In June 2019, Linton was saying it was business as usual, but his figures for that quarter revealed $323 million in losses. This was a staggering amount, almost four times analyst expectations, and a bitter pill for Constellation Brands CEO Bill Newlands to swallow. Linton assured the market and his board that the losses were intentional. He was following his business plan: buying things now when they were available in order to make huge payouts later, as the laws around the world changed. This is why, he proclaimed, Constellation gave him the money in the first place. He was thinking long-term to sew up the entire cannabis market, and the 2.0 products would bring non-cannabis consumers into weed. “Edibles is what we’ve been built for,” Linton told the Globe after announcing his losses on a June 22, 2019, analyst call. “It’s the whole point of this exercise.”
Happy Customer: Lorne Gertner, restocking at his Tokyo Smoke in Toronto.
Linton says that in the summer of 2019, there was a widening disconnect between the Constellation executives headquartered outside Rochester, New York, and his world before popping flashbulbs, courtside, hugging Drake. The vocabulary was different. The cultures. The timelines and cool. Once, in a conversation with American reporters, a Constellation executive said that marijuana had come a long way since “buying bud from a Rasta in an alley.” Linton says he was furious; you’re not even supposed to use the phrase “black market,” let alone refer to a racial stereotype. The American team seemed clueless. Linton thought, I’m supposed to take instructions from that?
The answer was yes, he was. When Bill Newlands spoke to analysts after presenting his own quarterly report, Linton’s boss said he wasn’t happy with Canopy’s fourth quarter results. Constellation Brands went from being a profitable company to losing $484 million on their investment in Canopy. Linton was projected to earn revenues of over $700 million in 2019 and $1.35 billion in 2020. “Let us do our thing,” Linton said. He was embarrassed, if not stunned, by Newlands’s comments. “We were following our plans to the letter,” he tells me, a plan Newlands knew: spend now to earn later. That was always the Bruce Linton Canopy plan. “The reason your margin goes down is you increase your capacity. So you have 56 percent gross margin increase, but you increase your capacity eight fold,” Linton says. “You have 18 percent gross margins, and if you start using your capital, it goes back up to 56 percent margin — that was the plan! So how can your script say you’re disappointed? Are you disappointed about the fact that your birthday’s on Tuesday when it’s been your fucking birthday forever? It’s a fact.”
The Cannabis 2.0 products infused hope throughout the entire sector. For Fencott and Haines at Fire & Flower, it meant new products with better margins were coming. Their new stores were opening where rich people would want to buy 2.0 products, such as on Bloor Street, beside Hermes. The business of cannabis changed again that summer. What began as a race to get medical cannabis producer licences and then became a race to grow funded capacity, evolved, that summer of 2019, into a race to open retail locations. For Fencott and Haines, backstopped by Couche-Tard and their fifteen thousand stores all over the world and seven thousand Circle Ks in the U.S., it was high time to expand.
Couche-Tard was teaching Haines and Fencott about shelf space and customer service. The convenience store company, one of the largest shop operators in the world, excels at using customer data to arrange their stores in order to maximize profit from each customer visit. They know about ordering and human relations — they have 150,000 employees. And they know about “quick convenience,” providing customers an efficient way to shop. Weed shops might not need to be Apple stores. The Hunny Pot model had lots of overhead. Wouldn’t they make more money if they were organized like Circle Ks? Plus, Couche-Tard wasn’t squeamish, not like Constellation Brands. The company already sold products that had unsavoury associations — gasoline and cigarettes — and saw both of those businesses as losing favour and market share. Couche-Tard wanted a new revenue stream from Fire & Flower; they were experts in distribution, location, and data; and they knew all about scale.
