Haines didn’t want to sell. He tells me he couldn’t walk his dog without someone approaching him about weed stocks. Haines is a quiet guy, a laid-back Aussie, but everyone likes feeling special. He says it was the most exciting time of his life and, cool as he is, self-made and comfortable around money, he still got high off the attention.
“I was no Bruce by any means, but I couldn’t go anywhere without getting cornered all night,” he says. “It took me a year to realize how annoying to my wife I was. I think she preferred me when I was quietly getting rich.”
In the end, the people involved in Mettrum wanted to be richer than Haines had already made them. He was feeling pressure from the board, which wanted to see Canopy-style earnings per share. John Fowler at Supreme says the same thing. Michael Haines says he didn’t really have a choice. “Between activist investors and tired partners, it seemed like Canopy had won,” says Haines, who sometimes regrets that his company wasn’t promotional enough. But then his regrets get brushed away when he stares out over the ocean from the palace he owns in Mexico. Fencott says the $430 million Bruce paid for Mettrum was fair. “Arbib always had a private company, and consolidation in the industry had to happen. All Bruce did was pay a percent premium on the market,” he says, adding that it wasn’t $12 million offers he’d refused, but offers in the $250 million to $350 million range. “Maybe we were actually worth something like $12 million, but that’s a tough case to argue when our market cap was 175 million bucks.”
Bruce Linton wasn’t worried about the Mettrum price tag. For Bruce to keep being Bruce he had to hold the biggest microphone in town. Mettrum, he tells me, changed the value proposition of Canopy, so despite the cost, it was a good deal. He was defending his crown. After the Mettrum acquisition, Canopy could now count 39,730 patients, half of the Canadians licensed to buy weed (Mettrum brought in 20,000 patients thanks, in part, to Haines’s clinic program, which helped steer clients to physicians prescribing their product), and Mettrum shareholders would own 22.3 percent of the new company at a price per share of $5.92. The stock went to $8.42 per share after the deal. From the sidelines, Arbib couldn’t believe his eyes.
“That was my first oh-shit moment,” Arbib tells me. “The people negotiating have no idea what they’re doing and the market doesn’t care. It only could end one way.”
Chip cared, about money. He would continue to recycle cash into the sector — on paper — while the world followed Snoop into Canada to make deals. This, Chip says, would last for two years.
One afternoon in April 2018, still months before recreational legalization, Chip was in a meeting with a Swiss CBD company when he received a call from Mike Gorenstein at Cronos.
Cronos grew out of the bones of Peace Naturals, one of the original Blessed 13, and Gorenstein, a lawyer with a bachelor’s degree in finance, was one of the first Americans to control a Canadian cannabis company (and the only one of the original founders still ruling today). Gorenstein was young, fit, and relatively sober. He would sit with Chip at cannabis conventions and laugh at Terry Booth making unceremonious trips to the bar. His company, Cronos, would grow to an $11 billion valuation in 2019 (and was accused by the Ontario Securities Commission of overstating its revenue figures by $7.6 million, for which they paid a $1 million fine).
Back in April 2018, Gorenstein told Chip he needed $100 million. It was understood that Cronos was being courted by Altria, the parent company of Philip Morris USA, makers of Marlboro cigarettes, and if a deal transpired, Cronos would need to go dark on the capital markets; it could be half a year with no capital raised while regulators studied the deal. And there was only so much money on the street. Times were booming, but there was still a ceiling, and a pecking order. If seven cannabis companies wanted $100 million in the same month — because there was a land grab and a race to grow production space — that would be almost $1 billion investment bankers would have to raise for weed stocks. Pot was popular, but Bay Street wasn’t Qatar. Chip says the weed brands played the investment banks against one another. There were commissions on the line and no one wanted to be cut off from the money tap.
“It was like five scorpions in a box,” Chip explains, recalling how all of the young, aggressive money men knew each other and all of the cannabis companies worked with each of them. The young bankers would wine and dine the rookie executives. Chip took CEOs to New York for dinner or to the Raptors game, with seats on the floor. Everyone was arrogant in the new world of weed money. In Las Vegas, Chip was spending $10,000 a day. He says he lived in strip clubs. In 2016, he earned $500,000. In 2017, his expense account was $300,000.
