Brendan Kennedy and his team at Privateer Holdings are developing household names … in part by breaking their own rules
by Omar Sacirbey
Soft-spoken, clean-cut and often donning a crisp shirt, tie and suit, Brendan Kennedy doesn’t exactly scream rebel.
But the 43-year-old co-founder and CEO of Privateer Holdings could be considered somewhat of a rule-breaker, at least inside his company.
When Kennedy and his partners Christian Groh and Michael Blue founded Privateer in 2010, they mapped out a crystal clear strategy: build well-known brands that take the marijuana industry out of the counter-culture margins and bring it into the mainstream.
They also cemented rules to guide the business. Avoid marijuana clichés. Don’t embrace the “stoner” culture. Make cannabis seem friendly and nice. Try to appeal across demographics.
But with Kennedy at the helm, the firm ended up breaking some of those rules – and others – along the way.
And it seems to be paying off.
Privateer is a well-known name in its own right and is largely regarded as the premier investment firm in the space. It also owns three companies that either already have solid brands or are well on their way to building them: Leafly, Tilray and Marley Natural. One of those firms – Canada-based Tilray – is now on the verge of expanding into Europe and Australia.
Kennedy and Privateer are still generally following the plan they set out years ago.
In fact, building brands is at the core of what Privateer does. So much so that the company’s aptly-windowed if unremarkable Seattle office sometimes feels more like an ad agency than a private equity firm. Kennedy and his team show off hard cover manuals – bibles almost – that lay out commandments about what Privateer and its portfolio companies want to be and the image they want to leave with investors and the public at large. Colorful ads and other art serve as examples.
“Brands are important in every industry. There’s no other industry where you buy unbranded product,” Kennedy said. “And brands signal quality, safety, security, consistency, all of the things this industry needs to bring it out of the shadows and into the light. That was something of which we were certain.”
In building these brands, Privateer found that following some specific rules has been a lot more complex than expected. And knowing when to break them has been even trickier.
Initial Building Blocks
Privateer describes itself as the world’s first – and leading – investment firm focused exclusively on the legal cannabis industry.
The three companies it owns are in different areas of the industry. Leafly is an online reservoir of strain and dispensary/recreational shop reviews. Tilray is one of the largest Canadian marijuana cultivators. Marley Natural – created in partnership with Bob Marley’s family – develops cannabis strains (including some preferred by the reggae icon himself) as well as hemp-based body care products, t-shirts and other “soft goods.”
But the companies have one trait in common: The three have become (or are on the verge of becoming) household names in their target markets.
Before building those companies up, though, Privateer needed to establish its own brand. It started with about a year of boots-on-the-ground research, where executives visited dispensaries, growers, patients, pharmacies, lawyers, activists and even political campaigners.
“The industry at that point had a lot of problems, and it still does, but all those problems were opportunities,” Kennedy said.
There were no standards, management teams were unprofessional, marketing and branding benchmarks were low, and there was a dearth of institutional capital.
“It just felt like the right industry for disruption,” said Kennedy, a Silicon Valley veteran who founded a tech company in the past.
They also learned from their research that operating as a venture capital fund wouldn’t work because the businesses in the marijuana space weren’t professional or mature enough. So Privateer reorganized itself as a private equity firm, which allowed it to directly participate in its portfolio companies – hiring executives, deciding what messages to convey, and determining what the logos and image would look like.
The research also led them to their initial thesis, which holds true today: marijuana is a mainstream product consumed by mainstream people, and therefore the repeal of prohibition is inevitable. And like any other industry, they felt cannabis would be shaped by brands.
That “mainstream” thesis informed their decisions about the images they wanted to create about the company and its portfolio companies. For example, when talking about marijuana, they only use the word “cannabis.” Privateer’s executives also wear suits and ties, even though the industry dress code is typically as casual as possible.
“We were very careful about how we would tell that story and how we would appear,” Kennedy said. “We wanted to be seen as smart, professional, nice.”
But Kennedy realized that leaving a nice-guy impression wasn’t enough. As a rule, Kennedy liked to keep his pitches short, generally a 12-slide PowerPoint presentation that he could finish in 15 minutes.
He soon discovered that cannabis – with the legal, tax and public perception issues surrounding it – needed more explaining. Kennedy concluded he would have to break his brevity rule, developing a 42-slide presentation that took 40 minutes. He also had about 100 back-up slides for questions.
Privateer further developed its brand with the people it hires, bringing on workers from companies like Microsoft, Amazon and Time.com.
