Privateer Holdings is a private equity company focused exclusively on the cannabis space.
Privateer’s portfolio of companies include: Leafly, Tilray and now Marley Natural. Marley Natural promises to be the first global brand of cannabis.
[1:37] – Christian explains what Privateer Holdings does.
[2:37] – Christian explains why Privateer Holdings focus is on cannabis.
[5:06] – How as the app Leafly changed and evolved since being acquisitioned by Privateer?
[7:51] – Christian explains Privateer’s goal with Marley Natural.
[9:47] – The consumer response to Marley Natural.
[10:38] – What strains will reflect the Marley Natural brand?
[12:18] – Managing Marley Natural in different states.
[13:16] – Christian explains Tilray.
[16:44] – Tilray’s research on cannabis and PTSD.
[19:38] – Tilray’s grow size and other variables.
[21:28] – Supply and Demand dynamic for the future.
[22:59] – Christian explains the big problems / opportunities in the cannabis industry.
Matthew: Hi, I’m Matthew Kind. Every Monday and Wednesday look for a fresh episode where I’ll take you behind the scenes and interview the leaders of the rapidly evolving cannabis industry. Learn more at www.cannainsider.com. That’s www.cannainsider.com. Do you know that feeling when you sense opportunity, when you see something before most people and you just know it will be successful, then you're ready. Ready for CannaInsider Consulting. Learn more at www.canninsider.com/consulting. Now here's your program.
Privateer Holdings is a private equity company shaping the future of legal cannabis on many fronts. You’re probably most familiar with Privateer through their acquisition of Leafly, a popular app for exploring cannabis strains and reviewing dispensaries. As you’re going to find out there’s much more to Privateer than just Leafly. Privateer recently announced that they have successfully negotiated with the Bob Marley Estate to license the Marley name and create a brand of cannabis called Marley Natural. Also Privateer is focused on the Canadian cannabis market with their company in British Columbia called Tilray. We’re going to find out more about the interesting things that Privateer is up to with the COO of Privateer Holdings Christian Groh. Welcome to CannaInsider Christian.
Christian: Thanks Matt, great to be here.
Matthew: Christian can you give us a sense of geography, where you are in the world?
Christian: Yeah right now I’m in sunny Seattle, Washington.
Matthew: Okay, and can you tell us at a high level what Privateer Holdings is and does?
Christian: Yeah. So Privateer Holdings is the world’s first private equity firm dedicated to the emerging legal cannabis industry.
Matthew: Okay, and can you tell us a little bit about your other two co-founders?
Christian: Yeah, so it’s myself and then there’s Michael Blue and Brendan Kennedy. You know all three of us come from traditional venture capital, private equity. Brendan and myself were at a venture capital bank in Silicon Valley for years, and then Brendan and Michael did their graduate school together at Yale. And we got together in essentially 2009 and 2010 and kind of quit our day jobs and started Privateer Holdings.
Matthew: Why the focus on cannabis? I mean was the opportunity just seem so big you just had to stop everything you were doing and focus on that? Can you tell us a little bit about that?
Christian: Yeah. You know, Brendan and I were at Silicon Valley Bank together and we focused on, you know, early stage venture backed companies in, you know, technology or clean tech or hardware or software. So we had the fortunate position to look at really, you know, all venture capital deal flow, not only in the Silicon Valley, but you know all around the US. And so we got really good at, you know, looking at trends and whether it be, you know, coupons or nano technology or mobile banking or wind power or whatever was kind of a hot emerging trend at the time.
You know, back in 2010, you know, we were in California and this was around the time Prop 19 was gaining a lot of attention in the news and media. And an opportunity came across our desk which was really a point of sale software company that was selling to dispensaries in California. You know, we never took them on as a client at the bank, but it just really peaked out interest. You know, it was such a big industry and it was getting a lot of attention, but it was still taboo, and there was still a lot of legacy issues associated with it. And so we really just started thinking about it, you know, under a different light and through a different lens. And you know, we realized this would probably be the biggest opportunities we will see in our lifetime.
And so we spent, you know, a good part of a year researching this space. You know, we went really around the globe, and we met with attorneys and activists and growers and dispensary owners and anybody else that was generally touching the space. And you know we realized that, you know, we could be a first mover here. And so thereafter we started Privateer Holdings and raised some capital and started making some acquisitions in the space.
Matthew: Now Privateer acquired Leafly, and I just want to understand from when you made that acquisition to where you are now how has the app changed and evolved and how has the market using the app changed and evolved and is it different than what you anticipated when you made that acquisition?
