With still a few weeks to go before recreational marijuana makes its debut, it’s still anyone’s guess how it’ll all play out for Canada’s pot companies.
Will Canopy Growth, Aurora Cannabis and the rest become international success stories or is their path more likely to end up as mere domestic crop producers? It all depends on who owns the IP, says Brendan Kennedy of BC’s Tilray (Quote, Chart NASDAQ:TLRY).
Marijuana stocks have been on a torrid run over the past couple of weeks as investors react to investment by alcohol and beverage companies into the space. The Horizons Marijuana Life Sciences ETF which tracks the North American index of pot companies has shot up 50 per cent since August 15, while industry leader Canopy Growth (Quote, Chart TSX:WEED, NYSE:CGC) is up a monstrous 74 per cent.
And as the first pure-play cannabis company to IPO in the United States, Tilray’s run has been even better, its share price rising 158 per cent from its mid-July debut. The company reported its second-quarter financials this week, posting revenue of $9.7 million on a net loss of $12.8 million. (All figures in US dollars.)
“We’re thrilled with our second quarter results. It’s a strong start to the first half of 2018.” Kennedy, Tilray’s CEO, told CNBC. “The fundamentals of our business are strong, revenue has increased 95 per cent year-over-year, kilograms sold by 97 per cent, we’re increasing our capacity this year by about 1500 per cent and our products are now available in 11 countries on five continents. It’s really a growth story about increasing delivery of our products not only in Canada but around the world.”
So far, Tilray has snagged supply agreements with five provinces across Canada, including BC and Ontario, the latest being with Nova Scotia Liquor Corporation.
And while those supply agreements are revenue generators for companies like Tilray, Kennedy says that if pot companies are going to move beyond being mere commodity production, they’ll need to develop products and intellectual property in the medicinal and recreational ends of the cannabis spectrum.
“We’re seeing a $150 billion industry globally transition from a state of prohibition to a state of legalization, and while at first look, you might want to judge companies in the industry based on agriculture or growing a commodity —that’s really not what the industry is going to look like five years from now,” Kennedy says.
“I think most products will be in form factors more similar to other pharmaceuticals, other CPG products,” he says. “People will drink cannabis instead of beer; people will drink a product with zero or few calories and no hangover, and they’ll drink it instead of a beer in a bar or at their homes. They may eat a product in the form of a chocolate bar or consume a pill. And so, that’s where the value is, in the intellectual property of these other form factors and other delivery mechanisms.”
As to the growing investment interest from industries such as beer and alcohol companies, Kennedy says that it’s all part of bringing in a brand new sector of the economy.
“I think that you’re seeing this interest from outside of the industry because so many companies in other industries are in desperate need of growth, and this is a high-growth industry that’s emerging rapidly, not only in Canada but around the world,” he says.