Supercharging your innovation journey – optimizing your investments through refundable tax credits

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There’s no question that Canadians recognize the importance of innovation; it’s why we’ve gone to such great lengths to be on the forefront in this area. But do you have to be a James Gosling, Sandford Fleming or Mark Tilden to be recognized for you efforts? The acclaim received for these kinds of accomplishments may be highly coveted, but how does one get to the point where they realize their stroke of genius amidst all the iterations and failed attempts? The answer may include things like perseverance, determination, and a strong vision; and while these are pillars in any innovators journey, not having the capital to persist may be the only limiting factor. For this reason, one thing that all individuals who operate is the area of innovation should know is where to get the money to ensure their journey is steadfast and your goals are realized. There are many options when it comes to finding capital; but it always comes at a price. Perhaps in the form of shared equity, or high interest rates. So let’s look at one example that doesn’t involve either…

 For decades the Canadian Government has done their part to foster innovation here at home by rewarding companies who have attempted to be innovative through the Scientific Research and Experimental Development Program (SR&ED). This incentive program pays out nearly $4 Billion every year to companies that are likely no different than yours. From sole-proprietors to privately held corporations and publicly-traded companies, there is an opportunity for any company operating in Canada to file an SR&ED submission for the innovative work they’ve done. (The only exception to this is non-taxable companies like non-profits and charities). 

OK, you’ve got my attention. So what if I do make an SR&ED submission? Then what?

 Good question. Well, if you’ve met CRA’s requirements, as approximately 20,000 companies do each year, you’ll find that a considerable portion of the expenditures related to innovation will be refunded. And, ready for it… If you’re a privately held company with a small business status, this is cash refund from CRA.

 So, how much are we talking?

 Another good questions. Eligible companies are legally entitled to receive a refund of as much as nearly 70% of their dedicated payroll, nearly 35% of related invoices from sub-contractors and nearly 45% of the value of any wasted or transformed materials that went into the innovative efforts in the case of manufacturing.

 You keep saying “Innovative”. Don’t say anything, but I’m not sure I really know what that means. So, how do I know if my company should make an SR&ED submission?

 When it comes to the SR&ED program, there are only 3 criteria that determine one’s eligibility.

1.     Technological Uncertainty
2.     Technical Content
3.     Technological Advancement

Feel free to interpret it this way.

1.     You’re trying to achieve a commercial initiative and somewhere along the way you realize, we don’t have the technological knowledge-base to overcome a problem you’re presented with. Beyond this, you can’t find out the answer either; it’s either unknown, or no one is willing to share it with you.

2.     Through a systematic approach including various iterations and other forms of experimentation, you try to reduce or eliminate that technological uncertainty.

3.     Whether your commercial objective is achieved, or not, you learned something through your systematic approach, which in the context of the SR&ED program constitutes a technological advancement. Remember this, the resultant knowledge that is generated through a systematic investigation is considered technological advancement. 

 Let me get this straight… you’re telling me that that my company is entitled to a cash refund, because we encountered a technological problem during a commercial project that we tried to overcome, which resulted in us expanding our knowledge-base in that area of technology through our “R&D” efforts.

 Yes!!

 How come no one told me about this before!?

Don’t shoot the messenger, because they’re the one that can put you in contact with the think.COLLECTIVE

The Cannabis Industry: how high can it go?

Photo by Drew Taylor on Unsplash

Photo by Drew Taylor on Unsplash

With the recent legalization of recreational cannabis consumption in Canada, I felt it would be appropriate to bring back the conversation about the perhaps not-so-obvious potential in the cannabis industry.  

Let’s start by introducing the stars of this emerging industry: the plants themselves. There has been a huge debate about the taxonomic organization of the Cannabis genus. You have likely heard about Cannabis sativa and Cannabis indica, the two alleged ‘species’ of the genus, and there is a third variant rarely heard of called Cannabis ruderalis. However, some believe that there is only Cannabis sativa, and that indica and ruderalis are strains as opposed to separate species.  

Taxonomic accuracy aside, one classification has been generally accepted, and that is the distinction between marijuana and hemp. Marijuana is mostly exploited for its richness in cannabinoids, including significant amounts of the psychoactive THC, whereas hemp is popular for the production of CBD and other non-psychoactive cannabinoids, phytochemicals, and a vast diversity of industrial products. Leading to legalization we were exposed to amazing studies implicating the many health benefits the cannabis plants offer. But what else can we do with these plants?  

Here are a few examples of products derived from a cannabis plant that you might not have known of before.   

Foods and cosmetics 

OK, this one might not come as a surprise… most of you might already be familiar with hemp products in the cereals section at the grocery store. Amongst the popular hemp foods we can find are granola products, vegan protein powders, and gluten-free flour.  Hemp seeds are rich in healthy fats (including omega-3 and omega-6 fats), proteins, fibers, vitamin E and iron. And let’s not forget the incredible potential in cannabis essential oils, which can be a great source of powerful phytochemicals such as policosanols and phenolic compounds.   

