Tag Archives: C-suite

Soapbox

Investment Strategies for Entering the European Cannabis Market

By Niklas Kouparanis
2 Comments

For U.S. venture capitalists (VCs), the burgeoning European cannabis market provides opportunities to break into the industry on the heels of adult-use legalization. Germany has set its sights on implementing a recreational market by 2024, and the country, along with several other European Union (EU) countries–Malta and Luxembourg–came together in September 2022 to draft a joint statement on why the EU needs a new approach to cannabis use for adult-use production, sale and consumption.

german flag
Photo: Ian McWilliams

In October 2022, Germany took further steps to solidify its plans for legalization further when its Health Minister Karl Lauterbach presented a cornerstone paper on planned legislation to regulate the controlled distribution and consumption of cannabis among adults. Such actions have signaled to both the EU and the world at large that cannabis legalization in Germany is imminent, and the country is championing the new age of cannabis policy.

With the new German cannabis market soon to be on the horizon, both foreign and domestic VCs are considering how to best leverage investment opportunities into existing cannabis companies within the current medical-only market that will transcend into adult use. For U.S. investors, it’s important to do their due diligence to find the company that will transcend into the next progression of cannabis policy. In addition, European cannabis companies must do their own meticulous research when it comes to aligning with investors to meet both their financial and business goals.

How U.S. VCs Can Evaluate Investment-Worthy European Cannabis Companies

As with any investment, VCs benefit from researching the company and market they are planning to invest in. Regarding the company of interest, it’s important to examine which part of the cannabis market the company is serving: growers, retailers, ancillary products, service providers and biotechnology companies all exist as potential investment options within the space. An investor should look into a company’s annual revenue, evaluating whether it has increased, remained steady or decreased over time. Revenue growth is often provided on a company’s income statement.

In addition to making sure they have a thorough understanding of the business model and its value proposition, investors should also familiarize themselves with the company’s management team to make sure that they are knowledgeable and experienced in both running a company and the cannabis industry. For those interested in entering the German market, VCs should consider the businesses that are currently key players in the country’s medical cannabis industry and that plan to expand their services into the adult-use sector once legalization comes into play.

For example, Tilray, founded in 2014, was one of Canada’s first licensed medical producers. When Canada legalized adult-use cannabis several years later, in 2018, Tilray was one of the companies that successfully transitioned to expand its market share in Canada’s medical to the adult-use cannabis industry.

Another consideration for VCs is the reputation of the business and its leaders. Investors should seek out those who have become authorities within the industry and the movers and shakers who are providing key insights into the market. These business leaders should be front and center, discussing everything from current operations and compliance to cannabis policy and legislation to new endeavors and growing their businesses. With recreational cannabis legalization being a completely new endeavor for the EU, it is important for leaders within today’s European medical space to be visionaries for the next phase of cannabis legalization and be guides for creating regulations for this new market to be safe, sustainable and scalable.

In addition to executive teams, VCs should check if the business is meeting the current marketplace’s expectations and is ready to adapt and evolve as needed. This means that the company has access to a steady supply of high-quality cannabis at an affordable price and access to consumers (medical patients) and potential consumers. With adult-use legalization soon to be a reality in Germany, investors must consider which players in the medical-only market will be able to not only survive the transition but grow to become leaders in Germany’s new recreational market and within the EU as a whole. 

What Do European Companies Look For in Terms of U.S. VCs

Just as VCs must find the right fit for them in terms of investments, cannabis companies must also align with investors that help them meet their financial and business goals. For cannabis companies, many seek to align themselves with VCs experienced in consumer, technology, and healthcare investments. While there are benefits to working with a VC with a cannabis background, companies should not deter investors who do not meet those specific criteria, as the cannabis market is still a fairly new and ever-transforming industry. In light of this, it’s important that investors approach opportunities with an open mind for both the industry’s current state and its potential.

european union states
The European Union

As with most investments, both VCs and companies should be prepared to agree to a term sheet, a document that outlines the relationship between the investor and the business. An ideal investor would need to be supportive, well-connected, and add value by providing relevant business knowledge. While some investors seek a more hands-on role, in most cases, the VC’s support will not be equal to the business’s micromanagement or control of its day-to-day operations. Generally, those responsibilities would remain with the company’s executive team.

