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Tilray CEO says marijuana companies lied about how much pot they can grow



Tilray Inc. CEO Brendan Kennedy said on Tuesday that the cannabis manufacturer would have sold much more weeds if Canada producers had not lied about how much pot they could actually grow.

Tilray

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reported quarterly earnings on Tuesday afternoon, and sales continued to slow down more than many investors expected. Kennedy said that while there was a widespread prediction of a supply of cannabis in Canada, it has not been the case. In fact, Tilray still has problems buying a sufficient amount of high quality marijuana, and Kennedy expects supply problems to remain a problem in Canada for the next 1

8 to 24 months.

Reason: Suppliers Tilray expected to buy from have not been able to produce the necessary cannabis, despite promises before legalization that they used to plead with partners and investors.

"Some of them lie about their funded capacity," Kennedy said in a telephone interview with MarketWatch, adding that public corporations inflated the metric because investors based their valuations on it.

When the cannabis industry was mature, investors used a development set of calculations beyond revenue or profit to value the producers – mostly because recreation sales could not occur legally in Canada until October 17 last year. A popular goal used by analysts and companies was "funded capacity", a number that referred to the amount of capacity a company had under its belt without requiring additional capital increases.

However, in many cases, the capacity of the Canadian public companies was theoretical and they have still not been able to produce cannabis on that scale.

"If I can go back 18 months, 12 months ago, I would have invested another $ 100 million, $ 200 million in Canadian cultivation," Kennedy told a conference call with investors late Tuesday. "It was one – it was a mistake. But we thought we believed all the hype 18 months ago."

Cannabis Watch: All MarketWatch's coverage of cannabis companies

According to several sources in the cannabis industry, funded capacity was widespread use due to Supreme Cannabis Co. Inc.

FIRE, -1.01%

SPRWF, -0.68%

conductors. Although the Supreme helped maintain the use of funded capacity, dozens of other public cannabis companies took it for their own purposes.

CEO Nav Dhaliwal in Supreme Cannabis told MarketWatch last year that in 2016, the pot companies were valued by the number of medical patients they could claim. Prior to this, according to Kennedy, Canadian potato companies had valuations based on the safe vaults they had constructed.

For the Supreme, trusting patients was a problem because it did not have anyone at the time, but needed a way to describe and appreciate their business for investors. As a result, Dhaliwal said they developed a new way to value cannabis companies at: funded capacity.

"We talked to analysts, investors and bankers – we said we should build this capacity in terms of funding," he explained in a telephone interview in November.

However, Dhaliwal said the industry is evolving and that figure was not meant to be relevant to long-term investors or cannabis producers and that it is over-exploited today.

"Funded capacity is too widely accepted as a metric," Dhaliwal said at the time. "It is relevant to a point, it is a basic metric. But when you begin scaling, it becomes less relevant."

The Tilray share gained 4% in the extended session on Tuesday after the company released its first-quarter results, but has fallen 37% over the past three months.


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