Christian: Yeah. So, you know, when we first started doing diligence on Leafly we liked it for a couple of different reasons. You know, one, it didn’t have kind of the ubiquitous pot leaf and, you know, the girls in the bikinis. It was a clean, mature, you know, yet whimsical brand, but we liked that. And it provided a fairly good level of education for you know either connoisseurs or first time users, but it really breaks down, you know, the strains and how people look at different strains. But when we first started exploring Leafly it essentially had, you know, 150,000 unique visitors per month and essentially zero revenue.
You know, you fast forward it to now or last month, you know, we had close to 5 million unique visitors in a 30 day period. You know, revenues are probably in line with what we projected, you know, before we made the acquisition. You know, user accounts are up 500 percent. You know, strain reviews are up 500 percent. You know, a 2X or 3X increase in revenue year over year. And you know, just a highlight from last year it won App of the Year through Geek Wire Magazine which is a fairly mainstream technology publication. So we went, you know, head to head with a couple of Microsoft apps, and some other early stage venture backed apps. So that really kind of raised the bar and got a lot of people looking at Leafly not only from the industry prospective, but people from the outside, you know, just from a technology development standpoint. You know we have an Android app and an iPhone app which I think is getting about 100,000 downloads per month. So that number has increased significantly as well. So the trend lines keep going up in really all aspects of Leafly. So it’s really an exciting time to be a part of this group.
Matthew: And for listeners that want to hear more about Leafly, what it does, CannaInsider did an interview with Cy Scott a few months backs and that’s in the back catalog. We go into great detail on what Leafly is, how you can use it, it’s benefits and also you get to learn a little bit about Cy’s story which is really interesting, including his favorite strain. So I invite listeners to check out that interview on iTunes or Stitcher. Now switching gears to Marley Natural, can you tell us how that came about and what your goal with Marley Natural is?
Christian: Yeah. So, you know, the Marley family has been thinking about, you know, a cannabis brand for a long time. They’ve been approached by, you know, other folks in the industry over the years, you know, but it was never the right fit for them. You know, they heard about Privateer Holdings and our leadership in the industry, and they approached us, you know, about a year and a half ago and started talking about the possibility of working together in the industry. So it’s been, you know, a year and a half close to two years in negotiations, kind of philosophical discussions about the brand.
And, you know, we will have products in the marketplace in late 2015. You know, essentially Marley Natural is a premium cannabis brand with deep roots in the life and legacy of Bob Marley. It’s a partnership between, you know, two cannabis pioneers, the Marley family and Privateer Holdings. You know, the way we think about it is, you know, we’re the first private equity firm investing exclusively in the cannabis industry in building profession mainstream brands, and we think, you know, Bob Marley could be synonymous with that. And we really break it up. We think about really three different lines. You know, there’s a hemp and cannabis infused topical line. There’s Jamaican heirloom cannabis products, and there’s the accessory piece, you know, which allows users to consume and store. So it’s really an exciting time, and we’re really excited to start the work on that, that brand.
Matthew: What is the response been like? Well I know what the response has been like. There was a huge, overwhelming response by the media interest in this, but what has been the response been from people that aren’t in the media, you know, consumers? Have you talked to many of them so far?
Christian: Yeah, I mean it’s really been overwhelmingly positive for the most part. As you know opinions towards cannabis are changing. You know, people are really starting to recognize the benefit of the herb. You know, politicians are starting to get it and laws are evolving. You know, Bob helped the movement 50 years ago, and you know the movement and the momentum continues to gain on a daily basis. You know, the herb was important to Bob and he looked forward to this day, and you know we’re at the throws of full legalization. So it’s been a really exciting time, and it’s been overwhelming positive.
Matthew: And do you have an idea of exactly what strains will be offered? Were they Bob’s favorite or how are you going to come up with strains that, you know, reflect the Marley tradition?
Christian: Yeah, so we’re going to curate a selection of heirloom cannabis strains, you know, including some of Bob’s favorite Jamaican strains like Lamb’s Bread. You know, we plan to share some information on a different varietals closer to the launch of the product. You know, but we’ll probably have about half a dozen true Jamaican heirloom strains.
Matthew: Now when can we expect to see that in dispensaries?
Christian: Probably late 2015. As you know, laws are evolving rapidly. Our intent is to produce and/or sell Marley Natural products where regulations allow, you know, alongside commercially viable opportunities. You know, right now we’re in conversations with distributors in Israel and Uruguay, and you know markets like Italy and the Netherlands and other emerging legal cannabis countries. As you know this conversation is really happening globally at the highest possible political arenas, and we are part of those conversations.
