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Tilray Inc. shares jumped 16 per cent on Tuesday after the Nanaimo B.C.-based cannabis company announced an international partnership with Sandoz AG, a subsidiary of the pharmaceutical giant Novartis International AG. The companies will sell co-branded non-combustible cannabis products in medical markets around the world, building on an earlier partnership between Tilray and Sandoz Canada.

Cannabis Professional spoke to Tilray CEO Brendan Kennedy about the new Sandoz partnership, Tilray’s plans for the United States, and supply shortages in Canada.

The interview has been condensed and edited for clarity.

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You speak about international expansion with Sandoz, but don’t name the countries you’re targeting. What exactly does the new agreement do?

Over the last year, we've had lots of conversations with different Sandoz/Novartis business units globally, from Australia to Latin America to Africa to Germany and Western Europe, about signing similar agreements to the Sandoz Canada agreement. It took a very long time to negotiate the original agreement, and it would have taken a long time to negotiate agreements with individual countries. So what this does is enable us to add individual country or region agreements essentially as appendixes to this document.

Where do you expect to sell the first Tilray/Sandoz co-branded products outside of Canada?

My guess is most likely a country in the EU. I think that Germany would likely be one of the first ones.

Where does your growing facility in Portugal fit into this?

We've completed our first outdoor harvest from Portugal and are still building out our processing and manufacturing space. The first crop will be harvested from the greenhouse in February, we’ll process it in March, and most likely export it from Portugal to Germany in early April.

What kind of medical cannabis products is Sandoz and Novartis most interested in?

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They see it as substitute for all kinds of medicines. Patients are using medical cannabis products for pain, they're using it for chemotherapy induced nausea, epilepsy, MS, palliative care, sleep. The key aspect for them is non-combustible, so oils, extracts, capsules, gel-caps, patches, additional form factors.

Is the agreement with Sandoz primarily a marketing deal?

The agreement covers R&D, sales and marketing and co-branding. So in addition to partnering with their sales force, and their global distribution network, it also enables us to tap into their supply chain. For example, they have a massive factory that produces millions of patches in Germany. So rather than investing in all of that manufacturing technology ourselves, that’s a product where not only could we perform the R&D with them, but they would be able to manufacture it.

What are the financial terms of the deal?

The terms are not disclosed. But there's not an investment by them in Tilray. It's early days in this industry, and while companies such as Constellation and Altria have bought our competitors in Canada, we're not interested in being bought or acquired.

Are you doubling down on medical market with this deal, rather than the recreational market?

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Medical and adult use are equally important to us. We do believe that if you're going to partner with companies in other industries it's much easier to have your first partnership be with a pharmaceutical company and then move to other sectors. I think it's very difficult to be a company that is owned by a tobacco company and then try to find a pharmaceutical partner.

The announcement comes a few days after the U.S. Congress passed the Farm Bill, removing hemp-derived cannabidiol from the Controlled Substances Act. Will you sell Tilray/Sandoz CBD products in the U.S.?

That’s to be determined. We’re hopeful that President Trump will sign the Farm Bill into law this week. That presents an excellent opportunity for Tilray to capitalize on the estimated $22-billion hemp-derived CBD industry in the United States, so it’s certainly potentially an aspect of this agreement. There are certain steps that would have to take place in the United States regarding DEA, FDA and further reconciliation of federal law. This agreement is much more focused on the more than 35 countries around the world that have legalized medical cannabis.

Sandoz aside, what are Tilray’s plans for the U.S. CBD market?

We are extremely interested in producing wellness products in a wide range of formats for consumers or patients in the United States. Obviously, we've announced a supply agreement [with LiveWell] for hemp-derived CBD from Montana, and we have additional agreements that are subject to President Trump signing the Farm Bill into law.

Closer to home, Canada’s recreational market is off to a bumpy start. How long do you expect supply shortages to continue?

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I would have thought that it was going to take 12 months for a demand-supply balance. But now I’m a bit more sceptical, and I think it’s more of a 12 to 24 month time frame. We were just as surprised by the supply constraints in Canada, and we increased our supply capacity 10 X between the start of the year and the end of the year. Reporters were writing articles a year ago about how oversupplied this market was going to be, we heard claims from all these LPs about how much product they were going to be able to produce, and we believed it. We would have invested very differently a year ago if we hadn’t believed all the things we were reading from journalists and all the things the other LPs were saying.

As a company that relies, at least in part, on product grown by other companies, have you found it hard to source supply in Canada?

We have had some supply agreements where people weren't able to supply the products that they agreed to supply us with, so we've been affected by it.

Is the problem that companies over-promised and under delivered? Or has Health Canada been too slow licensing new facilities and LPs?

The answer is a combination of the two. Everyone is investing in these very complicated buildings, and it takes time to turn on what is essentially a very complicated machine. In addition to that there have been licensing issues, where companies like ours have built out space, and it takes a very long time for it to be licensed. Then once you have these complicated machines up and running, it’s a plant, it takes six to nine months from turning on one of these buildings to processing a finished pharmaceutical product.

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