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State of the US Cannabis Payment Processing Market: An Interview with Executives at KindTap and Aeropay

By Aaron Green
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Federal regulations have made compliant credit processing in the cannabis industry difficult to achieve. As a result, most cannabis retailers operate a cash-only model, limiting their ability to upsell customers and placing a burden on customers who might rather use credit. While some dispensaries offer debit, credit or cashless ATM transactions, regulators and traditional payment processors have been cracking down on these offerings as they are often non-compliant with regulations and policies.

Two companies, KindTap Technologies and Aeropay, are addressing the cannabis industry’s payment processing challenges with innovative digital solutions geared towards retailers and consumers.

We interviewed both Cathy Corby Iannuzzelli, president at KindTap Technologies and Daniel Muller, CEO at Aeropay. Cathy co-founded KindTap in 2019 after a career in the banking and payments industries where she launched multiple financial and credit products. Daniel founded AeroPay in 2017 after a career in digital product innovation, most recently at GPShopper (acquired by Financial), where he oversaw the design and development of over 300 web and mobile applications for large scale Fortune 500 companies.

Green: What is the biggest challenge your customers are facing?

Cathy Corby Iannuzzelli, co-founder and president at KindTap Technologies

Iannuzzelli: Our customers include both cannabis retailers and their end consumers. As long as cannabis is illegal at the federal level, normal payment solutions such as debit and credit cards cannot be accepted for cannabis purchases. This has resulted in heavy cash-based sales and unstable, transient work-around ATM payment solutions that can be ripped out with little notice, disrupting the entire business. The lack of a mature payment network to support retail payments for cannabis purchases is a huge challenge for all stakeholders. Cannabis retailers bear the high cost and safety issues of operating a heavily cash-based retail business. Consumers encounter several friction points that require them to change their behavior when purchasing cannabis relative to how they purchase everything else.

Muller: Our cannabis business customers have faced a constantly changing and, frankly, exhausting financial services environment. From the need to move and manage large amounts of cash, to card workarounds, added to the disappointment from legislation around the SAFE Banking Act, these inconsistencies have acted as a roadblock to their potential growth and profitability. Aeropay is in the position to be a stable, long-term, reliable payments partner ready to help them scale their businesses. We believe these opportunities are limitless.

Green: What geographies have got your attention and why?

Daniel Muller, CEO and founder of Aeropay

Iannuzzelli: KindTap’s focus is on the U.S. market where federal policy has created the need for alternatives to traditional payment networks. KindTap is available in every U.S. state where cannabis is legally sold. In terms of our distribution channels, KindTap’s digital payment solution was brought to market during the COVID-19 pandemic when curbside pick-up and delivery became critically important. These channels are where the exchange of cash at pick-up posed the greatest security risk to employees and customers. Our early integrations were with e-commerce platforms focused on delivery and pick-up orders, and our integration partners have strong customer bases in California and the northeast. So, while KindTap can provide its “Pay Later” lines of credit and “Pay Now” bank account solutions anywhere, we have heavier penetration in those regions.

Muller: California, for its established tech culture and how it plays into the cannabis industry – your product simply has to live up to their tech standards to be heard. Also, Chicago, our headquarters, with its newly emerged commitment to financing the cannabis industry and bringing with it a more traditional business approach. In Chicago, you have to have elevated standards of professional practices in any industry you enter. And of course, we love to watch emerging markets like New York and Florida as they head towards adult-use and what shape cannabis and payments will take.

Green: What are the broader industry trends you are following?

Iannuzzelli: We continue to see a strong transition from cash and ATM transactions over to digital payments. Since KindTap has a fully-integrated payment “button” on e-commerce checkout screens, the adoption rate of end consumers to that one-click experience is quite strong. We are also seeing trends of more “express lines” in the retail environment – for those KindTap users who paid online/ahead – and faster/safer delivery experiences to people’s homes since there is no longer the need to collect any payment upon delivery. We are firm believers in the delivery/digital payments combination and a strong increase of that trend as more states allow for delivery.

