TONY GREER: Hello, Real Vision. Tony Greer from TG Macro. I am excited to have a conversation today with Jason Wild of JW Asset Management. Jason started JW Asset Management in 1999 coming from a position of being a pharmacist. Over the last 20 something years, Jason has built his fund up to $1.8 billion asset manager. He is heavily involved in the cannabis space, which we are going to get to, but I really want to introduce Jason as a captain of industry that tells an amazing career story. Jason, thank you for coming in and visiting us today.
JASON WILD: Thank you.
TONY GREER: I really appreciate it. You made it into the city during a pandemic, and we get to have a great conversation now. When my friend Todd Harrison calls me up and says that I have a friend that is as wise as he is humble, I get really excited to meet people in the markets like that. You have been no disappointment since we started connecting. Let us start right at the beginning, I would love to discuss the beginning of your career and the path that got you to where you are. We are going to have a couple of questions along the way, but let us start at the pharmacy, man. You got out of college, and you started making drugs.
JASON WILD: I started making sure I am selling drugs at least or dispensing them. I got my pharmacy license in the beginning of 1998. Practiced pharmacy for about a year. Around the same time, or towards the end of pharmacy school, I read the Peter Lynch books, One Up on Wall Street and Beating the Street, and it was all buy what you know, and I was like, well, I should know something about pharmacy and drug stocks. When I became a pharmacist, all of a sudden, I was making at the time $65,000 a year, which was like a ton of money to me, and I only needed like less than half of that amazingly to live.
I started investing practically every other paycheck in the stock market using more margin than I probably should have, because I did not know any better. That first year, I made about a half a million dollars in the stock market, which was a lot more than I made as a pharmacist, and I was like, I like this a whole lot better. It is a lot more interesting and exciting than dispensing prescriptions, and I decided at the end of 1998 that I was going to launch a hedge fund.
My view was like, if you build it, they will come. I did not really care what I started with, because I felt like I was going to be able to continue to have good performance, so I launched the fund with $80,000 under management.
TONY GREER: Your money, friends' money, accumulated money, how did you get your leg into it and start saying, okay, we have got to fund, let us put some positions on. Tell me about it.
JASON WILD: I put $50,000 of my own money in, my dad put it in like 20 grand, and I had another friend who put in like 10 grand. That is what we got started with and opened up a brokerage account. I had met a fund administrator that would do all the monthly statements for a small little account like me, who I am still with to this day.
TONY GREER: Really? Like a prime broker?
JASON WILD: No, they are the administrator. They do all the accounting work and the monthly statements, and the K-1s at the end of the year. We got started there in in 1999, and the first 12 years, we did all public equities and specialty pharma, which are all the drug companies that are the big cap guys. That was really my wheelhouse.
I liked the smaller drug companies, because, A, I could get access to management because who was going to take a call from this kid who is running 200 grand or 500 grand, or whatever it was. That is like you need access to management to the smaller companies, but also they were much more entrepreneurial. If they were launching a new drug that I thought was going to do well, it could really move the needle much more for them.
TONY GREER: What were the investable themes that you were looking at when you got started? That was 1999, 2000 or so. We are talking about the NASDAQ 5k on its way down into you investing in pharmaceutical stocks, biotech, et cetera. What were the themes you were going into from then?
JASON WILD: It was a lot of the generic drug companies were a subset of this specialty pharma companies. The theme, with generics always was and still is just that a larger percentage of overall prescriptions are being filled with generic drugs pretty much every year for the last 50 years. I knew a lot of people that worked in pharmacies and could say, hey, I cannot believe the price of generic drug XYZ just went up 6x yesterday.
TONY GREER: Like the channel checks.
JASON WILD: Yes, channel checks. My view was like, generics, it was almost like, what do they say about real estate? Every market is local. It is similar with different specific generic drugs. The best thing you have is to have a company that has a generic product that is in a lot of demand, then maybe the competition drops out, and they have the ability to take some price or make back some of what it degraded over the prior couple of years.
The best situation is to have something like that in a company that maybe does not have a lot of other things, so that profitability really falls to the bottom line. Generally, the themes were to keep track of specific products on the generic side that companies had and keep track of demand and pricing and competition, and who were the other filers that might be coming soon, and things like that.
TONY GREER: You are tactically trading the names that you like that are separating themselves from the pack type of thing.
JASON WILD: Right, that and also meeting with the companies and getting to know management teams and deciding who are the credible ones and who are not because I feel like sometimes people on Wall Street oversimplify things and just look at numbers, and what is the PE ratio on this, or the price to sales, and it takes out the fact that all of these companies are run by human beings, and some do a better job and are more honest than others or less.
