In this edition of "Rising High," The Fly conducted an exclusive interview with Narbe Alexandrian, president and chief executive officer of Canopy Rivers (CNPOF), a venture capital investment and operating platform pursuing opportunities in the cannabis sector. Here are some of the highlights:
CANNABIS VENTURE CAPITAL: Canopy Rivers is a venture capital firm that looks to invest in all segments of the cannabis value chain/ The company works collaboratively with Canopy Growth (CGC) to identify strategic counterparties seeking support. “Canopy Rivers is committed to becoming the world’s preeminent cannabis-focused investment firm,” Alexandrian said. “We provide diverse exposure to the cutting-edge of the cannabis value chain.”
GAINING MARKET SHARE: The CEO said in order to gain market share, Canopy Rivers looks at the entire value chain and splits up into different pieces. “We’ve identified 13 pieces of the value chain, 97 different subsegments, and our goal is to really to dig deep and find out where the market is moving,” he said. “We’ve applied a ten-criteria basis on all 97 segments and through that we try to understand where the industry is moving and how we can get to that space before everyone else can.” When evaluating investment opportunities, Alexandrian said the firm has three criteria starting with what the product is and what market it is in. “Whether its dry herb vaporizers, edibles, beverages, cultivation or extraction, what we’re trying to understand is can this become a $1B business,” he said The CEO said the second criteria Canopy Rivers reviews is the product market fit to see what a company’s traction is within their space. “We’re trying to see how well the end user, whether it’s B2B or B2C, has really picked up on the product itself,” he said Alexandrian said the last criteria when looking at an investment is management and its ability to execute. “The average entrepreneur and venture capital relationship is about 9.6 years which is just under the average U.S. life of a marriage, which is just over ten years,” he said. “When an entrepreneur works with a VC and vice versa, you’re actually getting into a commitment similar to what a marriage is like.”
CHAIRMAN DEPARTURE: On July 3, Canopy Growth co-CEO and Canopy Rivers chairman Bruce Linton stepped down from the roles. “He was a visionary in what he did to start the cannabis industry,” Alexandrian said, “He will be missed from our side of things but understandably there is a change of guard that was needed on the Canopy Growth side.” The Canopy Rivers CEO said the firm’s work with Canopy Growth really remains the same. “What we do when we’re looking at companies is try to find the next-generation in the space that can potentially become Canopy Growth acquisitions down the road,” he said.
LEGALIZATION: When asked about which country might be next to legalize cannabis on a federal level, Alexandrian said he believes the U.S. will be probably be next as most states have legalized some form of use. “I think it could happen potentially right before the U.S. elections next year,” he said. “It could be an election issue for the Democrats or it could be something that Trump honestly just takes off the table and legalizes…It’s a crystal ball for everyone. We don’t know where that’s going to go, but we do know that it’s on the right track to become legalized.” The CEO also noted that Europe could be the next continent as the firm has heard “rumblings” of an EU reform with a blanket regulatory policy. “That’s really exciting for us because when you look at Europe and the land mass there, there are parts and areas that have low-cost favorable agriculture space primed for cultivation and other areas with high per capita discretionary income and consumption."
EXPANSION: The CEO said Canopy Rivers is already quite international with investments in the U.S. and Europe, putting its portfolio over 50% outside the of Canada. “Our view is that Europe and the U.S. are going to continue to be the next wave of growth,” he said. “We are continuing to look at different areas in Europe being Malta, Greece, Germany, Denmark and Netherlands.” Alexandrian said the company will focus more so on branding in the U.S. because it is “where brands are born on a global scale.”
CHALLENGES: When asked about the challenges facing the industry and the company, Alexandrian said the toughest issue for Canopy Rivers is explaining its business model which is simply to make money. “We go and find investments that we think can have a 10x multiple on what we put in and we invest in them early on, really incubate them and grow them internally by working them through our ecosystem of other companies,” he said. When looking at the industry, the CEO said he believes the biggest challenge is regulatory risk. “Regulations can change instantly, and you have to really teach your portfolio companies how to pivot in case something unfavorable happens.” Additionally, Alexandrian said he doesn’t believe vertical integration is a good strategy within the cannabis industry. “In the cannabis space, similar to the early dotcom bubble, everyone is trying to do everything,” he said. “You have companies out there that are trying to be farmers and brand builders. There are companies out there that are trying to create pharma products but likewise recreational products. There’s too much that you’re doing and through that inefficiencies come into play.”
INDUSTRY GROWTH: The CEO said the firm has developed a data-based five wave theory on how it perceives the industry will grow with the first wave being cultivation. “There is a lot of value to cultivation when licenses are scarce and there’s an ability to get a first-mover advantage,” he said. “It takes 12 to 24 months to develop a cultivation or extraction facility, so if you’re one of the first ones to get a license, we can get things started quicker and capture more of the market before anyone else does.” As more licensors possess the market, Alexandrian said the second wave is a move away from cultivation to the ancillary industry. “We’re a lot of move toward the ancillary industries, the extractors being the talk of the day, as well as softer technology and agricultural technology around cultivating,” he said. “We think the ancillary industry itself is about three times as large as the general cultivation industry.” The third wave of growth is consumer packaged goods, the CEO said. “We think that right now there are no brands out there that really command the mind share of their end user,” he said, noting it ties to the lack of reliability of current market products. “What we’re looking for in brands is finding that Big Mac effect, which is no matter where you go in the world when you have a McDonald’s (MCD) Big Mac, it tastes exactly the same. That’s the holy grail of branding because once you get that you can develop loyalty from your end customer.” The fourth wave is pharma, said Alexandrian, who believes it will be the largest segment of the cannabis market. “We’re just waiting for clinical studies to really catch up,” he said. “This will take anywhere from five years to at most 15 years to really show the pharma side.” The CEO said the fifth wave is mass market in which five or six companies are leaders in the space and that will hit in about 15-20 years.
RECENT EARNINGS: On Tuesday, Canopy Rivers reported a fourth quarter operating income of C$6.1M for the first three months ended March 31 versus C$19.5M for the same period last year. The firm also reported a diluted loss per share of C2c for the quarter which compared to earnings per share of C11c last year.
OTHER CANNABIS STOCKS: Publicly-traded companies in the space include Aurora Cannabis (ACB), Aphria (APHA), CV Sciences (CVSI), CannTrust Holdings (CTST), Cronos Group (CRON), General Cannabis (CANN), Canopy Growth, Tilray (TLRY), Innovative Industrial Properties (IIPR), India Globalization Capital (IGC), ICC International Cannabis (KNHBF), Biome Grow (ORTFD), MediPharm Labs (MLCPF), Indiva (NDVAF), OrganiGram (OGRMF), KushCo (KSHB), MedMen Enterprises (MMNFF), Elixinol Global (ELLXF), Planet 13 Holdings (PLNHF), Wayland Group (MRRCF), Khiron Life Sciences (KHRNF), Liberty Health Sciences (LHSIF), Origin House (ORHOF), Sunniva (SNNVF), Sproutly (SRUTF), DionyMed Brands (HMDEF), GrowGeneration (GRWG), Harvest Health & Recreation (HRVSF), Trulieve (TCNNF), Zynerba (ZYNE), Greenlane (GNLN) and Delta 9 (VRNDF).
Keywords: cannabis, weed, stocks, marijuana, cultivation, legalization, CBD, THC, hemp