Chip says that when Gorenstein called him, he excused himself from the Swiss CBD team and ran across town, screaming into his phone. The weed companies were massive, but it was all on paper. Stock shares couldn’t pay salaries or electricity bills, and Chip says that, though Cronos was valued at over $1 billion, without the $100 million they wanted, they were facing bankruptcy. Cannabis companies burned money like the police used to burn fields of weed. No one — the market, the investors, the executives — knew how to value anything. In the spring of 2018, despite the Cronos valuation, they were hard up for actual operational cash. Marijuana companies were spending tens of millions of dollars a month. Hard money. Real money. Chip had to get the financing to Gorenstein. And he did. There was no way he was going to let the good times stop. Chip tells me that, after several screaming phone calls, he eventually got his company to invest $100 million into Cronos. It was on the same day that Gorenstein asked for the cash.
“It was the scariest thing I ever had to do in my life, but it was the right move,” he says, explaining how, on this deal, it wouldn’t be his retail investors on the hook for the money. It would be his own firm. And Chip took his bet all the way to the bank. In December 2018, Altria announced their deal with Cronos: they were going to buy 45 percent of the company for $2.4 billion. Altria got 146 million new Cronos shares at $16.25 — a 41.5 percent premium to share price pre-announcement. The deal helped the stock reach over $17 per share in the days following the announcement. Gorenstein was thirty-three. Chip was twenty-nine years old.
“The first thing I thought after the deal closed was that’s my $6 million dollar fee,” says Chip, who had already begun thinking about his next deal and about European expansion for medical cannabis companies. The brands were moving beyond Canada, promising, and perhaps even believing in, a limitless blue-sky potential.
Now the value of pot stocks was determined based on opening production facilities all over the world. This made international licences valuable, and the cannabis executives looked at the globe like children playing a game of Risk. Aurora had lined up an account to sell medical marijuana in Germany. Rumours spread that the entire European Union could legalize medical marijuana next. Italy, Greece, Malta, Britain, Portugal — the medical marijuana system in Canada was working, and each year it expanded in the U.S. Soon it would take over the world.
“We did a deal for Aurora.… Five thousand hectares of hemp in Lithuania?” says Chip. “I didn’t even know where Lithuania was on the map.”
Bruce Linton says his ability to raise money and acquisition hunger for rival weed companies caused industry-wide repercussions. The price he paid for Mettrum, blowing MedReleaf’s offer out of the water, helped determine what things were worth. Stephen Arbib says that all you had to do was tell Terry Booth that Bruce Linton was interested in an asset, and Terry would seek to outspend Bruce’s bid, without even seeing the asset, let alone checking its books.
This makes Linton laugh. “There are at least three transactions in which I believe the parties that made purchases spent between fifty percent or even three times more than they needed to, because I acted as if I might buy that asset,” says Linton, who strategically sized up companies and got the rumour wheel spinning to jack up the price of something he didn’t want. “If I make you pay twice as much for something than you should have, it means you’ve increased share count, and eventually, when you start reporting earnings per share, it’s harder to beat me on my number.” Linton means this: if he makes you dilute your shares to pay a premium on something he doesn’t want, his own value per share looks even rosier to his stockholders.
Linton got companies he wasn’t working with on his side in the charade. “If you asked the CEOs of those companies, they’d say, ‘Bruce laid this shit out for us.’ I’m one hundred percent not buying you, but if you get twice as much as you think you should get, we both benefit. That was fun!”
John Aird, who had previously worked in the Premier’s Office of Ontario and the Ministry of Economic Development and Innovation, remembers spending most of that time on a plane. An expert in licensing and regulations and part of the marijuana subculture, Aird introduced me to half of the characters in this book and initially helped me lay out the legal cannabis timeline. Aird’s family is connected. For instance, he has a photo of his grandfather, a senator, with Prime Minister Lester Pearson, beneath which is a handwritten caption from Pearson, who went by “Mike” to his friends: “To John — the Senatorial Hercules, from Mike — the Weary Titan.”