TONY GREER: Yes, and how tangible does that become when you are sitting in their presence?
JASON WILD: Yes, absolutely. Sometimes you pick up on things like that by talking to them about things that have nothing to do with their company. Sometimes they say something like, and that seems a little strange.
TONY GREER: You are getting to know these companies, and you are, I am assuming, piling in with leveraged ownership of them to enhance returns, and et cetera, et cetera. Tell me where that took you. Now, you are generating bigger returns, more capital, et cetera, et cetera. I am sure a lot more clients are now picking up on your track record, and how is it going now into the mid-2000s?
JASON WILD: In the mid-2000s, we were always pretty small. We got bigger than 80 grand, but we really, in addition to the generics, on the branded side, I love the companies that we were doing deals. I was pretty good at if a company announced that they bought product XYZ from some big pharma company, or they bought it bought another company, that they were merging with another company, I always felt like I knew most of the products from being a pharmacist originally.
I always felt like I could pretty quickly evaluate whether it was a good deal or a bad deal, and I just have this ability to my head to figure out how accretive is-- not exactly, but within say 10% or 15%, figure out how accretive deal would be pretty quickly. I did not need to sit and model the whole thing out. A lot of times, we were able to react pretty quickly. Especially when the fund was smaller, that could certainly make a much bigger difference in terms of our returns.
TONY GREER: I love that because that is a little bit of my style of trading. There is no analysis paralysis, and there is acting on your instincts. That seems like it plays a big part in you have got this massive, now certainly, this massive bedrock platform of knowledge where you have got an opinion on everybody that you meet in each sector. You are already up on that, so that is where you are now. I want to go-- it sounds like I want to get towards the cannabis trade. We may not be there on a timeline, but I can tell we are getting close.
JASON WILD: We are getting close to that. By 2010, we got the fund from 80 grand to about 25 million in AUM, which was much bigger. I remember when I first started the fund, I told a friend of mine, I am like, if I can just get this thing up to like $2 million. I did not have super high expectations. Got it up to 25 million and were up like about 24%, 25% a year net of fees. At around 2007, 2008, I referred a deal between two companies that I was invested in, two public companies. The company that got this product, it was the best deal they ever made. I got them this product for $10 million, then a few things break their way, and then over the next five years, they made over $150 million in profit.
TONY GREER: Great return.
JASON WILD: I put this whole thing together, and what do I get? I got a pound piece. Nothing. I did not get a piece. If I got a piece, maybe I would not have decided to do what I did next, but I just got a pat on the back. I said to myself, I am meeting all these companies that are coming through my offices, they are more open with me than they would be with a business development guy from a company that is a competitor to them, so I can find products and shake loose different products. I am wasting it if I am just giving it to somebody where my fund is not going to be able to make any money off of this. That is when I out the idea in my head of I want to fund to own a pharmaceutical company.
It took me a couple of years. I found the right CEO to partner with me and in 2010, we announced our first private deal. We bought this small drug company called Arbor Pharmaceuticals. For about $2.5 million, they were doing like a 1.5 million in sales, and we are going to use this as a platform to go out and do deals and to do some lower risk R&D projects and build into a real company. It took off better than I ever expected.
We found two amazing deals that first year in 2010, where the next year, the company did 127 million in sales and 55 million in pretax profit. Within two or three years later, we did 100 million in profit. Also, by that point, we developed one of our own drugs that we got approved with what is called orphan drug status, which gives you exclusivity with the FDA, and come around 2014, that was the heyday of all these pharma companies doing inversions, where they would move offshore, and they were buying everybody up. We got approached by a few buyers, we decided to run a process, and we ended up selling a third of the company to KKR at $1.1 billion valuation.
By that point, at that valuation, Arbor was 80-some-odd percent of my fund, but the great thing about it was-- it was interesting-- KKR was willing to pay more for the company from a valuation perspective if I sold less, if I like said, I sold less of my position, which I said, I am fine with, but I want to offer those shares out to my investors that they can sell more if they want to. It ended up working out and we structured this touch auction where I went out to all my LPs in my fund and said KKR is buying 33% overall of Arbor and of our stake, but I have agreed to only sell 5% of my position in there, so how much do you want to sell?
Then it ended up working out perfectly. People who put into sell 100% were able to sell 100% the only catch was we did not get enough people to tender their stock, like we ended up not being able to come up with enough shares. Anybody who put this on less than 6%, including me, had to sell six, which was a huge, huge win.
