“My dad was anti-drugs. Almost psychopathic. He used to kick the shit out of my brother for ever having any pot, but dad met a guy on his dart team — Dad started smoking weed,” Booth says. He was seventeen at the time of his dad’s cannabis awakening, living alone with him, “and the entire tiny apartment was filled with blue smoke.” Eventually, Booth found his dad’s stash: a quarter pound in a plastic container. He was already entrepreneurial. “I sold weed through my dad,” Booth says, “in grade eleven and twelve.”
Before getting involved in the legal medical marijuana industry — before cutting his $3 million cheque — Booth toured the illegal dispensaries in BC, wanting to understand how the current market worked. He went into the Kelowna underground. He had threats made against him and learned how to remain calm among police and dogs. He says he’d never before thought of weed as medicine. But after three months of exploration, he was convinced.
“This is a safe medicine that should be allowed and never should’ve been illegal to begin with,” concluded Booth, who not only toured the black market, but also hired away a top person from Jodie Giesz-Ramsay to help him build Aurora — a legal answer to black market pot.
Booth says that the illegal operators he met looked down on him as a corporate suit, but he stood his ground. “I didn’t give a shit,” says Booth. “I grew pot before you were out of your mammy.”
By 2016, medicinal cannabis companies like Hydropothecary and Aurora operated side by side with illegal dispensaries and illegal wellness clinics, which had been selling pot out in the open for years. The three sides could work together, but also clash. Hilary Black was just one of the activist pioneers who had crossed over from illegal to legal. Growers like Tom Flow, who didn’t have a record, were in demand. Still, the legal medical industry, nascent and already stigmatized due to quality issues that didn’t help their valuations, needed to remain at arm’s length from the illegal growers, at least publicly. But it was very hard for the legal system to exist completely apart from the previous culture, and it wasn’t entirely clear how distant the two universes should be. Even the cannabis executives couldn’t reach a consensus.
In the spring of 2016, pot was the only medicine taxed like booze. So Hilary Black attempted to send out a press release from the Canadian Medical Cannabis Industry Association about the need for marijuana patients to not pay excise tax. The statement included signatories from the illegal market, prompting an email conversation among executives at the twenty-five major medical marijuana companies. These included CEOs at Mettrum, Bedrocan, Tweed, MedReleaf, and Aurora. It was Terry Booth’s second meeting as a member of the association. CannTrust, which had received its licence on February 23, 2015, Mettrum, and Emerald Health were all onboard with the messaging. At first. The conversation turned when Marc Wayne, for whom Black worked, wrote to the group: “To be transparent, this will include some NGO, other associations and even a few compassion clubs.”
Neil Closner, the CEO of Stephen Arbib’s company MedReleaf, took immediate offence: “I don’t see any value in lending them one ounce of credibility or validation.” Quickly, Aphria agreed with Closner. Eric Paul, CEO of CannTrust and son of founder Norman Paul, who’d spent forty years running a mail-order pharmacy, also wanted his company distanced from the compassion clubs. Cannabis was trying to gain respectability, and while some of the compassion clubs were indeed furthering the medical marijuana cause, it was too risky to align the legal companies with their illegal forebears. Trevor Fencott at Mettrum wrote, “Compassion clubs are unequivocally illegal and absolutely buying product from illegal sources — it doesn’t help us to then be seen to be aligned with them in any way.”
Marc Wayne told the group that the idea for the press release came from the grey market. Closner replied, “The Canadian Association of Medical Cannabis Dispensaries might as well be called the ‘Band of Illegal Criminal Pot Sellers of Canada.’ They are breaking the law and they are directly infringing on all of our businesses today.”
Booth had different ideas. He hadn’t yet met any of his peers in person, but he established himself — and Aurora — in the email chain. “I am proud to have the Aurora logo aligned with the compassion clubs,” he wrote. “I wonder if any of the naysayers have ever been in a dispensary and spoke with the patients that are members? Bizarre how some of these LP’s [licensed producers] don’t get what this all means, where this was born, how this fight began. Pisses me off.”
He let it rest at first, and then he didn’t. Terry toured the illegal dispensaries before starting Aurora. He actually smoked weed. That night, he continued, “This petition has the best interest of the patients in mind, ask yourselves the same question. Do you have the best interest of cannabis patients across this country in mind when you bail on a simple no-brainer initiative because the pioneers of this cannabis industry are participating in the support of this initiative? Holy shit, if your answer is still yes then have another hit. Shake your heads, and pull those heads out of your asses.”