And then there’s Patrick Moen, who joined Privateer as general counsel in October 2013. The addition made waves: Moen formerly worked for the U.S. Drug Enforcement Administration.
Moen reached out to Kennedy via LinkedIn, identifying himself as “Patrick M” who worked at the Department of Justice. The notion that the Feds were looking to come down on Privateer crossed Kennedy’s mind. Nevertheless, Kennedy agreed to meet Moen for coffee in Portland.
When Moen slid a white envelope across the table, Kennedy thought, “Uh-oh, here’s the indictment.”
It was Moen’s resume. He had “rethought” his views on the drug war, Kennedy said, and wanted to join Privateer. Even though Privateer wasn’t planning to hire a general counsel for another year, Kennedy believed bypassing Moen would be a mistake, so he offered him a job.
“We needed somebody like him, but it was also a signal to the industry that we were serious and we were going to do this right,” Kennedy said. “He’s a very effective spokesman. He understands how regulators and politicians and law enforcement think, so he’s able to use the same language. He understands what their concerns are.”
That hiring strategy – coupled with Privateer’s other moves – paid off. Appearing well-informed, professional, and free of typical marijuana imagery helped Privateer get taken seriously by the investors it pitched.
On the Series A fundraising tour, which the firm closed with $7 million in December 2013, Kennedy and his team made at least 500 pitches, many of which would stretch from 45-minutes to two-hour meetings because people were interested and had questions.
“No one ever threw us out,” Kennedy said.
They then soon embarked on another fundraising effort, closing a Series B round of $75 million in early 2015. That round included a multi-million dollar investment from the Founders Fund, a mainstream investment firm run by PayPal co-founder Peter Thiel. The fund has invested in some very large mainstream companies, including Facebook and Spotify. It was one of the first institutional investors to invest in a marijuana company.
The Founders Fund investment brought a new level of institutional credibility to Privateer and the industry, so much so that Kennedy stopped feeling compelled to spend time winning over skeptics who feared that cannabis’ federal illegality was an insurmountable hurdle.
“If we had to convince an investor that this was an opportunity, then they weren’t the investor for us,” Kennedy said.
He added that Privateer is now working on raising a round of $100 million, half of which will be invested in the company’s international projects.
Learning a New Language
In 2011, Privateer made its first acquisition: Leafly, which was started the previous year by three “smart and nice” web development engineers in Orange County, California. In some ways, it ended up being Privateer’s easiest acquisition. For one, Leafly’s existing brand was already in harmony with Privateer’s ideals. Additionally, Leafly didn’t actually touch cannabis, which was in line with another one of those golden rules that Kennedy and his team eventually broke.
Leafly was unapologetically pro-marijuana. But it presented cannabis without marijuana leaves and the other typical clichés. As an example, Kennedy points to Leafly’s cheerfully color-coded periodic table of strains.
“The metaphor they were using, it was intelligent, it was whimsical, which fit the industry, and it didn’t embrace the usual clichés,” Kennedy said. “They talked about cannabis in a different way. They used a different language. It embraced this mainstream thesis that we had. It served all demographics.”
The challenge, as with many tech companies, was how to monetize the site’s user traffic.
That task was given to one of Privateer’s other co-founders, Christian Groh, who served as chief operating officer. Groh decided to try to get dispensaries to pay to list on Leafly’s site, allowing them to present and update their available strains in real time. Leafly also began running user-generated reviews and related content about the stores and dispensaries.
The company built a small sales team and started pitching dispensary owners, while simultaneously adding more features to the site for patients, dispensary owners and even doctors.
Traffic and user-generated content on the website grew by leaps and bounds, which made it easier to persuade more dispensaries and rec stores to join. Retailers quickly realized that they would have a better chance of getting noticed by patients and customers if they had a Leafly listing.
“You look up any strain in the world, and Leafly comes up first,” Kennedy said.” You can’t buy that.”
Branding Leafly also involved an expensive and spontaneous decision that went against Kennedy and his team’s desire to keep risks to a minimum: run a full-page ad in the New York Times. In 2013, Privateer’s creative team was asked to think about what the first mainstream newspaper cannabis ad might look like. They came up with a picture of two urban professionals who used cannabis to deal with symptoms of multiple sclerosis and cancer.
“We wanted the first ad to be mainstream, an ad that people could embrace,” Kennedy said.
They shelved the ad until about a year later when they heard that the Times would be publishing a series of articles about marijuana and was intending to write an editorial in support of cannabis legalization. A few weeks before that, New York Gov. Andrew Cuomo signed a law legalizing medical marijuana.
