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Interview with Tilray Co-Founder and CEO Brendan Kennedy

Run time – 13:48 (Transcript below)
Published 8/31/2018

 

Transcript

David:                   I’m David Kretzmann, I’m here at MJBizcon. I’m joined by a special guest, Brendan Kennedy, the co-founder and CEO of Tilray, and I thought we could just dive in by going into Privateer Holdings and Tilray, and maybe you could talk a little bit about your background with both those entities, and how they’re related.

Brendan:             Sounds great. Thanks, David. So, I founded Privateer Holdings about eight years ago. Started in Silicon Valley, came across this industry and became fascinated by it, and spent a lotta time researching the cannabis industry in 2010 and 2011. And about five years ago, I was approached by some members of the Canadian government who were looking to implement a new regulatory framework here in Canada. And at Privateer, we had raised capital from investors around the world to invest specifically in the cannabis industry.

And so, they asked us to come here and invest in a company in Canada, and so, we initially looked at 60 different companies across Canada. Couldn’t find a company that we wanted to invest in as Privateer, but loved the regulatory framework, and so, we went back to Health Canada, and asked if we could create our own company and fund it heavily, and they said have at it. So we did, and that’s how we created Tilray. We created it five years ago as a wholly owned subsidiary of Privateer Holdings, and we’ve grown it from the few of us that started Tilray to about 370 employees today in seven countries around the world.

One of the first licensed here in Canada, one of the first, the first LP to have a license in another country outside of Canada. And today, Tilray products are available in 10 countries on five continents.

David:                   Yeah. And a newly public company, by the way, and at this point, what would you say distinguishes Tilray from other licensed producers? What is your competitive advantage, as you see it?

Brendan:             Yeah, so we’re newly public. We had our IPO less than a month ago, on NASDAQ, and that was a conscious choice by us to list in the U.S. It was a request by U.S. blue chip mutual fund investors, who wanted someone to, a cannabis company to list on the U.S. Exchange. They wanted someone to be regulated by the SEC, and they wanted an entity that was reporting financials according to the U.S. gap. And a lot of the companies that are investors can’t invest in TSX stocks so they asked us to do a U.S. listing.

So, like I said, it’s one point of differentiation. Globally, we’re known as a medical cannabis supplier to countries around the world, in more than ten countries around the world on five continents. Our products are available in pharmacies, so, a doctor writes a prescription, patient goes into a pharmacy, and the pharmacist issues a Tilray product from behind the counter. So we’re known as a global medical cannabis company. And then, here in Canada, our adult use strategy was to license successful US brands into Canada, and then create a few Canadian-specific brands. So we feel like we’re well-prepared for adult use here in Canada over the next few weeks.

David:                   And what is your capital allocation approach at this point? Why go public now, and what are your plans to do with that infusion of cash?

Brendan:             Well, my background’s in venture capital, and originally, five years ago, six years ago, when some of these Canadian companies were going public on the TSX, it just, it was so outside of the norm that I was used to, I was surprised. But over the last year or two, it’s been a challenge for us to compete with some of these public companies, really, for two reasons. One is that it’s really easy for them to raise additional capital, and it’s hard to raise capital privately, even for us, and we’ve raised several hundred million in dollars, privately.

It’s really easy for them to raise capital. And then, secondly, they have a public company stock as currency to conduct M&A transactions, and those two things were putting us at a disadvantage. And so, we were patient, we were, we are the last big LP to go, to not be public, and so we’re the last one to go public. And we certainly benefited from that and our shareholders benefited from taking, because we took as much time as we actually did.

David:                   Got it. And you mentioned mergers and acquisitions, M&A, and that was something you highlighted in your presentation this morning at MJBizcon, I thought your approach to M&A and partnerships seems a little bit more disciplined, I think that might be a fair way to say it compared to other licensed producers. Can you just explain what  your approach is to M&A and a partnerships is, we’re taping this now having this conversation the day that Constellation Brands invested another five billion Canadian dollars into canopy growth, so obviously a lot of things happening in the landscape but what is Tilray’s approach to M&A and partnerships going forward?

Brendan:             Sure, so I’ll say this, more about the industry as a whole, first. This is an industry full of puffery, full of grand pronouncements and empty promises, and a lot of people releasing press releases on a daily basis about something that they hope to do, or plan to do and that’s not who we are, that’s not how we operate, and it’s not in our DNA, we’re really quiet, we’re really secretive. And we, whether it’s the first, you know Tilray was the first company that we export cannabis from North America, first to export cannabis from Canada; it had never been done before. And we didn’t tell the world about it beforehand, we told the world about it after we did it. We told the world that we were going to do U.S. IPO two weeks before we actually did it, just because we had to tell people two weeks ahead of time, otherwise I would have preferred to have waited until after.

