Throughout the cannabis industry, critics, investors and competitors analyze every move Brendan Kennedy makes — and for good reason. The 47-year-old CEO of Tilray leads one of the most valuable cannabis companies in the world and is also the co-founder and executive chairman of Privateer Holdings, one of the preeminent private equity firms in the industry.
Tilray’s $315 million acquisition of Manitoba Harvest in February 2019 instantly made the publicly traded Canadian company a major player in the global CBD market, with overnight access to 16,000 North American retailers and seed-to-shelf control over its product lines. Despite what some have deemed shaky financials — including a $31 million loss reported in the fourth quarter of 2018 — Tilray sports a market cap of nearly $5 billion, down from its stratospheric highs shortly after its initial public offering, but still one of the top valuations of any public company in the cannabis space.
Kennedy spoke with Marijuana Venture about expanding into the U.S. and Europe, the importance of the Manitoba Harvest acquisition, his approach to cannabis investing and the future of the CBD market.
Marijuana Venture: Does the Manitoba Harvest purchase signal that Tilray is headed more in the hemp/CBD direction than marijuana/THC?
Brendan Kennedy: For us, it signals that Tilray is beginning to enter the U.S. market. And it’s not that we’re heading away from THC, it’s that we’re building a foundation that will enable us to move quickly in the U.S. when the time is right.
For us, Manitoba Harvest was the right opportunity. It’s the world’s largest hemp food company. What we liked was their supply chain. They have relationships with farmers who grow 30,000 acres of hemp. They process the raw materials from those harvests, they manufacture the finished product and then they have a supply chain and distribution chain that gets Manitoba Harvest products sold in more than 16,000 retailers in North America, including Amazon, Walmart, etc. That’s about 13,000 retailers in the U.S. and about 3,000 in Canada.
For us, it was the only hemp food company that we could find that had seed-to-shelf capabilities; they control production, manufacturing, marketing and distribution of their products, and that was an asset for us to obtain. Our intent would be to deploy and bring CBD products to market using that same supply chain.
MV: Is Manitoba Harvest making CBD products right now? Or is it focused on making hemp seed and hemp seed oil?
BK: They have a product line focused on hemp oil, and at Expo West in LA in March they unveiled their CBD line.
MV: How has your view of the entire business changed over the last few years? Have you changed your strategy much?
BK: Our thesis hasn’t changed. Our thesis has been the same for the last nine years, and I don’t yet see a need to change it. The thesis is that cannabis is a mainstream medicine, consumed by mainstream patients around the world. That’s the initial point of this thesis. The second point is that this is a global paradigm shift, and while many companies look at it myopically, in terms of their corner of the world or their niche within cannabis, we really look at cannabis legalization as a global event. Companies with trusted brands and a multinational supply chain will be the companies that win.
Our thesis hasn’t really changed, but it does evolve. We’re spending the bulk of our time today focused on the United States and Europe, rather than Canada.
MV: Is that because of the size of the consumer base?
BK: That’s right. In the end, Canada is smaller than California, so if we’re going to deploy capital today, we’re very interested in deploying capital where we can target massive global markets and that means the European Union and the U.S.
MV: What do you think about the retail sector of the cannabis industry?
BK: Tilray has signed a number of retail partnerships, and we’ll continue pursuing additional strategic investments and acquisitions in Canadian retail. Manitoba Harvest products are sold in 16,000 retailers in North America. We signed an agreement with Authentic Brands Group, a revenue sharing agreement to market and distribute a portfolio of consumer cannabis products. Initially we’ll focus on CBD in the U.S. and then potentially THC and CBD products in Canada.
We like the brands that ABG has — over 50 iconic brands that span entertainment, fashion, streetwear, activewear, home, beauty, health, etc. We’re excited to bring CBD products that are branded with their brands to U.S. consumers through U.S. retail. I really think that ultimately, that’s how products in the U.S. are sold and that by the end of this year, we’ll see CBD products sold in every retailer in America.
I really think that within three years from now, you’ll see THC products sold in many mainstream retailers, whether that’s something like 7-Eleven or Safeway, but I think that some of these CBD-specific retail locations have some challenges in front of them.
MV: If you look at tobacco or wine, it’s kind of the same thing. They are sold everywhere, but there are also tobacco and wine specialty shops, so maybe there’s room for both cannabis-specific retailers and mainstream retailers that also sell cannabis products?
BK: Yeah, I don’t disagree with that. But the monopoly that THC retailers have today, I think that erodes significantly over the next five years.
MV: Do you have any thoughts about the way CBD and hemp products are exploding?
BK: I think I had 200 pictures sent to me from the floor of Expo West of CBD in just about everything. I made a joke that the only thing I didn’t see CBD in was toothpaste, and two people on my team sent me CBD toothpaste pictures this morning.
GJ: What are your thoughts about some of these cannabis companies going public and what it means for investors?
BK: I’m obviously really bullish on the future of the cannabis industry. This paradigm shift is happening. There are clearly opportunities, but there’s a lot of noise. A lot of noise. The feedback we heard when we initially went out to meet with investors at Tilray was that they discouraged us from a TSX listing. They wanted us to do an IPO, but they really wanted us to IPO on the U.S. exchange. That’s why we went down the path we went down. It was much harder than anyone thought it was going to be, although a lot of people told us it was impossible.
Those investors who wanted us to IPO on a U.S. exchange, they wanted to invest in a company that was regulated by the SEC and by Nasdaq and reported financials using U.S. GAAP standards.
That’s why we did what we did. For me, it’s really hard to determine which companies in this industry are real and which companies are just riding the bubble. And “bubble” is not even the right word; we know there’s going to be massive global companies created in this industry, but there will also be a lot of companies that are not successful.
Putting my investor’s hat on, I would probably approach this industry with a little bit of portfolio theory, meaning this industry is a good hedge for losses in the alcohol industry and losses in the pharmaceutical industry, but I would be concerned with anyone buying one or two stocks. I think you really need to either buy an investment that’s based on a cannabis index or an ETF (exchange-traded fund) or you put together a basket of investments from half a dozen different companies.
We initially tried to invest in other companies in Canada and we couldn’t find a management team that we felt comfortable with and we couldn’t find a management team that had a strategy we felt comfortable with. That’s really what led us to create Tilray from scratch.
We’ve spent the last six years building a team of experts from horticulturalists to engineers to Ph.D. scientists to patient advocates. I think we’ve built the best team in the business and the management team that will help us pioneer the global cannabis industry as more and more countries legalize medical cannabis and cannabis for adult use.
This interview has been edited for length and clarity.