Tilray, Canopy, and The Canadian Marijuana Gold Rush

As part of my Year of Business I’ve been reading lots of investing websites.  An area of insane hype at the moment is Canadian marijuana stocks.

(The picks and shovels play here might be stock images of marijuana leaves).

Recreational marijuana will be legal in Canada in October, and unlike the United States, where federal regulation of the plant makes doing anything on the national level very difficult, it’s all good up there in Justin Trudeau land.

Once Constellation Brands, makers of Corona beer, made a $4 billion deal with Canopy Growth (traded on the New York Stock Exchange as CGC) it was off to the races.

I did not invest in Canopy Growth because a quick image search of CEO Bruce Linton did not inspire confidence.

An interesting aspect of Canada’s marijuana rules are that the packaging has to adhere to very strict regulation, with very little advertising.  This, it seems to me, presents kind of a Zen marketing challenge.  How will one brand distinguish itself from another?

Blessedly I have kind of a Peter Lynch advantage here.  From watching lots of Trailer Park Boys, I know that “BC Hydro” and marijuana from British Columbia is highly prized by the Canadian consumer.  Even a low information Canadian marijuana consumer might know to ask for weed from British Columbia.

Tilray, traded on the NASDAQ as TLRY, is a respected marijuana grower based in Naniamo, British Columbia.  Here is their respectable looking management team.

A few more observations:

• It is worth remembering our Charlie Munger here.  Here he is talking in 2014 about why Berkshire Hathaway, the original textile company, was doomed:

The other rare example, of course, is Berkshire Hathaway. Berkshire started with three failing companies: a textile business in New England that was totally doomed because textiles are congealed electricity and the power rates were way higher in New England than they were down in TVA country in Georgia. A totally doomed, certain-to-fail business.

In a way, marijuana itself is congealed electricity.  I’m told power rates are cheapest in Ontario, where Canopy is based.  And of course Medicine Hat, Alberta, is the sunniest city in Canada.

Echodale Park in Medicine Hat, by Michael Ireland on Wikipedia

• I find it interesting and a testament to the world’s absurdity that if you had eight ounces of marijuana in New York City, the minimum jail sentence is three years, while down the street billions of dollars of shares of marijuana growers are being traded.  Maybe Governor Cynthia Nixon will correct that imbalance.  (Since I first discussed this on Twitter, Tilray’s stock went up 67%)

• If the President of the USA really cared about us defeating Canada, wouldn’t he work towards legalizing marijuana immediately, so that US companies could compete without Canada getting a jump on us?

• At first I thought legalized marijuana would end up being just like any commodity, like corn or something.  But the technical know-how to extract and present CBD or THC as an oil or in something like a Dosist pen might give an advantage to companies with good processes.  Note this picture of a laboratory on Tilray’s website:

• It’s my casual observation that a lot of very dumb bros, like guys who are too dumb to be in tech, are in the marijuana business.  There’s something great about a field where many of your competitors will be dumb.  (There are also many very, very smart people in this field.)