Sébastien St-Louis at Hydropothecary wasn’t on the email thread. His company was still too small. But he calls those first days of the medical marijuana industry “steel cage matches being fought to the death.” The founders had risked their reputations and often, as in Sébastien’s case, their life savings. They’d had to work so hard and spend so much money to get to the starting line — with laws changing quickly, cash recycling, and stock prices rising and falling in the industry as a block — and tensions flared. The legal pot companies competed for patients and source materials. Competed for press and competed for cash. The men leading these companies — rich, white, non-marijuana-smoking men — all sought investments from the same financiers. They travelled together to the same conferences and visited the same legal shops in Denver and Los Angeles. They competed for growers and sourced lights and construction permits from the same places. The industry was brand new, intellectual property was worth billions of dollars, and everything was a race. But with the influx of capital, the industry was growing at such a clip that little attention was paid to the details. The guys were street racing Ferraris at night with their eyes closed. And the response from the market was “Speed up.”
“No one cared about fundamentals,” says one investment banker, who we’ll call Chip because he still works in the industry and doesn’t want to get caught telling tales out of school. Chip moved to Toronto from New York and wound up managing an independent bank’s health-care desk. Companies like GMP Capital, Canaccord, and MMCAP Partners, where McNulty stayed close enough to Linton to earn his first big score on the Canopy IPO, operated outside the institutional banking system, and competed against them. But it was more than that. The investment banks didn’t like the conservative Canadian big five banks: Royal Bank of Canada (RBC), Toronto-Dominion (TD), Bank of Nova Scotia (Scotiabank), Bank of Montreal (BMO), and Canadian Imperial Bank of Commerce (CIBC). And the brokers, the independents like McNulty, especially the young ones, the risk-takers — the ones who smoked weed — had something to prove. Outsiders, much like the weed executives they worked with, thought the big five banks were risk averse, slow, stodgy, afraid of betting on themselves, afraid of pulling the trigger, old.
Chip, who is baby-faced just like McSalty, hard working, and always on the clock, says no one cared about fundamentals. But he saw his dividends pay off right away. Before marijuana investing, Chip annually earned $200,000. After cannabis investing, based on commissions, Chip would pocket that in a month.
In 2016, Darren Karasiuk was working at Deloitte in analytics and modelling, and he wanted to attract cannabis clients. He studied the legal cannabis market in Colorado and produced a document that would become the most-viewed report in his company’s more-than-175-year history. Obviously, his company was paying attention. The first accountants in the space, Deloitte handled the accounting at Mettrum and Canopy Growth. According to Karasiuk — an ultra-marathon runner with an imperial air — recreational cannabis would be worth over $20 billion. After surveying five thousand Canadians, and discovering that one thousand identified as marijuana consumers, Karasiuk forecasted Canada’s annual consumption volume in grams per consumer and price per gram to discover a revenue figure of $4.9 billion to $8.7 billion. As he added in tourism potential, security, testing labs, and taxes, Karasiuk’s numbers kept heading north, landing at $22.6 billion.
So, one side of Deloitte produced research. The other side sold cannabis shares to its clients. Nothing illegal; everything grey.
Karasiuk typed up his report. Then he typed his resignation letter.
Darren Karasiuk was taking a job with Stephen Arbib and Tom Flow at MedReleaf. By the end of November 2016, Vice reported that the number of veterans getting insured medical weed had jumped from 112 in 2013 to 1,762, in three years. The cost to the government increased from $400,000 to $20 million. A $4 gram from Aphria for a medical patient, according to Vice, would cost $12 per gram for a veteran. A veteran could be prescribed ten grams per day. Grey? Absolutely. But finance operates in loopholes — Darren Karasiuk would be working in weed.
“If I made five cents of every dollar raised on the back of that report, I’d be a billionaire,” says Karasiuk, adding that when retail investors saw that billion-dollar figure, it was almost irrelevant what number you put before it. Two billion or two hundred billion, Deloitte and Darren made a hot industry burn like a forest fire out of control. Weed was going to be massive, and people — young people, boomers, people who thought it was funny, people who thought they’d get rich — wanted to invest.
