If you were hoping for a rager, you were on the wrong private jet. A tropical storm had delayed the flight from Ottawa to Newfoundland by eight hours, and the mood on board Canopy Growth CEO Bruce Linton’s chartered Embraer Legacy 450 on the evening of October 16 was celebratory but cautious. At midnight that night, Canada would become the first G20 nation (and the second country in the world, after Uruguay) to legalize marijuana for adult recreational use. Linton, who had arguably more of the stuff to sell than anyone on the planet, was racing to get to his company’s flagship Tweed store in St. John’s, in the Newfoundland time zone, where clocks are somewhat inconceivably set a half hour ahead of the next easternmost time zone. If the plane’s all-too-apt ETA of 10:17 p.m. local held, he had a chance to make what would be Canada’s very first “rec” sale.
Since obtaining one of Canada’s earliest licenses for commercial cultivation of medical marijuana about five years ago, Linton had built a global weed empire. His publicly held company employed more than 2,000 people and had more than 4 million square feet of marijuana under cultivation, an 80,000-square-foot warehouse stocked to the rafters with inventory, and $78 million (U.S.) in fiscal 2018 revenue. On October 16, its market cap had soared to $11 billion, and it had billions of dollars in new funding from the Constellation Group (owner of Corona beer).
Leading the biggest company in Canada’s hottest new business sector since beaver skins had made Linton one of the most famous CEOs in the country. But these next 24 hours would offer him something new: a shot at cementing his top-dog status with investors (who had driven up Canopy’s stock price by nearly 100% between July and mid-October) and attracting millions of new customers who could become brand devotees. Linton, wearing a black hoodie and jeans, disheveled hair falling over the tops of his ears, sipped a beer while thumb-typing on his BlackBerry and making jokes with an in-house filmmaker and a couple of reporters along for the ride. The world’s biggest marijuana kingpin looked more like a middle-aged sports fan on his way to a hockey playoff game.
When Linton arrived at the store, it was nearly 11, and a line of customers stretched around the block in the slanting rain. Inside, photographers, TV crews, and reporters from across the world mingled with the store’s newly minted budtenders. They inspected the crystals, orange hairs, and oozing trichomes of buds displayed in clear “sensory pods” with magnifying lids, which were arrayed on blond-wood counters reminiscent of an Apple store’s. Shortly after 11:30, a few dozen lucky customers were let in to browse.
“Ten, nine, eight, seven . . . ” At five seconds after midnight, local time, as cameras flashed, Linton rang up the first sale: two tins of a sativa-dominant hybrid, called Donegal, to 24-year-old Nikki Rose and 46-year-old Ian Power, a longtime medical cannabis user and advocate. As a demographically diverse stream of customers flooded in, Power high-fived everyone in sight. Linton signed bags and merch, clasped hands, smiled for photos, and stayed up most of the night doing phone interviews, followed by a live morning-TV appearance the next day.
Linton’s ability to captivate the press—along with lawmakers, regulators, cops, and investors—has kept his company on a steadily accelerating course for the past few years. Analysts estimate that annual sales of legal weed in Canada will near $5 billion (U.S.) by 2020, exceeding the country’s sales of hard liquor. Based on its production capacity and its widening retail footprint, Canopy could capture about one-third of that market. But competition is growing, and there’s a much bigger playing field emerging to the south. Ten U.S. states plus the District of Columbia have legalized sales of recreational weed since 2012; 33 states and Washington, D.C., allow medical marijuana; and Big Pharma researchers are looking to cannabis to find non-opioid alternatives for pain management. U.S. sales of products containing CBD, a nonpsychoactive component of cannabis with a range of claimed health benefits, will likely top $500 million for last year, and the 2018 Farm Bill expected to pass in December would make it federally legal to grow low-THC hemp plants for CBD, removing legal ambiguity around CBD products. Avon-style parties involving hired chefs and marijuana-infused desserts are becoming popular; cannabis-lifestyle media startups (such as Gossamer) and online communities for weed-curious women are rising; and vape pens are getting high-design makeovers. All of this signals a budding revolution in the way a stressed-out society chills and medicates, one that is leaving stigma behind. Investors, including banks that wouldn’t touch weed five years ago, are placing frenzied bets on potential category killers in a giant, wide-open sector, to the tune of $8 billion last year. If you switched websites in for weed, you could think it was 1999 all over again.