TONY GREER: That is amazing.
JASON WILD: Then it just dovetailed perfectly with cannabis. We had almost $150 million at this point in cash sitting in my fund. I am usually a pretty bullish guy, and I find things that I want to invest in. The fund, by that point, had grown to over 300 million in total AUM with this big cash position, and I got a call from a banker up in Canada telling me about this company they were raising money for that [?] new medical marijuana license.
I went up there, sat down with the folks there. First of all, saw the [?]. I have never been in a [?] before it, the smell hits you in the face when you walk into this space. I sat down with the CEO and he gave me a whole primer on what true medical use is, cannabis is.
TONY GREER: You are going into cannabinoids and CBD and you are getting the whole-- and this is already up your alley, so you are like salivating. I can already imagine what you are like in this conversation right now with an arsenal, [?] and getting excited.
JASON WILD: Yes, I never heard of CBD before. Remember, this was 2014, around 2014. I went on my way back to the airport in Toronto, I called another banker I knew, I said, I just met with this company, this whole cannabis industry in Canada, it is going to be huge. They are going to be able to export all over the world. It is legal nationwide, not like in the US where you have conflict between state and federal laws. I said you need to introduce me to whoever you know that most of us about this space, I need to meet as many companies as I can.
TONY GREER: The flashbangs are going off immediately, and you want to have 50 conversations in the next 30 seconds if you can to get up to speed.
JASON WILD: Exactly. I ended up over the next 12 months or so, went back up to Canada for several trips, crisscross the country where I started in Vancouver, worked my way to Toronto, met with all-- all the companies were private, I believe, at that point. I met with over 30 companies. We invested in about five of them. We did not put that whole cash from KKR to work but we put a decent amount of it to work.
TONY GREER: This is critical there. Obviously, we are at a critical phase of your cannabis investing career. What made you focus on these five? If you can talk about a little bit which five and ditch the other ones because now, I see you are a people guy. You are obviously getting to know the heads of these companies and seeing what their power [?] is, and you have attached to a couple of them. Can you explain a little bit of that for us?
JASON WILD: Sure. It was very similar if you are investing in any industry, first of all, I got to feel like I trust the management team. Spending a meeting with somebody a couple of times, you can always have all the information, but I feel like instinctually, I am pretty good at figuring people out, and that helped us even prior to that in terms of different companies we invested in. Just spending time with the CEOs, especially in the Canadian cannabis space, there were a lot of not very sophisticated management teams, especially relative to all the pharmaceutical companies I had historically met at my offices here in New York. There were lots of companies that you could just say these guys, I would not invest with them.
TONY GREER: We are talking about the CEOs that are coming on CNBC, and I am saying to myself, why isn't this guy put on a suit and tie? You do not mean just for starters, that kind of thing, where--
JASON WILD: Or worse, or worse.
TONY GREER: Okay, got it.
JASON WILD: That was a big part of it, is just always in terms of our investment process on the private side and the public side are these trustworthy people that I think are going to be able to execute on the [?] reputation here.
TONY GREER: Yes, exactly.
JASON WILD: A lot of times, business plans do not work out. What bothers me the most is when they do not work out, because the team was dishonest, or I feel like I got screwed. That bothers me more than if somebody went about it and had all great intentions, sometimes that does not work out as well.
TONY GREER: Dishonesty is a deal breaker.
JASON WILD: Exactly. In terms of these cannabis names, the other ways that we evaluated them was-- it is funny now in retrospect because there is too much capacity in Canada, but back in 2014, and 2015, and 2016, it was all about what you were building out, and what your funded capacity was going to be. There was no real revenues in the industry yet, we were like, right on the cusp, it was really, we were betting on the dream. That was another big part of it, was go and see the facilities and see how large they were, and whether they could attain any real scale in terms of costs, and just what they looked like, how clean they were, whether they were growing things or growing products to the standards of what I thought.
Being more of a pharmaceutical person, I liked facilities where people took quality seriously. A lot of these management teams did not because these companies were not run by pharmaceutical people, they were run by people from all different, real estate, or finance, or other things like that.
TONY GREER: That was always my question with the earliest products that I saw and got to see the packaging of and everything. I was always wondering, like, when are these guys going to make this look like Procter and Gamble stuff, because that is when it is gone? Because I remember that phase, being very much about who had the space, who had the branding, and maybe who had a great sponsor or something like that. Let us keep going. That was a cool phase of the market, and