Muller: The cannabis industry is starting to normalize payments and mirror traditional online and brick-and-mortar. With bank-to-bank (ACH) payments, cannabis businesses can now offer modern customer shopping experiences including pre-payment for delivery orders without the need for a cash exchange at the door, offering the option to buy online pickup in-store and contactless in-store QR scan-to-pay customer experiences. With these familiar and customer-driven options now available, we are seeing widespread adoption, as well as meaningful increases in spend and returning customers.

Green: Thank you both. That concludes the interview!

About KindTap: KindTap Technologies, LLC operates a financial technology platform that offers credit and loyalty-enabled payment solutions for highly-regulated industries typically driven by cash and ATM-based transactions. KindTap offers payment processing and related consumer applications for e-commerce and brick-and-mortar retailers. Founded in 2019, the company is backed by KreditForce LLC plus several strategic investors, with debt capital provided by U.S.-based institutions. Learn more at kindtaptech.com.

About AeroPay: AeroPay is a financial technology company reimagining the way money is moved in exchange for goods and services. Frustrated with the current, antiquated payments landscape, we believe there is a better way to pay and a better way to get paid. AeroPay set out to build a payments platform that works for all- businesses, consumers, and their communities. Learn more at aeropay.com.

Payment Processing & Consumer Credit: An Interview with KindTap Co-Founder

By Aaron Green
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Federal regulations have made compliant credit processing in the cannabis industry difficult to achieve. As a result, most cannabis retailers operate a cash-only model, limiting their ability to upsell customers and placing a burden on customers who might rather use credit. While some dispensaries offer debit, credit or cashless ATM transactions, regulators and payment processors have recently been cracking down on these offerings as they are often non-compliant with regulations and policies.

KindTap Technologies, LLC operates a financial technology platform that offers credit and loyalty-enabled payment solutions for highly regulated industries typically driven by cash and ATM-based transactions. KindTap offers payment processing and related consumer applications for e-commerce and brick-and-mortar retailers. Founded in 2019, the company is backed by KreditForce LLC plus several strategic investors, with debt capital provided by U.S.-based institutions.

We interviewed Cathy Corby Iannuzzelli, co-founder and chief payments officer at KindTap Technologies. Cathy co-founded KindTap after a career in the banking and payments industries where she launched multiple financial and credit products.

Aaron Green: Cathy, thanks for taking the time today. How did you get involved in the cannabis industry?

Cathy Corby Iannuzzelli, co-founder and chief payments officer at KindTap Technologies

Cathy Corby Iannuzzelli: I’ve been in the payments industry for a long time. I was doing some consulting a few years ago for a client in Colorado and that gave me exposure to the issues in cannabis like the fact that you couldn’t have real payments in cannabis. Then, a close family member with health issues turned to medical cannabis when nothing else seemed to work. I was amazed by the difference it made in her life. At that point, I put those two things together and I said, I need to focus on helping this industry get a real cannabis payments solution because I thought it was ridiculous that you had an industry of this size and importance that had been abandoned by the payments industry.

Aaron Green: Can you highlight some of your background prior to entering cannabis?

Corby Iannuzzelli: Throughout my career, I’ve been a banker, I’ve been a payment processing executive and I’ve been a consultant. So, I’ve kind of done it all in the payments and financial services space.

Aaron Green: Why is it that most dispensaries only take cash?

Corby Iannuzzelli: In the US, even though cannabis is legal in many states, it’s still illegal federally. There are big banks and card networks like Visa, MasterCard, etc., who are national, even global companies and frankly, the executives of those companies don’t want to end up in jail for violating national laws. So, they have put cannabis dispensaries on what’s called a “prohibited merchants” list. This means you cannot accept Visa, MasterCard, Discover, American Express, or similar payments as a cannabis business and so it’s forcing the industry to a cash-based solution.

About the only thing you’re seeing that’s not cash in dispensaries are ATMs. But if you think about it, ATMs are machines where the consumer goes and pulls cash out and pays upwards of $5 or more in fees for doing that. They then hand that cash back to the dispensary who then has the costs of having to deal with that cash. The industry is just stuck in a cash-based business until federal legislation changes.

