Looking at the Constellation deal, Linton had a choice. Did he want to grow and move beyond Canada, and, if he didn’t, could he risk losing his pole position to Terry Booth or someone else? It was a Faustian bargain. Should he amass a bigger war chest than all of his rivals — combined — or pause, maintain full autonomy, and cede ground at Canopy Growth? Just like that WEED ticker, Linton knew: if he didn’t take the Constellation money, someone else would.
“It’s difficult to find another scenario where a five-and-a-half-year-old company got $5 billion for seventeen percent of the company — cash,” Linton says. He knew there was a risk involved, not necessarily to his company, but to him. Bruce faced the wind. “If you’re worried about your own skin more than you’re worried about your company, you should be taken out and killed — immediately.”
Like Terry Booth getting in bed with Nelson Peltz, these were considered risks. Giving up power for money. Both men wanted their companies to be the world’s biggest marijuana companies. And growth was oxygen. What Trevor Fencott warned against, being too big too soon, Bruce and Terry pursued, like addicts. And so now, after the Constellation deal — the big one, the C$5 billion announced August 15, 2018 — Linton’s Monday morning board meetings were different. Painful. The kind of guy who took the small office so he could escape meetings was now trapped in them, all the time. Before the Constellation deal, Bruce’s board — his close friends, including real estate wizard Murray Goldman — rubber-stamped his plans. Budgets and projects were approved quickly, without too much navel gazing. Cannabis was not the industry for beard-stroking and philosophy. Linton’s favourite philosopher was Elon Musk.
“Every Monday morning since acquiring Bedrocan, we had a nine-fifteen with the board,” Linton says. “It’s way easier to have frequent board meetings where I tell them what we’re going to buy and sell. That allowed us to move faster than anyone else.” He says Canopy was built for speed. After the Constellation billions, however, Bruce was ordered to go slow. “I don’t understand when they say ‘Sit, roll over,’ all these fucking commands,” Linton says, adding that in January 2019, four months into Constellation Brands’ investment and just around the time he was announcing his deal with Ascent, he was talking to a banker friend and came to a realization: “I don’t speak corporate lingo.”
The time for corporate lingo was upon him: presenting the numbers the board needed to see, a path to profitability, and detailed forecasts of EBITDA (earnings before interest, taxes, depreciation, and amortization) — the true revenue number and the metric by which cannabis companies would suddenly become judged. But the founder wouldn’t budge.
He thought his new board’s request for a five-year plan illustrated how little Constellation Brands knew about weed. Linton explained how quickly things changed in cannabis. The board wanted forecasting, but Linton believed that was impossible in marijuana. When he started Tweed, there was no way of knowing that Trudeau would be elected promising to legalize pot, to sell it not like a medicine, but like a beer. How could the end of prohibition sit in an Excel cell? And other laws were still being written.
There was a whole slew of new products — edibles, vapes, and weed drinks, stuff that Linton and his cronies themselves could consume — that were legal in California and Colorado but Linton still wasn’t allowed to sell in Canada. He owned a Hershey chocolate factory! How much would it earn when he could sell cannabis chocolates? John Aird had raised millions of dollars for an edibles company in Canada called Olli. Originally, Aird was going to make edibles for Vic Neufeld at Aphria, but when that partnership faltered, he used his licensing know-how to work with new partners and open a Cannabis 2.0 business for himself. When would he be able to sell gummies, brownies, and sugar-free mints, and what would that be worth? What could happen to cannabis revenues when the soccer moms came to Tokyo Smoke? Or when Canopy products were sold at No Frills? No one knew. Not Health Canada’s Eric Costen. Not Anne McLellan with the cannabis task force. Not Alan Young, the lifelong cannabis lawyer. And certainly not me. Though it was fun to attend cannabis parties and try and find out.
In March of 2019, however, there still weren’t any cannabis stores open in Ontario. Despite the dreams of Trevor Fencott and Lorne Gertner, their fancy pot shops in Toronto sat empty on expensive real estate lots, like Ferraris that just sat in the garage. “Ontario shat the bed,” says Terry Booth — and you didn’t have to be drunk to know that.
Even in provinces where there were retail shops, provinces with small populations like Manitoba and Newfoundland, the industry was hampered with problems. According to retailers in Alberta, where there were stores, a shop would purchase their week’s allotment of legal cannabis on a Thursday. On that same Thursday, the weed was all gone. It sold out in a day, and the retailer had to wait another week to restock. So much potential revenue was being pissed away exactly at the time when cannabis companies were being challenged to show profits.
