Features Business Management Marketing
Merger matters

One of the biggest news in the Canadian cannabis industry last year came at the last minute, when Leamington, Ont.-based Aphria Inc. and Nanaimo, B.C.-headquartered Tilray announced a merger in mid-December. This strategic union, according to the companies, will create the world’s largest cannabis company based on revenue.

The two companies have since closed this deal and finalized the transactions. Grow Opportunity caught up with Denise Faltischek, former chief strategy officer at Aphria and now Tilray’s head of international and chief strategy officer, to talk about what the merger means for the company’s future and its strategies for global expansion.

Grow Opportunity: Can you talk about the significance of the Aphria-Tilray merger, particularly in both companies’ Cannabis 2.0 strategy in the infused beverage space?

Denise Faltischek: As we’ve disclosed and reported, the combination of Aphria-Tilray will create the world’s largest cannabis company based upon pro forma revenue. Really exciting combination and between the two. The thing that’s really compelling about the the combination of the two and why it made strategic sense to us was the fact that if you compare the two companies together, they complement each other in so many different ways.

In terms of our strength in Canadian cultivation and production, Tilray’s combination in terms of its European production in Portugal with EU GMP facilities. And the fact that it really created in Europe an end-to-end EU GMP supply chain. Both companies have strong brands on adult use in Canada. And so if you look at this strategic footprint between the two and the scale, and you throw in the diverse product range and this great portfolio of brands with this huge EMP supply chain, it really creates a very nice, fully capable comprehensive company that can compete, plus, very financially strong.

The other thing you mentioned on the Cannabis 2.0 that was one of the areas where Tilray really complemented Aphria in the sense that Tilray had its own capabilities for both gummy and chocolate. And then you mentioned beverages as well, so beverage production in Canada.

You marry up that beverage production with our beverage production capabilities in the U.S. under the Sweetwater transaction, and you have a very good and strong portfolio under the beverage space. And so we think the combination not only provides a very well-complemented company today but also really sets it up for the future.

GO: With the recent change in the political dynamic in the U.S. with the Biden election, what’s your prognosis on the U.S. market and what is the company strategy in terms of beefing up your U.S. play?

DF: The U.S. absolutely is loosening up, I would say, the regulations as they pertain to cannabis. So there’s a very strong likelihood that the Safe Banking Act is going to pass in short order, which will open up both banking institutions as well as loosen up capital markets for cannabis companies, which is obviously a very good development for the cannabis industry, in general.

As it relates to Aphria and the Tilray combination, we have the Sweetwater transaction. Tilray has Manitoba Harvest, which is a really great company with hemp-based foods, really great branding, very well positioned in the marketplace for the consumer looking to live a healthier lifestyle. So between the two, it provides us with a distribution network, customer relationships. And with our demonstrated Canadian expertise, it provides us with the ability – once the United States market opens up to federal permissibility – it provides us with a platform to start to basically operate.

One of the plans that we’ve discussed publicly through Sweetwater is the building of our existing brands in Canada, in various permissible alcoholic beverage type products in the U.S. in order to build brand awareness. So we’ll be able to, upon federal permissibility, begin to operate in the U.S. with basically a demonstrated brand awareness.

GO: What experiences and insights have you gained from your years in the CPG industry that you’re applying to your role as chief strategy officer at Aphria, and why?

DF: In terms of CPG there’s a couple things that I’ve learned. One is the power of brands, the power of marketing. And I think that we’ve done a very good job of developing a carefully curated portfolio of brands that really resonate with the consumer because when we’ve developed them, we developed them based on data and market insight, consumer insights, where we have a very good understanding of what the consumer and the patient is looking for and really fine tune our our branding or marketing and our product innovation in order to address this.

I also think, though, a huge point of differentiation –and I’ve learned this through CPG and my passion for purpose-driven entities – in today’s market I really believe that consumers don’t just buy the product that you’re selling on the shelf, but they buy what you stand for. Consumers want to know that the brands and the products, that the value systems that those brands embody, are very closely aligned with their own and the consumer wants to really emotionally connect to that brand.

And so one of the things that we’ve learned in CPG – and we did this very well at Hain – was our consumers really shared our value system, Our ESG value system, both on the environment and the impacts that our business had on the environment. How we treated from a social perspective, the communities that we called home – what was the impact we had in those communities, how do we give back, how did we foster and mentor employees, you know, diversity and inclusion – all of these various ESG type concepts that that people are talking about today. These are things that we have been doing for years.

And so, I believe it’s a big point of differentiation and it will differentiate us from the other cannabis companies because of the fact that we are, I say like ‘true believers,’ we are authentically true. And, you know, believe that it’s not just about something that you put on the side, but something that you really embed in the culture and the DNA of the company.

And if you see the passion that our employees have for what we do and the things that we do for our patients and our consumers in terms of helping them live the very best life that they can, I think that’s what sets us apart from everyone else. So I’m really excited.

GO: As you expand your product offerings and your market share, what is your strategy for expanding your market and reaching out to those who are not traditional cannabis consumers?

DF: We believe that it is our responsibility, and one of our commitments that we’ve made, to ensure responsible adults use. I’m going to parse out medical and adult use for a second, but education as it relates to responsible adult use. We believe that education is a very, very big, important piece of this, and so it’s something that we’ve been dedicated to, making sure that people understand the products and the use of the products.