Aaron Green: I’ve been to some dispensaries where they accept credit cards or debit cards. What is going on there?

Corby Iannuzzelli: I’ve heard reports of consumers who’ve been able to use a credit card or a debit card in a dispensary. Sometimes the processor who sold that solution to the dispensary says, “Oh, it’s compliant, I guarantee you it’s compliant.” But if you dig in, that’s not the case. And eventually, Visa or MasterCard figures it out and shuts it down. In some cases, it’s outright fraud where the processor who sold the payment terminal to the dispensary is misrepresenting it as say a doctor’s office rather than a dispensary. There’s no merchant category code in the payment networks that says this is for processing dispensary payments, so they pretend it’s something else until they get shut down.

When they do get shut down, I’ve heard of cases in Las Vegas where it was basically 100% Visa or MasterCard one day and 100% cash the next day. It completely disrupted the whole business. It’s not just the retail store, but the inventories and everything else throughout the business.

“About the only thing you’re seeing that’s not cash in dispensaries are ATMs”

There have also been some cases where you’ll see something called a cashless ATM. In a store, they call it a debit card transaction. It’s really a cashless ATM where the consumer is making what looks to the ATM network like a cash withdrawal in $10 or $20 increments, but the consumer is getting a receipt instead of cash, and they’re turning around and handing that receipt back to the dispensary who then makes a change because the cashless ATM only dispensed in $10 or $20 increments.

Now ATM networks are looking at these cashless ATM transactions to see if they are compliant. Do consumers know the fees that they’re paying? Are these transactions coming in and looking to the network like real cash when it’s not? Cashless ATM transactions are probably the most common thing you see, but that’s being called into question after the Eaze incident where a large company was misrepresenting its terminals. The federal government stepped in and called it bank fraud and the individuals behind it, the executives, are in jail. Since then, the networks are looking at this and saying, what about these cashless ATMs? Are those transactions within our rules, or is there something funny going on here?

Aaron Green: So, to summarize here: you’ve got federal regulations at the national level that says that cannabis banking is not allowed so major institutions are not offering it. Yet you found a way through the regulations and compliance issues. I’m curious can you pull back the curtains a little bit and tell us how you came up with a solutionhere?

Corby Iannuzzelli: Well, we came up with the solution by stubbornly refusing to believe that cannabis payment processing could not be done in a compliant manner. We just said, “there is a compliant way to do this, let’s figure it out.” We took the same components that are out there for the financial services and payments industry and reassembled them in such a way that we do not violate any rules. We do not use any of the Visa, MasterCard, Discover or Amex rails, we built our own network. We have direct contracts with the merchants and direct contracts with the consumers. We control everything and all the funds flow through regulated financial institutions. So, we designed something that looks and acts to consumers and retailers the way Visa and MasterCard look and act when a consumer goes to make a purchase, but they run on a separate set of payment rails and in compliance with banking regulations and state regulations. When you’re looking at the problem from a different perspective, sometimes you can come up with a better answer.

Green: On the consumer side, what does that user experience look like?

Corby Iannuzzelli: Our product is completely digital. The consumer experience starts with integration at the online checkout. When it’s an e-commerce shopping cart and somebody is placing an order, they will see a button called “Pay with KindTap.” The first time they click that button they’re automatically brought to our integrated web app where they do a quick and easy application for our digital revolving line of credit product. If approved, they instantly go back to the checkout screen and their first purchase will just happen immediately, with flexible payment options over time. If the consumer decides they don’t want our KindTap credit and would rather have a pay now-product where we pull the funds from their bank account, then the consumer can do so. So, there is no physical card per se, it’s integrated like PayPal or Affirm at the point of checkout online. For the consumers who use KindTap credit, there is a mobile app where they can see their transactions, view statements, pay their bills, etc.

