From celebrity crossovers, to existing brand expansion, to top tier genetics, licensing deals are fast becoming a staple of the New Age of Cannabis.
Gary Payton, who struck a deal with Cookies for their smash-hit strain bearing his name and likeness, isn’t the first (or last) celebrity to cash out on royalties generated by cannabis licensing.
Cannabis products can be seen as half commodity, half retail good. Bulk flower and distillate prices fluctuate with changes in the political atmosphere and global crop yields, much like wheat and corn. However, the companies which have been able to build recognizable brands or otherwise differentiate themselves from their competitors, have been able to add substantial value to that base commodity.
Whether via creating impactful branding, developing expert processing IP, breeding A+ genetics, or in some rare cases, just by growing true A+++ herb, the companies (and underground operators) who have risen above the rest have opened doors into the world of licensing that will dictate the direction of the industry for years to come. For those with deep pockets, looking to get into the game now that much of the regulatory dust has settled, licensing is an easy way to leapfrog existing competition either by aligning with a brand people already know, or by ensuring quality of product by licensing IP or genetic material.
Licensing Deal Type 1: Celebrity/Brand Crossovers & Endorsements
Darren McCarty, ex Red Wings great, launched his own cannabis line in Michigan, with help from Pinnacanna.
Celebrity weed lines have become commonplace in the nation’s more developed legal states, like California and Colorado, and as new markets emerge, more and more celebrities are looking to invest their fortunes into cannabis, and leverage their personal brands in the process. Those who have launched thus far, have had mixed successes. Whoopi & Maya, founded by Whoopi Goldberg and Om Edibles founder Maya Elisabeth, which attempted to address the growing female market segment, has shut down due to ‘overly restrictive regulations’ and ‘personal issues between the founders’. Canopy, North America’s first publicly traded cannabis company, has been working profitably with Snoop Dogg on their joint venture ‘Tweed’ since 2016. The company also launched a new CBD line, with Snoop’s former colleague, Martha Stewart, and is in talks with Seth Rogan for a new project (Pineapple Express, anyone?) . As cannabis approaches federal legality, a similar style of licensing deals will continue to grow, that of the ‘brand crossover.’ While we have yet to see a Taco Bell x Cookies line, (trust me, we will) — we have seen established brand names branching out into Cannabis, most notably, the iconic Woodstock. Woodstock Ventures, the founding entity behind the Woodstock music festival, was allowed to move forward with a planned cannabis brand after the courts ruled their trademark was not blocked by Woodstock Roots LLC, an unaffiliated company.
Licensing Deal Type 2: Existing Brand Expansion
Binske, first launched in Colorado, has rapidly expanded into new markets via licensing their brand and IP.
The fractured system of state level licensing has made expansion for successful brands a challenge, both logistically and financially. The most streamlined path to expansion into a new state, which Binske has leveraged with great success, is to partner with license holders and operators in new states to license branding, IP, and SOP. If it works well, both sides can save a lot of time, money, and heartache with a well-balanced partnership.
The licensor, (the existing brand giving another company rights to use their IP) gets their foot into a new market, with operators that (hopefully) have existing local connections for political pull and marketing, and without having to invest in launching an entirely new operation in that state. The licensee gets to sell a with the trust of a recognizable brand behind them, and will undoubtably cut out a lot of mistakes with the guidance provided by an experienced team. The licensee will also likely save a great deal financially, by leveraging the licensor’s legal/accounting/R&D/etc. teams.
Licensing Deal Type 3: Genetics and Strain Trademarks
DNA Genetics (the creators of LA Confidential) strains have been a hallmark of both the black and white markets since they started crossing NorCal and Amsterdam’s best breeds all the way back in 2007.
Seed companies and clone operations are thriving along with the rest of the industry, and breeders are working harder than ever to find the next ‘unicorn’ strain. Bonafide breakout strains like Og Kush and Girl Scout Cookies, or more recently Wedding Cake, Skittlez, and Kush Mintz, can make or break companies launching in new markets, and can form the base of a product line which is 3–5x more profitable than those based on weaker strains.
Visual bag appeal, a novel aroma, and of course, flower yield, still weigh heavily on the value of a new strain, but we have moved into the brave New Age of Cannabis, where 20%+ THC levels are common place, and an ‘elite’ strain has a lot more than what I’ve listed above. Seasoned operators now come to us with requests for an auto-flowering strain, with vigorous training-responsive growth, 4%+ wash rate, complex cannabinoid blends (1%+ CBD and CBG), and specific terpene profiles falling somewhere in the papaya spectrum, with a preconceived expectation of bag appeal, and 400gsm yields. The injection of modern horticultural technology that has come along with increased legality has made these requests possible to fulfill in a much shorter time. In a few short years, with the aide of well-defined genetic markers, strains like these will also be able to be created on demand.
Just as the genetics themselves have become increasingly more complex, so have the deals surrounding them. No longer can one expect to pay $10,000 for a high class clone of a new strain — at least with no strings attached. For legal operators purchasing from licensed, professional breeders, purchasing a clone is looking more and more like a brand licensing contract, with very specific terms and limitations. For instance, a cannabis grower might pay $25,000 for an exclusive 3-year license to a strain, meaning that the breeder can’t sell or distribute that strain to any of their competitors for that term. Along with that would come a whole slew of restrictions on how the grower can handle those genetics (no breeding, no re-selling of clones, etc), in much the same way Monsanto controls their proprietary genetics. Remember, genetic material can’t be patented itself, so the processes around it must be strictly controlled. If the grower wanted full control over the strain, to keep the breeder from creating crosses with it, and to get the right to distribute clones and seeds of the strain themselves, the breeder might ask for $100,000 or more. Think this seems like a lot? Depending on the situation, an investment in an elite strain could pay back 100X dividends within a year. For a company producing tens of thousands of pounds of cannabis a year, a 15% increase in flower yield, and 2% increase in wash rate for concentrates could mean a 50% jump in revenues or more.
The biggest names in the world are entering the cannabis market. Don’t be left behind.
What does this mean for you? If you are a consumer, it means you’ll continue to see better and better products on the shelves, with more and more nationally recognizable brands. If you are a company within the industry or on the outside looking for ways to get in, its undeniable that licensing will play a pivotal role in how the hierarchy of brands in both established and emerging markets shakes out. While it may not be absolutely necessary to succeed, being aware of the growing importance of licensing deals in the current atmosphere will allow you to better position your company for the opportunities ahead.
If you need help incorporating a licensing strategy into your brand, or need a link to licensed providers of elite genetic material, don’t hesitate to reach out directly at: nrussell@pmc-sc.com or on Instagram at @natesaysdoless.