And on the medical side, we also believe education is a very big key point, not just for patients but also for doctors. And so we’ve done a bunch of investments in terms of various seminars and conventions and thought pieces in order to speak to doctors as well as patients so that both can learn the benefits of cannabis usage for various conditions. So really believing that education and communication is a really big piece of this. What I would love to see is this stigma around cannabis to completely go away as people realize that there are real uses for cannabis for medical disorders and conditions that have not been helped by medical products.

We did a study in Argentina with the Garrahan Hospital for pediatric refractory epilepsy. I think it was just recently published where the use of our products demonstrated notable reductions in the amount of seizures that the children had, and these were children who were not able to be helped by traditional medicines. We also provided medicine for a young girl in the U.K. who had huge numbers of seizures per week and it was life-threatening to her. And we’ve been providing her with medical cannabis now for a couple years and and it’s so thrilling every time you see pictures from her family of her just thriving.

So when you see uses like that, you realize that there are real applications for this product that really benefit people and help them live their lives in a much better way and help them on their health journey. And so I believe that it’s education and research and stories like this that will help.

GO: The cannabis industry has gone through significant growing pains over the last two years. What have been the lessons learned from the experiences of the last two years?

DF: Aphria, in terms of many of the senior management, we are fairly new to the company. We all came in within like the last two years. And I think one of the things that Aphria did was really focus on fundamentals in business in terms of looking at revenue growth and driving profitability. And really being laser focused on cost, and watching cost and really where we invested.

When I first joined Aphria, one of the first things that I was tasked with was evaluating investments that have been made that perhaps weren’t going to yield the highest ROI and also were very capital intensive… basically extrapolate ourselves from those types of investments, and how did we really leverage the existing investments we’ve made to maximize revenue and profitability. And so at Aphria, we’ve been very focused on what is our cost structure, what is the right size organization to support the business, and really being very focused on where we invest our money.

GO: As you streamline your strategies to optimize efficiencies and profits, what are the current strategic investment priorities for Aphria right now?

DF: First and foremost, we are currently focused on closing and integrating the Tilray transaction. In connection with that transaction we’ve mentioned publicly that we are expecting to achieve about $100 million of cost cutting initiatives, which will really improve the profitability of the combined company. We are also focused on looking at those geographies and businesses where they will yield the highest ROI so Germany being a very large market, the U.S. being a large market.

We also are focused on, from an international perspective, looking at where we can develop partnerships, so maybe not investing in terms of capital, but where can we form strategic partnerships and alliances to help us maximize our international presence without a major investment.

GO: So in addition to your role as chief strategy officer, you were also appointed managing director for Germany. How do you juggle those two roles and are they overlapping functions?

DF: In some ways they are. Actually when I joined in September of 2019, at the time I was appointed chief strategy officer, but I also oversee the medical business in Canada as well as the international businesses. So both around the world outside of Canada, focusing on Europe as well as LatAm.

So Germany was already within my purview. We basically shipped our first EU GMP dried flower shipment late fall of 2020 and so as we are ramping up our cannabis sales in Germany, I was taking more of a day-to-day operational approach while we were doing the ramp up.

And to your point about strategy having some overlap, as we go into these new markets, a lot of it is the strategy development up front and the development of the commercial plan from that strategy.

We built a facility in Germany so there was a tender. The German government instituted a tender for in-country cultivation. We were one of three companies that won that tender and so in connection with that tender we had the ability to build a cultivation and processing facility in Germany, which is completed from a construction point of view.

We are awaiting our EU GMP certification and the product that is grown and cultivated at this facility, in first order, will be used to satisfy an agreement that we have with the German government to sell them medical cannabis. So we’re very excited about that opportunity. As I mentioned, that is an opportunity that we’re hoping will be up and running anytime soon, as soon as we receive our EU GMP certification. Things are a bit challenged with COVID, as you can imagine, but we are expecting that very soon.

GO: Where do you think the opportunities are for Canadian cannabis companies, such as Aphria, to take advantage of the emerging global market for cannabis and what do you see are the barriers?

DF: So the opportunities that I see for Aphria is very interesting in the fact that the amount of brand recognition that exists globally. In Canada we have demonstrated at Aphria that we have strength in cultivation and production. We have some of the highest quality cannabis product in terms of our grow and coming out of our facility.

We’ve also demonstrated the ability to develop brands that are recognized around the world, and it’s interesting because the successes that we’ve shown in Canada as as one of the leading LPs has really resonated around the world. So as we enter other countries – unlike other industries where you would be doing a grassroots, ground-up approach – there is in fact already a brand recognition that does provide an easier entry into the country, in the sense that, one, we have partners from other countries that reach out directly, and then we’ve also done our own reach into countries and have been met with lots of enthusiasm.

I think some of the challenges is that the regulatory framework in every country is so different, and so you really need to make sure you understand the framework. What are the requirements in terms of testing, packaging? And so that creates a bit of a challenge because you just need to really understand that very well because to be successful, you obviously need to understand all the various regulations so that you don’t have any sort of missteps when you enter the country. So I would say that’s been the biggest challenge is making sure that we understand that.