Practical Tips for Your Cannabis Co-Branding Deals
I’m currently advising multiple cannabis clients that are seeking to enter into co-branding deals, some with other cannabis companies, some with non-cannabis companies, and some of these clients were initially unaware of the potential risks to their intellectual property (“IP”) that could result from a poorly-drafted agreement (or from failure to adequately protect their IP from the outset).
Most of the industry, at least here in California, is aware of the collaboration between Lagunitas Brewing Company and CannaCraft (under its AbsoluteXtracts brand) that produced Hi-Fi Hops, an IPA-inspired cannabis sparkling water. In Oregon, East Fork Cultivars partnered with Coalition Brewing to create a CBD-infused beer called Certified Hazy IPA. And there are no shortage of other brand collaborations within the industry, from gourmet chocolate to vape cartridges.
Co-branding is a common marketing strategy wherein two or more brands collaborate to create a product that is representative of both or each of the brands. Co-branding can be a great opportunity for publicity and can also serve as an opportunity to introduce one of the co-brander’s customers to the other co-brander’s product. It can be an effective tool for expanding the reach of your brand into other markets if executed properly. Co-branding can also serve to enhance the value of the goods if both of the brands are well-known and respected by their consumers.
But if these types of deals aren’t well thought out and well executed, co-branders run the risk of diluting their brand, or if they are a small company, finding their brand overshadowed by the larger, better established brand. If an agreement is poorly drafted, you may find yourself in a situation without much control over the product or its quality, and a sub-par product could ultimately lead to negative publicity and reputation damage.
Below are some of the things you should think about before entering into a cannabis co-branding deal.
1. Choose your co-branding partner wisely.
We’ve talked about this in the context of IP licensing generally, but the same rules apply here. Make sure you feel comfortable with the company you intend to partner with. In a co-branding deal, it’s important that the products or services offered by each co-brander are complementary and that each party stands to gain through affiliation with the other. Ask yourself whether partnering with this other company would expand your consumer base and introduce potential new customers to your product, and whether your brand would provide the same benefit to your partner. The goal with these types of deals is to create a win-win situation for both parties.
In the cannabis industry in particular, it’s also important to make sure that your potential co-branding partner is on solid legal footing. Do your due diligence, and make sure they’re operating in compliance with all applicable state and local laws. If they aren’t, you run the risk not only of reputational harm, but of legal liability.
2. Don’t relinquish too much power.
While it’s fine and may make sense for one partner to take the lead in pushing the co-branding deal forward, it’s important for both partners to have input into how the deal is executed. Don’t ever turn over all decision-making authority to your partner, as it’s important to exercise control over how your brand is used at all times. Failure to police your trademarks could lead to big issues down the road, including loss of any trademark rights.
3. Make sure your agreement is solid and your IP is protected.
Finally, as always, make sure you aren’t relying on a template or generic agreement. Co-branding agreements are all unique and can be more complex than your typical trademark licensing agreement, not to mention the added complexity of one or more parties being in the marijuana industry.
These agreements will have some similarities to trademark licensing agreements, since each party will, in a sense, be licensing their brand to the other. It is therefore important that each party maintain independent control over their own marks and how they are used throughout the deal. Neither party wants its mark(s) to be diluted or tarnished through the co-branding venture. And each party needs to come out of the deal with all of its IP ownership rights intact.
Control, as I mentioned above, is one of the key considerations in any co-branding deal: Quality control provisions should be fleshed out, and each party should clearly specify how its trademarks are to be used and displayed, where they will be permitted to be used, and how the product will be marketed.
Each party should feel comfortable with the termination provisions of the agreement, and should be able to exit the deal if, for example: sales targets are not met; laws or regulations change in a way that renders the deal legally problematic; legal enforcement actions are taken against either of the parties; if there is infringement or misuse of the trademarks; or if one party does anything that could negatively impact the other’s brand or reputation. To that end, make sure the agreement contains comprehensive representations and warranties from each party, as well as mutual confidentiality and indemnification provisions. Some of these provisions should survive termination of the agreement.
These are only the most basic considerations for constructing a cannabis co-branding deal. These types of ventures can be exciting and drum up a lot of publicity, which has the potential to greatly benefit both parties. But it is essential to carefully consider how your co-branding agreement is drafted, and to make sure that you and your intellectual property are adequately protected.