Thiel-backed fund hits the jackpot with $12 billion stake in pot business

Peter Thiel at the National Press Club in Washington on Oct. 31, 2016. MUST CREDIT: Washington Post photo by Andrew Harrer.
Peter Thiel at the National Press Club in Washington on Oct. 31, 2016. MUST CREDIT: Washington Post photo by Andrew Harrer.

The massive surge in pot stock Tilray Inc. has delivered a multi billion dollar windfall for a little-known private equity fund backed by investor Peter Thiel. 

Privateer Holdings Inc., a Seattle-based fund started seven years ago to focus on the marijuana business, holds 76 percent of Tilray, a stake now worth more than $12 billion after the stock soared more than 10-fold from its July public offering.

Tilray, a Canadian company with just $20 million in revenue last year, has benefited from the surge in demand for pot stocks as Canada gears up to legalize the drug next month, and companies including Coca-Cola and Diageo show interest in the sector.

Thiel's Founders Fund became the first institutional investor in the cannabis industry through Privateer Holdings' $75 million Series B financing round in December 2014, according to the company's website.

Thiel, 50, was an early investor in Facebook and is known for making unconventional investments in different industries. Founders Fund has also backed Airbnb, Lyft, Space Exploration Technologies Corp. and Palantir Technologies Inc.

Tilray, based in the Vancouver Island town of Nanaimo, has drawn more interest than most, in part due to its listing on the Nasdaq, making it easier for U.S. investors and hedge funds to get a piece of the action. The limited number of shares available for trading may also be adding to the volatility, making it more expensive for skeptical investors to short the stock.

Citron Research said it remains short on Tilray, calling the stock's surge "beyond comprehension" in a Tweet Wednesday.

Tilray has surpassed Canopy Growth Corp. as the world's largest cannabis company, with a market value of more than $20 billion. Canopy, which added a New York listing in May, is worth $12 billion.

Tilray jumped another 38 percent to $214 at 10:25 a.m. in New York Wednesday, giving it a value higher than American Airlines Group Inc. Cowen & Co. took the company public in July at $17.

When Tilray's unlisted Class 1 shares are included, Privateer's holdings rise to almost 75 million shares, worth more than $15 billion.

Privateer's partners include Brendan Kennedy, 46, who serves as Tilray's chief executive officer, Michael Blue and Christian Groh. Kennedy and Blue are both graduates of Yale School of Management's MBA program. Kennedy and Groh both formerly worked together at SVB Analytics, a non-bank affiliate of Silicon Valley bank.

Tilray, which has agreements to sell pot in Canadian pharmacies including Shoppers Drug Mart, has ambitious plans well beyond Canada. It's focused on medicinal marijuana in 12 countries that span five continents.

"Our long-term vision is if a patient walks into any pharmacy in any country in the world that has legalized cannabis that patient should be able to obtain a Tilray product. That's our global goal," Kennedy said in an interview this week from New York.

Tilray is investing in production capacity in Portugal so it can supply products to the EU from within Europe, he said. The company also has its High Park brand for the recreational market in Canada, which has secured supply agreements with seven provinces and territories, Kennedy said. The company also has a deal to develop medicinal cannabis with the Canadian division of Novartis AG of Switzerland.

Kennedy said he's not interested in getting taken over by a large consumer company. In a testament to the euphoria surrounding the space, he claimed the company may one day be worth more than $100 billion.

"I don't want to get bought by AB-InBev or Diageo, I want to be that company," he added.

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