Intoxicants have always been a reliable enterprise. But “manufacturing alcohol is a terrible business,” says Alan Gertner, CEO of Tokyo Smoke, a retail brand that Canopy Growth acquired in 2018. “Distributing alcohol’s not a really great business. Putting a label on a bottle of alcohol,” however, “is a fucking amazing business.”
Gertner founded Tokyo Smoke in 2015, with his father, Lorne, a longtime medical marijuana advocate, as a way to “onboard people to a new psychoactive.” (The two had each worked and traveled extensively in Japan.) His previous job, heading an Asia-Pacific–wide sales team for Google, “was all about user acquisition,” says Gertner, who sports a full beard, clear-frame acrylic glasses, patched jeans, and an Apple Watch. “Before we could get people to transact with Google, we had to get them to use the internet.” Tokyo Smoke, purchased along with its parent company, Hiku, for roughly $260 million in stock, was Canopy’s first acquisition that was strictly a consumer play. (Structurally, Canopy Growth is an umbrella entity for a dozen or so subsidiaries, including growing operations, foreign distributors, and a health-research division, as well as consumer-facing brands.) Gertner now heads retail expansion for Canopy’s two brick-and-mortar chains, Tweed and Tokyo Smoke.
Taking cues from packaged goods companies like Procter & Gamble (and major beverage entities, like Constellation), Canopy is approaching the recreational market through targeted brands, from high-end artisanal labels (DNA Genetics and Doja) to a line of bud endorsed by Snoop Dogg to oils geared for women’s “sensual wellness and pleasure” that are infused with THC (the chemical compound in marijuana that makes you high).
David Bigioni, Canopy’s chief commercial officer for recreational cannabis, segments users into five types: Habitual Homebodies, Life Enhancers, Calm Couples, Kickback Buddies, and Out-and-Abouts. Whether they use pot products daily or once or twice a year, each turns to cannabis to fulfill three basic needs: relaxation, enrichment of daily life, and socialization. “We have deep profiles of each segment–the benefits they’re seeking, the issues they have with the product–and that helps drive the innovation agenda,” says Bigioni, a veteran of Molson Coors Canada who joined Canopy in 2017. If the smoke and smell issues might keep you from rolling a joint, gel capsules might do the trick, or, soon, a cannabis drink.
To welcome skittish newbies, many of them women, Tweed and Tokyo Smoke offer plenty of non-weed merch—branded hoodies, caps and T-shirts, scented candles, throw pillows, blankets—and the stores’ interiors were designed by Canopy execs with experience at fashion and apparel brands like Lululemon and Barneys. “We wanted a natural, home-away-from-home feel,” says Jessica Hay, Tweed’s creative lead, “so you’d want to stay and have a conversation.” But not partake: Canadian law does not (yet) permit consumption where cannabis is sold.
Many of the cannabis products themselves are suited for first-timers. Compared with U.S. dispensaries, Tweed and Tokyo Smoke feature an abundance of low-THC, high-CBD strains—the “session” ales of the weed world. “During prohibition, we tend to optimize for potency because we have to smuggle the product,” says Gertner. “So you drink moonshine, not beer and wine. With marijuana, there was incentive to grow product as strong as humanly possible.” Instead of using the typical intimidating, hypermasculinized street names for varietals (Trainwreck, Green Crack, BC Roadkill), Tweed strains now evoke the brand’s “tweed” theme (Donegal, Argyle, Houndstooth, Herringbone) plus whimsical pop-culture memes such as Boaty McBoatface. Tokyo Smoke’s house cannabis line has adopted a yoga-class-friendly nomenclature—Go, Rise, Equalize, Pause, and Ease.