Additionally, there is a loyalty program for all purchases – KindTap credit or through the consumer’s bank, because we feel very strongly that a lot of the reasons consumers choose to pay with one card over another is the points and the rewards that they get. So, we’re providing loyalty rewards with KindTap so that consumers can get rewarded for that spending with KindTap and it’s better for the retailers.

Green: On the retailer side, what does that experience look like and what is your business model?

Corby Iannuzzelli: We are not going store by store doing integrations, rather, we’re integrating with various software, delivery and e-commerce providers. That gives us broad reach and ability to expand rapidly in various state markets where cannabis is legal. Once a merchant says “yes, I want to be a member of the KindTap Merchant Network,” then we work to get them set up on our platform in a matter of days. The merchants receive continuous support from our success team, marketing co-investment and a depth of analytics reporting. We made the entire process and ongoing operations streamlined and frictionless for both merchants and consumers.

Aaron Green: What are the benefits of moving from cash to credit type of payments?

Corby Iannuzzelli: On the retail side, there are the obvious benefits of not having all the security, safety and theft issues associated with operating a physical cash business. Consumers very often don’t carry cash anymore, except when they’re making a cannabis purchase. There are a lot of hidden costs to retailers because payments are not just about moving money from the consumer to the business.

“I really am optimistic that with so many scientific breakthroughs we’ve had that we’re going to be able to figure this out.”Payment options – or lack thereof – can shape where people shop, how much they spend and what they buy. It’s a proven science how consumers make impulse purchases. If you’re a cash-based business in cannabis, and you’re trying to get somebody to make an impulse purchase, and they walked in with $100, then you can’t get them to spend more than $100, no matter how creative your marketing is! The consumer is limited by how much cash they have in their bank account or in their pocket at that point in time. So, it’s really about the upsell that comes with the bigger basket sizes that retailers experience when you move from a cash-based business to credit and suddenly, the merchant doesn’t have to deal with long lines of consumers on payday when the store was beyond slow two days before. Now the consumer can spread purchases with the thinking, “I’d rather not be the one standing in that line on payday. I’m going to go Wednesday [instead of Friday] because I have KindTap credit so I can budget and manage my cash flow throughout the month rather than around my paydays.”

So, we think that the lack of an efficient and effective payment system for cannabis is holding back sales. We all focus on how much the industry is growing. KindTap thinks about how much faster it could be growing if it was supported by a decent payment system.

Aaron Green: What are some other cash-only markets you are looking at?

Corby Iannuzzelli: We are laser-focused on the cannabis ecosystem and bringing a compliant credit and loyalty-based digital payments solution to cannabis merchants and customers and rewarding those stakeholders for accepting/using KindTap. Additionally, we are planning to extend the KindTap Merchant Network so that consumers can use/earn our loyalty points with other goods and services they’re purchasing that are adjacent to cannabis or that are important to the cannabis consumer. That’s the direction we’re going.

Aaron Green: Today people can receive gas points for spending with their credit card. Now with KindTap, you can spend to get cannabis points?

Corby Iannuzzelli: That’s exactly right.

Aaron Green: What in either cannabis or your personal life are you most interested in learning about?

Corby Iannuzzelli: Personally, I am most interested in seeing breakthrough technologies in climate change. We’re going to need to correct this situation and I’m reading about collecting carbon dioxide from the air and burying it in the earth and things like that. I really am optimistic that with so many scientific breakthroughs we’ve had that we’re going to be able to figure this out. Certainly, it’s going to take a lot of smart people and a lot of investment, but I really look forward to watching them do their stuff and hopefully taking us out of this nightmare situation that we’re heading into if we don’t make some changes.

Aaron Green: Thanks Cathy, that concludes the interview.

Corby Iannuzzelli: All right, thanks Aaron!

Heat-Not-Burn: A Q&A with Mike Simpson, CEO and Co-Founder of Omura

By Aaron Green
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Heat-not-burn is a non-combustion technology consisting of a heating source and either an oven that the user packs cannabis into or a stick pre-filled with cannabis. The cannabis is heated to a lower temperature than a combusted joint or bowl to create an aerosol that the user inhales. Heat-not-burn in this way is distinct from traditional vaping where a liquid or oil is heated to become a vapor and inhaled.

