Then, in 2013, the government of Canada reached out to them for help creating a competitive private-sector supply chain. In response, the three incorporated Tilray, applied for a license, bought land, and built a cultivation facility. By April 2014 they were a licensed producer of medical cannabis products in Canada.

Kennedy and his cofounders did extensive on-the-ground research in the hills of northern California and southern Oregon, the fields of Colorado and Washington, and the barns of British Columbia. They went to Jamaica, to Israel, and to Amsterdam. Slowly they created an investment thesis and worked to raise money.

The author was working at a Silicon Valley bank in 2010 when some entrepreneurs pitched him on a “medical-cannabis technology company.” He didn’t know what to make of it, because he’d never considered cannabis to be a legitimate industry. But he and two friends began researching the issue. They recognized nascent signs that marijuana legalization—first for medical use, and then for recreational use—seemed likely to spread.

Pedro Guimarães

In May of 2010 I was working at a subsidiary of Silicon Valley Bank (SVB), where I spent all day talking to smart people—CEOs and founders of disruptive companies seeking to achieve the impossible. This gave my team a unique window into products, companies, and brands that didn’t exist yet—but probably would someday. One afternoon Christian Groh (my SVB colleague and longtime friend) and I met with a California start-up that described itself as a “medical-cannabis technology company.” We didn’t like the company’s team, strategy, or business model, but the much bigger issue was that we didn’t know how to evaluate a start-up in that space, because we’d never thought about cannabis as a legitimate business opportunity.

A few days after the meeting, I heard an NPR news report about Proposition 19, which would be on the ballot in California that November. Prop 19 called for the legalization of “adult use” cannabis in the state. My curiosity piqued, I called Michael Blue, a business school classmate and friend. Fifteen states had already legalized cannabis for medical use, as had 15 countries. No state or country had legalized it for “adult” or “recreational” use. But Christian, Michael, and I began to wonder about the possibilities in this nascent industry. We started making phone calls and doing research.

A few months later, California voters rejected Prop 19. That seemed like a setback, but we felt a bit relieved, because we’d worried that we were coming to the opportunity too late. Although it was hard to put numbers on it, we estimated that legal medical and illegal recreational cannabis together added up to an industry worth $40 billion to $50 billion in the United States and $150 billion to $200 billion globally. We saw that industry as highly fragmented, with immature companies, no established brands, inconsistent quality standards, severe restrictions on access to capital, and a lack of professional management. We could launch a company to gain a first-mover advantage before legalization progressed further.

In December of 2010 I gave notice at the bank and started developing a business plan with Christian and Michael. Our initial idea was to create a venture capital firm that would invest in cannabis start-ups. That proved to be complicated. We felt we couldn’t trust any of the companies in the space with our capital. We decided to pivot to a private-equity holding-company model, whereby we’d wholly own, operate, and incubate a portfolio of companies with the goal of making each of them a leader in its respective segment of the industry.

Into the Hills and Fields

I was born in San Francisco, the sixth of seven children. We didn’t have a lot of money when I was growing up. I was handy, so I began working construction when I was 16. I studied architecture at Berkeley and earned a master’s degree in civil engineering from the University of Washington. During graduate school I began writing software, and I wound up starting a custom software company. Then I launched a start-up focused on internet usability. By 2002 I had exited both companies with outcomes that were okay but not great. At the age of 30 I had already been the CEO of two companies. Nobody wants to hire a 30-year-old two-time CEO. So I decided to go to business school to formalize the hands-on experience I’d gained. After graduating from Yale’s MBA program, in 2005, I joined SVB, where I ultimately became the chief operations officer of its recently established analytics division.

Two colleagues and I were hired to solve a problem created by a new IRS code that required VC-based start-ups to begin calculating the market value of the stock options they issued to employees. Since no market existed for those options, it was a complex challenge. We created a model that addressed it while building a start-up within the bank. Our team grew from three to 125 people, and from zero to 3,000 clients. One of them was Tesla, when it was just a handful of people working in a small warehouse in San Carlos, California. I sat in the first car Elon Musk ever built and rode in the second one. One reason I stayed in the job was that I met so many brilliant entrepreneurs and learned something from them every day.

Before we began researching the cannabis industry, I knew little about it. I’ve always been an athlete—I do triathlons—and never liked the idea of smoking anything. The few times I tried cannabis, I didn’t particularly enjoy it. However, I do have strong libertarian views about drug laws. I believe that people should be allowed to use cannabis, and that the U.S. war on drugs—which has led to the incarceration of millions of Americans—is morally wrong.

