From his start as a pharmacist and part-time investor, Jason Wild, now 48, grew JW Asset Management over 21 years into a firm overseeing $1 billion. His flagship JW Partners fund has returned an average annualized 24.9%, net of fees, in that time, owing to a mix of savvy investments in pharmaceuticals and cannabis producers, and the boss’ entrepreneurial streak.
Wild was one of the first U.S. institutional investors in legal cannabis companies, and he also assembled a specialty pharmaceutical business that the fund sold for a huge profit. Now, he’s building the Canada-listed cannabis company TerrAscend (ticker: TER.Canada).
Wild also invests in health-care companies, as he explains in this edited and condensed interview.
Barron’s: How did you go from the pharmacy counter to Wall Street?
Jason Wild: I am originally a pharmacist. My father’s a pharmacist, as well. I grew up in his drugstores in the Bronx and Manhattan. Around my last year in pharmacy school, I read my roommate’s copies of [Fidelity investment star] Peter Lynch’s books, One Up on Wall Street and Beating the Street. Lynch’s approach was “buy what you know.” I took that approach to heart and started following pharmaceutical companies.
After I got my pharmacy degree in 1997, I was making $65,000 a year, and I needed only about half of that. I put every other paycheck into my brokerage account and bought on margin because I didn’t know better. At the end of a year, I had made more than $500,000 from a start of about $30,000 in my investment portfolio. Then I saw a classified ad in Barron’s that said, “Want to start a...hedge fund? Mutual fund? Offshore fund?” It was placed by a fund administrator called International Fund Management. They gave me a quick tutorial on what it would take to open up a fund. They could do the accounting for me.
Another satisfied reader.
For the first couple of years, I moonlighted as a pharmacist at the ShopRite supermarket in Paramus, N.J. But we put up some pretty good numbers. From 1998 to 2010, the fund was up 22% annualized, net of fees. We grew assets from $89,000 to $25.5 million. Our wheelhouse was the specialty pharmaceutical sector. From my pharmacy experience, I knew almost all the products on the market. When a company did a deal, I could quickly figure out whether it was good.
How did you decide to build a pharmaceutical company?
Around ’07 or ’08, I arranged a deal between two public companies in which I was an investor. One bought product rights from the other for about $10 million. In the next eight years, they made over $100 million on that asset. What did I get? A pat on the back. I wanted to refer those deals in-house, and not lose the next home run.
A consultant introduced us to Arbor Pharmaceuticals. It was about three years old, doing about $2 million in sales, and not making money. We bought it for $2.5 million in cash and put another $3 million on the balance sheet. Arbor did three deals in that first year, 2010. By the next year, it had $127 million in sales and $55 million in Ebitda [earnings before interest, taxes, depreciation, and amortization].
The fund ended up selling a third of the company in 2014 to KKR [KKR] at a $1.12 billion valuation, about 155 times our initial investment. It ballooned the size of our fund, which owned about half of Arbor.
What did you do with the money?
We got involved in the cannabis sector. I got a call from a Canadian banker raising money for a medical cannabis company in Ontario. I concluded this was going to be a huge opportunity. We invested in about five companies, all private at that point. All but one went public. We became a top 10 shareholder in Canopy Growth [CGC], Cronos Group [CRON], and others. We continued to invest through 2017. Then I thought, “We can do Arbor 2.0 in the cannabis space.”
My fund was around $700 million. TerrAscend (TER.Canada) was a Canadian company that I had invested $250,000 in. They had a market cap of 40-something million Canadian dollars. In November 2017, I convinced them to take a C$52.5 million private placement from me and Canopy Growth. We did 60% of the deal; Canopy Growth did 20%; and its venture arm, Canopy Rivers, did 20%. I became chairman.
How did TerrAscend come into the U.S.?
Canopy couldn’t invest in a company operating in the U.S., where cannabis is federally illegal. It trades on the NYSE and Toronto Stock exchanges, which don’t allow listed cannabis companies to operate in the U.S. They swapped their regular shares for exchangeable shares monetizable only in the event of U.S. federal legalization or a change in exchange listing rules.
