Kola Services

Brand Expansion

BRAND EXPANSION

The federal ban on interstate cannabis shipments means expansion-minded plant-touching companies – from edible manufacturers and retailers to testing labs –  have two options. The first option is to own licensed facilities in other states which is a potential regulatory nightmare given the conflicting state laws and is prohibitively expensive for most businesses.

The second and preferred alternative is finding a partner who is already licensed to do business in the state you’re looking to expand into. With the right company, a strategic partnership for brand expansion is far more cost-effective than getting independently licensed in another state and is also a strong source of revenue for brand owners without significant capital expenditure.

Much like franchising, the two companies enter into a licensing agreement with the brand owner receiving royalties for product sales and licensing fees for the right to use the brand name and IP rights.  For the licensee, access to a successful brand name and the proprietary recipe or manufacturing techniques as well as support from the licensor translates into more likely success for the company and product and continued revenue growth based on the verifiable history of product sales in other states.

For the licensor, there are several different ways to structure the strategic partnerships to ensure quality control over the manufacturing process and produce additional sources of revenue. These include selling branded packaging and pre-made ingredients without the cannabis product, handling purchasing and logistics for the brand partner to reduce costs through bulk purchasing and ensuring the consistency of the final product and serving as a paid consultant to oversee training and manufacturing for your partner’s operations.

The basic steps involved with brand expansion include:

  • Creation of a management company to own the brand rights and enter into licensing agreements with strategic partners
  • Identifying and obtaining intellectual property and trademark protections for the product name and logo
  • Finding the most favorable states for expansion based on the regulatory scheme and market size of possible new states
  • Locating potential brand partners in those states for due diligence review and management interviews
  • Enter into royalty and licensing agreements with the best-qualified company
BRAND EXPANSION

Services

Kola Provides a variety of services to help your company expand to multiple states and internationally as the worldwide cannabis industry continues to evolve. For companies who own a product or brand and want to expand beyond your home state, Kola offers two levels of product expansion services.

Licensors and Brand Owners

STAGE ONE – Kola’s experienced branding team will evaluate your product’s “Brand-ability” to help decide if it’s a good candidate for expansion and which states and/or countries best suit your business strategy. This stage includes a review of current sales and growth rates to confirm that the timing is right to expand, a review of your intellectual property protection options and identification of the best states for your company’s evolution.

STAGE TWO – Your company is ready for our Stage Two Services when you’ve made the decision to expand. We’ll work with you to ensure you’ve obtained sufficient intellectual property protections and help decide which states currently offer the best expansion opportunities. KOLA will then identify potential strategic partners from our proprietary database of interested companies and conduct an extensive due diligence review of each potential licensee to find the best match for your company.  Once you identified a strategic partner to work with, KOLA will assist with negotiation of the licensing and royalty fees as well as the preparation of licensing and confidentiality agreements.

Licensees and Brand Partners

QUALIFY FOR BRAND PARTNERSHIPS – If you’re interested in partnering with a successful out-of-state product or brand owner, KOLA will help find the right opportunity for your company using our proprietary list of interested brand owners.

Our team will initially work with you to review the suitability of your business operations for brand expansion opportunities and decide what type of product works best for the company’s experience and expertise. We’ll also help you understand the licensing and regulatory requirements for each product or service you’re considering to ensure that the company can meet the legal requirements that accompany a brand expansion strategic partnership.

Once that initial threshold has been met, KOLA will match your business from our proprietary list of interested brand owners situated in various states across the country. When you find the right match, we’ll work with both companies to ensure that financial and due diligence requirements are satisfied and assist with any aspect of the relationship to get your partnership off to a smooth start.

BRAND EXPANSION

What makes a good brand partner

1. Good Brand Steward

It’s essential to know and appreciate the brand you’ll be representing. Take time to understand your partner’s goals and priorities and how they want to be perceived in the marketplace – are they focusing on high-end consumers and products, B2B services – whatever they’re focusing on is your top priority. You’ll also want to ensure that you deliver a consistent product that follows the precise operating procedures specified by the brand owner so consumers experience the same quality product wherever it’s purchased.

