Episode 10: Intellectual property in the Cannabis industry

Lisa Desjardins (LD): You’re listening to Canadian IP Voices, a podcast where we talk intellectual property with a range of professionals and stakeholders across Canada. Whether you are an entrepreneur, artist, inventor or just curious, you will learn about some of the real problems and get real solutions for how trademarks, patents, copyrights, industrial designs and trade secrets work in real life. I’m Lisa Desjardins, and I’m your host.

The views and opinions expressed in this podcast are those of the individual podcasters and do not necessarily reflect the official policy or position of the Canadian Intellectual Property Office.

In this podcast, we’ll take a look at the role intellectual property (IP) can play when a new industry is born. Almost three years ago, Canada legalized nationwide purchase and use of recreational Cannabis through the Cannabis Act, which came into force in October 2018. Almost overnight, a new industry was born. The market for recreational cannabis in Canada is estimated to be worth over six billion dollars, almost comparable to the Canadian wine market. But hold on. You might think, “Cannabis is a plant. What has that got to do with intellectual property?” Well, with us today is Catherine Lemay, assistant general counsel, IP, at the Canadian Cannabis company Hexo.

Catherine Lemay (CL): Hi to everyone.

LD: Catherine has both a degree in chemistry and a law degree and has over 20 years of experience working with intellectual property matters in a range of different organizations, including the Canadian government, boutique law firms, and has also worked for a large pharmaceutical company abroad. Catherine, what does an assistant general counsel for IP do at Hexo?

CL: Oh, basically everything IP related! IP is very important in our organization, and we put a lot of emphasis on innovation and IP. I came in…I was the first IP professional hired. I had to establish and put in place all the processes and policies, establish links with various parts of the business to ensure that we properly capture and protect our IP. An important part of our strategy is IP education and instilling an IP culture around the organization, so we put a lot of effort to do that in continuing to encourage and instill IP culture around the organization as we’re expanding and growing, mining IP, identifying and protecting the IP. I’m also involved in negotiating contracts, litigation, freedom to operate. I spend a lot of time in meetings across the organization, making sure I stay on top of important projects. I also manage my team and, obviously, everything to do with budget and managing our external providers as well as helping my boss and our senior leadership team report up to our board on our various IP activities. And, more recently, we’ve announced the acquisition of two companies, so I’m involved at the merger and acquisition level as well.

LD: It’s amazing to hear the breadth of people that you interact with and how IP seems to be part of so many pieces in the puzzle. I think it’s surprising to many listeners that even natural products can leverage and use intellectual property rights. Could you give some examples of IP rights that Hexo and perhaps other companies in the cannabis industry use to protect their inventions and creations?

CL: Yes, for sure! I mean, so Hexo—and other companies as well—we obviously will use trademarks to protect all of our brands and product names. That’s been a huge part of our strategy. We file patent applications, design applications and we rely on trade secrets for important know-how and confidential information. In terms of what we patent, one of the big challenges with cannabis is finding different ways to deliver cannabinoids and different types of products and formulations, so we develop formulations to deliver cannabinoids. One of the challenges with cannabinoids and CBD, for example, is the fact that the CBD is quite bitter, so there’s taste-masking technology involved. And one of the big challenges as well is what we call onset. It’s the ability to deliver cannabinoids using non-traditional ways that will deliver the cannabinoids in a quick-onset way. We’ve been developing different formulations methods, different methods of manufacturing those formulations, devices and related systems, cultivation techniques and tools. And innovative packaging is another example; there are requirements under the rules for child resistance for many of our products. So Hexo has developed different ways to make our packaging child resistant, for example. That and, obviously, there’s plant breeders’ rights—companies that develop different plant varieties can protect them through plant breeders’ rights. But I have to say they’re rarely used as a means of protection. We’ve seen companies mainly focus on patents, trademarks and designs.

LD: Wow, you touched pretty much on all the IP rights that CIPO deals with on a daily basis. It’s amazing to hear how even something that really puts you on par with your competitors—using a natural product—that IP rights really make you who you are. What do you think Hexo would look like without any IP rights?

CL: I find that a tough question! We definitely would not have the strong brands that we have today and we’d have a difficult time fending off our competitors in using or piggybacking or adopting similar trademarks. So that’s been an important aspect of our leveraging of our IP in the last couple years because, the interesting part with trademarks is, as soon as you start using them, you immediately get some form of protection. And you can get registered trademarks fairly quickly. We’ve used our trademarks already, even in the last couple years, to leverage our IP and protect our brands. IP rights also help with our valuation and financing, so it adds credibility to some discussions that we have with external partners. While it’s hard to measure what impact the IP has had, we’ve already seen some return on investment on that side. It’s just very difficult to put a number there. But definitely Hexo would probably not have gotten the financing that we were getting, and some of the discussions with their external partners, they probably wouldn’t have led to some of the deals that we’ve seen if not for the IP that we’ve created. On the patent side of things, our portfolio is young. It will take a little bit more time for patents to publish and issue, so the impact is a bit more longer term. However, we’re a very innovative company . There’s also lots of IP that’s not published or formally protected, like I mentioned. That definitely provides us with a competitive advantage over our competitors. Without this IP, I don’t think we’d be one of the top cannabis players in Canada. It’s really helped us grow in the way we’ve grown so far.