Fencott fell, like all of the founders, for weed. He told me he wasn’t a weed person when he started working in cannabis. Growing up in Scarborough, he was engineered to be an engineer, or doctor, or lawyer. He had graduated with a law degree from Western. But he didn’t want to stick with the plan. He found that he was an entrepreneur, and, like a lot of cannabis guys, he made his early money in tech. After Canopy bought Mettrum, Fencott worked at the company, but the death of his father prompted a change of heart. He decided to go out on his own. For Fencott, marijuana began as an unlikely economic opportunity and morphed into something deeper. He never got high in university and didn’t smoke weed at law school. He says his wife, Dana, was the cannabis consumer in his household. He never tried the product until Mettrum made a mistake.
His company had created a cannabis distillate and it failed, producing only enough for three patients. Since they wouldn’t be able to sell the concentrated marijuana, each of the founders took some home themselves. Fencott had written the warning labels on the Mettrum packaging: start slow and go low. At home, however, with his own product, with his wife and kids away, he didn’t follow his own advice. He loosened his necktie. Fencott, who favours pocket squares and called paperwork his super power, who voted for Doug Ford and looks like a Wall Street–era Charlie Sheen, took a dropper full of the high-THC Mettrum oil. Nothing happened. So he took another. His limbs got loose and his mind started to wander. Suddenly, he had thousands of ideas. He then climbed into his bed and flicked on Law & Order and felt like he was on a waterbed. He felt as comfortable as he’d ever been, free and easy — like he was rafting — and casually optimistic. He drank one of his kids’ juice boxes and was astonished by how delicious it was. He chased it with a Rice Krispies square and took another dropperful of the concentrate. He tells me he marvelled at the complexity of Law & Order. No wonder this series is so successful, he thought, sipping another juice box and digging into another treat. Smart people solving such complex crimes was his final thought before he drifted off into a deep, peaceful sleep.
Marijuana, maybe there’s something to this stuff after all.
In the morning, he woke up to find he’d drunk all of his kids’ juice boxes and eaten all of their Rice Krispies snacks. But he didn’t have a hangover and hadn’t done anything except disconnect from his conscious mind. For Fencott, endlessly analytical — in a word, uptight — it was a vacation from the tight leash he held on his surroundings. That day he had a meeting with Michael Haines to discuss production expansion, but he felt, twelve hours later, that he was still too high to drive. Sober Fencott is cautious. Still, marijuana made an impression. He finally saw for himself what the fuss was about. And Trevor began using cannabis. By the time he left Canopy and sat at his father’s bedside, he was smoking weed, like Sébastien St-Louis, three times a week. He says he wasn’t surprised to find backers when he wanted to start his retail company. Since he respected and had respect from what he calls “the Bizarre Camelot Roundtable of Marijuana” — Terry Booth, Vic Neufeld, Bruce Linton, and Sébastien St-Louis — it wasn’t hard for him to find investors. “Between Aphria and Hexo, we literally raised twenty million in two phone calls,” Fencott says.
Terry Booth at Aurora was, of course, excited about Cannabis 2.0, and when the products finally did come out, it seemed like the Aurora Drift gummies were all you could find. That quarter, September 2019, Aurora sold the most cannabis of any licensed producer, and momentum was at an all-time high. They did $98.9 million in sales, up from $19.1 million the previous year. Booth had a $150 million growing facility nearing completion beside the airport in Edmonton. Called Aurora Sky, it would automate the growing process. And he already had the three-hundred-thousand-square-foot Aurora Polaris under construction, for making edibles, among other things. In Denmark, Aurora had one million square feet of production greenhouses and was leading in the medical marijuana sales. Thanks to its purchase of MedReleaf, Aurora had over ninety thousand medical Canadian patients, who still spent a premium on their weed (no race to the bottom with price structure there, with insurance companies paying for veterans). Aurora had the most patients who spent the most money on weed. And Terry Booth tells me he would taste-test his gummies and feel the possibilities of his universe expand. But what he didn’t expect was that selling the most marijuana in the history of the legal market wouldn’t be enough. Like Bruce Linton, Terry Booth was learning the new rules of the game.
