Cannabis companies race to clinch an edge in pot industry’s next phase of growth: Intellectual property
Greg Baute realized two years ago that he was stuck in the wrong job. He was working in Monsanto’s vegetable seed division in Central Valley, Calif., researching the genetic traits of tomatoes and how they could be used in the global tomato-breeding pipeline. Then California in November 2016 voted to legalize recreational cannabis.
“There was more known about tomatoes 100 years ago than there is about cannabis today from a genetics perspective,” Baute said, over the phone from his home on Vancouver Island. “I saw the opportunity to do some really super fun experiments with it.”
In January, he made the leap, becoming director of Breeding and Genetics at Anandia Labs Inc. — one of the oldest cannabis research centres in Canada — which was recently acquired by industry giant Aurora Cannabis Inc.
The potential of the cannabis plant, Baute said, is “so huge it’s hard to even quantify.” In Canada, consulting firm Deloitte predicts the legal recreational cannabis market will generate $7.17 billion in sales. Another report by the Bank of Montreal, which assumed a blue-sky scenario in which the U.S. and all 28 countries in the European Union legalize marijuana for recreational and medical use, projected that the global cannabis market could be worth $194 billion in seven years.
The industry’s growth potential is why Canadian cannabis companies are rushing to beef up their research teams, hiring scientists, geneticists, hemp researchers and molecular biologists, and, more importantly, enlisting the expertise of patent lawyers since the companies that can clinch and lock in lucrative intellectual property will undoubtedly have an edge, especially in an industry as young and commoditized as cannabis is.
No doubt the race for IP was on Canopy Growth Corp.’s mind when it scooped up a small hemp research company in Colorado called Ebbu LLC in a stock-and-cash deal worth $425 million just days before Canada legalized adult-use cannabis. Ebbu has a slew of patent applications under its belt, including ones that Canopy claims will “vastly reduce the cost of CBD production” and others directly related to cannabis-infused beverages.
“I don’t think the industry has fully embraced the role that intellectual property of the cannabis plant will play in the next phase of growth,” said John Kagia, chief knowledge officer at New Frontier Data, a cannabis-focused data and analytics firm based in Washington, D.C. “For so long, there had been so little research on the plant. Now we’re seeing many products that are too similar across the market. Companies that secure unique IP first will have a competitive advantage.”
There are myriad possibilities when it comes to the intellectual property of cannabis, which Kagia categorizes into three groups.
One grouping is IP that concerns specific plant genetics, the kind of crossbreeding work that Baute now does at Anandia Labs.
“Patents can be issued based on the chemical composition of a specifically bred cannabis plant,” Kagia said. “Those patents basically say, through our crossbreeding program, we have identified a new variant, or a new strain of cannabis that expresses its genetics in a very specific way.”
But there’s a difference between how the U.S. and Canada issue patents when it comes to the cannabis plant itself. In Canada, unlike the U.S., a patent cannot be issued for “higher life forms,” meaning that a unique natural strain of the cannabis plant itself cannot be patented.
If a new variety of the plant is crossbred, the creator can apply for a “Plant Breeders Right,” a form of intellectual property protection that gives the breeder exclusive control over the variety for between 20 and 25 years.
I don’t think the industry has fully embraced the role that intellectual property of the cannabis plant will play in the next phase of growth
John Kagia, chief knowledge officer at New Frontier Data
As an example, a plant breeders right can be granted for a modified plant cell, but not for finding an existing cell in the plant.
But obtaining the intellectual property right to a modified cell, according to Micheline Gravelle, an intellectual property lawyer and managing partner at Bereskin & Parr LLP, is good enough to go after somebody infringing on the whole plant.
“You keep hearing that you can’t patent plants, but you can patent a modified cell, so that’s really good enough,” she said.
Essentially, Gravelle said, there has to be some sort of “inventive ingenuity” put into the plant, such as introducing a new version of the gene, in order to apply for intellectual property protection.
But the IP categories that are most lucrative, according to Kagia, are those that don’t relate to the actual genetics of the plant, but to processing and pharmaceutical applications.