LD: Amazing; that’s amazing. You’ve mentioned many of the other IP rights but, in particular, you talk about trademarks and patents. And I have to ask you, do you have a favourite type of IP? And if you do, why?

CL: I would have to say patents, although I have to say that trademarks are growing on me. I find trademarks glamorous and I love how they can be used very quickly to protect your products. The enforceability of trademarks and the fact that you immediately get protection as soon as you start using them, I find that very cool. And we’ve had litigation and enforcement activities around branding, which we’ve not yet for our patents because it takes so much longer for patents to be issued and used for enforcement purposes.

LD: We’ve talked about how the introduction of the Cannabis Act actually made this industry almost overnight. And that’s an act where the industry is strictly controlled. I’m wondering, aside from intellectual property, are there any other invisible or sort of intangible tools that have increased the value of your business at Hexo?

CL: Oh definitely! I mean, if Hexo were to be sold tomorrow I think a whole lot of value would be placed in some of the regulatory licenses. There’s a lot of investment in time and energy that’s put into obtaining the various licenses that we have to produce, sell cannabis, conduct R and D. There’s the licensing requirements and scheme. It’s actually time consuming and there’s lots of cost involved. I would say standards, as well, play a big role. An example is GMP standards. GMP stands for good manufacturing processes standards. In addition to those standards, there are certain standards built into the Cannabis Act and rules that companies need to meet. Standards relating to child resistance features, etc. So yeah, definitely, those are some of the more sort of intangible tools that that would increase the value of our company, definitely.

LD: When you get a license from Health Canada, what are the linkages between your intellectual property and those other intangible assets that you just mentioned?

CL: Well, there you can see, for example, in the high-tech field, very often where there are certain performance standards that companies need to meet. If you’ve developed the only way or the best way to meet that standard and you’ve got a patent on it, then you may, through licensing deals, be able to better monetize your IP. So that’s one example that I can see and that we’ll probably be seeing in the cannabis field as well.

LD: Let’s say it’s a complex world, but I can see how there are many linkages between what most consumers probably don’t know. What would you say to an entrepreneur who has an idea but doesn’t know anything about IP?

CL: A very good question! First and foremost, I would say, I mean, it’s a very basic principle: you shouldn’t be disclosing your ideas without having proper confidentiality provisions in place. I’m sure many entrepreneurs that have great ideas—if they’re not aware of this or making the mistake of disclosing important information that, you know, would be best kept secret until they actually formally protect the innovation—I would then say seek the help of an IP expert if what you’ve developed is a technology that could be patented. Seek the help of an experienced patent expert. Those very first patent applications that are filed for technology are often the most important and fundamental ones, so it’s really important to protect that information and make sure that those concepts are protected formally and that you don’t damage the IP by disclosing too early. Disclosing too early and not formally protecting could be completely disastrous for some entrepreneurs. The difficult part is to find an agent that will do a really good job at drafting and capturing the invention. I would suggest seeking recommendations from maybe other companies or entrepreneurs that have gone through the process, and, most importantly, I would say make sure you’re involved in the process every step of the way to educate yourself but also to review the agent’s work to make sure that your ideas are well captured. And from my experience, applications for which inventors are closely involved in the process always end up being of better quality. You know, I would also say that it’s important to not look at your idea in isolation and just file the one application that covers your one concept. Try to think outside the box. Try to brainstorm with your agent. Try to find and identify and predict how your innovation would evolve over time and how you could try to capture earlier on maybe variations of it to try and block off the protection or widen your protection. You know, when you see that a company’s put in the effort to protect not just the key innovation but to have a cluster of patents and a portfolio covering their innovation, that adds so much more value than having that just one off. It’s probably not the best strategy. So I would say, put in the effort and the money. It is expensive, but in the long term, that will definitely pay off, especially if your exit strategy is to be bought out by another company. That’ll just add so much more value to your company. What is it they say? That 80 percent of most companies’ value is in their IP? I would say, put in the money and the effort earlier on and, if there’s one thing you shouldn’t be neglecting, it’s protecting your intellectual property.

LD: Wow! So, don’t disclose your secrets, bring out the crystal ball and see what you can protect. And do make that time and investment into working with a professional to make sure you get it right so that you can benefit from it long term. Catherine, it’s been amazing! Thanks for giving us a little bit of a peek into your exciting world as an IP counsel at Hexo. Thank you so much!

CL: Thank you. Thank you for giving me the opportunity. I appreciate it!

Lisa Desjardins: You’ve listened to Canadian IP Voices, where we explore intellectual property. In this episode, you met with Catherine Lemay, who works as assistant general counsel, IP, at the Canadian cannabis company Hexo. Catherine helped us demystify some of the IP rights in this industry as well as the importance of taking steps to protect your intellectual property early. If you have an idea but you don’t know where to start, visit cipo.gc.ca and scroll down to Education, Tools, and Resources for more information.