Systems, LLC holds multiple patents for containers with child resistant lids.
  • Vitalis Extraction Technology Inc. holds a patent for a superfluid extraction apparatus.

How Patents Affect Cannabis License Value

Businesses that operate in or with the cannabis industry will face a changing landscape in the near future as markets open further and federal legalization eventually happens. Competition will increase, national brands will rise, and mergers and acquisitions will become even more commonplace.

Savvy companies will be looking for ways to stand out in the marketplace – ways to prove they’re positioned to survive and thrive. Intellectual property, particularly patents, instantly show investors that a business has a quantifiable and valuable advantage that cannot be copied easily.

In fact, patent value can be calculated by evaluating six key things:

  1. The importance of the invention
  2. How well the patent is constructed (i.e., how much protection does it actually provide based on how it’s written)
  3. Its marketing value
  4. The term of the patent
  5. How often the patent is cited in other patent applications
  6. How much money can be extracted from the patent through potential revenue streams like licensing and royalties

An important thing to keep in mind when it comes to patents and all forms of intellectual property is this: 

Cannabis and cannabis products can’t cross state borders today, but ideas can. Patents protect ideas that turn into inventions, and those inventions can be used and monetized across the United States.

In other words, businesses that start spreading their ideas across the country now will be in the best position to dominate their markets in the future when federal legalization finally happens and competition increases significantly. Those are the businesses that investors will be looking for and larger companies will be targeting for acquisition.

Key Takeaways about Patents, Cannabis License Value, and Investors

While the patent process takes time and money, if you can secure one to protect your novel invention, investors will notice. Be sure to work with an experienced patent attorney not only to ensure your application has the best chance to be approved but also so your patent can become as valuable as possible. 

Remember the six things that determine a patent’s value discussed above? One of them is, “how much money can be extracted from the patent through potential revenue streams like licensing and royalties.” Writing and developing your patent application is not something you want to try to do on the cheap. Get the right help to gain the best competitive advantage.

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