Omura is a design company that has developed a platform product for the heat-not-burn market.

We spoke with Mike Simpson, CEO and co-founder of Omura. Mike co-founded Omura in 2018 after an international design career where he spent much of his time in Japan working with consumer products.

Aaron Green: Mike, what trends are you following in the market?

Mike Simpson: I’m always tracking trends in the heat-not-burn space. Because of my background, I know that the tobacco industry inspires a lot of the technology in the cannabis space. If you look at all the vape pens, that technology was initially developed for big tobacco, which then later was adopted by cannabis. I’m always looking to stay educated on what’s happening in the tobacco industry, as I know it’s directly tied to my work in cannabis.

I’m also looking at what’s happening all over the world with legislation. I’ve been studying it for years, but this past year has been phenomenal. Seeing five new states go to some level of legalization, the federal law and new states legalizing cannabis in the 2020 Election. I believe the Biden/Harris victory will have a major impact on the industry, however we still have to see what happens with the Senate. These next couple of years are going to be very interesting to see how things shape out for cannabis.

Aaron: What are you personally interested in learning more about?

Mike Simpson, CEO and co-founder of Omura

Mike: I am interested in learning how the world is going to behave next year with this new life that’s been thrusted upon us. How effective is the new vaccine going to be? How are people going to retrospectively look at this year, and the lifestyle that they used to have before going into COVID? How much of it’s going to become permanent? How much of this Zoom life will we continue to enjoy? In the future, will office spaces become obsolete? How much will we still be using home deliveries? Do we actually want to go to restaurants again? That’s what I’m very interested in learning about is how human behavior and the world will change because of what’s happening right now.

Aaron Green: How did you get started at Omura?

Mike Simpson: Great question. I moved to Japan as a designer working for Lego and set up their design office for Lego toys. After Lego, I started working instead with Nike and Adidas designing performance sneakers and apparel for a couple of years until I found Big Tobacco — which is where my Omura story begins. I rapidly found myself in a position where I was creating new technologies, for the consumption of nicotine and tobacco. While working on an early project, I was asked if I knew any science fiction writers. Thanks to Lego, I just so happened to know Syd Mead, the designer for popular sci-fi films including BladeRunner, Tron and Aliens. So, I called him and we worked on a project which was aimed at setting the future of the smoking industry. Obviously, this was a brilliant project for someone like myself to get involved in. We came up with several scenarios that depicted the future of what tobacco consumption would look like, and each of them essentially included vaporization. This was before the vaporization days which made it kind of a difficult sell. I spent many years working on where we could use existing technologies in order to execute some of these scenarios. Ten years later, I moved to California, and I started studying the cannabis space for Big Tobacco which ultimately led me to Omura.

Aaron: Can you give me a reference point on the date when you were back in California?

Mike: I came here eight years ago, and I was in Japan pretty much 10 years prior to that.

Essentially what I realized when I got to California was that cannabis was perfect for heat-not-burn because of all the cannabinoids and the terpenes. You heat it up, and you get all of the good properties out of it without the need for combustion. There were already hundreds of products in the market, which validated that people love doing it.

However, there was a ritual: you needed to buy the flower, grind it, pack the device, select the temperature and then use the same mouthpiece repeatedly. And it doesn’t stop there. When the session is finished, you dig out the used flower with a metal spatula or brush. After every 10 or 15 times you have to clean it with rubbing alcohol to get rid of any existing residue from those sessions. This is just a big messy job with a massive amount of inconsistency and variability. For me, it was mind blowing that people would even go through this procedure. With Omura, I knew we needed to simplify that process. Our product comes with a pre-filled flower stick with an exact dose, that you place in the device very simply. You then use the stick as the mouthpiece and when you’re finished, throw the flower stick in the trash. It’s compostable and biodegradable. So we eliminated all of those pain points.

Aaron: Great! Where are you guys based out of?

Mike: Venice, California.