In early 2019, legal pot shops, like the five owned by Alcanna in Alberta, cleared $1 million each week in the first five days after receiving their cannabis shipments. However, the other two days were spent with employees sitting in a shop with no inventory. “You can’t sell what you can’t sell,” Linton says, meaning that if your product isn’t on the shelves because you don’t have any, and there’s nowhere to sell it anyway, it’s hard to forecast your EBITDA. Linton tried to explain this to the Constellation Brands board.
Meanwhile, all over the country, legal cannabis growers — just like during the medical days — were desperately trying to speed up harvests, which couldn’t be done. Marijuana isn’t produced on an assembly line. And growing identical bud at scale isn’t the same as bottling Coronas. Whether it was Aphria’s outdoor crops in Leamington or Aurora’s million-square-foot greenhouse weed in Alberta, no one was getting their pot to the retailers fast enough. Despite spending billions of dollars, none of the licensed producers were growing enough cannabis. Or making their cannabis good enough. And this played into the hands of the black market, which was terrible for Justin Trudeau and the Liberal government because defeating that black market would determine if the Cannabis Act was a success and, to some extent, if the Canadian model — legalized weed — should be replicated all over the world.
“This is the thing,” says Alan Young, echoing Woody Allen. “The pot was terrible in 2019, and there wasn’t enough of it.”
Linton was expanding, explaining himself, and pivoting, all at the same time, while retailers told me they received packaging without product inside their childproof bottles. Complaints ricocheted across the internet that the legal weed was crumbly, dry, mildewy, expensive, and— worst of all — weak. At one point, the only cannabis available on the market was milled marijuana, ground up from the bottom of the plant, à la Prairie Plant Systems 2.0. A year into legalization, it was embarrassing that billion-dollar companies with global ambitions still couldn’t do the one job they had: grow weed. You’re bigger than Air Canada and you can’t grow bud better than someone’s cousin?
Green Giant: Alison Gordon, founder of 48North, standing before bags of her weed. She was named one of fifty most influential people for 2019 by Toronto Life.
Of course, weed smokers have been complaining about their purchases since John Fowler sold dime bags, but now the grumblings affected the New York Stock Exchange. Plus, a byzantine distribution network created bottlenecks, so even if the pot was good, which it wasn’t, it certainly wouldn’t be helped by sitting in a warehouse for weeks, or even months, before it made its way into smokers’ lungs.
“We did a terrible job, a brutal job — all the LPs [licensed producers] — and I was losing my shit,” says Terry Booth, who produced eleven thousand pounds of weed in 2018, and, together with Linton, controlled 50 percent of domestic recreational sales. Canopy had the global funded capacity of 4 million square feet. Aphria was licensed across more than 1 million square feet just in Canada. In March 2019, Sébastien St-Louis at Hexo — he had renamed his company Hexo from Hydropothecary, influenced by Hennessy X.O — purchased Jay Wilgar’s Newstrike Brands for $260 million and increased his funded capacity by 470,000 square feet. And yet, even without Ontario opening a single store, there still wasn’t enough weed to go around.
Hard to make money with that kind of overhead and nothing to sell.
Rob Sands is an unlikely person to have changed Canadian weed. Constellation Brands was a legacy play for the Sands family, who’d begun their family business in 1945 and grown their company into America’s leading wine distributor and third largest beer maker. Sands, the Constellation CEO, made an offhand comment in a beverage industry trade rag suggesting he was open to the marijuana market, and Linton had hunted him down. There were a few false starts before Bruce’s underlings began side-channelling up the Constellation ladder on LinkedIn. Eventually, Linton and Sands connected, and they consummated their first deal in October 2017. Then Constellation Brands made its big investment into Canopy in the summer of 2018, right before legalization. Canopy would take Constellation Brands from the past, alcohol, to the future, weed.
On the day pot was legalized, however, October 17, 2018, it was announced Linton would lose his biggest booster. In March 2019, Sands would retire. His replacement, Bill Newlands, former Constellation Brands chief growth officer, took to his CEO job with garden shears — cuts, not growth, were on the horizon. In his first earnings report, Newlands’s initial public comment on Canopy was this: “We’re not pleased.”
Linton didn’t understand. He was doing exactly what he said he’d do: grow. Newlands, however, wanted to see Canopy make, not spend, money. Linton said he just needed time. Production was streamlining — every cannabis CEO swore the same thing — and, on June 14, 2019, Health Canada finally announced a release date for Cannabis 2.0: as of October 17, 2019, edibles, vapes, and cannabis beverages could legally be sold. These were new revenue streams, pot products not for stoners, but for everyone else.
