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Investing in pot ‘great hedge’ for alcohol, drug companies

By September 19, 2018 No Comments

Pharmaceutical companies have to start thinking about partnering with cannabis companies as a “hedge” against the burgeoning marijuana industry, Tilray CEO Brendan Kennedy told CNBC on Tuesday.

“They have to hedge this,” Kennedy told “Mad Money” host Jim Cramer in an exclusive interview. “Cannabis is a substitute for prescription painkillers, prescription opioids, and so if you’re an investor in a pharmaceutical company or you’re a pharmaceutical company, you have to hedge the offset from cannabis substitution.”

The CEO said the same goes for alcohol manufacturers, some of which, namely Constellation Brands, have already begun to invest heavily in marijuana plays.

“I think all the alcohol companies need to enter this industry. It’s a great hedge for them,” Kennedy told Cramer. “Whether you’re an alcohol or an investor in an alcohol company, this is a global opportunity.”

In March, Tilray formed a “strategic alliance” with a division of Novartis called Sandoz to help the Swiss drugmaker build this kind of hedge. In return, Novartis will help Tilray co-market and co-develop its products.

But if partnership interest were to arise from companies like Anheuser-Busch InBev, the maker of Budweiser, Kennedy wasn’t too keen on its potential.

“We don’t want to partner with ABI. We want to build ABI,” he said. “Our intent is to build a company that dominates part of this $150 billion industry. I think you’ll see multiple hundred-billion-dollar companies.”

On Tuesday, shares of Tilray surged nearly 29 percent to a new 52-week high after the U.S. Drug Enforcement Agency said it would allow the Canada-based marijuana cultivator to ship its product to the United States for medical research.

The rally made Tilray larger, on a market-capitalization basis, than 93 companies in the S&P 500 index, including old-line plays like Macy’s and Ralph Lauren.

Yet, even with full legalization coming to Canada in October, Kennedy was focused on the bigger picture.

“There’s a clear global growth opportunity when it comes to medical cannabis,” he said. “With Canada, we’re about to see 100 percent growth: one country, Uruguay, to two countries, Canada. What intrigues me is country three, four, five and six.”

And the rest wouldn’t take long, the CEO said.

“I think you’ll see the third country within 12 months of October, and that’s where the real opportunity is,” he told Cramer. “It’s not about Canada, it’s about all the countries that follow.”

Shares of Tilray are up more than 600 percent since the company’s U.S. trading debut in July. The stock ended Tuesday’s trading session at $154.98 a share.

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