Matthew: You know, this a still a fresh announcement so I don’t know if you have an answer, but I don’t know how to describe it except it’s such a cluster of state and federal regulations at odds with each other here in the States. How will you manage relationships for Marley Natural in different states? Is it a licensing arrangement? How do you do that?
Christian: Yeah it’s really a state by state assessment. You know, obviously, you know, there’s medical states now and recreational states or adult use states. And so we have essentially boots on the ground, you know, evaluating each state opportunity. You know, we wish there was some easier kind of blue sky law, but there’s unfortunately not. So we’re very cautious on how we approach the market, but you know once again, the walls of prohibition are slowly deteriorating. And so as each day goes by those conversations, you know, become a lot easier.
Matthew: Now moving on to Tilray. Most people are familiar with Privateer for Leafly and now Marley Natural. Can you help us understand what Tilray is in the Canadian market?
Christian: Sure. So, you know, just a little background on the Canadian market. This year, April of this year, it switched from essentially a quasi-legal market to a fully legal medical market, and the switch took place on April 1st of 2014. And so what essentially happened about a year and a half ago we got invited by Health Canada to essentially evaluate and potentially invest in applicants to grow and distribute medical grade cannabis to patients all across Canada. You know, we interviewed probably about 50 different companies that essentially threw their hat in the ring. And we never got comfortable with either their business plan or the economics or some of their techniques. And so we essentially put together a proposal ourselves to become a licensed producer in Canada.
And so January of this year we got approval to essentially build a facility licensed and sanctioned by Health Canada, and then late March we became I think the fifth or sixth licensed producer in the country. And so since April we’ve been shipping continuously to medical cannabis patients all throughout Canada. So we are, Tilray is one of the 13 licensed producers in a regulated and sanctioned by the federal government of Canada to grow, harvest, distribute and ship medical grade cannabis to patients all throughout Canada. The biggest differentiator of this model is it doesn’t allow for retail. So we essentially ship direct to patients’ houses all throughout the country.
Matthew: Yeah that’s a big difference. I mean, the Canadian market, that’s just one way they’re different. I mean, can you highlight a couple of other differences you see in your mind to contrast the US market to the Canadian market and how they do things differently?
Christian: Yeah. So I mean it’s definitely the most stringent regulatory environment in the world, but we think that’s a good thing. You know, we’ve built a $25 million, 60,000 square foot, state of the art production facility on Vancouver Island in British Columbia. You know, we have 40+ strains in cultivation at the facility. You know, we see it as a, you know, $1 billion market over time, but you know we’ve also assembled a team of, you know, 100+ professionals that are dedicated to the science and the safety and the ethicacy of medical grade cannabis in Canada. So, you know, with those tight regulations comes with, you know, essentially a better box that’s put around an unregulated system. So it’s been a really exciting time up in Canada as well.
Matthew: Now I understand that Tilray has done some research or is doing some research on cannabis helping PTSD patients. A lot of people are really interested in this. Can you tell us a little bit about your findings if it’s not too early?
Christian: Yeah we’re currently seeking regulatory approval to conduct Canada’s first clinical trial examining the therapeutic benefits of medical cannabis for veterans, first responders and sexual assault survivors suffering from post traumatic stress disorder. So we’re conducting this study in partnership with the UBC, so the University of British Columbia and expect to be able to share results two years after it’s approved.
Matthew: Do you get a lot of applicants from returning from theatres of war and things like that?
Christian: Yeah, we’re still going through the approval process, but we’ve aligned ourselves with different industry groups that service those patients essentially. So there will be a significant population for us to choose from when we hit the go button.
Matthew: So British Columbia, Vancouver in particular kind of has two things at odds here. I mean there is people visiting dispensaries. I don’t know if they’re called legal dispensaries or not, but purchasing cannabis and then there is the medical which can only be delivered by mail. Do you see these things kind of reconciling and dove tailing at some point in the future? Do you have a sense of that or is it just too early?
Christian: It’s still pretty early. You know, there was an injunction put in place around the April 1st timeline when the MNPR was essentially born. You know it’s very similar to what’s happening in the United States as well. You know, take Arizona for example that has state license dispensaries, but it also has legacy dispensaries from a Compassion Care Act. So we see conflicting systems really all over the world and it’s really no different. You know, the way we look at it as, you know, we’re trying to be part and be stewards of a regulatory environment just because we think ultimately it produces better quality, better security, better ethicacy. It helps us with clinical trials. It allows us to create real data, and that real data makes real change. And so we work harder than a lot of people in this industry and we jump through more hoops, but we think ultimately that’s what gets us to a world of less prohibition.
