The entire industry faced layoffs and closures, and the same thing happened at the second largest cannabis company, Aurora. Everything that was once deemed instant value became a liability. Funded capacity was now being shed with the urgency with which it had once been pursued. At Canopy, however, Hilary Black says the new guard from Constellation Brands didn’t diminish her role and her CSR budget increased after Bruce Linton, which bucked against the “close everything” trend.
“It was slash, slash, slash — I get it. But David defended patient advocacy and sustainability and reiterated Canopy’s commitment to reparation, and reconciliation,” says Black. “Not just as a response to George Floyd, but because it’s the right thing to do. David knew this: to run a successful company, you need a CSR team, just like a finance department.”
By the summer of 2020, Sébastien St-Louis, a father of two, was going into work every day. He had played nose tackle in high school — the centre of the team’s defence — and blunt French Canadian toughness is the attribute he believes wills him to win. During the pandemic, he made it a point of pride that his company didn’t take any government stimulus checks. And also during the pandemic, St-Louis ascended up the hierarchy.
In March 2020, 48North announced the sudden departure of Alison Gordon from the company she had started. Like John Fowler, Gordon generated considerable press. She, too, was pictured (in a story by me) smoking a joint in the Globe and Mail, and while the details of what happened at 48North are locked in confidentiality agreements, she says she believes her time had come. “I think the role of the CEO of a licensed producer had changed considerably over the course of the seven years I was in weed,” she says. “At this point, it’s not a cannabis person who should be running these companies, but someone who’s an expert in CPG [consumer packaged goods].”
With Gordon out, now joining Linton, Booth, Fowler, and Neufeld in the Marijuana Founders Unforced Retirement Club, Sébastien now saw himself — at thirty-six years old — as an elder statesman of weed. “I’m the longest running legal cannabis CEO in the whole world,” he told me during the pandemic. “Eight years doing this — it says more about the industry than it does about me.”
He made no bones about wanting Hexo to be the largest cannabis company in the world. Hexo, like every other cannabis company, saw sales increase during Covid-19 as a result of both weed hoarding and stores popping up around Ontario like teenage acne. Thanks to the beverage line Truss, he had robust Cannabis 2.0 offerings. He also launched Original Stash, a discount line to compete with the black market, on October 16, the day before legal weed’s first birthday.
He was selling ounces for $125 — less than five bucks a gram.
“I know a lot of people in a lot of bad places, and Original Stash was the first time I heard from the black market, ‘You’re hurting us,’” Sébastien says with a grin. That’s how, he says, you run a cannabis company — not by taking millions of dollars in pandemic subsidies.
Between bites of a hamburger in Ottawa in the spring of 2021, St-Louis was thumping his chest. “We’re gaining market share and making money during this thing, and while our competitors are getting government handouts, we don’t,” he says. “It’s ridiculous, companies with hundreds of millions on their balance sheets getting handouts. We play to a higher ethical standard.” St-Louis still believes that the market in Canada will be led by three major companies, with everyone else falling off.
Like pot smoke, mergers, and acquisition, gossip was in the air. Since Hexo had the largest market share, always an expensive proposition — losing $12.8 million in the first quarter of 2019 and $62.4 million in the first quarter of fiscal 2020 —Sébastien was hell-bent, like Bruce and Terry before him, on spending his way to market penetration. He wasn’t backing down and, channelling the memory of his father, felt like he was fighting for his beliefs — an almost supernatural belief in himself. “Had I started with the money that other cannabis companies started out with, we wouldn’t even be talking about other cannabis companies right now,” he tells me, and though he’d steered $2 billion of investor money into his company, he still felt outgunned when the pandemic began and his stock wouldn’t stop sinking. He said that every institution that ever put money into Hexo had made money.
“That’s how I keep power,” he says. “Making people money.”
While he traded at $31 a share in April 2019, he was now at $1.89, and that’s how your power becomes tricky to hold. During the pandemic, amid layoffs and sinking shares, he was trying to keep his staff motivated. He had personally lost more than $80 million from Hexo’s stock drop, but he kept his personal wealth at arm’s length and says he kept his emotions untethered from the market.
Seven times, he says, his company — a company he started with his brother-in-law with a $35,000 line of credit and investment from family and friends — had brushed up against bankruptcy. He says he didn’t falter then and he wouldn’t falter now. St-Louis reconfigured the Hexo assembly lines at the grow ops to promote physical distancing and, since there were already cameras everywhere at a licensed facility, contact tracing was easy to establish.
In cannabis, the factory workers already wear personal protective equipment, so production went on full steam ahead during Covid-19. Hexo was trying to grab investor attention and St-Louis had survived this long by making big bets. When the Quebec government gave Hexo a billion-dollar contract to produce its cannabis in 2017, Sébastien signed on. He just had to build a million-square-foot facility to grow it all first. The job was supposed to take eighteen months, but Quebec needed weed; Hexo got it onto shelves in eight months. That’s his legacy, says Sébastien St-Louis. That’s the moxie he was relying on now. But everyone knows you can be fast, cheap, or thorough, but not all three, not at the same time. So the facility builds were expensive and Hexo was diluting its stock for capital to keep growing. He had to grow, Sébastien tells me. Doubt or fear are emotions he can’t afford.
