Sky’s the Limit: Sébastien St-Louis, the Canadian cannabis founder of Hexo, who would outlive most of his peers, at least for a time.
With two major players out of the industry in one wild week and a redirection of his own company, Sébastien St-Louis could focus his mission. He wanted Hexo to win market share in Canada. But that wasn’t the whole plan. He didn’t want to be the CFL. Sébastien St-Louis — shaved head, black Under Armour T-shirt, French — wanted to be BlackBerry, minus the crash. He saw the void in the market as his time to shine. Why couldn’t he be the next Bruce Linton? “I’m always looking at the field of players,” he tells me. “Keep eliminating, keep eliminating, keep eliminating.”
Beginning October 17, 2019, 2.0 products were poised to infuse $2 billion into the industry at the exact time that Canadian brands needed the cash. On top of the CannTrust debacle — which chased away the American institutional money that had finally made its way into the sector — the negative headwinds included, as St-Louis discovered, the exposure of overvalued companies. Tilray had a market cap of US$10 billion in 2018 with US$43 million in sales. Before legalization, weed stocks were tall tales with fanciful price tags. But afterward, when you were no longer trading on speculation, it became like any other business. Hype was being replaced — even punished — by financials.
“Everybody wanted to be Diageo, InBev, or LVMH overnight,” John Fowler says. Through the years, Fowler fought with his board about expansion. He wasn’t Lorne Gertner, who wanted to see Tokyo Smoke in Tokyo. He wanted to sell premium weed in Canada. In January 2018, Supreme had a billion-dollar valuation; Fowler, when he won a High Times award, stayed at the Four Seasons Hotel in LA. Things were good, but his board wanted better. They wanted him to expand into Switzerland, Denmark, Jamaica, Lesotho. Fowler had started the company, but he couldn’t get his board of directors, many of whom he’d hired, to focus on making a good product at home. “You see the valuation of other cannabis companies from two times to ten times, probably getting close to twenty times our valuation, and at some point, everyone gets impatient,” Fowler says. “As much as I would tell everybody I didn’t think those valuations made sense, nobody listened. I didn’t think the global market would expand as quickly as everyone chose to believe.”
In the summer of 2019, Fowler stepped down as CEO of Supreme to become the company’s chief advocacy officer, a title he shared with Canopy’s Hilary Black. Fowler had more in common with Alan Young than he did with Terry Booth. And he’s proud of the hiring practices he pioneered, in defiance of conventional pot wisdom: first, hiring staff with cannabis convictions and then, after that initiative had been a success, hiring people with convictions of any manner. Of course, potential employees would all be carefully scrutinized but, he believed, the cannabis employment laws were misunderstood and unjustly applied, even racist. He wanted to position his company not as a global juggernaut, but as a Canadian example of how a cannabis company could be ethically run. Part of his ethics was making and smoking really good weed. “I do find it hilarious that ours was the only industry I’ve ever heard of where quality is viewed as unimportant,” Fowler tells me one night over a joint. Business decisions in weed focused on everything but the product.
“How can an industry look past its consumers?”
Fowler says he shares an ethics principle with Larry Fink: equal hiring isn’t just the right way to run a company — it makes good business sense. “Those people we employed who knew about cannabis and respected the plant, which became our company mantra — respect the plant — were often our most dedicated workers, especially ones who appreciated getting a second chance,” says Fowler, who had a personal stake in the cannabis movement. He wasn’t like Peter Aceto. He was a weed guy. He tried all of the products and could attest that the legal weed being grown by Aurora, Canopy, Aphria, Hexo, Tilray, and all the other major players was no good. At Supreme, the CEO used to compete with his employees at joint rolling contests. “It matters,” he says.
Like Alison Gordon, Fowler became something of a cult cannabis executive. I wrote several stories on the two of them, including ones in the Globe where we got high and talked about their stock prices. It might have added to their allure that Fowler, who had dark skin and curly hair because his mother was South Asian, and Gordon, still one of the only cannabis female executives, struck a contrast to their white, non-cannabis-smoking, male peers.
But no one is untouchable. On Monday evening, October 28, 2019, Fowler was working late on a podcast with guest Akwasi Owusu-Bempah, from Cannabis Amnesty, when he received an email. He was asked to come in Tuesday morning at 8:00 a.m. to meet with CEO Navdeep Dhaliwal, along with the head of human resources. The head of HR had been with the company Fowler started for only one month.