Similarly, the oils and nutrients in these plants are popular ingredients in cosmetic products. Whether you are looking for a nice lip balm, shampoo or moisturizing cream, the hemp plant has you covered! 

Clothing 

It’s hard to imagine a world where cotton is not the leading crop in the textile industry, but up until the 18th-century flax and hemp where the top players in this industry, and I believe hemp fibers are about to make a strong come-back! 

More and more evidence piles up in support of hemp cultivation as a more sustainable alternative than cotton. From the physiological perspective, the hemp plant has a higher photosynthetic efficiency than the cotton plant, and it requires far less water to grow. Substituting cotton fibers for hemp fibers would not decrease the quality of the final product. A study showed that using hemp fabrics, instead of cotton fabrics or synthetic fibers, for furnishing applications is a viable alternative and I can’t see why this shouldn’t be the case for other textiles. And let’s not forget that our knowledge in plant genomics and biotechnology increases by the day, and it is likely we could improve the quality of these fibers through breeding of new hemp variants.  

Construction 

When I found out that hemp is used in the construction world, I was certainly surprised. It might not be news to some of you, but I got really excited reading about this, and I had to share it here.  

The fibers present in the stalk of the hemp plant can be used for the formation of bio-based composites. In general terms, there are two types of fibers in the stalk: woody fibers are lignified fibers found in the core of the stalk, whereas blast fibers are found in the cortex, which can be peeled off the stalk.  

A popular composite made with woody fibers is the hemp-lime composite, or as the cool kids call it, hempcrete. Hempcrete is usually less dense than cement, making it unable to support the same forces than cement, and it has outstanding thermal properties that make it ideal for insulation, even on external walls. However, high-density hemp-based composites can also resist physical and mechanical stress similar to cement, as demonstrated by researchers from the University of Bologna

Hemp blast fibers, however, are usually used as an alternative to glass fibers. Blast fibers can be infused with epoxy resins following standard methods in the composite industry, significantly increasing the strength of the hemp-based composite, and providing a new generation of materials for applications in the construction and automotive industries. These new hemp-based composites are an excellent alternative to petroleum plastics, as they are stronger and lighter than polypropylene, a popular plastic in the automotive industry.  

Bioenergy

Amongst the fibers present in the cannabis plant, you can find cellulose and hemicellulose, polysaccharides present in the cell walls of plants. Through a series of treatments, these polysaccharides can be extracted from the cannabis plant to be broken down to fermentable sugars. The woody core of hemp is composed of ≈ 40% cellulose and ≈ 35% hemicellulose, and the agricultural yield of the plant is between 2 – 18 tons per hectare. This gives a bioethanol yield of more than 80 gal/ton.  

It is also possible to simultaneously obtain several sources of energy from the cannabis plant. A recent study showed that simultaneous production of 50 gal/ton of bioethanol and 115 kg/ton of succinic acid (an important chemical to synthesize polymers and used as a food additive). Similarly, another study demonstrated that co-production of bioethanol and biomethane from the whole hemp plant is feasible, yielding over 40 gal/ton of bioethanol and 175 m3/ton of biomethane (a.k.a. renewable natural gas), generating over 10 GJ of energy per ton of hemp. To put this into perspective, all the natural gas required by an average house in Canada for a year could be produced in a single hectare, while also producing bioethanol and other products from the seeds and flowers.

Insecticides and antimicrobials

Cannabis tissues have been attributed to having antimicrobial properties for some time now. A recent study has concluded that cannabis essential oil may be a good green alternative for botanical pesticides as it proved to be quite toxic to aphids, flies and leafworm larvae, although ladybugs and earthworms proved a bit more resistant. Nonetheless, this opens the possibility of using cannabis essential oils as insecticides in organic agriculture after cannabinoids have been purified.  

Of course, if we are discussing antimicrobials, we have to talk about nanoparticles. Recently, scientists successfully developed silver and gold nanoparticles with antimicrobial properties, inhibiting the growth of bacteria like Pseudomonas aeruginosa and Escherichia coli. These nanoparticles were developed using an aqueous extract from hemp stems and showed excellent physical and chemical stability.  

Adsorbents 

From time to time we hear about toxic spills in natural environments on the news, or we read about heavy metals contaminating our lakes and groundwater. These are important problems we need to tackle, and the cannabis industry may be a great contributor to solve this.  

Several products are already being developed for water remediation. For example, a hemp-based felt with a thickness of 5 mm, and a composition of 75% cellulose, 15% hemicellulose, 3% lignin, and 5% pectins, was able to remove 75-80% of metals from water, including Cd, Cu, Zn, Co, Fe, Ni, Cr, Al, and Mn.  

The capacity of these fibers to adsorb heavy metals from water is very exciting, but I am actually equally as excited about the possibility to desorb metals. It has been shown that zinc ions can be recovered from contaminated sites, by adsorbing the ions onto hemp fibers and then desorbing them for recovery and reutilization. Researchers are investigating the extent to which these fibers can be used, in hopes to establish a guideline to maximize adsorption-desorption cycles.  