Aaron: So, what makes the Omura vaporizer different from other heat-not-burn products? You mentioned you have the disposable cartridge. Is there a design philosophy around it that you can talk more about?

Mike: Omura comes with 12 flower sticks in child-proof packaging. What makes us different is that we have our proprietary flower stick and device that work together. With our heat-not-burn technology, you get all the terpenes, but when you set fire to it, as you would with other products, you mask that with smoke. Our product is different from anything else in the market, because it has simplified the user experience through efficiency, user interaction and also through design as well.

The other founders come from deep design and technology backgrounds, designing technologies for Apple and Philips Electronics, so it was an important focus for us with Omura. Our newest device, the Series X was designed by Michael Young, a world-renowned industrial designer who has built an impressive portfolio of innovative products.

The Omura Series X

With Omura, we’re bringing sophistication of the design world into the cannabis world. It’s not just about simplifying the experience and making a great kind of efficient method of consumption, it’s also about creating something for everyday use that is beautifully designed and easy to use.  

Aaron: The Series X is Omura’s latest device. Can you tell me what changes you’ve implemented to make it better than the first version?

There are a few differences between the Series 1 and Series X: First, the new design fits in the palm of your hands so it’s discreet. It comes with a USB-C charging base that automatically connects with magnets. We’ve also improved the efficiency of the oven. The first device boiled 94% of the cannabinoids, this one now boils 99%. We’ve increased user-efficiency, by removing the button from the Series 1 making it so all you have to do is put the flower stick in and the device starts automatically. Additionally, we wanted to give users an option between a hotter or cooler experience so we added an extra heat curve, as we recognize that some of our CBD users prefer more of a terpene experience.  

Aaron: Can the user modify that with an app?

Mike: It is a very simple switch on the bottom of the device that allows you to toggle between the higher and lower temperature curves

Aaron: Okay, cool. Can we talk about your supply chain a little bit here? Do you manufacture everything in Los Angeles? Or do you have partners? 

Mike: Everything is designed in the US and manufactured in China. Which is fairly common throughout the industry. Shenzhen is well known for making products for the vaping industry. We create empty tubes filled in a batch production process. All the flower is grown here in the US. To clarify, we aren’t a plant-touching company. We don’t have a cannabis license. When it comes to THC, we have partnership deals. We work with select cannabis brands which is how we are able to sell in dispensaries. On the other hand, our CBD model is split. We have two brands of our own. Libertine, which is more of a male-focused Gen Z brand. Then we have Oriel, which is more of a wellness brand, catered to women.

Aaron: So how would an aspiring brand get on your platform?

Mike: Good question. Any brand or company who is interested in partnering with Omura can contact us through our website, www.omura.com, on Instagram @Omura or via email: hello@omura.com. We would then assess them to see if they’re a good fit. Currently we’re looking to span quite a large kind of demographic as far as appeal. So, if these prospective partners are in a territory, whether it be California or another state, have good market share and high-quality flower, then we would be very open to having a conversation.

Aaron: That’s the end of the interview — thanks Mike!

Richard Naiberg
Quality From Canada

Protecting Intellectual Property in Canada: A Practical Guide, Part 2

By Richard Naiberg
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Richard Naiberg

Editor’s Note: This is the second article in a series by Richard Naiberg where he discusses how cannabis businesses can protect their intellectual property in Canada. Part 1 introduced the topic and examined the use of trade secrets in business. Part 2 goes into how business owners can protect new technologies and inventions through applying for patents.


Patents: Protection For New And Inventive Technology

Patents, which are issued in accordance with Canada’s Patent Act, provide their owners with the right to have a Court prevent anyone else in Canada from making, using, selling, importing or exporting what is claimed as the patent’s invention. The owner of the patent enjoys this monopoly for a period of 20 years from the date the patent is applied for. A patent is infringed even if the infringer arrives at the invention independently, without actual copying. If a patent owner brings a lawsuit and the Court finds infringement, the Court will typically order the infringing activity to cease and require the infringer to pay the owner a suitable amount of compensation.