As an investor, it’s important to be supportive of the business; be a cheerleader for the company when things go well, and lift up the business when challenges occur. In addition, offering a network of referrals and strategies to excel is key to being a good asset to the business. Also, having a diverse portfolio of companies with synergistic opportunities can be very beneficial to growing cannabis businesses.

A question many investors ask before entering the space is how much in assets they should have on hand to be considered an eligible investment size. Typically, this depends on the business and its financial needs. Small profitable cannabis businesses that want additional financing may be able to secure a bank loan, if possible, in their home countries or seek a seed investment-focused VC for some capital. Leaders in Germany’s current medical-only market are seeking investors, both from the U.S. and abroad, to partake in Series A/B funding, seeking financial partners that can help them reach a goal of $20-80M USD.

European cannabis companies are within a high-growth market, so U.S. VCs looking to enter through investment do not have to go through a private equity firm. An investor can approach companies through networking or direct outreach. It is also important to note that investors do not have to convert their assets from USD to EUR, as it is done automatically when making investments. For the first time in 20 years, the USD and EUR are about equal, so now is a great time for U.S. investors to consider making the leap into European cannabis.

Soapbox

Give a Voice to Scientists in the Executive Suite

By Dr. Markus Roggen, Amanda Assen
2 Comments

What do Aurora Cannabis, Tilray and Pfizer all have in common? They all produce and sell products used for medicinal purposes, they are top competitors in their field and they all have statements on their websites claiming that science is one of the most important things to their business. But unlike Pfizer, Aurora and Tilray do not have any positions in the executive suite for scientists or medical personnel. This led us to wonder, why does the structure of their corporate ladder (as well as so many other cannabis companies) not align with what they claim to be their values?

According to Aurora Cannabis, “Science is at the core of what we do”.1 Look up the definition of “core” and you will get “foundational, essential, central, and enduring.”2 Sounds important. Meanwhile, Tilray’s main page states: “For the therapeutic value and risks of cannabinoid-based medicines to be fully understood, Tilray believes it is critical to evolve current scientific understanding of the field.”3

aurora logoYou would assume that somebody in the executive suite would have a position and an educational background relating to the central and enduring part of a business, right? We looked at 10 of the biggest Canadian cannabis companies, their founders’ educational backgrounds and whether there were executive positions for science, R&D or medicine (Table 1). We also looked at the same data for the top 10 biggest pharmaceutical companies (Table 2). As expected, every pharmaceutical company had upper-level (C and/or P level) positions for scientists and/or medical personnel. However, only 2 of the 10 cannabis companies had this.

tilray-logoTo figure out why this is, (as scientists) we did some research. It turns out, the consensus is scientists are bad at commercialization. Scientists are rarely successful as CEOs because they are (usually) not good at attracting customers and get confused by things like revenue models.4 As Akshat Rathi bluntly put it, “just because you are the smartest person in the building does not make you capable to run a company.” In fact, many CEOs of life science companies got to the top by pursuing business, finance, marketing or sales. In the 90s, some life science companies took a chance on scientists and hired them as CEOs, but when they hit financial turmoil, they quickly undid this.5

So maybe scientists aren’t always cut out to be the CEO of a company. But that still doesn’t explain why so few large cannabis companies have a chief scientific/medical officer, or even a president of R&D.

Maybe we are looking in the wrong place. Maybe their value of science can be demonstrated by their spending on research. Typically, a larger agricultural company will spend 9% or more on R&D, and a smaller company will spend 2-4%.6 Meanwhile, the major pharmaceutical companies we looked at spent between 12 and 25% of their revenue on R&D during their most recent fiscal year. Since a cannabis company falls somewhere in between we approximate they would spend around 9-12%.

Canopy_Growth_Corporation_logoHowever, Canopy Growth was the only company that fell into our prediction range, spending 10.5% of their revenue on R&D in 2021.7 Tied for a distant second place were Charlotte’s Web and Aurora Cannabis (a subsidiary of Tilray), spending 4.6%. At the very bottom were Tilray which only spent 0.16% on R&D and TerrAscend which spent 0.21% during their most recent fiscal year.8,9 With most of the cannabis companies, we saw a gradual decrease in R&D funding over time, which intensified with the Covid-19 pandemic.

