Tilray CEO Powerful Message About The Future Of Cannabis Industry

Tilray CEO, Irwin Simon, discussed the challenging cannabis market, acquisition plans, and inflation challenges in a recent interview. During the Q3 2023 earnings call held on Tuesday, April 11, Tilray Brands, Inc. announced its plans to acquire Hexo for around $56 million in an all-stock transaction. The deal is expected to close in June 2023. In this article, we will dive deeper into the cannabis market challenges, Hexo acquisition, keys to a deal, global impact, and inflation challenges that Simon addressed during the interview.

Cannabis Market Challenges

As the cannabis industry is still in its nascent stage, there are numerous challenges that need to be overcome. Simon explained that it has only been four years since cannabis was legalized for recreational use. Additionally, there are over 1,000 LPs in place today, and multiple retail stores that make it challenging to stand out as a company. Simon believes that a company must take the lead position in the market, which is no different from any consumer packaged goods. However, he believes that this can only be achieved through consolidation, and it must be done correctly.

Hexo Acquisition

Regarding Tilray’s acquisition of Hexo, Simon stated that the deal would benefit both Tilray and Hexo shareholders. With the acquisition, Tilray aims to get not only the synergies but also the growth of the brand. Simon believes that a lot needs to change in Canada in regards to how the brands are marketed and how consumers are educated about buying the product. He added that Canada is the only country in the world where adult use cannabis is legal, and ultimately, Canada has a responsibility to show the rest of the world how to market it. Simon also mentioned that the Canadian government is making a lot of tax dollars from the cannabis industry and has a vested interest in making it work.

Keys to a Deal

Simon believes that there are several things that one must look at when considering doing a deal. The first is the price of the deal, which should be attractive to benefit both sets of shareholders. The second is the synergies and savings, which Tilray aims to achieve in the first year. The company is looking to achieve $25+ million of synergies and savings in the first year alone. However, the most critical aspect of the deal is how Tilray plans to grow its market share, which is currently at 13%. The company aims to grow its market share double digits by taking it from competitors and bringing in new users.

Global Impact

Simon emphasized the importance of looking at the global impact of the acquisition. He believes that one day, legalization will happen in the US, and Tilray needs to be ready to take advantage of it. He added that there are talks about what’s going on in Germany, and Tilray needs to learn from Hexo and Redecan to expand globally.

Inflation Challenges

Simon stated that the cannabis industry has experienced price decompression, with prices coming down by $30 million in the Canadian market this year. In contrast, prices have gone up in the US beer and spirits business. Simon believes that becoming a low-cost producer is crucial for Tilray’s success, and acquiring smaller companies can help reduce costs and use the infrastructure to grow.

In conclusion, Tilray CEO Irwin Simon discussed the cannabis market challenges, acquisition plans, and inflation challenges. Tilray’s acquisition of Hexo is expected to close in June 2023, and the company aims to achieve $25+ million of synergies and savings in the first year. Tilray plans to grow its market share by taking it from competitors and bringing in new users. The company also aims to expand globally and become a low-cost producer.

FAQs

1. What is Tilray’s plan for acquiring Hexo? Tilray plans to acquire Hexo for around $56 million in an all-stock transaction, which is expected to close in June 2023. The company aims to achieve $25+ million of synergies and savings in the first year and grow its market share double digits.
2. What are the challenges facing the cannabis industry? The cannabis industry is still in its nascent stage, and there are numerous challenges that need to be overcome. Some of these challenges include regulations, education of consumers, and the high number of LPs and retail stores.
3. How can consolidation help the cannabis industry? Consolidation can help the cannabis industry by creating a lead position for a company and reducing costs. Through consolidation, companies can roll smaller businesses together, reduce costs, and use the infrastructure to grow.
4. How can Canada impact the global cannabis industry? Canada is the only country in the world where adult use cannabis is legal. Simon believes that Canada has a responsibility to show the rest of the world how to market it. Additionally, the Canadian government is making a lot of tax dollars from the cannabis industry, which gives them a vested interest in making it work.
5. How does Tilray plan to become a low-cost producer? Tilray plans to become a low-cost producer by acquiring smaller companies and reducing costs. By rolling smaller businesses together, the company can reduce costs and use the infrastructure to grow. Additionally, Tilray aims to achieve $25+ million of synergies and savings in the first year alone.