“Canada was in the pole position. We had the best public policy, best access to capital, and there were no Americans on the playing field,” says Linton. “The last time Canada had a lead like this was Alexander Graham Bell. BlackBerry didn’t come close.”
Canopy was leading in market share, earned media, market cap. It was a behemoth. Let us grow, Linton told Newlands. Plus, when Europe opens up, when the States do, the profit will come.
Newlands, a Wharton graduate and a Harvard Business School MBA, wasn’t sold. Many tables were set — science, Europe, soap, energy drinks, Martha Stewart — but they weren’t producing enough money. Canopy couldn’t be Uber: scale as a strategy to wipe out the competition, without profit. The Canadian cannabis model, Newlands told Linton, was through.
Linton blames the communication gap for the friction. “Because I didn’t focus on their explanation to their shareholders and their shareholders didn’t love the deal, that put pressure on Bill,” Linton says. He explains that the Constellation shareholders only saw Canopy’s millions in losses, and Linton couldn’t reassure his new board that an uptick for Constellation Brands, on the back of Canopy, would occur over time. Not speaking corporate lingo drove a wedge in the partnership from day one.
“I should’ve made sure I understood how they were going to explain to their shareholders that while their earnings per share may have diminished in the short run, that by giving us money, they had a robust future, and their stock, eventually, would become three hundred dollars per share and not one hundred and eighty-two dollars.” It’s not regret Linton feels exactly. Not anger. Certainly not shame. It’s missed opportunity: a Hall of Fame pitcher taken out in the third inning after working his whole life for the decisive World Series game. “Had I just explained it to them in their own language, they would have said, ‘Mr. Linton, you’re a genius. What would you like to do?’”
Vic Neufeld, the president of Aphria, citing health problems and a need to spend more time with his family, stepped down on January 11, 2019. He didn’t mention short reports or the allegations that Gabriel Grego had made about personally profiting from paying too much for international properties. Looking for the quiet life after leaving Jamieson Laboratories, Neufeld discovered instead that cannabis was as chaotic as his beloved Detroit Lions’ Thanksgiving Day football games. Marijuana, however, gets into your bones and Neufeld is still active in cannabis, advising many cannabis companies, including John Aird’s Olli. “It was one hell of a journey,” Neufeld tells me between cigarette breaks over breakfast one morning in a Marriott Hotel near Pearson Airport in Toronto. “I created a behemoth in Canada.”
Neufeld says he fondly remembers competing with MedReleaf to sign up veteran patients for his medical weed, and the time Bruce Linton tried to hire him away from Aphria. Neufeld is proud to say that he went through his Rolodex, not consultants, to build the Aphria infrastructure and his financial team. He says that, even though both Bruce Linton and Terry Booth badmouthed him on Bay Street, saying sunlit greenhouses wouldn’t work for growing cannabis, he liked all the people he competed with.
“I wasn’t a user,” he says. “This was all new to me.”
As for the short report, the acquisitions, the accusations, the Scythian deal, Gabriel Grego, and what happened in Jamaica and Colombia, Neufeld is obviously in no mood to confess. “We always, always played within the rules of the game,” he says, and talks wistfully about Aphria being down to its last $100,000 while awaiting its medical licence in 2014. He talks about how much he loved Cole Cacciavillani, his childhood friend from Windsor, and John Cervini — “my boys” — the farming entrepreneurs who first brought him the idea of working in weed. “I had my boat already, my Florida home, but I still had a little gas left in the engine,” he says of the time just before he joined Aphria in June 2014. “It ended up getting personal. I don’t like failure and I never felt fear. If you feel fear, you will fail. I had the right fortitude to accept risks. It all worked out in the end, oh my.”
The Aphria experience, culminating at the start of 2019 with Neufeld’s exit, did nothing to enhance the industry’s image to a sobering financial audience, from Constellation executives to regulators at the Nasdaq exchange. Marijuana executives always struggled to achieve respectability. All along, they were telling the world, the business community, investors, and also activists, consumers, and colleagues, from Martha Stewart to Bill Newlands, that they were sober professionals, serious people. However, bad behaviour in the sector made them look like amateurs, or worse, criminals, as critics had always warned. The huge market caps didn’t entirely wipe the stigma away.
“If you don’t take us, our product, or our industry seriously, why give us money?” John Fowler would think, after taking the investment bank’s money. Almost as if to double down on his cannabis principles, to draw a line in the sand and define himself as a “weed guy,” not a suit, Fowler quit drinking on the Halloween after legalization and made a point of excusing himself during investor dinners to step outside for a joint while the bankers got sauced. Lorne Gertner also quit drinking. So did Alison Gordon. So did Marc Wayne and John Aird. As Vic Neufeld says, by 2019, pot was personal and often made strange bedfellows.