Tuesday morning, he wore a tie-dyed Supreme T-shirt to his funeral. It was a throwback to how Bruce Linton had dressed for his own walk down the plank. Dhaliwal put an arm around Fowler and told the person who had brought him into the business that he would invest in whatever his old friend chose to start next. He just no longer had a job here. Fowler was handed two envelopes: a severance package and a media release, which was to be deployed in three hours, at 11:00 a.m. He was told “It’s just business” and had his key card deactivated.
Fowler had celebrated 10.17 in the courtyard of his billion-dollar company. He had partnered with Wiz Khalifa on a Canadian strain. None of it mattered. Fowler was told to clean out his desk.
Under supervision, he walked out the front door and never returned.
With Fowler out — following Vic Neufeld, Bruce Linton, Eric Paul, and Adam Miron — Canadian founders were falling like so many consumer products off an assembly line while the warehouse workers took lunch. Cannabis 2.0 no longer seemed to mean just new products, but also a new face of the industry. Meanwhile, the American cannabis companies were beginning to mature and set up shop along Bay Street, where they were finding willing investors.
Curaleaf — a vertically integrated Massachusetts-based licensed producer — had an IPO target around ten dollars in the fall of 2018. When it listed on the Canadian Securities Exchange, it raised $400 million, giving it a valuation of $4 billion. While there were once no Americans on the playing field for international investors looking to get into weed stocks, now Chip, the Canadian investment banker, was the book runner on go-public deals with American cannabis companies with more revenue, and fewer $300 million losses, than their Canadian peers. While the Canadian market buckled, Chip earned his highest commissions to date helping American cannabis brands Harvest, Cresco, and Trulieve list on the Canadian exchange. In banking the patriotism is always to money. Trulieve, with its positive EBITDA, had a multibillion-dollar market cap and listed in Canada while selling medical marijuana and running a chain of dispensaries in Florida. Canadian money, to the chagrin of the surviving Canadian founders, was leaving the country and building American weed brands.
Terry Booth and Sébastien St-Louis both said at the time that they needed 2.0 products and they needed Ontario to increase its number of retail locations. But instead of celebrating the one-year anniversary of legalization with new products on the shelves on October 17, 2019, something else happened: the launch of the 2.0 products got delayed. “Of course I’m watching all the Americans and see what’s happening and we have to navigate the asshole regulations and I’m trying to run this fucking company,” Terry Booth says of the time. “That hold on the 2.0 launch on the seventeenth — come on, man! We are ready; 2.0 is ready. The fucking provinces won’t give us a chance.”
The stores in Ontario numbered just sixty-six at the end of 2019 — the Fire & Flower on Bloor Street still sat closed. Finally, in December, heeding the industry’s call, the Alcohol and Gaming Commission of Ontario announced an end to their lottery system for cannabis retail. Beginning in April 2020, they’d roll out twenty new licences a month. The question was whether any of the original Canadian cannabis founders would still be in their jobs.
“It’s about the win with me,” Terry Booth says. “I want to win. When you know that, you have an advantage in your own head — I think I’m the bee’s knees.” This, despite the fact that his stock had suffered the same fate as Hexo’s — down 18.9 percent. Meanwhile, Booth also had a ticking time bomb in his office: his company was funded largely with convertible debentures — an investment that has to be repaid at a certain date if the company’s stock doesn’t perform. For Booth, the date on his convertible debenture was March 2020, so he needed 2.0, something, anything — fast.
But his hands were tied. Even more than he knew. Booth tells me he wanted to fire his chief commercial officer, Darren Karasiuk, the original author of the Deloitte projections way back in 2016. He thought Aphria had a better sales force than Aurora, and Karasiuk concentrated only on San Rafael, his recreational strain of choice, his baby. Booth wanted Aurora to sell premium weed inexpensively. He’d spent billions of dollars on laboratories and production facilities and had millions of square feet to grow weed. He had scientists and experts, but the Aurora sales weren’t moving fast enough. He was more than pissed. He was nuclear. Then things got weird, he says. He discovered something when he tried firing Darren: he couldn’t.
“I knew my days were numbered when the board reversed my position. The CEO can’t fire the chief commercial officer? I’m pounding the table. The sales force he assembled wasn’t worth shit,” Terry says.
He wanted Aurora to attain brand recognition with pot smokers and blamed Karasiuk for holding him back. “You can’t sell my weed? Fuck you, you’re fired,” says Booth, who was working sixteen-hour days, seven days a week — not seeing his vision implemented. “Well, apparently not. Fun times.”
October 17, 2019, the official starting line for 2.0 legalization, came and went with no legal 2.0 products on retailers’ shelves. The black market, of course, had these things. At CAFE, you could get an illegal edible and consume it on the premises; the edible could have a dose as high as one thousand milligrams of THC. Since they weren’t following any laws, they didn’t follow the potency laws, either. The legal limit on edibles was ten milligrams, something the legal industry would buck against, saying they weren’t strong enough for avid consumers, incidentally the people who most consumed these things.
