Pubdate: Sat, 21 Jun 2014
Source: Montreal Gazette (CN QU)
Copyright: 2014 Postmedia Network Inc.
Contact:  http://www.montrealgazette.com/
Details: http://www.mapinc.org/media/274
Author: Paul Delean
Page: C1
Bookmark: http://www.mapinc.org/mmjcn.htm (Cannabis - Medicinal - Canada)

VENTURE CAPITALISTS FIND GRASS IS GREENER IN CANADA

Marijuana-Growing Firm Has Global Ambitions

Other than his last name, nothing about Christian Groh remotely hints 
he might be in the marijuana business.

He's got close-cropped hair and wears the requisite shirt, tie and 
dark suit of the financial-services industry, where he used to ply his trade.

Nowadays, Groh is a partner in a Seattle-based company called 
Privateer Holdings Inc., which has as its mission to become a global 
player in the (legal) cannabis industry and has raised more than $50 
million in private capital to that end.

So far, Privateer has found the grass in Canada greener than at home, 
making its largest investment to date in a US$20-million, 
60,000-square-foot growing facility called Tilray in Nanaimo, B.C. It 
began shipping medical marijuana in April and now has about 1,000 
registered patients across the country, Quebec included.

Orders are running about 10 per cent ahead of original projections 
and Groh said it should turn a profit in its first year of operation.

Tilray is in the first wave of companies licensed by Health Canada to 
supply medical marijuana to patients for whom it's prescribed.

Only a dozen have been licensed so far (none of them in Quebec), from 
almost 1,000 applications.

"It's an interesting convergence because you've got legacy players, 
outlaw growers who've done it a certain way for 20 years, and new 
entrants trying to get in the space with absolutely no background 
there," Groh said during a stop in Montreal this week.

What made Canada appealing to Privateer was that there was no legal ambiguity.

While many U.S. states have legal dispensaries for medical marijuana 
and a couple have even legalized pot for use by residents 21 and 
older, the rules vary and marijuana possession remains illegal federally.

In Canada, the federal law authorizing marijuana for medical use 
applies across the country and established clear national guidelines 
for would-be producers.

"Canada's very progressive in this industry," Groh said. "Health 
Canada did a good job researching this, came up with this model, 
which we like from a business and patient perspective. I've seen a 
lot of dispensaries around the world - probably 1,000 - and I can 
tell you that most aren't very nice. This model eliminates that."

Groh and Privateer's other partners, Brendan Kennedy and Michael 
Blue, held executive jobs with respectable and established U.S. 
banking firms prior to branching out on their own in 2012.

They saw opportunity in the cannabis industry but agreed from day one 
that Privateer would not be in breach of any state or federal law. 
Attracting and keeping investors would have been practically 
impossible otherwise, Groh said.

"We wanted to enter this huge market, but in a legal way."

Even with that stipulation, it was no picnic.

"It took us 18 months to raise $7 million, and we're pretty seasoned 
venture-capital guys. We never got thrown out (by potential 
investors), but the risk factor was high. We're talking about a 
Schedule-1 narcotic, DEA-controlled.

"Our investors didn't fit any consistent profile. We've got some on 
the far left and some on the far right, cattle ranchers from Texas to 
libertarian millionaires from France.

They did have a couple of things in common; they wanted a return on 
capital and an end to the war on drugs and social injustices caused 
by marijuana prohibition."

Before Tilray, owned through subsidiary Lafitte Ventures in Canada, 
Privateer's biggest acquisition had been the website www.Leafly.com, 
which features reviews of cannabis strains and information on some of 
the 3,500 marijuana dispensaries worldwide.

The partners began taking a serious look at the Canadian market about 
a year ago, initially with the intention of investing in or 
partnering with a Canadian licensee.

"We met with Health Canada officials last summer - they'd heard about 
us, that we might be interested in deploying some capital here. After 
that, we met 30 or 40 (of the Canadian applicants), to see if there 
was any investment opportunity from our perspective.

"We're from pretty traditional venture-capital backgrounds, we're 
pretty good at analyzing trends, companies and people, and we weren't 
really comfortable with the entrepreneurs or business plans we saw. 
There wasn't a lot of business acumen. Some had been doing it 
quasi-legally for years and they couldn't get their heads around the 
scale and the need for strict quality control. The goal is to provide 
high quality medical-grade cannabis."

In the end, they decided to apply for their own official licence late 
last summer.

"We assembled a team, submitted a 500-page application in October, 
went through all the background checks with the RCMP. It's a pretty 
rigorous application process," Groh said.

"Ultimately, we got approved. We got our licence to build (the 
Nanaimo facility) from Health Canada in early January, hired 65 
people, from former RCMP officials (for security) and PhDs to growers 
and trimmers, started to ship in April, and have shipped continuously 
since that date. We really moved mountains in a very short period."

Even the name reflects the company's strait-laced corporate 
background and mainstream aspirations. Tilray was created for them by 
the same Seattle marketing firm that came up with Starbucks.

"We didn't want some sophomoric play on words using weed or cannabis. 
You want something patients would be comfortable with, that an 
80-year-old grandmother with cancer wouldn't mind," he said.

Groh said the facility - which has 39 climate-controlled "pods" 
producing 20 different strains - is expected to harvest about 6,800 
kilograms of cannabis this year. There are 10,000 plants in 
cultivation now. That number will rise to 40,000 and the number of 
strains to 80.

Everything from garbage disposal to inventory control is highly 
regulated. Shipping containers are smell-proof, tamper-proof and 
unmarked. There are 10 people assigned to security, which is tight. 
Walls are made of concrete and lined with steel.

"It's a fortress, really. It has to be. Everything's tracked from 
seed to sale," Groh said.

Tilray's prices, posted on its website, vary from $7 to $12 a gram, 
depending on the strain requested. There's no middleman, with the 
product going directly from the producer to the patient (or, in some 
cases, their doctor), after all necessary medical verifications have 
been completed.

Groh said the Canadian experience has been so positive that Privateer 
already is looking at acquiring or building another facility here, 
possibly by the end of summer, using proceeds from its current push 
to raise another $60 million.

"We're not in this for short money. We want to be smart and right 
about it. This industry has a shot at becoming huge, and it's brand 
new. It's like you've got a ball of clay in front of you that you can 
shape and build. It's really exciting."

Asked if he ever partakes personally, Groh said "very infrequently. 
And never while I'm in Canada, because I'm not a citizen here."
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MAP posted-by: Jay Bergstrom