Weed guys and investors, the two camps working together, but not quite seeing eye to eye. Pot always had an us-against-them mentality, and sometimes, be it the growers versus the executives, or the cannabis executives versus the legacy market, or the independent investment bankers versus the big five Canadian banks, or, just as often, the companies against one another, the animosity made cannabis a divisive, even dangerous industry.
“You mean you’re coming into our sector, but make fun of it, or you’re willing to profit from it while actively against it, against us, and what we do?” asks Fowler, who has trouble understanding how a white CEO of a cannabis mega-company could profit off marijuana while believing people who sell weed outside the legal system are criminals who belong in jail. “Anyone who thinks you should be in jail for pot while selling pot is an asshole,” Fowler says.
Stephen Arbib agrees with Fowler. He also thinks the reason the companies struggle mightily to grow — the reason why funded capacity doesn’t equal actual weed — is because most cannabis companies didn’t start as his company, MedReleaf did, well capitalized and with a black market grower like Tom Flow. Cannabis, as the legal market learned after the Deloitte valuations, isn’t tomatoes. Expanding your greenhouses before perfecting your growing methods squandered millions of dollars. “We knew that these companies could barely grow in ten thousand square feet. They could never grow in a million,” says Arbib. “That’s a reason why I was like, ‘This industry is going to have a massive correction. None of this makes sense.’ I can buy a piece of land and my company goes up one hundred times in value, but I’ve never demonstrated that I know how to grow.”
Arbib says, “That’s why there’s cannabis shortage — that’s why the industry’s fucked.”
Alan Young, the lawyer who fought to establish the Canadian medical marijuana program in the 1990s, feels like the industry in 2019 wasn’t fucked, just fucked up. He doesn’t like seeing business schmucks getting rich all around him. Especially since those same schmucks paraded through his office in the early 2000s looking for an assist with their medical licences. “Always the same types of people — a money guy and a grubby grower — and they’d come in and bring me samples and they were never great. I’d always say the same thing: if you guys are in for the long haul, this is a good investment, and I believe recreational is in the air,” recalls Young, who met with Canopy, Aurora, and Cronos in the early years and has a hard time rationalizing the fortune he let walk away. He didn’t have money to invest, and the companies weren’t looking to make him a VP.
While he was taking on pro bono possession cases and staying close with Health Canada in order to be involved with regulations, he didn’t have the capital of Lorne Gertner and never became a pot millionaire. Young loves weed, but he’s not a martyr. All around him, pot millionaires who didn’t consume the product celebrated their IPOs and American partnerships while the Canadian system forgot about him, Terry Parker, Rosie, and Aaron Harnett. Young, mirroring the counterculture, viewed the police and politicians, the money guys, lawyers, and bankers as enemies, phonies. Legal pot made people rich. Other people viewed the counterculture as us against them. Pot smokers, as Brent Zettl discovered — “They think it’s their God-given right to grow cannabis,” he tells me — distrusted the government system. Part of the reason the black market still exists today is consumers actively opting out of the legal system. At the start of 2019, more than half of Canada’s cannabis consumers, even after legalization, bought weed from the black market. Not because they had to. Because they were making a choice. What the legal market discovered was that pot smokers, not soccer moms — despite pot shops that look like Tiffany’s — consume the greatest amount of weed, and the heaviest consumers buy their weed illegally. Sales in the first year of legalization of cannabis reached nearly $1 billion. Sales in the illicit market ranged from $5 billion to $7 billion.
“These bank people just assumed all these revenue projections. Are you fucking kidding me?” says Young. “Cannabis users that I know are not coming to you. They actively hate you.”
Terry Parker never buys legal weed. Rosie Rowbotham said he can’t stand the stuff, though he never even took a puff. He hated it on principle. He used to fight against the police, he told me, not buy weed from them. Alan Young says he isn’t hateful of the industry after legalization, though he wishes Bruce Linton could have offered him a better job than a decorated tour guide at 1 Hershey Drive. But what rankles him, what enrages Alan Young — what he feels contempt for — isn’t the executives or the bankers. It’s the law-officer cannabis profiteers. It’s not only John Boehner, who became partners with Bruce Linton from his perch at Acreage Holdings, but Julian Fantino and his Aleafia co-founder Raf Souccar, both former Toronto cops.