Bruce Linton says that in 2016, every licensed producer had that Deloitte number as slide three in their deck. He certainly did. And, like pot dealers with product in a drought, the investment bankers expanded their client lists. Everyone wanted in. Chip says that after making his $200,000 in 2014, he was introduced to cannabis through the deal between Bedrocan and Tweed. Interesting, he thought. A pot company was worth more than $100 million. Then Chip helped raise another $60 million from institutional and retail investors for Canopy in 2016 and $57 million for Organigram in 2017, using the same sales pitch: you couldn’t lose money investing in the cannabis space. After the $57 million, Chip tells me, things picked up. He did a lead deal with Cronos, which Lorne Gertner co-founded, and worked closely with its brash young CEO, Mike Gorenstein. The deal was for $100 million.
Chip thought, My kids won’t ever need to work.
“On my first deal with Cronos, I made over $150,000 — for a day of work,” says the banker, adding that his biggest single-deal payday in cannabis would top $1 million. Also, the bankers wouldn’t make money like the cannabis executives and retail investors. Chip’s money wasn’t just on paper. “The best thing about where I was,” the banker says over Scotch one night in Toronto, “is that we were not taking home stock. These were not paper gains. It was cash.”
The Americans caught wind of the Canadian hustle. In February 2016, Ted Chung, Snoop Dogg’s business partner, was in Toronto at the NBA all-star game. Snoop, in addition to being one of the best rappers ever and an entrepreneur lending his fame to Skechers, Corona, and his own brand of wine, had started the cannabis brand Leafs by Snoop that December in Denver, where pot was legal.
The problem with owning an American pot brand, however, even if you’re Snoop, is that American cannabis launched in a system that was not federally regulated, which made it impossible to scale. The U.S. was regressive regarding its weed laws. Every state had its own regulations, and the one thing that most of them shared in common was that nearly all of them still couldn’t sell Snoop Doggy Dogg weed. In the U.S., pot is a schedule 1 drug, which means there’s no accepted medical use and it has a high potential for abuse. Other schedule 1 drugs are cocaine, ecstasy, acid, and heroin. So while the federal American regulations proclaimed cannabis had no medical value, thirty-seven of the states adopted their own medicinal marijuana programs. Each state in America operates as its own country. Even if every state in America legalized overnight, for Snoop Dogg to sell Leafs by Snoop across the U.S., he’d need a partner in each one.
Chung, a laid-back Los Angeleno with a style accrued from making a mint with Snoop, sat with Mark Zekulin, Linton’s president at Canopy Growth, at the Shangri-La Hotel that all-star weekend and didn’t talk numbers. Ted and Mark talked about the dream of legal weed.
“We met with everybody, but only Mark and Bruce talked about job creation, talked about the people they’d help,” says Chung. Zekulin passed Ted Chung’s initial audition, and the young lawyer was taken upstairs to a hotel suite to meet Snoop Dogg. The suite looked like Terry Booth’s father’s apartment — you needed a machete to cut through the smoke. The Doggfather, wearing sunglasses and a fur coat, wanted to get high.
“Despite all my time at Canopy, I didn’t smoke weed,” Zekulin says of the culture clash. But Snoop had a way of converting the unconverted. There’s a reason he’s one of the most popular musicians of all time. Zekulin came prepared for the moment. He pulled out a medicinal CBD Canopy joint. Snoop is tall and thin. He’s been smoking marijuana since he was eight. He smokes daily. One of his most famous records is The Chronic. Zekulin had no hip hop records. He’s a lawyer. A nerd. He doesn’t know how to dance. At thirty-seven, the affable operations expert lived outside Smiths Falls, Ontario, and had two kids. Still, even non-smokers smoked around Snoop.
When Zekulin produced his Canopy Growth CBD joint, the rapper smiled. Snoop generally smoked blunts, hollowed out cigars refilled with hydroponic California weed. It would take one hundred Smiths Falls CBD joints to get Snoop stoned. Still, he appreciated the executive’s gumption. He smoked with the young Canadian and, even though celebrity endorsements were banned by Health Canada, Linton acquired Canadian rights to Leafs by Snoop. The biggest weed smoker in the world now worked alongside Bruce Linton. LA was coming to Toronto. And the press lapped it up. Zekulin says the momentum, if not the revenue — because recreational cannabis was still illegal — set off a cascading series of even more deals. It didn’t matter that the cannabis companies were still only earning revenue for medical marijuana sales. The hype was more valuable than cash.