Aurora had promised investors they’d reach between $100 million and $107 million in revenue that quarter. The company was no different from the young budtender Jackson Flynn, playing dice games. Aurora had promised $100 million in sales. They didn’t hit their number. In the fourth quarter of 2019, Aurora was so bullish that they issued a “reiterated guidance” to investors with revenue projections between $100 million and $107 million. This was two weeks before their earnings report in September 2019. Booth says he wasn’t consulted on the reiterated guidance announcement, but he knew Aurora was flush. If you issue “reiterated guidance,” Booth explains, you have to hit your number; you’re reiterating to investors who cover your company what your projections will be.
Aurora reiterated, and was wrong.
“The single biggest fuck-up in Aurora history” Booth calls it. The hopped-up founder was irate. They had sold $98.9 million in legal marijuana, but failure was all anyone could see. The stock dropped almost 10 percent in a day. After all that accounting, Booth says, wasn’t there $1 million, somewhere, that could be added to the books? All of those people he paid? In the past, if Booth needed cash, he could tell his chain of medical retailers to pump the Aurora product. Now he was too disconnected from the inner workings of his company to directly affect sales, or accounting, or both.
In Booth’s telling, his lieutenant, Cam Battley, was orchestrating investor relations and publicly disclosing financial reports. The board, headed by Michael Singer, who was the CFO of Bedrocan before it was sold to Canopy Growth, called Booth and told him Aurora had missed its guidance in its earnings report.
“What do you mean we missed?” Booth asked.
“You know how much we missed by?” replied Singer. “A million bucks.”
“Tell those auditors to give me a million bucks back,” screamed Booth. “We shouldn’t miss by a fucking dime!”
But they did. Booth couldn’t find the last million, and he’d discovered the problem too late.
It didn’t bode well for the sector that you could sell nearly $100 million of legal marijuana and your stock would drop ten percent.
Kawhi Leonard would only stay with the Raptors for that one season. The team hasn’t come close to winning a championship since.
Chapter 16 Edible
“Constellation put a bullet in this dude.”
Bruce Linton
Watching his son’s university graduation, Bruce Linton was ignoring his phone.
It was June 30, 2019, and Bruce was buoyant. He was with his wife at his son’s outdoor graduation and he let a few phone calls from Constellation Brands go to voice mail. When he was a kid, he’d loved university so much that he enjoyed it for six years. Something about the exploratory nature of school. He hadn’t felt pressure. He’d had options.
He watched his boy earn his diploma while other parents asked him investing advice, then called back his boss. He was told that he needed to come to Toronto on July 2, the day after Canada Day, for an emergency board meeting. Linton knew there was no emergency at his company — losing more than $300 million didn’t count as an emergency. That, in his mind, was his company running according to plan. So he figured it out, chalked it up. The emergency must be him. Fine, fine, I’ll listen to them moan.
His stock had dipped from its astronomical highs. His industry felt contentious. The dreamers who built the legal weed companies were being run by their boards, and his board had publicly disclosed being angry with him. But Linton was feeling a bit dissociated from work. Maybe it was a survival mechanism. Maybe it was denial. Maybe it was supreme self-belief after growing so big, so fast. How many Canadians, in history, built a $19 billion company? With Cannabis 2.0 coming, he was hardly panicking. He let more than one call from head office go to voice mail before calling back.
He was at a dynamic juncture. After the graduation, Linton was heading to Berlin for a tech conference and it just so happened that he’d be flying with his other son, Max, who was about to start a semester abroad. Both of his kids were thriving and his company, despite Constellation’s worries, was still on top of the world. He was giving the keynote address in a country on the cusp of cannabis legalization, and he was poised to run Germany like he was about to run the U.S. He was not feeling reflective — he almost never was — and he was not preparing excuses for his stock price, down 25 percent. Instead, he was beaming. The Constellation board members were coming to Toronto to see him. He wasn’t beckoned to New York. They needed to listen to Canopy’s founder.
