We have started a checklist of business points to consider and negotiate when working on a licensing deal in the cannabis space.
It’s not just about the royalty. You need to also consider:
- What is the exact nature of the IP to be licensed and the jurisdictions? In cannabis, often the licensor doesn’t own what they think they own. Particularly in the US because of cannabis’ federally illegal status.
- Will it be an exclusive license or non-exclusive and in what jurisdictions?
- What are the duties of the parties? Who manufactures? Who advertises and sells?
- How do you handle new products / IP? Are they part of the deal? Is there a non-compete or a ROFR?
- Who controls packaging?
- Are sub distributors or resellers permitted?
- What is a minimum advertised price?
- What are minimum stocking levels?
- What is the quality and recall process?
- What is the term of the agreement?
- What happens in the event of a change in control of a party to the license?
- What are the regulatory obligations and the regulatory impact of the royalty scheme?
You can’t establish value (an appropriate royalty) without first defining the transaction by answering the above questions.
For a further discussion on this topic and suggestions on how to approach negotiating a royalty, check out Episode 14 of Martinis With Scott.