Making women feel comfortable is a priority in the new cannabis landscape, says Felicia Snyder, SVP of growth at Hiku, who leads a team that’s 65% women, a shockingly high percentage in the weed industry. “The first customer at the door tends to be male, and they tend to be interested in high-THC flower [products],” she says. “But over time, with the introduction of different product formats [like vape pens and edibles, which will become legal for sale in Canada this year], it’ll change.” She says that bright interiors and Main Street locations are particularly important. “We don’t want to be in some dimly lit strip mall next to a money exchange. All those things matter.”
The pressure on retail is even more intense due to the severe restrictions Canada has put on the advertising and branding of cannabis. Companies can advertise only to audiences who are old enough to drink (18 or 19, depending on the province), which means age-gated online platforms or bars. They can’t use colorful labels, make product claims, or leverage celebrity endorsements. (The Leafs by Snoop brand goes by “LBS” in Canada.) A public education campaign sponsored by Uber, Tweed, and MADD Canada, offering “101 Things to Do Instead of Driving High,” was an attempt to boost brand recognition broadly without technically being an ad. “We want to connect with the consumer in a conversational way,” says Hay.
Within a month after recreational legalization, 11 Tweed and Tokyo Smoke stores were open and selling cannabis in Canada, with 32 more planned by September 2019. Four Tokyo Smoke coffee shops in Toronto currently sell the “lifestyle”–i.e., pricey smoking accessories–while biding their time until April 2019, when Ontario, the biggest market in Canada, will let private cannabis retailers open their doors. (Each province got to decide when it was ready to launch brick-and-mortar retail.) Meanwhile, other chains are expanding. Fire & Flower and Nova (run by liquor-store operator Alcanna) have opened multiple locations in cities where Canopy has none. Canopy’s rivals in production, Cronos and Aurora Cannabis, both have plans for retail, too: Cronos is partnering with American retailer MedMen to open stores across Canada, and Aurora recently invested $20 million in retailer Choom, which has rights to open up to 45 stores in western Canada.
Ultimately, says Gertner, “there’s going to be a Starbucks of cannabis.” Or a Lululemon, perhaps, which created a community-focused retail environment to sell a modified yoga lifestyle to non-yogis, and the perfect athleisure wear to go with it. Lululemon sells this lifestyle “everywhere in the world,” says Gertner, “and they do it through retail.”
Canopy is the largest employer in Smiths Falls (population 9,000), an hour southwest of Ottawa, where Linton and cofounder Chuck Rifici, who has since left the company, purchased a former Hershey’s chocolate factory in 2014 to start growing weed—right across from the local police station. Thanks to stock options, many early employees have become millionaires, and a lot of the wealth created at Canopy flows directly back into the community. The company encourages its 950 Smiths Falls employees to patronize local stores and cafés, and invites nearby restaurants to set up food trucks in the parking lot.
Linton’s own stock in the company makes him worth upwards of $100 million, though he drives a Ford Flex SUV to work and discourages company execs from driving fancy cars. Being a square guy in an outlaw industry—a married 52-year-old father of two, who says that until legalization, he hadn’t smoked weed since a run-in with some British Columbian dank in college—has worked to Linton’s advantage in the industry, helping him woo wary government regulators and investors.
He also has a lot of experience with regulatory transition. Linton began his career in 1992 at Newbridge Networks, a data-networking company founded by Welsh-Canadian billionaire Terry Matthews, who became his mentor. As happened in the U.S. some 10 years earlier, “incumbent telecom companies were being broken up to allow competition,” Linton says, and they needed to figure out how to send packets of data across rivals’ networks. Linton did “whatever Terry said to,” which included governmental lobbying, business development, and account management. “I didn’t know what a multiplexer was,” he says, “but I saw the opportunity in disruption.” By 2012, after additional stops running another telecom and a company that built municipal wastewater systems in the developing world, something new emerged on his radar.
