Tilray Inc. and Authentic Brands Group inked a $350 million revenue sharing agreement for the development and marketing of consumer cannabis products across ABG’s brand portfolio.
Under the terms of the transaction, the cannabis firm is initially paying ABG $100 million up front. There is the possibility of an additional earnout of up to $250 million in cash and Tilray stock, provided ABG meets its agreed upon commercial, or regulatory, milestones.
While referred to as a revenue-sharing agreement, the arrangement functions as a licensing deal, with Tilray having the right to receive up to 49 percent of the net revenues from cannabis products bearing ABG brands, or a guaranteed minimum payment of up to $10 million annually for 10 years, subject to certain conditions.
The deal helps Tilray broaden its cannabis reach in the retail supply chain, while also using ABG’s brand portfolio as a marketing tool. The Canadian company, which in July raised $153 million to become the first marijuana grower to complete an initial public offering, is considered a pioneer in the research, cultivation, production and distribution of cannabis and cannabinoids that help patients and consumers in 12 countries across all five continents.
Brendan Kennedy, Tilray’s president and chief executive officer, said in a telephone interview that ABG had been “exploring opportunities in the [cannabis] industry over the course of the last year, doing a lot of work meeting with companies in the U.S. and Canada. We met them in December and over the course of the last two weeks, moved quickly to reach [our] agreement.”
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According to Kennedy, the deal is structured as a perpetual master license for ABG’s brands, with ABG licensing the Tilray name and Tilray supplying the cannabinoids, or CBD, used in the products. For Tilray, Kennedy said the attraction to ABG was its sizable brand portfolio.
“For us, it seemed an amazing opportunity to market and distribute a portfolio of consumer cannabis products. We’ve been saying for 8.5 years, brands matter [and] brands are important,” Kennedy said. According to the CEO, ABG and its brands are “second only to Disney in terms of generating licensing revenues in consumer brands.”
The agreement mandates that Tilray is the exclusive cannabis partner to ABG, although Tilray can go out and license its name to other consumer brands. As for when the products could hit the market place, Kennedy said, “ABG is incentivized by the structure to move fast, likely within the next few months.”
Given ABG’s retail reach, Kennedy said it was a way to get Tilray’s cannabis products “into the hands of consumers quickly,” such as including a CBD foot cream into every box of shoes that ABG’s sells. While Tilray would provide all of the CBD, each product would be sold under the individual brand’s name. An added benefit is that “consumers are more likely to try a Juicy Couture CBD product” than another one that’s out there, the CEO said.
ABG is a brand management firm with more than 50 brands under its umbrella that generate $9 billion in retail sales annually. The brand portfolio has a global retail footprint of over 100,000 points of sale and more than 4,500 branded freestanding stores and shop-in-shops, as well as a social media reach of nearly 250 million followers.
For ABG, the move is the company’s big foray into the growing health and wellness sector. Daniel W. Dienst, ABG’s executive vice chairman, said, “Tilray’s unyielding focus on science, product quality, operational excellence and innovation has allowed them to quickly emerge as a leader in the cannabis industry. We see extraordinary potential for cannabis in the fast-growing health and wellness category…”
Separately, the deal also could be a shrewd one that helps the brand management firm reach a greater pool of consumers for its brands, and that in turn would be a big plus for any firm on the supply side that’s connected to ABG’s pool of product categories. ABG has more than 875 global partners through its networks of manufacturers, operators and retailers.
ABG prides itself as a “partner” that works with its different business groups. Advertising stills of product in the concept stage could have the inclusion of a free sample of pain relief cream in the purchase of a Prince-branded tennis racket or a cannabis lip cream for every purchase of Spyder outerwear. ABG has footwear brands that include Frye and those under its recent Nine West and Camuto Group acquisitions last year, for an estimated total production count of more than 37 million pairs of footwear annually. Samples of cannabis foot cream for heel pain, or pedicure-related products, could be included in every box of footwear that’s sold. It’s a move that could raise more consumer awareness to ABG’s brands through its social media platform, and in turn cultivate a growing pool of brand loyalists for its products.
That kind of marketing move also would further ABG’s position as the licensing partner of choice for its ability to grow sales to help retailers, licensees and others–such as raw materials suppliers–further down the food pyramid within its global supply chain network.
Brands under ABG’s portfolio umbrella include Dr. J., Greg Norman, Nautica, Juicy Couture, Vince Camuto, Nine West, Frye, Enzo Angiolini, Hickey Freeman, Taryn Rose, Spyder, Tretorn and Prince, among others.