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A CEO Tries to Navigate the Legal Cannabis Sector’s Bad Trip – The Wall Street Journal

Brendan Kennedy, photographed at his Seattle offices, June 28, 2019.

Photo: Daniel Berman for The Wall Street Journal

On the surface, the pristine Seattle offices of Tilray seem like a stoner’s paradise. There are Funyuns in the kitchen, and pipes and bongs on display. But there isn’t any marijuana here—for that, you’d have to go to the company’s growing facilities in Canada and Portugal. Besides, the boss, Brendan Kennedy, doesn’t have much of a taste for it—or Funyuns.

In 2018, when Tilray became the first cannabis company to go public on Nasdaq, it made Mr. Kennedy rich—and one of the most prominent corporate faces of an emerging and controversial industry. Like many entrepreneurs today, Mr. Kennedy makes a pitch that combines commerce and idealism. He doesn’t just want to sell cannabis; he wants to end prohibition, which, he says, “causes far more harm than the product being prohibited.”

Mr. Kennedy, 47, didn’t find his way to the industry through a lifelong love of marijuana or ideological opposition to the war on drugs. It happened instead when he realized that he could make more money selling pot than as a banker.

Today, Tilray—based in Nanaimo, British Columbia, home of its first growing facility—is one of the world’s biggest publicly traded cannabis companies by market capitalization, with blue-chip names like former Republican National Committee chief Michael Steele and former Vermont Gov. Howard Dean on its international advisory board. Tilray and its subsidiaries employ roughly 1,400 people across the globe and pulled in $167 million worth of revenue in 2019. The company says that it sells medical marijuana products in 15 countries. Through its High Park subsidiary, it sells recreational cannabis products in Canada. In the U.S., where cannabis is still federally illegal, it sells hemp and products containing the cannabis-derived compound CBD but doesn’t sell any cannabis.

Mr. Kennedy’s company says that it sells medical marijuana products in 15 countries.

Photo: Daniel Berman for The Wall Street Journal

Tilray’s stock price multiplied many times after the company went public in 2018, but the firm has been dealing with a painful downturn in a sector that critics say was overcapitalized and over-promoted, with too many greenhouses and too little investor interest. Recently worth as much as $13 billion, the company now has a market cap closer to $1.2 billion. Mr. Kennedy owns 15 million shares of company stock—recently worth about $2 billion but now hovering around $195 million.

The firm has been dealing with a painful downturn in a sector that critics say was overcapitalized and over-promoted.

Mr. Kennedy attributes these troubles to a shift in investor focus from long-term growth to short-term profitability. He says that the company has made some strategic changes as a result, including focusing on its biggest markets, such as Canada and Germany, rather than investing more heavily in emerging markets in Latin America and Asia.

He thinks that consolidation will continue, leaving the cannabis sector looking a look a lot like the beer business, with two or three companies dominating the marketplace. “Our strategy is to position ourselves so that we are one of those three companies,” he says.

Mr. Kennedy was raised in San Francisco, the sixth child of seven. His father was a schoolteacher and his mother a homemaker. His dad was paid once a month. Money was tight, and he knew it was pretty well gone when he would pour milk into his cereal and hear a thud. That meant his mom had made powdered milk “and then put it in a carton so we wouldn’t know,” he says. “But you would know, because it always clumped up.”

As a child, he was particularly interested in cycling. At 12, he and his 19-year-old brother rode their bikes from Seattle to San Francisco. At 13, they did San Francisco to Tijuana. At 16, he put on a toolbelt, amassing passable skills in most areas of construction (except welding). “I could build a house myself,” he says. “Electrical, plumbing, all of it.”

Mr. Kennedy studied architecture at the University of California, Berkeley, then moved to Seattle to pursue a masters in engineering at the University of Washington. After graduation, he went to work for a large construction company writing software, then started his own company doing the same. “If you have an idea for a piece of software, you’re building the software. If you have an idea for a company and you’re building the company, it’s all the same thing,” he says. “I learned how to do it with buildings, but the same rules apply to everything else.”

After two stints as CEO, Mr. Kennedy went to Yale to get an M.B.A. and was recruited by Silicon Valley Bank to help start SVB Analytics, where he estimates he listened to more than 3,000 pitches. One day, he turned down a cannabis entrepreneur. Soon after, he heard an NPR story about an initiative to legalize marijuana in California. He called his friend Michael Blue and told him to quit his job so they could go into the marijuana business.

“Those things were within three days of each other,” he says. “It was one of those things where the hairs on the back of my neck went up.”

‘The hairs on the back of my neck went up.’

Mr. Kennedy co-founded Privateer Holdings to invest in existing cannabis companies. But after visiting hundreds of operations around the world, he didn’t find any producers he wanted to put investor money behind. So Privateer started its own companies, including Tilray, and later acquired others. Tilray and Privateer officially merged last year.

Mr. Kennedy thinks that the illegal cannabis market is so massive—he estimates $50 billion a year in the U.S. and up to $200 billion world-wide—that to be a successful company, the product doesn’t need more customers, just more of them shopping on the legal market. He says he isn’t trying to get more people to consume the product he sells, but he will also trumpet the benefits of cannabis over alcohol.

There will be winners and losers as prohibition is gradually lifted, he says: The winners will be the people no longer arrested or incarcerated for possession and distribution of marijuana, while the losers will be “people who consume too much cannabis.” He adds, “You could say the same thing about Coca-Cola or Wendy’s or McDonald’s.”

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Written by homegrownreview

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