Matthew: Now we’ve interviewed Greg Wilson of Vida Cannabis in Ottawa, and Bruce Linton of Tweed also in Canada. These companies are creating just absolutely huge grows. How does Tilray’s grow size compare and is the size of the grow the most important thing or what other variables do you look at?
Christian: Yeah. So we currently have a 60,000 square foot, state of the art research and production facility on Vancouver Island. Pending regulatory approvals, we have plans to expand in a second facility that is, you know, four times larger than their current size. You know, I don’t know if bigger is essentially better at this point. You know there’s still a lot of growing pains in this industry. You know, there’s a lot of people entering this space that might not know cannabis very well, and then there’s another contingent of people that have been in the industry for a long time that don’t understand the business behind it. But we really focus on, you know, quality, safety and security. That’s kind of the model that Health Canada has set up, and that’s what we adhere to. You know, we are growing at a very rapid cliff, but going, you know, launching at an enormous size, you know, I don’t know if there are efficiencies gained by coming out of the gates with that model. And the whole market’s evolving too, right. It started at, you know, patient zero. It’s not like we were able to transfer a whole system of quasi-legal patient base over to a legal patient base overnight. So it’s an evolving system, and we believe in an evolving business plan to go along with that.
Matthew: I know it’s a hard thing to predict the future, but in the months ahead what do you think about the supply and demand dynamic both in Canada and the United States?
Christian: Well, you know, it’s an interesting question. It’s a great question. You know right now supply, you know, anything that’s grown or produced is being sold, right. I mean that’s the reality, and that’s a fact of what’s happening. But back to your earlier question, you know, if you start seeing a big influx of, you know, big box, you know, grows and they all enter the market at the same time, you know, there’s a potential to see an excess of supply. And you know, what does that do? I mean it changes the fundamental economics of an industry, but you know, as Privateer’s and Privateer’s Holdings and the way we think about that is, you know, we think about this in terms of brands. And we think about clean mature brands that, you know, patients and consumers can trust, and that’s what we focus on right. We’re focusing on the real long term play of building value and creating quality, safety and security around a product. And you know, when you talk about, supply, that essentially should not matter because we’re creating global, reliable brands.
Matthew: Now for potential or prospective entrepreneurs out there that are considering getting into the cannabis industry, what are the big problems you feel like need to be solved?
Christian: You know, banking is probably the highest on my concern list. You know I think once banking is changes, there’ll be a domino effect for the better. You know, if you’re a young entrepreneur, this is really complicated. This is the most complicated industry I’ve ever been a part of in my lifetime. You know, state laws vary, you know, county laws vary, city laws vary. It all varies, right. And there’s this conflict, and it’s just not as easy as entering the space and, you know, creating a billion dollar company. There’s a lot of pitfalls that you can easily encounter and there’s a lot of mistakes that can be made.
So you need to take a little bit of time to research the industry and research the players and the people that have been in the industry for a while and the people that are entering the industry. There’s not a lot of real good information out there. There’s a lot of white noise. There’s a lot of people that make proclamations, you know, good, bad, or indifferent. And it takes a while to sift through what’s real and what’s not. You know, and entrepreneur needs to due diligence on whatever sector of the spaces they plan on entering.
Matthew: Now a lot of people in the cannabis community look at Privateer as among the most savvy individuals in the space. When you look out on the horizon 2016 and beyond, do you see cannabis being removed from Schedule I list of dangerous drugs?
Christian: Yeah. You know, we hope. That’s our hope, but we, you know, see something, some major changes in the next three to five years. You know, it’s hard to put a date on that, but you know we, yeah we have our fingers crossed and we hope that happens.
Matthew: And as we close Christian, how can listeners learn more about Privateer and the growing portfolio of companies?
Christian: So yeah you can go to www.privateerholdings.com you know from there you can see a list of our portfolio companies. You can read more about our team, our management team and other managers within the group. You know, there’s a lot of news articles on us, and there will be a lot more forthcoming. You know, we generally have a lot of fairly exciting announcements every couple of months, and you know we have a half a dozen really exciting things that we’re working on right now.
Matthew: Great. Well Christian thanks so much for being on CannaInsider. We really appreciate it.
Christian: Yeah thank you Matt. I enjoyed it.
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