Terry Booth felt like he was in a straitjacket, as if he was wearing restraints and a muzzle like Hannibal Lecter in Silence of the Lambs. At his local Nova Cannabis shop in Edmonton, which almost became an Aurora property until legislators nullified the deal — the same kind of vertical integration deal that was helping to enrich the American cannabis companies now listing on the Canadian Securities Exchange — there were no Aurora edibles for sale on October 17. To make matters worse, the San Raf Aurora pot they sold was derided by the industry. Meanwhile, Booth awaited the 2.0 product approval, which finally included vapes.
But the vape issue continued to cause alarm. In September 2019, one month before 2.0 legalization approval, fifteen years since Lorne Gertner wanted to come to market with this product, more than one hundred Americans got sick from illegal vapes. By January 2020, sixty deaths in the United States were linked to illegal vapes. “People are dying with vaping,” Donald Trump told reporters on September 11, 2019. “A lot of people think vaping is wonderful.… It’s really not wonderful.”
Nobody liked to see people get sick, but it was a strong case for the legal cannabis market that the illegal market was getting folks killed. Regulators didn’t think that way. The headlines forced Health Canada to paint all vapes with the same brush. And even though it was illegal vapes in the U.S. creating the crisis, in November Quebec outright banned the category. In response, Sébastien St-Louis — who had a billion-dollar contract with the SQDC, Quebec’s recreational cannabis board — shut down his vape production.
St-Louis wasn’t the only one needing more than marijuana to calm his nerves. “I’m psychopathic,” Terry Booth says.
The official Cannabis 2.0 rollout commenced with testing by Health Canada on October 17, 2019, the anniversary of legalization, and there would be a sixty-day turnaround before approval could be granted for the products to be sold on the shelves. It was Hail Mary time for Sébastien St-Louis. He closed down the Newstrike facility in Niagara at the end of October and laid off two hundred people. He was operating lean and on his back foot, dealing with angry shareholders and a dispirited company as the stock settled below five dollars on October 25, after being over thirty dollars the previous May — back when the Raptors and the industry seemed to roll over everybody. Now, says St-Louis, those days felt long gone. But the wily founder of Hexo wasn’t giving up. With his Molson Coors deal, he believed he was going to be the industry leader on cannabis drinks and, following Bruce Linton’s path, he was trying to pivot his company into a global consumer packaged goods brand. He didn’t want to sell flower. He wanted to stock grocery store shelves with CBD shampoo. His model was “Powered by Hexo,” which positioned the company as providing cannabis for another, larger company’s consumer packaged goods.
CBD, a cannabis molecule, can be infused into almost anything. Linton put CBD into Marriott soaps. And St-Louis dreamt of a joint venture with L’Oréal. He was looking at making more acquisitions; his premise was that Canadian cannabis would ultimately be run by three companies, so you eat or get eaten. He tells me the plan was to play offence. The current conditions didn’t appear to put Hexo in an obvious striking position. Newstrike wasn’t integrating well with head office and, despite its affiliation with the Tragically Hip, consumers hated Up, the Newstrike brand he now owned, and St-Louis had just closed their facility. These cannabis executives who’d started their companies were risk-takers and steel cage fighters, so it was within their twisted logic to expand even after the expansion they’d just completed had failed.
St-Louis even had a falling out with members of the Hip. (Jay Wilgar, the Newstrike executive who first landed the group, says this, more than anything, pains him the most when looking back on the deal, but the group’s royalties led to unfavourable margins for Sébastien St-Louis.) So Sébastien was running flat out, minus his brother-in-law, and frustrated. Meanwhile, investment was moving down south into the U.S. or else around the world. Trevor Fencott and Michael Haines were pushing into Palm Springs with Fire & Flower, and Hoshi International continued building a licensed producer for all of Europe in Portugal. Michael Haines explains his decision-making like this: “Let’s go somewhere and do it right. Let’s not be better at something that’s fucked.”
Bruce Linton was helping open a group of dispensaries in Michigan. He was also investing heavily in psychedelics and distributing the cannabis brand Cookies in Canada through Gage Cannabis, which gave him a line to Berner, the American rapper who had done for weed what neither Drake nor Snoop could do: create Cookies, an actually coveted, vertically integrated, American billion-dollar weed brand.