2. Sufficient Capital

Having adequate capital is critical for a strong brand partner. You’ll likely need to show proof of funds roughly equivalent to capital and operating expenses for 2 years and be sure to keep accurate financial records which document the source of your funds as well. Potential partners will likely travel to meet your management team and evaluate the manufacturing facilities while also conducting due diligence on the company’s financial condition. Be open and honest with your books and records as lack of transparency is a red flag for any long-term relationship.

3. Management Team

The most important components of your brand partnership are the personal chemistry between the two companies and the skills and integrity of your management team. Licensors and product owners will want to interview everyone on your management team to find out what kind of people run the company. They’ll be looking for management that is organized, accountable and trustworthy with prior business and industry experience.

4. Full Compliance With State Laws
There is no grey area in the cannabis industry – you either comply with all state rules or your company is at risk for state and federal criminal violations that expose management and the company to unnecessary risk and liability. If you expect to be a strong brand partner, operating with full and total legal compliance is an absolute must. At least one member of your management team should understand the legal and regulatory requirements for your company and be involved in the development of a comprehensive risk management plan to make sure you stay in compliance with current and new legal requirements as they evolve.

Brand partners should also:

  • Be Licensed or Pending Licensure
  • Have Experience with Product Manufacturing
  • Have Solid Credit for Management
  • Provide Depth of Management, Expertise and Industry Experience
BRAND EXPANSION

Is your product a good candidate for brand expansion

There are many different factors that determine if your product or service is right for expansion to other states. Although there’s not an exact recipe for success, some of the important considerations include:

 

  • Your product has a unique or catchy name, logo or marketing campaign
  • You get strong reviews on social media
  • The current market share in your resident state is significant or has grown quickly
  • The past, present, and future projected growth rates for your product are strong
  • There are intellectual property protection and trademark registration for your brand
  • Regulatory compliance for your product is relatively easy
BRAND EXPANSION

Licensing and Royalty Agreements

When you’ve selected a brand partner to work with, it’s essential to have a well-drafted licensing and royalty agreement between the two companies. The agreements should include quality control and oversight for the brand owners to ensure that customers get the same quality product wherever it’s purchase as well as an escape provision if the brand partner doesn’t meet the specified production method. Other important considerations include:

Financial Terms

The initial licensing fee and royalty payments for the sale of branded products should be addressed in detail. It’s also suggested to have the formula to measure success such as minimum sales targets or other objective calculation to determine if the partnership is working.

Intellectual Property Rights

Identify who owns the intellectual property rights to the product and the situations when the brand owner can use the IP rights and when it’s prohibited.

Covered Products and Territory

Spell out which products are covered by the agreement and whether or not the brand partnership is exclusive or limited to a specific territory. If there are territorial restrictions, be sure to identify the exact parameters of the eligible territory for your brand partner.

Standard Operating Procedures

Everything from manufacturing to packaging should be provided in the agreement including product specifications, approved packaging and authorized or prohibited use of logos and proprietary information. The brand owners should also have audit control provisions built into the agreement that provides the ability to inspect the partners manufacturing operations with 24 hours notice if reasonable cause for concern exists.

Default and Breach Provisions

 Companies do not enter into partnerships and strategic relationships with the expectation that the other party will default or not meet its obligations. Reality suggests it happens far too often so the smart thing to do is set up a specific procedure to follow if there’s a problem or dispute. There are a number of ways to structure these provisions but most provide an opportunity for notice of the default and chance to cure the problem before a formal breach is declared. However, when problems can’t be solved even after the opportunity to cure has been provided, there must be a termination provision detailing what happens to each company’s rights and obligations after the contract is terminated.

Confidentiality and Non-Competition Requirements

Whether or not the partnership works out and the agreement remains in place, neither company wants the other to disclose it’s confidential and proprietary information or compete with its product in a manner harmful to the brand owner or brand partner.