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Sep 24, 2018

Tilray becomes the darling of Nanaimo, B.C. amid pot boom

Comparing Nortel's rise to today's pot stock moves

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An US$11 billion market capitalization doesn’t get you much of an office.

The nondescript headquarters of Canadian pot producer Tilray Inc., whose market value briefly exceeded that of American Airlines Group Inc. last week, is a beige, two-story building with blue trimmings in sleepy Nanaimo, a two-hour ferry ride from Vancouver. It sits in an industrial area behind a chain-link fence topped with barbed wire.

But Tilray’s wild ride on Wall Street -- one of the most remarkable yet in the euphoria surrounding marijuana stocks -- has this town of 90,000 on Vancouver Island buzzing.

“Marijuana’s the flavor of the year -- everybody’s been clamoring to buy,” says Mike Tomkins, an independent financial adviser in Nanaimo, who’s had several clients that invested in Tilray in recent months. He advised them to cash out at least part of their holdings during the stock’s parabolic climb last week to as high as US$300 a share.

Did they listen? “Never,” he said by phone. “In most of their opinions, this is just the tip of the iceberg -- things are just getting started.”

Tilray, backed by billionaire investor Peter Thiel’s Founders Fund, is one of more than 100 cannabis producers licensed to supply Canada’s medical market and also exports to 10 countries. The company declined a request to tour its Nanaimo facility though it did provide photos of the 60,000-square-foot plant producing more than 50 cannabis strains that treat everything from drug-resistant epilepsy in children to lung disease. Chief Executive Officer Brendan Kennedy wasn’t available for an interview.

Its stomach-churning ride comes amid an investor frenzy ahead of Canada’s legalization of recreational pot next month projected to create a $4 billion domestic market alone. Tilray’s poised to capture early market share with a new batch of greenhouses in Ontario and the Canadian rights to distribute Marley Natural, a line of cannabis products developed with the estate of reggae icon Bob Marley.

Kim Smythe, president of the Greater Nanaimo Chamber of Commerce, is a believer in the company. He participated in Tilray’s July initial public offering priced at US$17 and rues letting his broker talk him out of investing in the company much earlier when it was still private. “I could’ve gotten in on such a ground level,” said Smythe, who hasn’t sold any of his Tilray shares, which are poised to fall a third day in New York Monday.

McCreath: Buying Tilray stock a speculation, not an investment

BNN Bloomberg Commentator Andrew McCreath explains what's behind the volatility in shares of B.C.-based marijuana producer Tilray. He also discusses why he believes the price of U.S. West Texas Intermediate will be within the range of US$65-US$75 over the next six to nine months, and also provides his outlook for Alimentation Couche-Tard and Parkland Fuel.

Big Employer

At a chamber event last Wednesday, Smythe says he was accosted by a woman he knows -- a debt-relief counselor, no less -- who was buying Tilray stock as fast as she could. Tomkins recounts being in a parking lot recently when his ex-mother-in-law approached him to ask about buying marijuana stock. "That’s when you know everyone’s talking about it," Tomkins said.

For Nanaimo -- a formerly rough-and-tumble logging and fishing town -- Tilray is more than hype. In a region where 95 per cent of businesses employ less than 25 people, Tilray with some 300 employees is one of the private sector’s biggest employers, said Amrit Manhas, Nanaimo’s economic development officer.

The company, which sells dried cannabis, oils, capsules and accessories online, accounts for the bulk of the local FedEx depot’s business. At one point, its executives were the main customers for a direct float plane service to Seattle, where Tilray’s biggest investor Privateer Holdings is based. A study estimated the company’s economic impact at $48.1 million in 2014 when taking construction of facilities into account -- equivalent to about half the city’s tax revenue that year.

B.C. Bud

“It’s exciting to see a business headquartered here that’s so well positioned to be a leader in their category,” said Manhas.

Nanaimo was quick to sense opportunity, setting clear zoning guidelines to attract medical cannabis producers in 2013. It won over Tilray, which was considering sites in Ontario and Saskatchewan, with its low cost of business, easy access to markets, and supportive environment, according to Manhas.

There was also another reason: the area’s long, intimate history with pot.

Recreational marijuana use has long thrived in the province of British Columbia as authorities looked askance. The city of Vancouver’s earned the moniker “Vansterdam” while B.C. Bud is considered among the best marijuana in the world. Locals on Vancouver Island describe families that have earned their livelihood for three generations cultivating cannabis. Lasqueti, an island near Nanaimo, was once raided by police, who accused its residents of using pot as a currency.

Amanda Lang: Tilray's wild ride a reminder you should be cautious on pot stocks

BNN Bloomberg's Amanda Lang discusses pot company Tilray's wild swings and why it shows investors should beware of buying pot stocks.

Community Backing

Early on, Tilray was drawn by the availability of quality marijuana, as well as a cannabis-savvy labor pool, said Smythe, who’d lobbied for the company with city council. “A lot of their initial starter plants were sourced locally” from Vancouver Island and other parts of British Columbia.

The company’s won broad support in the community with its pharmaceutical-like approach to researching cannabis, says Mayor Bill McKay. "This isn’t some grow-op in the back alley somewhere."

But he’s more tempered when it comes to speculation that Nanaimo’s about to become home to a host of millionaires thanks to Tilray.

"Can you say Dome Petroleum? Ballard Power?," he asks, recalling high-flying stocks that suffered sobering plunges. "I guess that’s one of the reasons why I don’t just spend a lot of time dabbling in the stock market. There’s so much emotion attached to it."

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.