That’s just how we operate and so when we look at M&A opportunities we’re not looking for some multi-billion dollar acquisition that may benefit our stock over the short term but isn’t a long term strategy. We’re patient, our investors are in this for the long term and they believe that Tilray will be one of the global players not only in medical cannabis but one of the global players in the adult use, and that’s certainly our intent. That’s the intent of everyone who works at the company.

David:                   And at the Motley Fool, we’re a community of investors helping fellow investors, so what should individual retail investors be looking for to try to distinguish between the companies that are just putting out the puffery pieces, maybe don’t have a strong foundation versus the companies that are building something legitimate in the industry? What are maybe two or three traits investors should look for, one way or another?

Brendan:             Oh gosh, I would say companies that actually do what they say they’re going to do, would be number one. Number two would be … I spend a lot of my time going around the world performing my own due diligence, I’ve flown a million miles in the last few years, 250,000 last year, 300,000 the year before, so I spent a lot of time going around the world, researching people in this industry and companies in this industry, and a lot of it, a lot of it’s malarkey, right? All sorts of shenanigans in this industry that I have to pay attention to and keep an eye out for; and so if I were an investor in this industry, and I am, I would spend a lot of time on due diligence. This industry requires a lot more due diligence than, certainly than any other industry I’ve ever been involved in and I’ve spent a lot of time in technology and media and life science investing, from a venture capital perspective, and I’ve just never seen so much made up information. So I would say due diligence, get out there and talk to people. And use resources that are available like Motley Fool.

David:                   Hey that’s certainly what we’re trying to do, and within Marijuana Mavericks our time horizon, when we buy a recommended stock within the cannabis space is at least three years, and ideally three to five years or longer, so for Tilray investors, who maybe bought shares after the IPO last month, over the next three to five years what are some of the, one or two or three metrics that investors should be following to be best gauge the underlying health or progress of the business?

Brendan:             So, I think historically in this industry there’ve been a lot of made up metrics that companies use as a basis for lofty evaluations that didn’t make any sense. And so in Canada, at times it was funded capacity, or number of medical patients, or believe it or not vault capacity was a multiple that people used. I think that we’re five weeks away, six weeks away from a real metric which will be revenue. And it’s going to be the most important one, certainly in terms of adult use here in Canada, revenue and profits. But I think this will be an industry where companies will chase revenue initially and, while working on profitability, I think that, so that’s one metric. I think number of patients served globally, or the number or markets is hugely important, certainly for us it’s hugely important because we spend so much time thinking about branding and the productization and brandification of this industry as we go from, as we’ve gone from five countries in the world to ten countries, and as we go from ten to fifteen to twenty, that’ll be a huge metric for us, in terms of medical cannabis.

It will be a huge, a hugely important metric for us in terms of adult use cannabis, it’s just going to be slower, we’re going from 100% growth, one country in the world Uruguay, to two, Uruguay and Canada, or 1,000% growth if you think about 3.5 million people living in Uruguay and 35 million in Canada. 1,000% growth in terms of people in the world that have access to legal recreational cannabis. And we’ll add additional countries, we’ll go to two, from two to three to four to five countries, I think that’ll be an important metric for some companies going forward that are trying to build global adult use brands.

David:                   Okay. We’re just about out of time, but final question from me, there’s so many moving pieces within the industry as a whole and obviously within Tilray, especially now that you are newly public, what personally excites you the most, going forward, over the next five years?

Brendan:             For me, new markets and new products. I guess new markets, new brands and new products. I think we’re just at the initial stage of this industry, right, I tell our employees all the time this is day one in the cannabis industry and I’ve been doing this for eight years. But it’s still day one if you think about the global opportunity, we’re excited about this adult use opportunity in Canada, but it’s 35 million people and we’re going to get to 100 million and 200 million people that have, in the world, that have legal access to adult use cannabis. And so, we’re just starting, so new markets. New products, I think that we’re just at the beginning of cutting edge R&D, in terms of products that have a consistent effect, so the same effect time and time again, that have a more rapid time to onset, as you know no one wants to have a glass of wine and feel it two hours later, and so as the time peak effect shrinks and looks more like alcohol, I think that would be, you’ll see some really interesting products develop around that.

And then, I guess if I was to add one more thing, I’m particularly proud of the tens of thousands of patients that we’ve served around the world, and the notes I get from mothers of children with epilepsy are probably, that’s the most rewarding aspect of the job, and so we’re also just at the beginning of research there, in terms of clinical trials around the world. And so, that’s something that I’m really passionate about, and it’s important for me to keep my finger on the pulse of how medical cannabis research is evolving around the world.

David:                   All right. Brendan Kennedy, CEO of Tilray, thanks for taking some time to talk to the Fool. Hopefully we’ll keep the conversation going in quarters and years ahead.

Brendan:             Sounds great, thank you so much for having me.