Linton had noticed news stories about law enforcement’s frustration with existing marijuana laws, particularly the poorly defined rules surrounding medical marijuana, which had been legal in Canada since 2001 but was largely restricted to home growers. They basically didn’t know whom to bust anymore. “What the government wanted was for [cannabis producers] not to lose stuff,” Linton says. “They were worried about diversion of illegal cannabis.” The ability to track plants from seed to final customer–documenting a chain of custody–was key to reassuring authorities that cultivators weren’t skimming from their “medical” grow to service the black market too. Linton’s telecom experience had equipped him to find a solution. “If you understand how not to lose data packets from a data network, not losing weed is way easier,” he says.
Linton can regale you for a two-hour plane ride about the company’s growing pains–two near bankruptcies, hairy run-ins with the authorities—always, in his telling, stemming from misunderstandings around fast-changing rules. Despite all this, he has raised nearly $7 billion through more than a dozen rounds of financing, which has funded a string of acquisitions that have bolstered Canopy’s capacity and expanded its product mix. Relationships he’s forged with government officials and regional liquor boards have enabled the company to establish production facilities and retail locations across the country, and to obtain contracts to supply roughly a third of all cannabis sold online through state-run recreational sales sites.
But in the year or so leading up to nationwide legalization, Canopy’s publicly traded “Big 5” rivals–Aurora, Tilray, Cronos, and Aphria–had dramatically boosted their capacity and seen their market caps surge well into unicorn territory. “Bruce’s problem is he underestimated us,” says Aurora’s famously salty CEO, Terry Booth, outside an industry mixer during MJBizCon, the annual cannabis gathering, in Las Vegas in November. The companies applied for medical cultivation licenses at the same time, but Canopy got its license first, and grew faster. Aurora stayed nimble, saving up for late-stage acquisitions that have helped it catch up with its rival: In quarterly reports released in November, Aurora showed net earnings of $77.6 million (260% revenue growth), while Canopy, whose results were too early to reflect recreational sales, had a $247 million net loss. “Bruce bought new. He threw a fucking chocolate factory into it [with the Smiths Falls operation]. Then he got a little bit bigger, kinda like a station wagon. Then he turned it into a soccer van–and now it is a fucking school bus. And we’re in a Lambo, saying, ‘Adios, muchachos!’ ”
Linton’s procurement of $4 billion from Constellation in August, however, just months before recreational legalization, was undoubtedly the cannabis industry coup of 2018. The deal brings the booze maker’s stake in the company to 38%, with an option to buy a controlling portion down the road. The money, Linton says, is “rocket fuel” for the company’s ambitious plans.
No matter how efficiently you produce it, dried cannabis buds–“flower,” in industry speak–are a low-margin commodity. The future of large-scale operations like Canopy’s will depend on continual product innovation that views the plant as a living factory of therapeutic ingredients. Walking through the Smiths Falls facility, with its sparkling clean rooms full of budding plants, what Linton gets most excited about are giant bags of pills–gel caps coated in bright primary colors, each containing a precise dose of THC and CBD.
“Until recently, drug laws have effectively prevented us from studying [cannabis] in a scientific way,” Linton says. His company’s three-year-old Canopy Health subsidiary is now working to launch nearly a dozen clinical trials in Canada and abroad, led by Mark Ware, formerly an academic physician at McGill University. In the coming years, says Linton, what doctors offer patients “won’t be just a prescription for bud. It could be a mixture of cannabinoids and other active pharmaceutical ingredients–put into different delivery mechanisms–that helps you sleep better, decreases inflammation, or makes you less anxious if you’re a canine.” (Cannabis-based pet supplements are a fast-growing market.)