Kennedy called his partners and said they should pull out the ad and run it in the Aug. 3, 2014, edition – a Sunday, the biggest and most widely read issue of the week. It would cost around $250,000, but it would be worth it, he argued.
They agreed, despite the risk that the company could set itself up for criticism – and perhaps even federal scrutiny.
“It was expensive, but it was the right thing to do,” Kennedy said. It ranked as the first cannabis ad to ever run in the New York Times and generated 362 news stories in 97 countries, he said.
In January, Leafly and its roughly 50 employees moved out of Privateer’s basement and into a new office in central Seattle’s bustling Pioneer Square.
“To be in a location where there are a lot of other technology companies, it feels really good, it feels like you belong,” said Paul Campbell, Leafly’s vice president of marketing, who joined from Microsoft less than a year ago.
Seeds of Globalization
In the summer of 2013, Health Canada was trying to generate interest among investors who could potentially finance new cultivation enterprises seeking medical marijuana licenses.
As part of those efforts, the agency – which is responsible for overseeing public health in Canada – contacted Privateer. Officials wanted to see if the firm would be interested in getting behind any of the groups vying for new federal cultivation licenses. Despite a rule that Privateer would not get involved with businesses that touch marijuana, Kennedy, Groh and Blue were intrigued by the possibility of having a federal license to grow marijuana. So they flew to Toronto to meet with a Health Canada official responsible for “new market development.”
The two executives came away from the meeting with a similar assessment: this provided an opportunity to develop something global, which was critical to the firm’s aspirations.
The Canadian health official gave the Privateer team a list of about 20 applicants, but they ended up meeting about 50 applicants in six weeks. They liked certain individuals from certain teams, but not any teams as a whole. So they asked if they could build their own team. Health Canada said yes.
“(Our) ambitions were global from the beginning,” Kennedy said, noting that the company secured an international domain name.
Privateer bought a building in Nanaimo, on Vancouver Island, on Jan. 2, 2014, before the company had even won a license – or had a name. There were no Canadian citizenship requirements to land a cultivation license, so Privateer didn’t need to find a local partner on that end.
Naming and branding a newly created company that grew medical marijuana was an altogether different challenge than anything Privateer encountered with Leafly, which was already established and smartly branded.
“It’s a grueling process,” Kennedy said.
Working with dozens of names and logos provided to them by Heckler Associates – the Seattle-based branding firm behind Starbucks and other major companies – Kennedy and a mix of Privateer managers and staffers would review and score the names and logos and eliminate their way to an eventual winner. There was one rule: You couldn’t say anything negative about a proposed name. Privateer executives didn’t want to discourage new or young or shy employees from speaking openly about their preferences, which could happen if a senior executive trashed a particular name or design.
After a week of reviewing, Privateer eventually settled on Tilray, with “Til” evoking tilling the earth, and “ray” the sun. After checking to make sure Tilray didn’t mean anything awkward in a foreign language, Heckler developed dozens of logos that company employees then evaluated.
“The winning ones tend to be the ones that draw the most emotion. People either really like it or hate it. And the ones in the middle are usually not well liked,” Kennedy said. “It’s involved. But if you want to have a global brand, that’s how you do it.”
Tilray shipped out its first product on April 28, 2014, and it quickly became one of the country’s top three MMJ cultivators in terms of market share, according to Kennedy.
How? To build its name, Tilray has used a variety of strategies. The company invited national and local news outlets to the opening of its grow facility, focusing on the fact that the facility would employ some 200 workers. That helped generate solid media attention and capture the public’s interest.
To win customers, Tilray offered $5 shipping everywhere in the country. It also provided discounts to senior citizens and patients making their first order.
Moreover, Tilray made waves in Canada by criticizing competitors that gave kickbacks to doctors who referred patients to them. It even started a new industry association – the Canadian Medical Cannabis Council – with two other cultivation companies.
These days Tilray is working on export deals and partnerships that will put the company in some U.S. states that have legalized medical cannabis, seven European countries and Australia (which legalized MMJ for research purposes) by the end of 2016.
But Tilray has also had its share of problems, including product recalls and downsizing. Last year, for instance, it laid off roughly 60 employees.
Zack Hutson, Privateer’s communications manager, attributed the layoffs to weaker-than-expected demand, automation and simply needing fewer employees than during the plant’s startup phase.
“It was painful but we had to do it,” Hutson said.
This type of turbulence can lead to bad press, which in turn can impact the brand.
But while the media did cover some of these issues, Hutson said the company didn’t see a decline in sales or a hit to its brand. Tilray gave generous severance packages to employees it let go, Hutson said, which softened the blow of the layoffs to workers and minimized any potential damage to the company’s image.
