Yale School of Management MBAs engage in a joint venture

The Kennedys, once America’s most powerful dynasty, profited by securing distribution rights for Scotch and gin …just as the prohibition on alcohol was ending.

Now another Kennedy – unrelated to the political clan – is hoping to do the same with cannabis.

With Michael Blue, a fellow Yale MBA graduate, and Christian Groh, a third partner, Brendan Kennedy has launched Privateer Holdings, a private equity group in Seattle that aims to capitalise on moves towards cannabis legalisation in the US by investing exclusively in marijuana-related ventures.

It is not just about making money, says Mr Kennedy, but about ending the “harmful prohibition” of cannabis. “I feel righteous and it’s not often in the business world you get to feel righteous.”

An architecture graduate with a second degree in civil engineering, Mr Kennedy enjoyed a successful first career with a Seattle construction group before building his own company around custom project management software. He sold that business, launched another selling usability comparability software for websites. After selling that he decided that now in his 30s, he needed a business school education. “I wanted to formalise the informal business education I’d had up until that point.”

His initial meeting with Mr Blue, on their first day at Yale School of Management, was an indication of their different approaches to life, but a hint of their complementary skill sets.

“I moved to Yale with just two duffel bags that contained a brand new laptop and some clothes,” he recalls. “Michael moved from Arkansas with his wife and a truck full of dining tables, armoires and big couches.”

They enjoyed early success, winning the Yale business plan competition by partnering with two doctors to create smartphone software for managing hospital waiting lists.

Growing market

The move towards cannabis legalisation in the US has gained momentum since December 2012 when possessing an ounce of marijuana became legal in the state of Washington for those aged 21 and older. A similar law in Colorado took effect the following month.

“At business school you self-select into teams of people that you can work with,” says Mr Kennedy. “You go through lots of groups trying to find the right one for you and Michael and I found that we enjoyed working together.”

After Yale, Mr Blue went to work for private equity groups, Mr Kennedy to Silicon Valley Bank, evaluating new-business pitches from electric cars to daily coupons [deal of the day web sites]. But they knew they would work together again and spent the next five years bouncing business ideas off one another – from 3D-printing statuettes to rating companies and products on their environmental credentials.

In May 2010 Mr Kennedy had just heard a pitch from a medical marijuana company. “I thought, what in the heck is this? There are no Gartner, Morningstar or Goldman reports about the medical marijuana industry, which could have dissuaded me from going any further. But it piqued my curiosity.”

That same week, while driving to Santa Clara, Mr Kennedy happened upon an NPR broadcast about California Prop 19 – a ballot on the legalisation of cannabis-related activities. “Sometimes you need to hear something in two or three different times and places before you realise, this is it,” says Mr Kennedy, who pulled over and called Mr Blue immediately, telling him he should quit his job and come to work with him in cannabis.

“It’s not the kind of call you expect,” laughs Mr Blue. “But I could tell he was serious and very quickly our conversation moved from the industry to the business opportunity. And we viewed it as not just a financial opportunity, but one for social return too – to be a part of ending cannabis prohibition and all the harm that comes with that.”

Mr Blue admits some difficult conversations ensued. “Neither of us would have done it if our friends and family hadn’t been supportive. I come from a conservative family in a conservative state, so cannabis wasn’t a topic around the dinner table.

“But everyone I talked to knew someone, personally, who had used cannabis for medical purposes and had gained real benefit from it.”

Mr Kennedy says his own perspective has flipped 180 degrees. “There is so much wrong about current policies on cannabis prohibition, both within the US and around the world, that we feel a moral imperative to succeed. I’m not a social venture kind of guy, but our investors are looking for social as well as financial returns.”

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Did their time at Yale prepare them for a career in cannabis? The MBA has, says Mr Kennedy, given them confidence in their own instinct.

“Michael and I occasionally ask ourselves, what are we doing, is this insane, will we ever be hireable again? But our time at Yale helps us come to the conclusion that we are, in fact, smart, rational and pioneers.

“Nothing about the marijuana business is easy: it’s socially taboo, controversial and complex from a legal and business standpoint. But we’re motivated to end this prohibition. We want to win.”

…

Constance Bagley, professor in the practice of law and management at Yale says businesses in such fledgling markets face specific legal challenges. “What is critical is to grow, market and sell the cannabis in only those jurisdictions where it is legal.”

Prof Bagley, who also sits on the advisory board of Wharton School’s Zicklin Center for Ethics research, advises Privateer to negotiate carefully the “tangle of ethics”.

“Just because something maximises shareholder value does not mean you should do it. In my opinion, no one should ever sell a product they would hesitate to recommend to a friend or relative,” she cautions.