For example, a patent can be granted on a unique way to extract cannabinoids — the active constituents of cannabis — suspend them, and then evenly distribute them to create a consistent infused-product such as a drink.
“These patents are less dependent on plant genetics, but rather on the chemical process of extracting the cannabinoid and integrating it into a new chemical product,” Kagia said. “This is the kind of work Ebbu has been doing on cannabis-infused drinks, which is why I believe the acquisition is going to be a huge opportunity for Canopy on the edible side of the product environment.”
Perhaps even more valuable is developing IP related to the medical potential of cannabis — creating a new product, say, a particular therapeutic drug, based on blending constituents of the cannabis plant, such as specific terpenes and cannabinoids, to try to come up with a new combination.
“Big Pharma is more interested in the latter two categories of IP — the processes of extraction and redistribution of the cannabis compounds, and the reformulation to create a new cannabis therapeutic,” Kagia said.
Although Canadian licensed producers are pumping resources into the scientific side of the sector, foreign pharmaceutical companies are the ones leading the patent charge and they have collected the most Canadian cannabis patents in the past year, according to a New Frontier Data report.
The top three patent collectors in Canada are Switzerland-based Ciba-Geigy AG with 21, Connecticut-based Pfizer Products Inc. with 14 and GW Pharmaceuticals Ltd., a U.K.-based company specializing in medical cannabis therapy, with 13.
Among GW Pharmaceuticals’ patents is one that resulted in Epidiolex, the first CBD-derived oral medication for the treatment of epilepsy.
In June, the U.S. Food and Drug Administration approved Epidiolex as a prescription drug in all states where medical cannabis is legal, though that doesn’t imply Epidiolex is patented in the U.S. because cannabis is not legal on a federal level. A company can apply for a cannabis-related patent, but the U.S. Patent Office won’t necessarily approve it.
GW Pharmamaceuticals is also in the process of engineering a drug — which has received Canadian patent approval — that will combine a specific molecule within the cannabis plant with CBD to treat brain cancer.
“I think we’ll slowly start seeing more licensed producers get on the IP radar,” Gravelle said. “The research landscape for the recreational side of things is going in a direction where you’re extracting an active ingredient and then reproducing it in a new product, say, a cold or hot beverage.”
The Canadian patent database, administered by the Canadian Intellectual Property Office, yields 345 patent applications related to the search term “cannabis.”
They range from a joint application filed in 2011 by British, Italian and Spanish scientists on how phytocannabinoids — a component of the cannabis plant — can be used in the treatment of cancer, to a more recent application from American researchers who claim to have found a method to make concentrated cannabis oil “stable, emulsifiable and flavourless” so it can be used in hot beverages.
But Canada places an 18-month “blind zone” on all patent applications, so there is no way of really knowing what cannabis researchers in Big Pharma or the licensed producers have been working on for the past year and a half. Given the scale of capital that has been pumped into the cannabis sector over that time, Gravelle said it is fair to assume there has been a significant uptick in the number of patent applications.
“Look, patents give you the ability to keep someone else off the market for 20 years,” he said. “If you end up with a broad patent, that is quite significant, and if you’re looking to get money or to get bought up, or to partner with another company, everyone’s going to be asking what IP you have.”
Most of the patent activity, according to Kagia, is taking place in Canada, simply because of the legal status of cannabis.
We’ve got our work cut out for us
Greg Baute, director of Breeding and Genetics at Anandia Labs Inc.
“Although there are hundreds of small and mid-sized companies in the U.S. doing cannabis research and filing patents because of the Schedule 1 status of cannabis, the patent and trademark office will issue patents for cannabis-derived applications, but it’s still very much an open question of whether those patents can actually be enforced,” he said.
That question is perhaps, Kagia theorized, why Ebbu allowed itself to be bought up by Canopy Growth.
For Baute, the top priority, at least for now, alongside patentable research, is to just make sure there’s a degree of consistency and sustainability to the actual cultivation of the plant.
“There’s just so much to be done. We need to first figure out how to create cannabis plants that are disease-resistant, that aren’t as sensitive to light conditions and that flower at the right time, with the right phenotypes,” he said. “We’ve got our work cut out for us.”