So why the heck are these companies going on about how they value science? To give them the benefit of the doubt, maybe they do think they value science, but they don’t know how to value it.

 It’s hard for a company to take actions that show they value science if there are no voices for scientists at the executive level. After all, how can you make decisions based on science if nobody in the room understands it? Sure, we saw the argument that people who make it to the top can “learn enough science to ascend to the executive suite without much trouble”.5 But what is “enough science”? The mitochondria is the powerhouse of the cell?

This leads to our argument for putting scientists in the executive suites of cannabis companies and giving them a more powerful voice. Whereas scientists are not good at marketing, those in managerial roles tend to overly rely on intuition – even when the evidence is against them.10 For those relying on intuition, R&D is an easy target during times of crisis (like a global pandemic). Cutting costs in R&D yields a short-term immediate increase in profit and the negative impacts are often not felt until years later.11 However, cutting R&D investment is the opposite of what you should do during a time of crisis. Evidence suggests companies that maintain or even increase spending in marketing and R&D and focus on operational efficiency (such as process optimization) are the ones that will come out as the top competitors in the long run.12,13 Having a chief scientific officer or an executive for R&D with a scientific background can help sustain companies by promoting R&D during hard times and indicating what projects will be the most promising to help the company optimize their processes.

Having a scientist in the executive suite can also help keep everyone in check. “Senior execs live in a feedback loop of positive reinforcement making them unlikely to question their decisions,” according to Stefan Thomke and Gary Loveman.10 They claim the best way for those in managerial roles to avoid over relying on instinct and break out of that positive feedback loop is by “thinking like a scientist”. This involves not letting bias get in the way of truth, studying anomalies, being skeptical, developing strong hypotheses, producing hard evidence and probing cause and effect. To add to this, we think a major part of thinking like a scientist is by having at least one high up in the team. In our own company, giving equal value to scientific voices has resulted in all parties learning and thriving by making fact-based decisions.

Finally, scientists deliver! To be a scientist (with a PhD), one must master the field, find a gap in the knowledge, then fill that gap – all for little pay and no guarantee of a job at the end. This makes them dedicated workers whose main goal is to contribute something unique to their field, or in this case, their company.14 Having someone up top who is dedicated, passionate, innovative and trained to look for gaps in knowledge can be an invaluable voice in the executive suite. They are likely to point out potential money-saving solutions (i.e.: optimizing extraction conditions) that others up top may not have thought of on their own.

If you feel strongly that science is at the core of what you do, and you already know that R&D is crucial for the long-term survival of your company, you are already on the right track. In addition to this, consider giving a voice to scientists at the executive level in your company. The cannabis industry is still in its infancy. This means there is potential for R&D in more than just new product development. Basic stuff like extraction, modifying plants to be heartier against harsh conditions and pathogens, curing and safety testing processes have all barely been studied and optimized to reduce costs. These things won’t be solved by a Juris Doctor, an MBA or even an engineer, they will be solved by scientists, and it will take a scientist up top to ensure the whole company recognizes the importance of these projects.

Table 1: Top cannabis companies stats on founders and their educational backgrounds, presence of scientific executive positions and spending on research and development

Company Founders Founder’s Educational Backgrounds Science executive position? % Revenue spent on R&D
Aphria Inc.

(now owned by Tilray)

 

 Cole Cacciavillani and John Cervini Cole: B. Eng

John: Born into a family greenhouse business

 Chief science officer

Garry Leong: B.Sc. Chem,

M.B.A. Quality Management 15

 NA
Canopy Growth Corp

 

  Bruce Linton and Chuck Rifici Bruce: Ba Public Policy, Minor: Economics. 16

Chuck: B. Eng, MBA

 no 10.5% 17
Aurora Cannabis Inc.

(subsidiary of Tilray)

 Terry Booth, Steve Dobler, Dale Lesack and Chris Mayerson Terry: Master Electrician18

Steve: B. Eng

Chris: Concrete business

Dale: Electrician and homebuilder

 no 4.6% 19
Village Farms International Inc.