From my days working construction, I knew how to talk to people with all types of backgrounds. That became very useful as we began our research. We went into the hills of northern California and southern Oregon, the fields of Colorado and Washington, and the barns of British Columbia. We went anywhere people were growing cannabis, legally or illegally. We went to Jamaica and to licensed producers working in Israel near the Sea of Galilee. During a trip to Amsterdam, I visited in a single day more than 80 coffee shops that sold cannabis.



Pedro Guimarães

Cannabis cultivation in a Tilray greenhouse in Cantanhede, Portugal

At times this work was nerve-racking. My cofounders and I were fit, had short haircuts, and dressed conservatively. At first glance, a lot of people suspected that we were federal narcotics agents. We worked to put them at ease and build rapport. We bought hundreds of coffees, breakfasts, lunches, and dinners and asked industry experts question after question. The network we built in those early days may be one of the best investments we ever made. It continues to feed us information about developments around the world.

We pored over polling data and quickly noticed something intriguing: Since 1973 Gallup had been asking Americans whether they supported legalizing cannabis. It also asked about support for same-sex marriage. We studied the data closely and found that the two trend lines were strikingly similar. Same-sex marriage was about five years ahead of cannabis legalization, but the two issues showed the same pattern of growing acceptance. By 2012 it seemed clear that same-sex marriage was going to become legal throughout the United States. (And it did, in 2015, with the U.S. Supreme Court ruling in Obergefell v. Hodges.) We became more confident that cannabis prohibition would end someday.

People Thought We Were Crazy

Very slowly we began to create our investment thesis: (1) Medical cannabis was on its way to becoming a mainstream treatment around the world. (2) Most existing players in the industry were focusing on either their tiny niche or their geographic market, whereas we saw a global paradigm shift as prohibition gave way to legalization. (3) As that shift took place, cannabis would become an industry like any other, with trusted brands and multinational supply chains. We sought to invest in businesses that could capitalize on those trends.

As our thesis developed, we recognized that working as venture capitalists wasn’t the best approach. VCs focus on early-stage investments, and they need to plan on exiting within seven years so that they can return money to their limited partners. The cannabis time line felt too unpredictable for that. We thought we knew what was going to happen, but we didn’t know when. We needed the flexibility to buy entire companies, to make minority investments, and to deal with uncertainty around when or how we’d see a return. We decided to form a private equity firm, which we called Privateer Holdings.

For the first two years, raising money felt nearly impossible. People thought we were crazy. If not for our backgrounds—MBAs who’d worked with a lot of VC funds—nobody would have even met with us. We took a lot of meetings with prospects we knew would never invest. Some praised us for our thorough research; some laughed us out of the room. A few challenged us directly: “Why are you throwing away your careers pitching a cannabis company?”

Then, in November of 2012, Washington and Colorado legalized recreational cannabis, and two more states legalized medical use. Suddenly we didn’t seem so crazy anymore. By then polls showed that 70% of Americans were in favor of medical cannabis, and 50% supported recreational use. It wasn’t quite a tipping point, but it was a move in the right direction.

Our first acquisition was Leafly, a website that reviews various strains of cannabis. We liked the business and its team, and it would allow us to gain insight into the product and consumer preferences. Because Leafly is a publishing operation, there were no questions about its legality, which was also a plus. It remains the top online source for cannabis information to this day.

A Canadian Welcome

In 2013 the government of Canada reached out to us. It had been producing cannabis through a single contract and wanted to shift to a competitive private-sector network of cultivators, processors, and distributors. Applicants for Canadian federal licenses were having trouble finding investors, and Health Canada, the national department of public health, asked Privateer to consider backing some of those start-ups. We looked closely at 60 companies that had applied to the program but couldn’t find one that seemed like a good investment. So we told the government that we’d like to create and fund our own company. The response was that if we moved fast, it would move equally fast. We quickly incorporated Tilray, applied for a license, bought land, and built a cultivation facility. By April of 2014 we were shipping our first products as a licensed producer of medical cannabis products in Canada.

Our cultivation facility was very different from anything built before. With my background in construction, architecture, and engineering, I had been reverse engineering facilities for years when we visited operations all over the world. We were able to combine the best ideas in what we built. We had our own testing lab and 40 identical grow rooms so that we could do A/B testing: We used plants with the same genetics and controlled everything while varying just one factor, such as the CO 2 level, the humidity, or the lighting. We grew cannabis more scientifically than was being done anywhere else. Partly because of this approach, Tilray became the first cannabis company to conduct a clinical trial approved by Health Canada. Today we have 10 clinical trials announced and numerous distributor relationships, including a global agreement with Sandoz, a division of Novartis.