There are several drawbacks to applying for a patent from the point of view of the applicant.Patents are meant to protect only inventions, meaning novel, non-obvious and useful solutions to practical problems. In the cannabis field, such inventions could include engineered genetic sequences or new plant cells that lead to useful improvements in the whole plant, new cultivation processes, new methods of extraction, new methods of storage or means to enhance stability, new formulations for administration, and new uses for the plant. It would not be uncommon for a cannabis producer to hold a suite of different patents that cover a whole range of innovative technologies and innovative business methods.

Not all classes of technical innovations are protectable by patent. For example, patents are not available for a whole cannabis plant because no patents are allowed on higher, multicellular organisms. Patents are not issued for genetic sequences or cells that are the result of cross breeding. Patents are also unavailable to monopolize methods of using cannabis as a medical treatment. That said, patent agents are skilled at casting innovations in areas such as these in terms that do provide some patent rights.

To obtain a patent, the applicant hires a patent agent to prepare and submit an application to the Canadian Intellectual Property Office (CIPO). An examiner at CIPO reviews the application for compliance with the statutory requirements and enters into a correspondence with the applicant’s patent agent in a process known as a patent prosecution. Third parties also have the opportunity to oppose the grant of a patent on limited grounds. The prosecution may continue for a period of years before the application is either allowed to issue to patent, or is ultimately rejected. Separate patent applications must be filed in every country in which patent rights are sought, though there are international treaties that facilitate these separate filings and preserve early priority filing dates.there can be a significant cost in obtaining patents, particularly if patent rights are sought in multiple countries.

It is important to emphasize that if an invention had been disclosed to the public more than one year before the application for the patent is filed, a patent cannot issue. Cannabis producers must therefore ensure that disclosures of their innovative work be controlled, including when working with partners. This can typically be handled with the use of appropriate non-disclosure agreements.

The prospect of market exclusivity makes the filing of patent applications a must for cannabis businesses, including those just starting out. For a start-up, simply filing a patent application projects that the company has value and a clear vision of its business. Venture capital often seeks companies with patent applications on file because the applications can mature into assets which can be monetized either by protecting a market for the owner, or through assignment or license to others.

cannabis researchers and producers have already filed hundreds of patent applications in Canada. There are several drawbacks to applying for a patent from the point of view of the applicant. Unlike the case for a trade secret, an applicant for a patent must make full and correct disclosure of the invention and how to use it in the patent itself. This disclosure will allow competitors to understand the applicant’s technology. The public disclosure provides a blueprint for competitors to build upon the patent’s disclosure, and to design around it to avoid infringement. Also, and unlike trade secrets, patents have an expiry date after which the public is free to practice the invention. The Commissioner also has the power to issue compulsory licenses to third parties in several circumstances, including when the demand for the patented article is not being met on reasonable terms. Further, the patent right is not infringed when the patented invention is used for non-commercial or experimental purpose. Finally, there can be a significant cost in obtaining patents, particularly if patent rights are sought in multiple countries.

Disadvantages or not, cannabis researchers and producers have already filed hundreds of patent applications in Canada. These applications relate to a wide range of inventions in the cannabis field including new cannabis resins and oils, methods of producing cannabis having improved properties, specific new growing processes, new harvesting methods, new extraction techniques, new formulations for human and veterinary use as foods, medicines and supplements, new delivery devices, new purification methods, new analytical methods, and new stabilization methods. Interested companies can access these disclosures from the public record.

As cannabis companies rush to obtain patent monopolies for their technologies, minefields are created for operating companies. Cannabis producers should obtain reports on what patent applications exist and might be asserted against their operations if and when these applications mature to issuance. With that intelligence in hand, the cannabis producer can understand what threats can be safely ignored and what patents must be addressed by assignment or license, by ‘design around’ or by developing an argument as to why the patent is invalid and thus unenforceable.


Editor’s Note: In Part 3 of this series, which will be published next week, Naiberg will discuss plant breeders’ rights and protecting new plant varieties. Stay tuned for more!