 

 Michael A. DeGiglio BSc Aeronautic Science no No data available on R&D expenses
Tilray Inc

 

 Brendan Kennedy, Christian Groh, Michael Blue Brendan: Ba. Architecture, Msc: Eng, MBA20

Christian: Ba. unknown, MBA21

Michael: Ba. Finance, MBA22

 

 no 0.16% 23
Ayr Wellness Inc

 

 Jonathan Sandelman Juris Doctor, Law Degree24

 

 no No data on R&D spending available
TerrAscend Corp

 

 Michael Nashat Pharm. D . Post doc in Neuroscience25 no 0.21% 26
HexoCorp

 

 Sebastien St-Louis Ba. Economics, MBA 27

 

 no 3.09% 28
Fire & Flower Holdings Corp

 

 Trevor Fencott Ba (unknown), and Law degree29 no No data on R&D spending
Zenabis Global Inc

(now owned by hexo corp)

 Rick Brar, Mark Catroppa, Monty Sikka Rick: Ba. (unknown)

Mark: Ba. Finance 30

Monty: Ba Accounting and Finance31

 

 Chief science Officer:

Natasha Ryz PhD experimental medicine.32

 

 

 NA

Table 2: Top pharmaceutical companies founders and their educational background, presence of executive positions for scientists and spending on R&D

Company Current Executives Educational Background Science executive positions? % Revenue spent on R&D
Amgen Robert A. Bradway BSc. Biology, MBA33

 

 Chief Medical officer: Darryl Sleep, M.D. 33

Senior VP in R&D:

Jean-Charles Soria PhD molecular Biol, MD

 18.5% 34
Sanofi Paul Hudson Ba. Economics, honorary doctorate in business35

 

 Executive VP, R&D:

John Reed, MD, PhD in Immunology35

 14.51% 36
Bristol-Myers Squibb Giovanni Caforio MD.37

 

 Chief Medical Officer: Samit Hirawat, MD.

Rupert Vessey:

Executive VP: R&D PhD molecular immunology 37

 

 24.58% 38
Takeda Christophe Weber PhD. pharmacy and pharmacokinetics, Msc. pharmaceutical marketing, accounting, and finance39

 

 

 Director

President, R&D:

Andrew Plump, MD.  Ph.D. in cardiovascular genetics 39

 14.25% 40
AbbVie Richard A. Gonzalez No college degree. Practical experience in biochemistry research. Vice chairman and president, R&D:

Michael E. Severino, MD, Bsc biochem41

 

 12.60% 42
Novartis Vasant Narasimhan Bsc. Biology, MD, Msc Public policy President, Biomedical research, James Bradner M.D.

President innovative medicine, Victor Bulto: Msc. Chemical engineering, health economics, and pharmaeconomics, MBA. Chief medical officer, John Tsai BEng. MD43

 

 18.04% 44
Merck Robert M. Davis Ba Finance, MBA, Juris Doctor45

 

 Executive VP and president of Merck Research Laboratories; Dean Li MD, PhD cardiology45 25.14% 46
Johnson & Johnson Joaquin Duato

Vanessa Broadhurst

Peter Fasolo

 Joaquin: MBA, Master of international management

Vanessa: Ba, Master of Business Administration

Peter: PhD in organizational behavior, Msc. Industrial Psychology, Ba Psychology47

 

 Executive VP, Chief Medical Safety Officer; William Hait MD. PhD Oncology

Executive VP, Pharmaceuticals R&D; Mathai Mammen MD. PhD Chemistry

 15.69% 48
Pfizer Dr. Albert Bourla

Sally Susman

Payal Sahni Becher

Rady Johnson

 Albert: Doctor of Veterinary Medicine (biotechnology)

Sally: Ba Government

Payal: Ba psychology, Msc Psychology

Rady: Accountant49

 

 

 Chief Development Officer:

William Pao: MD. PhD oncology

Chief Scientific Officer, Worldwide R&D:

Mikael Dolsten; MD. PhD Tumor Immunology49

 17.01% 50
Roche Dr. Severin Schwan, William N. (Bill) Anderson, Dr. Thomas Schinecker, Dr. Alan Hippe Severin: Ba economics, PhD law