Cannabis-infused beverages, meanwhile, could make it to Canadian dispensaries as early as this year. In collaboration with Constellation, Canopy plans to formulate nonalcoholic drinks that get you a little bit high–but that have the predictable buzz-onset time and duration of a beer. Here, too, the company’s got company. In August, Molson Coors Canada entered into a joint venture with Quebec-based cultivator Hexo to produce cannabis drinks in Canada; Heineken’s Lagunitas brand has partnered with U.S. grower CannaCraft to sell THC- and/or CBD-infused “hoppy sparkling water” in California, where recreational cannabis became legal last January.
These arrangements are strategic for all parties involved. Cannabis enterprises can leverage the bottling and distribution capacity–and regulatory know-how–of beverage industry partners to offer prospective customers a smoke-free consumption method in a familiar format. Beverage makers can hedge against declining alcohol sales, a trend that seems to be worsened by pot legalization. (A 2014 study done in Washington State, for example, showed a 12% drop in alcohol demand after pot was legalized.) Big Tobacco isn’t missing the boat, either: In December, Marlboro parent company Altria announced a $1.8 billion investment in Cronos.
About half of Canopy’s acquisitions have been companies based outside of Canada. “If you’re a Canadian company and you put your arms up and say, ‘We’re No. 1! We did it!’ you just became a big fat target to die,” says Linton. “There are [only] 35 million people here. You can’t stay home and be huge the way American companies can.” In the first half of 2018, Canopy shipped more than 900 pounds of weed to medical marijuana providers in Germany, the biggest cannabis market in Europe. Through its subsidiaries, it distributes medical cannabis or has research partnerships in a dozen other countries, from Denmark to Spain to Chile to Lesotho. In October, the company completed the first legal export of cannabis extracts, in the form of those colorful gel caps, to the United States for use in a large academic study. Every market will want something different. “We have to learn what’s important to the customers and governments in Germany and Greece and Jamaica,” Linton says. Yes, Jamaica. Thanks to government eradication efforts in the 1970s and lackadaisical growing practices, Jamaican weed today is nothing to write home about. Canopy is working with local growers to boost quality and create tourist-focused medical dispensaries. Cue Peter Tosh rolling in his grave.
The common wisdom among investors and analysts in the cannabis industry has been that bigger is better. They predict that cannabis will follow the path of alcohol after Prohibition ended in the U.S., quickly consolidating to a few major companies. Or even become like the oligopoly of tobacco.
But Kelly Coulter, a British Columbia–based farmer’s advocate, sees it differently. “Most people I work with are confident that the craft industry will thrive, with the support of a strong consumer base that values quality and good farming practices,” she says, citing the same trends in the food-and-beverage sector. Indeed, overall U.S. beer sales were down 1% in 2017, yet craft beer sales were up nearly 41%. Sales of organic food hit a record in 2017.
Big Cannabis had a head start in Canada’s recreational market, thanks to federal rules that effectively limited production licenses to large, vertically integrated entities. But in October, the government started accepting applications for micro-licenses, which will permit small-scale operations to grow and distribute recreational cannabis under regulations that are slightly less cumbersome than what the big companies face. Within a year or so, consumers who prefer “craft” cannabis over corporate herb, no matter how kind, should have lots of independent options.
As it stands, Canopy points to its distribution deals with boutique growers as proof that it’s not out to crush independents but rather work with them. The company created a fund in 2017, called Canopy Rivers, to invest in cannabis startups (it IPO’d on the Toronto Stock Exchange in September). Canopy Growth and Canopy Rivers cosponsored a pitch competition last summer that gave craft producers a chance to win up to roughly $750,000 to boost their business. Even critics applaud Canopy for putting money into cannabis-focused health research, advocacy, and community.
