Buy vs. Build: The Business of Cannabis

Author: John Selwanes, Patent Analyst

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A quick assignee search on the USPTO’s web page reveals that Aurora Cannabis (NYSE: ACB) does not appear to have filed any patents in the US, Canada or through PCT. There are not even plant variety protections (PVPs) through the USDA. A peculiar discovery considering the acquisition binge Aurora has been on since 2016; acquiring 14 companies to date, and bringing annual production up to an estimated 700,000 kg (700 tons).

Of Aurora’s 14 acquisitions, only Urban Cultivation (UC) and Anandia Laboratories (AL) have IP. UC has three design patents in the US and one in Canada while AL has one application filed internationally including the US and CA. A few design patents and an application certainly do not make for a portfolio, but it is a start for the industry leader.

Aurora is not alone in their IP shortage. Canopy Growth Corporation (CGC) (NYSE: CGC), another industry leader with over 21 acquisitions, owns only a single US patent (8003813) and 4 US applications that are pending. All of these were acquired, either directly or by acquisitions of a company. Additionally, the US subsidiaries have several patents that are not likely to be reassigned to CGC anytime soon, due to the following.

The Canadian stock exchange, TMX Group Ltd., announced that US federal law supersedes US state law and that being exposed to the US cannabis sector could lead to a company being delisted because of the uncertainty in the US cannabis laws.

Hearing this, CGC has made clear that they will avoid the US markets until federal reform occurs; however, as I just mentioned, they’ve already entered by acquiring a patent for a vaporizer device and 4 applications for cannabinoid products. Additionally, CGC has reassigned one patent application (20190030101) related to cannabis from their recent acquisition of ebbu Inc. to CGC but has not done the same for the other applications, which also deal with cannabis. It is possible that CGC only found value in that single application or that they are still testing the waters.

Aurora Cannabis is using a different tact . They just recently spun out Australis Capital (OTCMKTS: AUSAF), an investment arm, in September 2018 in order to reach the US market. Australis Capital will now handle the purchasing of US cannabis-related assets separately from Aurora while Aurora has two warrants in Australis that allow it to acquire ownership interest within 10 years. Australis has not let the grass grow under its feet, as it has already acquired three companies (Rthm Technologies, Mr. Natural and Body and Mind Marijuana).

Meanwhile, US-based private company Biotech Institute has 3 issued patents and 15 pending applications dating back to 2014. As you would expect, pharmaceutical companies have been actively filing for cannabis-related pharma patents with GW Pharmaceuticals, a British company, in the lead, holding 59 patents and over 50 applications in the US. Also of relevance, GW Pharmaceuticals’ US-traded stock was up over 46% in January. The US cannabis market are soaring with growth.

Moreover, Canadian cannabis companies have taken to buying over building due to the market demands. A report released in February 2019 highlighted that 71% of cannabis sales in Canada still come from the black market because there simply aren’t enough nor large enough growing and dispensing facilities to meet the legal market demand. Strategic acquisitions of companies with valuable assets such as IP are valuable; however, Aurora and CGC have been centering their acquisitions around meeting and facilitating demand, which will have future consequences.

Furthermore, it will be absolutely essential for companies to claim their stake in the growing US markets through patent ownership which gives them the right to exclusivity. This becomes extremely valuable to a company as the market grows as they can capitalize on monetizing their IP assets. Going against the grain, Lexaria Biosciences (OTCMKTS: LXRP), another publicly traded Canadian company, is taking the path less taken through their acquisition of US-based Poviva Tea, who shows up in the Top 10 Patent Assignees in the Magic Number Cannabis sector.

Magic Number’s Patent Forecast™ for the Cannabis sector covers the leading patent owners in both their patent investment and market activities. Since patent investment leads market activity, the Patent Forecast provides insights as they emerge from dynamic data.

Disclaimer: Nothing in this publication is intended as legal or investment advice.