William: Msc in management and chemical engineering

Thomas: Bsc genetics, Msc molecular biology, Phd molecular biology

Alan: Ba, Phd in administration51

 

 

 CEO Roche Diagnostics; Dr. Thomas Schinecker; PhD in Molecular Biology51

 

 23.563% 52

References:

  1. Aurora Webpage. Auroramj https://www.auroramj.com/#science.
  2. Definition of Core. Merriam-Webster Dictionary https://www.merriam-webster.com/dictionary/core?utm_campaign=sd&utm_medium=serp&utm_source=jsonld.
  3. Tilray Brands WebPage. https://www.tilray.com/.
  4. Rathi, A. Why scientists make bad entrepreneurs—and how to change that. Quartz (2015).
  5. Mintz, C. Science vs. Business: Who Makes A Better CEO? Life Science Leader (2009).
  6. Fuglie, K., King, J. & David Schimmelpfennig. Private Industry Investing Heavily, and Globally, in Research To Improve Agricultural Productivity. US Department of Agriculture, Economic Research Service (2012).
  7. Canopy Growth R&D expenses. https://ycharts.com/companies/WEED.TO/r_and_d_expense.
  8. Tilray R&D expenses. Ycharts https://ycharts.com/companies/TLRY.TO/r_and_d_expense.
  9. TerrAscend R&D expenses. Ycharts.
  10. Thomke, S. & Loveman, G. Act Like a Scientist. Harvard Business Review (2022).
  11. Knott, A. M. The Trillion-Dollar R&D Fix. Harvard Business Review (2012).
  12. Gulati, R., Nohria, N. & Wohllgezogen, F. Roaring Out of Recession. Harvard Business Review (2020).
  13. Soferman, R. Why You Shouldn’t Cut R&D Investments In Times Of Crisis And Recession. Forbes (2020).
  14. Madisch, I. Why I Hire Scientists, and Why You Should, Too. Scientific American (2018).
  15. Havn Life Sciences Inc. Announces Appointment of Gary Leong as Chief Science Officer. https://apnews.com/press-release/accesswire/science-business-life-sciences-inc-aphria-inc-319a516963144b308d146d97dee0dc69 (2020).
  16. Bruce Linton. Elite Biographies https://elitebiographies.com/biography/bruce-linton/.
  17. Canopy Growth Page . Ycharts https://ycharts.com/companies/CGC.
  18. Lee, A. 20 Things You Didn’t Know About Terry Booth. Money Inc (2020).
  19. Aurora Cannabis page. Ycharts https://ycharts.com/companies/ACB.
  20. Brendan Kennedy Profile. linkedin https://www.linkedin.com/in/kennedybrendan/.
  21. Christian Groh Profile. Bloomberg https://www.bloomberg.com/profile/person/17139193.
  22. Micheal Blue Profile. Bloomberg https://www.bloomberg.com/profile/person/18227502.
  23. Tilray Page. Ycharts https://ycharts.com/companies/TLRY.
  24. A Jonathan Sandelman Profile. zoominfo https://www.zoominfo.com/p/Jonathan-Sandelman/2245250.
  25. Dr. Michael Nashat Appointed President & CEO of TerrAscend. https://markets.businessinsider.com/news/stocks/dr-michael-nashat-appointed-president-ceo-of-terrascend-1012862002 (2018).
  26. TerrAscend Page. Ycharts https://ycharts.com/companies/TRSSF.
  27. Sebastien St-Louis Profile. Linkedin https://www.linkedin.com/in/sstlouis/?originalSubdomain=ca.
  28. HEXO Corp Page. Ycharts https://ycharts.com/companies/HEXO.
  29. Trevor Fencott Profile. bezinga.com https://www.benzinga.com/events/cannabis-conference/speakers/trevor-fencott/.
  30. Mark Catroppa Profile. linkedin https://www.linkedin.com/in/markcatroppa/.
  31. Monty Sikka Profile. linkedin https://www.linkedin.com/in/monty-sikka-3024a1a6/.
  32. Natasha Ryz Profile. crunchbase https://www.crunchbase.com/person/natasha-ryz.
  33. Senior Management Amgen Page. Amgen https://www.amgen.com/about/leadership.
  34. Amgen Stocks Page. YCharts https://ycharts.com/companies/AMGN.
  35. Sanofi Executive Team Page. https://www.sanofi.com/en/about-us/governance/executive-committee.
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  37. Bristol Myers Squibb Leadership Team. https://www.bms.com/about-us/leadership/leadership-team.html.
  38. Bristol Myers Squibb Stocks Page. YCharts.
  39. Takeda Executive Leadership Page. Takeda https://www.takeda.com/who-we-are/company-information/executive-leadership/.
  40. Takeda Pharmaceutical Co Stocks Page. YCharts.
  41. Abbvie Our Leaders Page. Abbvie https://www.abbvie.com/our-company/leadership.html.
  42. Abbvie Inc Stocks Page. YCharts https://ycharts.com/companies/ABBV.
  43. novartis executive committee page. novartis https://www.novartis.com/about/executive-committee.
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  45. Merck Executive team Page. Merck https://www.merck.com/company-overview/leadership/executive-team/.
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Cannabis Businesses Need D&O Coverage; What Does The Insurance Landscape Look Like?