Aird travelled to the States so often around that time — to Florida, California, and Colorado, places with legal medical marijuana industries that wanted to invest in the Canadian market — that eventually American airport security wouldn’t let him cross the border. “Customs didn’t understand that I didn’t grow cannabis — I was in the permit business,” says Aird, who nevertheless knew law enforcement was behind the times when it came to cannabis legalization. Aird’s family co-founded Aird & Berlis — a tony Toronto law firm — and he could’ve had a team of lawyers argue his case. On principle, he says, he chose to confront the Americans on his own.
“I wanted to be on the front lines. It was absurd the way the legal cannabis industry was viewed as this outlaw work when we were already worth billions of dollars.”
Aird helped Newstrike, a mining company that didn’t bother changing its name when it decided to get into weed, obtain their medical marijuana licence. In a bizarre world of upside-down chicanery, Newstrike struck a chord all its own. Through the personal connections of CEO Jay Wilgar, the company soon had a differentiating factor no other licensed producer could match: the Tragically Hip. Wilgar’s relationship with the band began in the summer of 2016, as they performed their Gord Downie farewell tour. The band wanted to be involved in the medical cannabis movement. Newstrike made their ticker on the Toronto Stock Exchange HIP.
“We had no trouble sharing a jay,” Rob Baker, guitarist of the Tragically Hip, told me, adding that he worked with Wilgar to bring the group into the fold. Gord Sinclair, the bassist, named the strains that Wilgar would sell after the Cannabis Act was enacted, and Newstrike created a recreational brand called Up Cannabis; each individual strain was named after a Tragically Hip song. The company hosted a dinner for investors at the band’s studio in Bath, Ontario, and the group appeared with Wilgar at a Bay Street event targeting investors. Justin Trudeau attended the group’s last show, in Kingston, on August 20, 2016. Gord Downie, who was dying of aggressive brain cancer, had become the most beloved figure in the country. Canadians watched Downie sing his poetry onstage in a metallic leather suit, and those lucky enough to score a ticket cried over their soon-to-be Tragically Hip–branded joints. Downie’s cancer was advancing quickly, but in 2017, he was able to tour Wilgar’s facility in Brantford, Ontario, where Wilgar grew BC bud in earnest, especially a strain called Ghost Train Haze. Wilgar took Downie and his brother through his facility and very carefully instructed his director of operations to score the guys some weed.
“There’s six thousand cameras, but there was one little area in the sorting room that, if you stood at just the right angle, it was possible to not be seen,” recalls Wilgar, who then led the brothers outside into the parking lot, still in their lab coats from their tour. “I was CEO of this company and under my lab coat I had a hundred grams of weed.”
Wilgar told Downie to meet him down the road at Tim Hortons. He then followed the brothers to the spot and threw the big bag of weed into their car.
Gord Downie would pass away three months later, on October 17, 2017, exactly one year before recreational cannabis legalization. Before he died, it’s quite possible he smoked Jay Wilgar’s weed.
Newstrike became a red-hot commodity. In November 2017, Brent Zettl and CanniMed began pursuing Newstrike for an acquisition. Rec, as recreational legalization was known, was coming and CanniMed wanted to get into the market. Newstrike had the Tragically Hip, and thus was arguably the most appealing brand in an industry where there was little to differentiate one company from another. The two bosses worked through the details. After the deal, Wilgar would handle the recreational line and Zettl would be CEO. Everything was settled.
Until, that is, Terry Booth from Aurora came in and kicked ass. In an act of extraordinary aggression, Booth acquired CanniMed in a hostile takeover for $1.2 billion. To this day, all of the parties are aggrieved. Booth said it was CanniMed’s board who first approached him on the deal. Zettl denied this and immediately responded to Booth by filing a $725 million lawsuit against Aurora, claiming Terry’s board had insider knowledge of the CanniMed operations. And here’s where things get hazy. Canaccord, Booth’s investment bank, which he had been enriching, had also been working with Newstrike (the investment banks worked with multiple cannabis companies at the same time). However, Wilgar says that Cannacord, after spending weeks in his data room, told him that their relationship on this deal was terminated. On Friday afternoon, Wilgar was fired by his bank. On Monday morning, Cannacord announced it was representing Aurora in the hostile takeover. Wilgar points out the legality of such business shenanigans in this way: “This is Canada. What do you expect?”