Our first big U.S. deal was in February 2019, for a San Francisco dispensary chain called the Apothecarium. Our next big acquisition was Ilera Healthcare, the No. 1 cultivator and manufacturer of cannabis products in Pennsylvania. The Pennsylvania cannabis market is over a billion dollars at retail, or $500 million at wholesale. We believe TerrAscend’s Ilera owns around 25% of the wholesale market there.
Where do you want to be in the U.S.?
We want to be in limited-license states. They’re less competitive. On the West Coast, you can get a cannabis license like you can get a driver’s license.
In 2018, New Jersey had only six licensees and announced it was going to award another six. TerrAscend applied, and they awarded us the northern region, which has more than a third of the population. We’ll be opening in Jersey next month. We will have the largest facility in the state. And adult-use, or “rec,” [legalization] is going to be on New Jersey ballots in November. Chances are that it will be approved.
We’re excited in New Jersey for our retail operations. New Jersey has more than nine million people. I’ve got to believe it’s at least a $1 billion market. At the moment, there are only 11 dispensaries in Jersey, with licenses for another 25. If you divide $1 billion by 36, we’re talking about stores that could do somewhere around $30 million each, on average. A great dispensary in the U.S. is a $15 million-a-year dispensary.
What kind of results can we expect for TerrAscend?
The company has given guidance of at least C$192 million [US$144.5 million] in 2020 revenue and at least C$45 million in Ebitda. We have minimal numbers in there for Jersey. That really kicks in for next year. Because of the bear market in the cannabis sector, our stock is priced lower than two years ago, when we weren’t even cash flow-positive.
Has the meltdown in Canadian cannabis stocks hurt you?
It wasn’t much fun. Canada ended up not developing to the extent that people thought it would. In the first half of 2019, these Canadian stocks went down almost every day. We sold most of the Canadian names by the end of the first half of last year. My mistaken view back then was that the U.S. stocks would decouple from Canada. But the market put a higher multiple on the Canadian companies because they were listed in the U.S., so the U.S. stocks were led down by the Canadian ones.
How does the cannabis business look now?
Six or so months into the Covid crisis, U.S. demand is up pretty significantly across the country. Cannabis taxes are going to be a vital tool for states that have huge holes in their budgets. It’s becoming a little more of a bull market for cannabis. The capital freeze in this space shook out the weaker companies. Of the larger American multistate operators that have reported earnings over the past couple of months, practically all are putting up strong numbers. You can’t find this kind of growth anywhere else at these multiples.
American cannabis operators must list their stocks in Canada. Which do you like, besides TerrAscend?
On the public side, I like the bigger ones. The four top ones in terms of market cap are Curaleaf Holdings [CURA.Canada], Green Thumb Industries [GTII.Canada], Trulieve Cannabis [TRUL.Canada], and Cresco Labs [CS.Canada]. They are all built to last and should all do well.
Do you still like any pharma stocks?
We have held Horizon Therapeutics [HZNP] since 2013. They were ahead of the curve in realizing that things were going to get tougher in the space. So they pivoted toward orphan diseases that affect fewer than 100,000 patients. They get seven years’ exclusivity and there’s less pushback on the pricing of these lifesaving medicines.
Any other health-care names?
Establishment Labs Holdings [ESTA] is a big position. It was one of the first Costa Rican companies to go public in the U.S. It makes the best-in-class, safest breast implants. Costa Rica has a tax-free zone where manufacturers like Medtronic [MDT] operate. The No. 1 market share in implants is the Allergan unit of AbbVie [ABBV], and they make their implants in Costa Rica, too.
We bought 25% of Establishment in 2015, and they did $10 million in sales that year. In 2019, they did $90 million. They’re everywhere in the world with their products, other than the U.S. They did their 2018 IPO to raise money for their U.S. trials.
Establishment’s product has a much lower “reoperation rate” [than competitors’]. That is the medical term for when a breast implant needs to be removed and replaced. In clinical trials for Allergan and Mentor (owned by Johnson & Johnson [JNJ]), the five-year reoperation rates were over 20%. Establishment Brands’ historic reoperation rate has been less than 1%.