By Benjamin Sibthorpe
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Cannabis continues to be a hot sector across the United States; buoyed by its ‘Essential Business’ status during the pandemic, a surge of plant touching and ancillary service providers have set up shop in the past 12 months to capture a share of this burgeoning growth. The cannabis industry is currently the leading job creator in the country, employing almost 430,000 workers according to a recent report from Leafly. Estimates on the overall size of the industry vary depending on the source, but projections of over $100bn in value by 2030 are not uncommon, while M&A activity continues to gather pace after a downturn in 2019. Clearly, investors and the public are bullish on the industry as a segment, with further state legislation to expand the number of adult use and medical markets to come. So why is the directors & officers (D&O) and management liability insurance market not embracing this growth industry?

At its core, a good D&O policy will protect the individual directors, officers and executive teams of companies, including their personal assets, in the event of suits and allegations filed based on their running and oversight of their business. For private companies, this also extends to balance sheet protection and coverage for the entity; for public companies, coverage for securities suits and claims.

The cannabis industry, despite the macro factors propelling its growth, faces numerous challenges when trying to procure D&O insurance. Very few D&O and management liability carriers are willing to entertain cannabis and related risks; even fewer are specialty underwriters willing to provide meaningful, expert coverage which truly addresses the exposures faced by executives and operators in the cannabis industry.

Cannabis D&O premiums can cause sticker shock, typically priced 4 to 10 times higher than non-cannabis businesses. Some operators have an air of invincibility and forego the purchase, believing it is not worth the cost. Meanwhile, the ability to attract and retain talented executives and directors away from other industries typically depends on having this coverage purchased and in place. Yet the outlay can be a burden in an industry which already faces fierce competition for market share, and a disparate tax treatment at a state and federal level.“The value of a D&O policy cannot be overstated.”

Even those carriers and underwriters who do entertain cannabis risks are constantly evaluating the nuances of the space: an ever changing complex state regulatory environment; the relative immaturity of the industry and the hyper-focus on growth; the lack of standardized valuation and accounting; the lack of access to institutional financing; the continued uncertainty of insolvency or restructuring in lieu of federal bankruptcy protections for plant touching companies; the operating inefficiencies for MSOs across state lines and the lack of interstate commerce; in short, the cannabis industry certainly poses its own unique and evolving risks for D&O insurers.

Ultimately the market will continue to evolve for cannabis insureds, as the data matures and the regulatory landscape become clearer. The value of a D&O policy cannot be overstated. Most public companies purchase D&O as a matter of course, but even for private cannabis companies, the right coverage is invaluable. Not having the protection afforded by a D&O policy can be ruinous for a cannabis operator, particularly in a niche area where defending claims and circumstances is complex, time consuming and ultimately expensive – typically much more so than the upfront cost of the D&O policy.

Partnering with the right broker who specializes in both management liability and cannabis is step one to getting the best value coverage. Step two is securing a policy from a dedicated market with underwriters who truly understand the cannabis space and tailor coverage to protect the executives, boards and companies that are driving this exciting growth industry.