He had so many deals on the go in so many countries across so many sectors that it wasn’t far-fetched, Linton sometimes publicly mused, to think that one day he’d be running his parent company. Bill Newlands, Constellation Brands’ CEO, was no Rob Sands (and since he was Constellation’s first CEO outside the Sands family, his appointment attracted scrutiny).
Linton didn’t kowtow to Newlands, even after being publicly chastised. When Linton appeared on BNN on June 21 to discuss his 2019 Q4 earnings — doubling of sales to $225 million, doubling of losses to $323 million, both twice as high as Aurora, his nearest competitor — he was asked point-blank if he felt pressure to rein in expenses. Linton, decked out in his trademark Tweed T-shirt beneath a grey blazer, talking quickly, as always, and looking not unlike the cannabis twin of Boris Johnson in a rumpled, off-kilter way, stared directly at the camera, smiled, and said, “No.”
This answer, coming directly after Linton’s Constellation Brands CEO told investors he was disappointed with his Canopy Growth CEO — well, disappointed with his company’s earnings, but the company’s performance and Linton’s, like that of all great salesman chief executives, went hand in hand — was clueless, defiant, or true. Linton was probably all three.
“I get it, $5 billion Canadian gives you authority, but I think my current depth of knowledge is never achievable for a board,” Linton tells me. It would make sense for him to find his new board distasteful. Literally what he had done — start from scratch a company with a value now over $1 billion — was create what’s called a “unicorn.” Of course he felt special. Canopy might be down from its $22 billion peak, but Linton had created an international company in a field where the smart money wouldn’t go. He had first-mover global advantage and was the face of the coolest industry in the world.
The current quarter’s losses were steep; Linton knew this, but he maintained he was just following his game plan. You have to be super small or super huge to win in cannabis, Linton believed. Spend now, as opposed to spending later, and the initial pain would make the long-term value twice as good.
At this point, he also had more money than any of his competitors. A deeper reservoir of cash. He didn’t need to turn a profit. He could sustain losses. He could afford — and this is the trick up his sleeve — to bleed the market dry. “Drop the fuck out of the price because we have five billion in the bank. Let’s napalm the fuck out of the market.” Cannabis companies were having trouble selling weed with three-dollar margins, but Linton could afford one-dollar margins because of his war chest. By dropping his price, he could sell the most weed, starve out the competition when no one bought their product, and be the last one standing. Bruce knew what he wanted to tell the bean-counters at their emergency meeting. “Disrupt the market. Kill everybody. Then come back with real pricing.”
It took an hour to fly to Toronto from Ottawa and Linton was still thinking about his sons. He had a smile on his face and he liked his idea for the napalm. With the Canadian launch of Cannabis 2.0 products the cannabis industry was going to expand. The new products had higher margins, plus were more difficult than flower to produce, which meant larger, more technologically advanced companies, like Canopy Growth, had an advantage over their peers. And the government was going to help cannabis companies like his. If the goal of legalization was to eradicate the black market, which, in June 2019, still accounted for at least 50 percent of all cannabis sales, the presence of 2.0 products in the legal market — just the tip of the iceberg of what companies like Linton’s could do with weed — would help that succeed.
There were more stores opening in Ontario, more Fire & Flower shops across the country, and more Canopy products poised to hit shelves, including a line of Canopy beverages in collaboration with the comedian Seth Rogen, sold under his Houseplant brand. Canopy was growing. First in Canada. Then the U.S. Then Europe. South America. Mexico. Jamaica. India. New Zealand. Everything, Linton believed as he travelled to his emergency meeting, was going according to plan. Bumpy, sure. But the company was soaring. It was a rocket ship burning jet fuel. Newlands was just flexing for his shareholders. He must have known that Linton was following the plan.
“We saw the script for what they were going to read for their quarter, which occurred just after our quarter,” Linton tells me. “And in the script there was some mention of ‘disappointment with Canopy’s results,’ which, in our opinion, the results were, give or take one percent, exactly the plan — exactly the plan.”