Tilray Inc. announced early Tuesday that it has inked a global supply and distribution agreement for medical marijuana with pharmaceutical giant Novartis AG, continuing a trend of legacy industries linking up with the new breed of marjiuana producers.
Tilray TLRY, +15.22% shares opened nearly 10% higher Tuesday morning, after the deal was officially announced, and touched gains of 12% in the first few minutes of trading. Novartis NVS, -0.04% stock was close to even at the open.
Following investments by big beverage and tobacco companies in Canadian pot producers focused on the recreational market, the Novartis-Tilray pact adds further legitimacy to an industry that until recently was dominated by drug cartels, outlaw motorcycle clubs and smugglers. For Tilray, the deal is the culmination of months of work for Chief Executive Brendan Kennedy, who said in an interview that the partnership will give his company a sales and distribution channel in dozens of countries.
“Around the world, people are substituting medical cannabis for traditional pharmaceutical products,” Kennedy said in a telephone interview Monday evening. “Medical cannabis is disrupting Big Pharma, and Sandoz and Novartis are smart for being ahead.”
Kennedy said that the pact is the first major partnership of its type between a cannabis company and a big pharmaceutical business. The deal has its origins in Canada, the second country in the world and only member of the G-7 to legalize marijuana for recreational use. Through the Novartis subsidiary Sandoz, Tilray signed a similar agreement to distribute and sell medical cannabis products in 2017 — an agreement that prompted this much larger deal, which expands the agreement to the roughly 35 countries around the world that have medical cannabis laws, a number that Kennedy says will likely increase in the future.
As a part of the agreement, Tilray will be able to use Sandoz’s muscular global sales channels to help smooth the way for the marijuana producer to introduce medical products where it is legally allowed to do so, Kennedy said. Tilray said that it cut an exclusive deal with Novartis, which is not allowed to partner with another pot company, and Tilray cannot make a pact with another pharmaceutical business on non-combustible products.
“The key point is that it will allow us to expand into more markets, more quickly,” Kennedy said. “This is an agreement that will take advantage of Sandoz’s global footprint and leverage their brand, which inspires trust and confidence with pharmacists around the world. Also, we can use their salesforce to educate physicians and pharmacists around the world — which can be a challenge.”
Kennedy also said that the companies will work together to develop new products, and have several that focus on defined dosage. The agreement announced Tuesday covers non-smokable and non-combustible medical products.
Earlier this year, Constellation Brands Inc. STZ, -1.77% invested $4 billion in the Canadian pot producer Canopy Growth Corp. CGC, -0.91% WEED, -1.48% . And in December, Altria Group Inc. MO, -1.78% announced a $1.8 billion investment in Cronos Group Inc. CRON, +4.68% CRON, +5.00% . Kennedy said Novartis was in talks with “a number” of Canadian-licensed marijuana producers but ultimately settled on a deal with Tilray.
Kennedy said that the deal with Novartis doesn’t signal that Tilray is going to prioritize the medical cannabis market ahead of recreational pot, which it currently sells in Canada. “For Tilray, both are equally important,” he said.
Tilray stock has gained nearly 200% since it began trading earlier this year after its initial public offering. The ETFMG Alternative Harvest ETF MJ, +0.38% , which tracks cannabis stocks, was up more than 1% early in Tuesday’s session.