To me, this is particularly exciting! It looks like a promising tool to recover metals that play crucial roles in our society, such as phosphorous in agriculture and zinc in batteries and electronics.  

Here you can find an interesting review on hemp-based materials for the adsorption of metals.   

I hope you enjoyed the brief summary of non-cannabinoid products available from the cannabis plant. Now, you might say ‘well all these examples talk about hemp.’ Yes, hemp has been a valued industrial crop for quite a while now, and keep in mind, marijuana plants have been in our industry for a shorter time, so it is possible many of the products we get from hemp could also be produced from marijuana.  

With the increasing demand of cannabinoids in Canada, the cannabis industry needs to increase cultivation capacity… Why not explore all the products we can get from these plants?

Supporting Canadian Corporate Innovation with SR&ED

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When I first joined the world of science in 2010, I was so excited to contribute to innovation. I had dreams of developing technology that would change our society and make a meaningful contribution to achieving true sustainable development. Even though my doctoral thesis in bioenergy production will not win a Nobel Prize (oh man!), I hold on dearly to those dreams and I am still deeply inspired by innovation.  

I might have left the lab bench, but my quest for innovation persists. 

Canada is a country rich in talent. Last year alone, Canadians submitted more than 4,950 patent and industrial design applications to the Canadian Intellectual Property Office (CIPO), and in the third quarter of 2018 industrial production in Canada grew 9.5%, compared to the growth of 5.2% for the United States and 4.2% in Germany. With the USA submitting over 16,000 patents to the CIPO last year, we certainly have room to grow, but we are moving in the right direction.  

The way I see it, our industry is pushed by innovation in a similar way that evolution pushes nature. Companies need to stay on top of their products and technologies to stay competitive within their industry. Survival of the techiest, if you will.  

Innovative technologies and products do not necessarily need to come out of a lab the likes of NASA. We do what we can with what is available to us. As an example, the CEO of Genecis, one of my favorite startups in Toronto, tells the story about how her company’s technology started out using rice cookers as bioreactors! And they have developed one of the most innovative technologies out there, turning organic waste into bioplastics.  

It doesn’t hurt to have big toys to play with, but creativity is key here! Your hard work and dedication will allow you and your company to get bigger toys.  

So I want to make an invitation to companies in Canada to dream big and grow through innovation. It is up to you to tilt the balance in favour of a healthier, richer, brighter, stronger, and more sustainable future.  

Now, I once heard a very wise man say: “advice is welcome when it comes with the means to achieve it. Otherwise it is not so different than complaining”. So let me support this motion by providing information about one of the largest incentive programs the Government of Canada offers to foster innovation: the Scientific Research & Experimental Development (SR&ED) program, or “SHRED” for the friends.

The Scientific Research & Experimental Development (SR&ED) program 

The SR&ED program exists to foster innovation. This program rewards for-profit companies in Canada that are performing work to advance our scientific and technological knowledge, distributing over 3 billion dollars each year. Through the SR&ED program, a company can obtain the following benefits on eligible work:

  • Approximately 65% of dedicated salaries and wages

  • 34% of sub-contractors’ fees, and

  • About 42% of fees incurred on wasted materials, prototypes, consumables, etc. 

  • * % amounts vary slightly by province

The SR&ED program is administered by the Canada Revenue Agency (CRA), so the benefit that can be obtained by a company performing SR&ED eligible work is linked to their corporate tax return. Therefore, the company could see these benefits in the form of a tax credit or as a cash refund. 

Yes, you can opt for a cash refund of your SR&ED-related expenses. Cha-ching!   

But first, let's get something straight… The SR&ED program is a reimbursement of eligible expenses, not a grant. The main difference relies on the nature of the benefit: if the company is conducting eligible work, the company is legally entitled to that money. It is not a competition for money; it's reclaiming the money that you are legally entitled to.  

So who can apply to this program? Any company conducting basic research applied research or is conducting experimental development to develop or improve a product could very well be performing SR&ED-eligible work. To determine if your company is conducting an SR&ED project, there are three main eligibility criteria to be met:

  • An SR&ED project seeks to solve a scientific or technological uncertainty

  • The uncertainty faced in the SR&ED project is addressed through a systematic investigation or search

  • Advancement of scientific knowledge or technological advancement result from the SR&ED project  

When people ask me about the SR&ED program, they often express feeling intimidated by certain words that describe the eligibility criteria, such as ‘scientific knowledge’ or ‘technological advancement.’ Innovation is not restricted to rocket science or reinventing the wheel. If your company is getting creative, and finding new ways to do things in your industry, you might be missing out on SR&ED money! Whether you are perfecting your brewing practices or developing new software, I highly encourage you to investigate the SR&ED program.  

If you are not sure whether your company is performing SR&ED eligible work, give me a shout! In support of innovation, I would love to provide a complimentary assessment to help your company continue your innovation projects.