Courtesy of Tilray

On left, a cannabis “field” in Cantanhede and on right, quality control in the lab

In December of 2014 we closed an investment from Founders Fund, Peter Thiel’s VC firm. It was the first institutional investment in the cannabis industry. I credit Peter, Geoff Lewis (who led the investment), and their entire team for taking that bold, contrarian leap. It was transformational for us, because it gave other smart people permission to invest with us. By October of 2018 we’d raised $1.1 billion.

At that point Canada had many smaller cannabis producers. None of them were profitable, so they needed funding, and several of them decided to do IPOs on the Toronto Stock Exchange. By 2017 we’d begun talking about an IPO on the TSX too. When we met with institutional investors in Boston and New York, several of them said they could not invest in Canada and encouraged us to go public in the United States. They wanted a cannabis company that was U.S. listed, regulated by the SEC, and used generally accepted accounting principles. This was a controversial idea: Even as states have legalized cannabis, it remains illegal under U.S. federal law, which is why banks and credit card companies are leery of transactions involving the product. But our operations were restricted to countries where cannabis is legal, so we were in compliance with U.S. law. We paid several very expensive lawyers to study the issue and talk with the SEC and NASDAQ. In the fall of 2017 we decided to launch our IPO in the United States.

I spent the first six months of 2018 meeting with investors all over the world. Of the 20 largest Canadian cannabis producers at that time, Tilray was the only one that hadn’t gone public in Canada. Many investors would never buy our shares, but they took meetings to listen. We filed our S-1, and I flew around the world—to Seattle, Hong Kong, Sydney, London, Frankfurt, New York, Boston, San Francisco, Vancouver, Chicago—to make presentations about our ability to produce quality medical-grade cannabis, the adult-use brands we were developing for Canada, and the global distribution network we were building. That July we became the first cannabis company to complete an IPO on an American stock exchange.

Since then, more large banks and institutional investors have bought our shares, which increases the mainstream acceptance of this industry. In the fall of 2018 we issued convertible bonds, and Bank of America Merrill Lynch was our underwriter. That would have been unimaginable just a year earlier. Some of that money has gone to build out our large facility in Portugal, enabling us to import across the EU rather than export from Canada to Europe.

It’s Still Day One

This is a tumultuous industry with growing competition, and we expect it to remain so. As I write, medical cannabis is legal in 41 countries and 33 U.S. states. (I believe it will be legal in 80 countries by the end of 2022.) Adult-use cannabis is legal in Canada, Uruguay, and 11 U.S. states. I expect that Luxembourg, Portugal, Mexico, and New Zealand will be the next countries to legalize adult use and that the trend will continue.

Someday adult-use cannabis may be a bigger source of revenue than medical, but for the next 10 years medical cannabis will be our dominant product. Today we spend a lot of time with policy makers, regulators, and doctors around the world, demonstrating why it should be mainstream medicine. We export to 15 countries, but we do no business in the United States (other than four FDA-approved clinical trials) because of federal laws there. I used to meet with members of Congress to talk about relaxing those laws, but now I think real movement on the issue will come from voters. In November of 2020 we’re likely to see seven to nine more states pass adult-use laws, and it’s likely that they’ll be Republican states such as Idaho, Wyoming, North Dakota, and Missouri. On November 3, 2020, when 14 or more Republican senators whose voters have just legalized cannabis wake up, their thinking may change about the banking laws that make it difficult for cannabis businesses to operate in the United States.

Facts & Financials:

Tilray Founded: 2013

Headquarters: Nanaimo, British Columbia

No. of employees: 1,400+

We also see significant opportunities in cannabidiol (CBD). We’ve been paying attention to it for years, and most of our clinical trials include tests of CBD, but even we were surprised by the pace with which CBD products have gained mainstream acceptance. CBD is just one nonpsychoactive cannabinoid, along with cannabigerol (CBG) and cannabinol (CBN), for instance. In a few years we may see new formulations that emphasize them, too.

When we look at the trend lines around cannabis, we see five stages on a continuum: prohibition, decriminalization, legal CBD, legal medical use, and legal adult use. Twenty years ago nearly every country was at the prohibition stage. My partners and I were fortunate to see this trend developing before most other people did—and to have built a successful business around that insight.

The most exciting part of this journey is that it’s still day one in the cannabis industry. The brands and products that exist today in legal markets around the world are prototypes in a lot of ways. We have the opportunity to lead, legitimize, and define the future of a multibillion-dollar global industry that is emerging from the shadows practically overnight. I’ve never worked so hard in my life, but I’ve also never had so much fun. I can’t wait to see where this journey takes us next.