Even without American federal cannabis legalization, the American companies had usurped Canadian cannabis brands as the powerhouses in marijuana. The brands just couldn’t sustain the stream of falling dominoes in the summer of 2019. It was the Canadian cannabis executives’ worst nightmare, losing their first-mover advantage. Meanwhile, Canadian companies were cash starved.
The year 2020 was grim. “We haven’t raised more money and the stock started correcting,” St-Louis says.
The 2.0 products didn’t show up on quarterly reports until the first quarter of 2020, and though Trevor Fencott says that he wasn’t surprised by the bureaucratic delay in the product launches, it forced the industry to hurry up and wait: hurry up in getting their products ready for deployment to customers, but wait for Health Canada to say they’re legal to ship. And when Cannabis 2.0 was finally released to consumers, despite everything — the forecasting, concern, money spent, and joint ventures — vapes were the products that consumers most hungrily purchased. Not edibles. And definitely not drinks. Again, it was the seasoned cannabis consumer buying the lion’s share of cannabis products. The soccer moms never materialized the way Deloitte and Bruce Linton predicted.
John Fowler thinks the gap between forecasts and actual sales receipts was so wide because the executives came from outside the culture. But that wouldn’t be amended anytime soon. When Constellation Brands decided to replace Canopy Growth CEO Mark Zekulin with a permanent replacement, they choose David Klein — the Constellation Brands CFO, an American.
Terry Booth swore he’d go down swinging. He was fighting against the forces he felt were aligning against him, and it wasn’t just the weed and the booze that were making him paranoid. He knew what everyone knew — the sector seemed to be outgrowing its founders — so he was spending his time calling each of his board members one by one to assess the number of days left in his corporate life. His stock was down — Aurora shares were trading at $2.50 — and the debentures were looming like a killer with a machete in the woods. Booth, who prided himself on being an operator and not a spinmeister — which is what he had Cam Battley for — was having to press the flesh, internally, just to know where he stood. He tells me that he was conducting his internal campaign with his board not to save his skin, but to save his vision: 2.0 products, European expansion, greenhouses constantly in various stages of completion. You can’t just turn off the taps on expensive long-term projects.
And Terry Booth was just like Sébastien St-Louis and Bruce Linton: their projects were designed to outlast them, to be their legacies. This affected their business acumen. “Tell me what a man wants and I’ll tell you who he is,” goes a line in the Richard Price book Lush Life.
What these men wanted, desperately, was to win. It was impossible to divorce themselves from their egos, after standing for years before the firing line, and then being put up on a pedestal, made rich, made famous, proven to be brilliant. Booth believed with every fibre of his being in the bets he’d made. Why shouldn’t he be confident? He’d outlasted Bruce Linton. He was the last man standing. He was the king.
Except, when his bluster faded, he realized the king wore no clothes.
The Darren Karasiuk situation left Booth exposed — he couldn’t fire his CCO. And he truly couldn’t stand Cam Battley, who he believed made a mistake without consulting him on Aurora’s “reiterated guidance” investor call (assuring the market that Aurora would hit its $100 million in sales). That these men were still toiling beside him, having private conversations about him at his company, was disconcerting at best. Mutinous, if he allowed himself to indulge in his worst feelings, which he often did. So Booth was calling around to his board members and being reassured about the future of his tenure by each of them, one by one. He could carry on his mandate, he was told. Make cuts. Trim expenses. Slow down. The usual prescription for righting a company. Sure, Terry Booth said. Plus, we’re going to kill the competition on 2.0 and our greenhouses are pumping out great margins on weed. Things were happening, and he was going to be okay. He was feeling somewhat confident — reassured — until he reached Ron Funk, who had spent time with MedReleaf.
Amid all the mergers and acquisitions in the cannabis industry, integration is always a problem. Trevor Fencott says Canopy was like a factory of broken toys. Mergers rarely work because cultures rarely blend. The MedReleaf team had a dartboard, Terry Booth tells me, and in the middle of it was a picture of Cam Battley’s face. This was big money’s worst fear: that these billion-dollar businesses in marijuana behaved in a juvenile fashion, and the acquisitions and mergers, bringing together bitter rivals, often created internal dilemmas. At Aurora, Booth believed that Funk carried a resentment hangover for his new corporate boss: Terry Booth, the man who enriched him, but also collapsed his big cannabis dream.
Booth understood. He says he loved buying MedReleaf and putting its loudmouthed CEO, Neil Closner, out of work. Closner, Booth says, was arrogant and short-sighted and looked down on Aurora as “an Alberta shit hill.” Booth never got over their original email exchange about the illegal dispensaries, and sure, it made him happy when he bought Closner’s company and cut off Neil’s head. Ah, thought Booth, those were the days.