Capitalizing on a Cannabis Icon
One company that Tilray might eventually be able to grow marijuana for also happens to be the third and most recent business Privateer brought under its wing: Marley Natural.
Based in Manhattan and owned by members of Bob Marley’s family, the company aspires to be a worldwide cannabis brand.
This is where Kennedy and his team broke one of their most important rules: avoid cannabis clichés, which had served as a key building block of the company.
In fact, in a New York Times Magazine article from 2013, Kennedy said one of the things he had most liked about Leafly was that “the site wasn’t plastered with pot leaves or pictures of Bob Marley.”
Kennedy made other comments to the media about avoiding the traditional marijuana culture, and he came under fire from some areas of the cannabis community. Russ Belville, host of a marijuana-centric radio show, took him to task in a Huffington Post article.
“For it wasn’t too long ago that Kennedy was disrespecting ‘stoners’ and their culture, Bob Marley in particular, in every mainstream interview he could,” Belville wrote.
But when a representative for the Marley family called to see if Privateer would be interested in teaming up to develop a global cannabis brand, Kennedy had to at least hear their pitch.
When Kennedy flew to meet the Marley family in New York, he still harbored concerns that the reggae legend was one of those clichés that held the industry back. But after a few meetings, Kennedy came to see Marley less as a stoner cliché and more as someone who championed social justice and peace and for whom cannabis was spiritual.
After 22 months of negotiations and consideration, Privateer and the Marleys signed an exclusive 30-year international licensing agreement, the terms of which were not disclosed.
“There is unlicensed Bob Marley stuff everywhere that was all cheap and bad and yet every new generation embraces his work and loves Bob Marley,” Kennedy said. “For us, it was about how do you elevate that brand away from the cliché?”
Marley Natural will sell branded cannabis in recreational and medical marijuana states, and by 2017 it could be in Canada. The company has also developed a line of hemp-based body care products that can be sold anywhere. The hope is that these lotions and creams will appeal to consumers who don’t use marijuana, and perhaps even pique their interest in cannabis.
“You can start using a brand to change people’s understanding of the product,” Kennedy said. “With Marley, you have a global icon, but also a broad-based product line that gives the brand a halo in all the different places even if we can’t offer all the products there.”
When Privateer announced the formation of Marley Natural on the “Today” show last year (see sidebar story for more on this), the firm achieved a marketing coup. The announcement generated 2,000 stories around the world, and six million people watched the clip.
As of late January, Marley Natural had almost 850,000 social media followers – pretty good for a company that still hadn’t even released a product yet (the first ones hit the shelves in February).
Still, Privateer has been criticized for its involvement with Marley. The Internet news magazine Vice described the company as a group of rich white guys who have little to do with marijuana, saying they robbed the poor island of Jamaica – where Bob Marley is from – of one of its greatest icons and cultural exports.
Privateer says the criticism is unjustified.
“That’s a knee-jerk reaction. The more people understand what we’re trying to do, the more they’ll like it,” Hutson said. “The Marley people approached us, this was their idea. And they wanted to work with us because they recognized we would do it the right way.”
Hutson added that Marley Natural marijuana will be grown sustainably, consistent with the singer’s values. He also said that Privateer, through Marley Natural, works with philanthropies, such as Global Giving, to help Jamaica.
“We’re starting out small. We don’t have any revenue yet,” said Hutson, who joined Privateer from Starbucks. “People have a right to be skeptical but I know we’ll prove otherwise.”
Brands Can Do Good
Kennedy has also faced criticism from some marijuana advocates and the media for bringing a corporate mentality and style to what is still a very un-corporate industry.
After all, marijuana has embraced a counter-culture image, and the industry was founded on the backs of small mom-and-pop businesses. Many in the industry still have a strong resistance to big business and fear that companies like Privateer are corporatizing the sector. Others think companies like Privateer are crushing the industry’s soul.
Nevertheless, Kennedy is convinced that his strategies are not only good for Privateer, but also for the industry as a whole.
Indeed, even long-time advocates involved in the industry understand that it needs to grow up and become more professional if it wants to be taken seriously and reach its full potential. And building well-known brands with a wide reach is a key part of that equation.
“Businesses can create change as effectively as activists and politicians,” Kennedy said. “Professional brands will help end prohibition. If you can show a soccer mom a brand, she will feel comfortable with what an end to prohibition looks like. If you can show cannabis companies that are providing jobs and being good community citizens, you make it easier for somebody to support. An activist can’t do that the same way a brand can.”