Cannabis is not a stand-alone industry. Aside from the manufacturing support needed to grow and sell cannabis in its purest form, partnerships are also essential for expanding the market and reaching buyers who are hesitant or not interested in consuming in the traditional ways. The year 2018 ended with cannabis-centric businesses beginning to test the waters of partnerships. These range, for example, from the pharmaceutical industry, working to create drugs based on marijuana cannabinoids and terpenes, to food and beverage companies like Coca-Cola and Hershey, to cannabis partnerships with technology providers focusing on point-of-sale companies.
As 2019 draws to a close, the base of cannabis partnerships has expanded and cautionary tales have emerged. Foremost, consider the legal implications of using the term ‘partner’ and ‘partnership’, whether causally or officially. A common mistake among entrepreneurs is using such terms to denote a “business friend”. Misuse of the term “partner” has led to expensive, time-consuming litigation over whether a legal partnership was formed, which would give rise to fiduciary duties, and whether fiduciary duties were breached. To avoid a proverbial rabbit hole of litigation, cannabis entrepreneurs should aim to avoid the term ‘partner’ altogether and utilize the term ‘strategic ally’ instead.
Innovative partnering with cannabis-centric businesses touches many spheres. Beauty product company Sephora was the first of its kind, and led the way for other companies such as Barneys New York, Ulta, Neiman Marcus, and Urban Outfitters to sell beauty brands to consumers via the luxury cannabis company Lord Jones. These partnerships are enhanced by coverage in institutional periodicals like Vanity Fair and Vogue. Another win for marijuana companies is Square, one of the leading payment services providers in the world, who now allows sellers of cannabidiol products to access payment processing capabilities. Cost to the seller is between 3.9% and 4.8%, plus a per-transaction fee ranging between $0.10 and $0.30. This service includes analytical, payroll, and inventory tools.
Not all ventures panned out, however. Despite the buzz generated, Curaleaf’s partnership with CVS Pharmacy deteriorated after the U.S. Food and Drug Administration (FDA) accused Curaleaf of selling unapproved merchandise online containing CBD with unsubstantiated medical claims. Another example is found within Aurora Cannabis, who was advised against a mainstream partnership. This was based on the affiliation between Canopy Growth and liquor giant Constellation Brands, as well as Cronos Group’s relationship with tobacco company Altria Group. These partnerships are considered situations in which cannabis businesses lost profits when connected to mainstream companies.
Study the Stock Market
If doubts linger about the cannabis partnerships, consider using the stock market as a guide for trends and investing potential. The marijuana industry, as measured by the ETFMG Alternative Harvest ETF (MJ), has substantially underperformed the S&P 500 over the past year. MJ posted a 12-month trailing total return of -40.8% versus the S&P’s 21.6% gain as of November 26, 2019. Current stocks with the best value are Village Farms International Inc. (VFF) who recently converted some grow space to cannabis, Amyris Inc. (AMRS), an integrated industrial biotechnology company, and iAnthus Capital Holdings Inc. (IAN.CX), which operates cultivation, processing, and dispensary facilities around the U.S.
Additional items to watch are marijuana stocks with the most momentum over the past 12 months, including Innovative Industrial Properties Inc. (IIPR) and Cara Therapeutics Inc. (CARA). Innovative Industrial Properties owns and leases industrial properties; Cara Therapeutics researches, develops, and commercializes pharmaceutical products.
Tips for Success
Want to be one of the success stories? Consider these tips before entering into a cannabis partnership or co-branding deal.
- Choose wisely with the goal to create a win-win situation for both parties. In a partnership deal, it’s important that the products or services offered by each co-brander are complementary and each party stands to gain through affiliation with the other. Will partnering with this other company expand your consumer base and introduce potential new customers to your product? Will your partner benefit in the same manner?
- Ensure all parties are in compliance with all applicable state and local laws. Whether intentional or not, if compliance is lacking then all parties involved may have liability.
- Keep control of your brand. Maintain space for all partners to have input in decisions. Failure to police your trademarks could lead to major problems, including loss of any trademark rights.
- Make sure your agreement is solid and your intellectual property is protected. As co-branding agreements are all unique and can be quite complex, do not rely on a template or generic agreement.
Looking for more information, or wanting to meet with potential partners in the cannabis-centered realm? CannaCon is the nation’s leading business-to-business cannabis conference. The focus of each event is on educating cannabis business owners on all things related to cannabis and CBD. CannaCon is your source and connections point. Sign up to attend today!