“What these cannabis companies were doing in terms of revenue was completely irrelevant,” says Chip, our banker, who describes the market as “retail mania,” in which he could invest in any public Canadian cannabis stock on a Friday at 3:30 p.m., thirty minutes before the market closed, and watch how the stocks rose, as a block, on Monday morning — by as much as 20 percent. The stock moved on word of mouth. On FOMO. The bankers knew the price wouldn’t hold. “On Monday, about an hour after the open, we pull our money out of whatever cannabis company X at a profit. This happened for about a year.”
Trevor Fencott says there was nothing illegal in how the investment banks played the markets. He says, “The investment bankers never cared if the stock went up or down, because if it tanked, whatever — the investment bank shorts the companies and they earn their commissions, but they do this while the business goes down in flames.”
While the cannabis companies kept growing in terms of market cap and number of competitors, Bruce Linton wasn’t alone in battling skyrocketing construction overruns. The need for capital to increase the size of production facilities was intense. Valuations were still determined by yield capacity. Using Karasiuk’s formula for pot’s expected $22.6 billion value, a company’s worth was based on how much marijuana it could (hypothetically) grow.
Terry Booth and his peers were like Jack from “Jack and the Beanstalk”: country boys who trade the family cow for a handful of magic beans, which grow into a massive, towering beanstalk reaching up into the clouds. In the clouds, however, instead of meeting a giant, the cannabis executives were meeting architects who could build out their production facilities, which could cost as much as $250 per square foot.
To build a one-million-square-foot property in Edmonton, Terry Booth needed endless supplies of Canaccord money, because a fairy tale like the one Booth and Aurora spun required lots and lots of money, which Graham Saunders was only too happy to raise. A year out from recreational cannabis legalization, Canaccord saw its net income increase by 500 percent.
The only thing that mattered was growth.
“To some degree, you knew it couldn’t last, so the idea was to move quickly,” says Sean McNulty, whose Canopy shares were issued at sixty-five cents. They opened around four dollars in 2014 and hit ten dollars a year later. McSalty had scored his first payday. And he did it while getting high in his twenties. Still, if his bosses had only listened, the profits would have tallied hundreds of millions of dollars, just on that one deal — let alone all the companies that would have followed Linton to McNulty’s door.
After the Tweed IPO in the spring of 2014, MMCAP experienced a change of heart. Now McNulty’s bosses wanted him to invest in weed brands, and as the cannabis companies attracted more attention, they all wanted to go public, all wanted to expand. And amateur investors were ready to buy shares. Marijuana companies became trendy.
“Everyone knew someone who had made a million dollars on weed stocks,” says John Fowler, a lawyer and cannabis activist and founder of the Supreme Cannabis Company, adding that the sector began to attract sharks looking to exploit the nascent market.
McNulty was dismayed at the cannabis executives he met. “These people were on a different planet. Plans, budgets — no one had any of these things,” he says. “But it didn’t matter. The market was worth hundreds of millions of dollars. Billions, actually.”
Many of the growers had come from the black market; we know this. And many of the executives didn’t smoke pot, also true. So while cannabis executives took up arms against each other over email and in the press, the growers and executives at these companies also squared off from alternative backgrounds. Meanwhile, demand for pot kept growing, but the pot didn’t grow quickly enough. This added additional pressure to an already pressurized scene.
“We started off spending money like crazy, but it wasn’t going fast enough,” Linton says.
Stephen Arbib, who started MedReleaf in February 2013, recalls visiting Michael Haines and Trevor Fencott’s medical cannabis producer, Mettrum, in 2016. Fencott and Haines wanted $40 million for their company. Arbib believed that the facilities needed to be rebuilt and that, while they had a few thousand patients — the entire medical market was eighty thousand people, a number hypothetically served by any one of the legal growers — Arbib believed the highest he could spend was $12 million, and even that was a stretch. The MedReleaf deal fell through. But the Mettrum founders weren’t mistaken. Two weeks after deep discussions with MedReleaf, a series of calls with Organigram, and a thought of their own purchasing of Broken Coast, Bruce Linton made his sixth offer for the company. This time it stuck: he spent $430 million on Michael Haines and Trevor Fencott’s company.