Linton had planned to kick back with some mail-ordered Canopy product the weekend after recreational legalization took hold in October, but “there’s not much of a chance to be a client,” he says. Shortly after that celebratory first day, prices plunged for Canadian cannabis stocks, digital glitches plagued state-run marketplaces, the postal service went on strike, and there were shortages. Canopy’s products were frequently out of stock. “Everyone’s asking, ‘What went wrong? Why is there a shortage?'” Linton says. “What went wrong is, when people wait in line for 90 years, they buy the shit out of the product.” The pace of cultural change is just as dizzying. “When premiers”–Canada’s equivalent of governors–“call you and remind you that they’re trusting you to make sure you get them their weed,” he says, “that’s kind of weird.”
From Seed to Sale
The Canadian cannabis juggernaut Canopy growth comprises nearly two dozen subsidiaries and partners.
1. Leafs by Snoop: Licensing partnership with the legendary rapper
2. Green House Seed Co.: Licensing partnership with Dutch grower
3. DNA Genetics: Licensing partnership with Dutch grower
1. BC Tweed, July 2018, $279M: This facility will have 3 million square feet of production capacity for recreational supply contracts across Canada. It was spun out of SunSelect Produce, a venture-backed indoor vegetable producer.
2. Tweed Farms, through acquisition of Prime 1 Construction Services Corp., June 2014, $2.7M: Operates greenhouse facilities in Niagara-on-the-Lake
3. Mettrum Health Corp. and Mettrum Original, 2017, $322M: Ontario-based medical cannabis and CBD hemp cultivation
4. Tweed Grasslands, through acquisition of rTrees Producers Limited, April 2017, up to $27.6M: A 90,000-square-foot indoor growing facility in Saskatchewan
5. Vert Médical, Nov. 2016: Cultivates and distributes in Quebec
6. Spot Therapeutics, Aug. 2017: Cultivates in New Brunswick
7. Groupe Hemp, Nov. 2016: Cultivates CBD hemp
8. Doja, through acquisition of Hiku, July 2018: Cultivates “craft” cannabis flower
1. Tweed JA, Oct. 2017: Partnership with Grow House JA to cultivate for Jamaican medical market
2. Spectrum Cannabis Czech, through acquisition of Annabis Medical, April 2018: Cultivates and distributes medical marijuana in Czechoslovakia
3. Canopy LATAM, fully acquired Aug. 2018: Cultivation, distribution, and clinical studies throughout Latin America
4. Spectrum Cannabis Denmark, Sept. 2017: Joint venture with Danish Cannabis to cultivate for European medical market
5. Spectrum Lesotho, through acquisition of Daddy Cann Lesotho, June 2018, $21.5M: Cultivation and distribution of medical marijuana in Lesotho
6. Alcaliber, Sept. 2017: Madrid-based cultivation and distribution partner
7. Spektrum Germany, through acquisition of medCann, Nov. 2016, $5.4M: Medical cannabis distribution in Germany
8. Spectrum Cannabis Australia, April 2018: Asia-Pacific headquarters with R&D facility
1. Canopy Health Innovations/Canopy Animal Health, fully acquired Aug. 2018: Wholly owned subsidiaries conduct clinical research and develop and commercialize new formulations and delivery mechanisms for cannabis-based medicines worldwide.
2. Ebbu, assets acquired in Nov. 2018, more than $317M: Colorado-based hemp and cannabis research firm focused on identifying and understanding cannabinoids. Boosts R&D capabilities in hemp and cannabis breeding programs, development of cannabis-infused beverages, and health research.
1. Maitri, through acquisition of Hiku, July 2018: Cannabis lifestyle accessories
2. Spectrum, formerly Tweed Main Street: Consumer-facing medical cannabis sales online
3. Tweed stores: Canopy’s wholly owned chain of retail outlets, selling Tweed brand and partner company cannabis, plus merch. Nine stores so far, in Alberta, Newfoundland, and Saskatchewan.
4. Van der Pop, through acquisition of Hiku, July 2018: Women-focused cannabis media platform
5. Tokyo Smoke, through acquisition of hiku, July 2018, $260M: Currently four stores selling marijuana in Manitoba, plus online sales and same-day delivery. Stores in Ontario will start selling cannabis in April.