Terry Booth says he didn’t see anything wrong with the deal. He didn’t care about Newstrike, or Brent. Terry could be hostile. It was his job. “They used to value [cannabis companies] by the size of our growth and our funded footprint, and when we got to our market cap, [Aurora] was way higher than our competition, but our competition [CanniMed] was way bigger than us — that’s when you acquire,” says Booth, explaining that he had the money in his war chest to act as he pleased. It was what was best for his company. “[The industry] became a sprint, a land grab, and we jacked our funded capacity, but not everyone was in it for the long run. With CanniMed, their shareholders initiated that transaction.”
Wilgar and Zettl were pissed, but they were mad at the wrong people. For more than $1 billion, their board, Booth claims, had sold them out to Aurora for a huge payday. And that’s when the retail investors really got screwed.
Wilgar had a $10 million clause in his contract should the CanniMed deal crash. At the time, his stock was trading around thirty cents and the company was worth $300 million. In early January, Newstrike received a sales licence. Within four days, the company was valued at over $1 billion. Institutional and retail investors bought shares, but the hedge funds in Toronto knew the price couldn’t hold.
The smart money said, “No way.” The dumb money said, “Sign me up.”
Newstrike became the ideal company to short, and hedge funds bought Newstrike shares just to sell them, hoping the price would go down so they could buy them back at a lower price and profit on the difference. If you were a retail investor holding Newstrike paper, you lost your shirt. It had little to do with building a company and everything to do with destroying one. “The stock traded thirty million shares in a day, and that week, we got a $90 million bought deal from a hedge fund covering their short position,” Wilgar tells me. “All of the sudden, we had $100 million in cash when we were down to our last two million in December.” Aurora now owned CanniMed. Terry Booth fired Brent Zettl. Newstrike suddenly was flush with cash and Jay Wilgar knew there was only one play. He says, “We spent a fortune!”
Sean McNulty — McSalty — recently told me over beers before a Maple Leafs game that he loved every moment of the marijuana gold rush. McSalty, by the time of the Newstrike deal, was working for himself, rich and proven correct about weed. Bruce Linton’s right-hand man on mergers and acquisitions, who had put half his life savings ($50,000) into Canopy’s IPO, left MMCAP to start his own operation, at Linton’s insistence. He said his new company, XIB Asset Management, with Linton in his ear, had different operating instructions from when Linton had first walked through his door. McSalty, who met me between appearances in Las Vegas at the World Series of Poker and his new home in the Cayman Islands and was still smoking weed, said it wasn’t funded capacity, international licences, or cutting-edge science that attracted investors to cannabis companies in late 2017. Anything in the sector was valuable. Everything marijuana was hot.
McSalty had a new and widely shared mantra with regards to cannabis investments: “Buy ’em all.”
Chapter 9 Growing Pains
“Nick, we just need to take some pictures.”
Cam Fletcher, operations manager, CannTrust, to Nick Lalonde
Nick Lalonde never invested in weed stocks. But Nick has smoked plenty of weed. A hobbyist from Pelham, Ontario, he knows strains and seeds and can suss out terpenes and recognize rare breeds from the Netherlands. Growing up, he read High Times and collected the centrefolds of lush marijuana plants, just like Tom Flow. Before seeking employment in cannabis, also like Tom and like Terry Parker, Nick turned closets into gardens. He can smoke weed and be high without anyone knowing it. (But if you know it, that’s also fine.) He’s been part of the marijuana counterculture all his life and was raised hard. He was bullied as a kid, came from a broken home, and learned to sell coke and rob dealers before getting out of that life. With a chin beard and most likely a hoodie, Lalonde went straight and eked out a living selling seat cushions, T-shirts, and the odd dime bag to friends before landing a job at the licensed producer CannTrust in July of 2017. At the time, the company started by Norman Paul was heading towards a billion-dollar valuation and a listing on the New York Stock Exchange.