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Cannabis: ‘The U.S. is a $100 billion opportunity,’ Tilray CEO says

Tilray CEO Irwin Simon joins Yahoo Finance Live to discuss earnings, cannabis legalization, and the outlook for the market for marijuana.

Video transcript

- Shares of Tilray have risen about 20% since the company reported its earnings last week, down a little bit today. Investors are eyeing the cannabis-maker's plans to turn to free cash flow positive in fiscal 2023. Meantime, public support for cannabis legalization in the US continues, but Rhode Island remains the only state to legalize recreational marijuana thus far this year. Of course, it's on the federal table as well.

Joining us to discuss all of this, a lot of it to discuss is Tilray CEO, Irwin Simon. Irwin, it's good to see you. I was just looking back today and I found an interview that I did with you from 2012 when you were at Hain Celestial. So 10 years now and running that we've been talking about consumer products of one kind or another. I want to start with legalization.


- I looked a little younger then, right Julie?

- We both did. Let's dig into the business in a second. I just want to start with the federal legalization question because I know you guys don't sell marijuana itself in the United States, sell cannabis itself in the United States. What do you-- I'm sure you're watching the situation in Washington closely, where are you sort of gaming out the prospects at this point?

- So, Julie, let's step back to basically what the consolidation of Aphria and the acquisitions of multiple brands. And, as you said, you look back at Hain at 2012 and the brands that I acquired there and what we built into the largest natural organic food and personal care and protein company, if you step back and look what we're trying to build here is Tilray Brands, number one. With a focus on cannabis, with a focus on adult-use, medical, spirits, beer, and wellness and food.

To step back and look at the biggest opportunity, the US is $100 billion opportunity in cannabis. If you look at cannabis today in the US, 93% of Americans want medical cannabis legalized and about 63%, 65% want adult-use. Today, it's legal in about 33 states, and plus DC. So it's out there that everybody-- well, not everybody, but majority of people want cannabis legally.

If you step back and look at Canada, for instance, it's really the only country where adult-use cannabis is legal. And over the last three and 1/2 plus years, it's contributed about $20 billion in taxes, over 150,000 jobs, about $6 billion in infrastructure that has been built out. So does it make sense? Absolutely. Does it make sense to decriminalize?

- Well, does it make sense and whether it's going to happen are two different things we're in, right? As we know when it comes to Washington.

- You know, listen, I come back here and say this here, it will happen, it's when will it happen, OK? And if you have to check a box and say, why should it happen, every box that you could go to makes absolutely good sense why it can. Because our politicians-- listen, they can't get bills passed on a budget, they can't get infrastructure bills passed and they can't get other things passed, but this absolutely makes sense from creating jobs, from decriminalization, the MORE Act, the Safe Bank Act in regards to, listen, Biden talks about what he wants to do with the IRS and spend $80 billion to go out there and do all this things of the IRS, which is a great idea.

But you look at the tax dollars that we're losing here on cannabis not being legalized and the tax dollars that can be in. And step back for a second, all the medical benefits from cannabis today, whether it's pain, anxiety, sleep, in relation to cancer, in regards to different drugs that it could substitute on. So there's tremendous amount of benefits for cannabis, why it should be legalized.

- Irwin, if it does become legalized, I mean, how legalized-- how big could your business get?

- So, listen, if you come back and say this here, I put out a plan last year to be a $4 billion business. And a big part of that, half of it was with legalization. So would it double our business to $2 billion? If you come back and look at where we're looking to at a 50% share in Canada, and Canada as a $10 billion business, that's at retail. So there's a tremendous amount of business available for us.

And step back with Tilray and look at what Tilray. What does Tilray have today? We have brands, we have over 12 brands within the cannabis industry, we have brands in the beer industry with Sweetwater and Green Flash and Alpine, we have brands in the spirit business in Breckenridge, Manitoba, Harvest. So we have adjacencies that are already known brands that can go into the cannabis industry.

We are one of the biggest growers in the world. We have three major facilities in Canada, over 265,000 kilos. So we grow, we process so we know how to do that in a good way. We have two facilities in Europe where we sell medical cannabis into. And with that, listen, we go through some strict quality research in that.

So with the US market legalizing, it will be a big business for us. And what will happen once the US legalizes, the big companies like Diageo, Brown-Forman, ABI, even I think the Nestle's and the Unilever's will want to be into the cannabis business because they know Gen-Z, Millennials, that's very much what they want. And is it adjacency to food? Is it adjacency of personal care products? Is there adjacency in regards to drinks? There's big opportunities out there.

- So, Irwin, let's go back from the sort of hypothetical, eventual, probable legalization and expansion of the business to what's going on right now. You mentioned all the brands that you guys have in your stable, and you guys took some write-downs related to inventory impairments during the quarter. Talk me through what went on there and if that issue is resolving itself, if you're getting some of the work down of that inventory.

- Listen, you got to step back for a second. We're basically a three, four-year-old company. And as we build out infrastructure, we did the acquisition with Tilray last year with the reverse merger, we took out about $100 million of cost. In regards to this year, we did a deal with HEXO, which is the second largest cannabis company in Canada and will be producing for them.

So like a lot of companies today because of their stock drop because of some of the changes that are going on, some of the interest rates, and some, as we look at valuations, we did take a non-cash write down, which it happens out there with public companies today.

But it doesn't change anything, Julie, from where the company is growing. We're one of the first cannabis companies that came out and gave guidance for next year and what our adjusted EBITDA will. We'll be free cash flow positive. We have a strong balance sheet with over $400 plus million of cash.

And the big thing when you come back and look at Tilray, we're a diversified company, OK? Even if cannabis does not legalize for the next few years in the US, we're going to get tremendous growth out of our spirits business, our beer business, our Manitoba Harvest business. Europe medical cannabis is legal in 20 different countries. And then with Canada. Listen, Canada is the same size as California. And we're not going to stop on the acquisition trail. We're going to look at additional acquisitions to fold in within Tilray brands.

- Irwin, great to catch up with you once again. Irwin Simon, CEO of Tilray. Be well. Thank you.

- Nice to see you again. And we'll have to wait another 12 years, right Julie?

- No. We've talked in between now and then.

- I know. I'm kidding. I'm kidding. I'm kidding.

- Thanks, Irwin. Appreciate it.