“If you go into the cage match thinking anyone other than you is going to win,” he says, “you’re dead already.”
At Hexo, Sébastien believed the way to win was building technology to create new products. His pitch now was an extraction machine that would cut costs. He had invested more than $35 million on this gamble. Investing $35 million on a future product while your stock tanks is risky. But Sébastien wasn’t thinking about the short term. He says there was a 20 percent chance his new $35 million technology investment wouldn’t work. But he was betting his life on the 80 percent chance that it would.
He says, “If a man is convinced he’s going to die, tomorrow he’ll find a way to make it come true.”
The problem — well, one problem — was that at this point Covid-19 hadn’t yet killed the illegal market. In August 2020, the OPP conducted Project Woolwich and raided an illegal grow in the Niagara region, not far from where the licensed producer Redecan ran its privately held, industry-leading company, famous for its pre-roll joints.
The Canadian police have obviously always had a strange relationship with marijuana. First, they were adamantly against pot, with former OPP commissioner Julian Fantino decrying legalizing pot as akin to legalizing murder. Most officers didn’t feel quite as strongly — and most didn’t go on to open $100 million licensed producers — but there has been confusion among members of the police force. That was why Linton’s plane was stopped in Kelowna and why the RCMP had to call Health Canada when they busted Mat Beren’s grow.
This was all before legalization, of course; the laws change fast and cops are human. Since the Cannabis Act was passed, the police have been trying to mature in their arresting. In January 2018, two officers in Toronto busted an illegal dispensary and, after making their arrests, sampled the products. One officer, feeling the effects of an illegal edible, ended up climbing a tree and getting stuck up there. He had to call in for backup. Stories like these created an almost farcical environment for launching an industry.
But during the pandemic, illegal large-scale indoor and outdoor grows were still a real concern for organized crime bureaus across the country. In Barrie, Ontario, an entire Molson production facility was turned into a large-scale, organized illegal grow op, with police insinuating there was no way the property managers couldn’t have known about the true work being done in their shuttered facility.
To hear the police describe the illicit market in our first Covid summer, these weren’t hippies making edibles for their family and friends. “These were criminal organizations looking to help fund their entire illegal operation based, in part, on illegal weed,” a deputy with Ontario’s Organized Crime Enforcement Bureau told me, adding that the majority of his officers believed the legalization experiment was successful — kids weren’t being rushed to the ER and the reefer madness epidemic never occurred. Wide swaths of kids weren’t suddenly dropping out of school and turning to crime; the legal pot shops hadn’t created red-light districts in the neighbourhoods where they operated. In fact, with restaurants and bars closing during the summer of 2020, pot shops became some of the only commercial real estate worth investing in.
Criminals, however, remain in crime, and crime is dangerous, even in marijuana, even during the pandemic. The group busted in Project Woolwich had cocaine and rocket launchers and $2.5 million in cash. One constable told me that thousands of pounds of illegal pot were being funnelled from Ontario into the United States at the Buffalo border. That pot, the constable said, returns washed into Canada in the form of fentanyl and guns. At the Woolwich bust, illegal producers revealed designated growers’ licences, easily bought online by “patients” receiving licences from unscrupulous “doctors” writing scripts for both consumers and producers, which provide a cloak of respectability to an illegal business. Since day one, this designated grower system has been abused. Removing this was the idea behind legalization, yet it’s nearly impossible to stamp out. Consulting companies help illegal operators get an address, buy a farm, push out the farmers, and grow — in the case of the Project Woolwich bust — more than $40 million worth of illegal weed. “Medical-designated grow areas are out of control and seizures of illegal pot in the U.S. have gone up one thousand percent since 2019,” said the detective, the nightmare scenario that doomsday analysts in the U.S. predicted would happen.
Trevor Fencott worried about the mom-and-pop retailers opening up during the pandemic without corporate financing. They had a difficult path before them in legal marijuana. Sure, they were his competition, but he says that when these new store owners first submitted their licence applications, competition was scarce and the shops were cash cows: Hunny Pot sold $1 million per week of legal marijuana, and the problem it faced was keeping its shelves stocked. But as the pandemic raged, waves of stores in Ontario opened, twenty at a time in some months, and directly beside one another. Since they sold the same thing, and had, by law, blacked-out front windows, there was almost no way for a store to differentiate. As the price of legal pot dropped, the margins kept getting worse. The discount brand Original Stash by Hexo helped usher in a trend: the price of pot kept dropping alongside the wave of new stores. Bruce Linton was going to napalm the industry by selling cheap bud, but the bud got cheap anyway, making it even harder for any facet of the industry to turn a profit.
The new shop owners, meanwhile, who had received their licences, secured their spaces, and celebrated their grand openings, still couldn’t have customers enter their stores. Click-and-collect cannabis pickup would last months. Plus, as Fencott always points out, they were competing not only with one another, but also with the Ontario Cannabis Store, which offered delivery at a discounted rate on the exact same products that the new legal weed stores were trying to sell. The OCS would be the most profitable cannabis company in the country by spring 2022.
“The system can’t work!” Fencott says. “All the way up to Doug Ford, cannabis distribution in Ontario is based on cronyism, not good business, and private enterprise can’t thrive when there’s government monopoly.”
Meanwhile, one in two pot smokers say their cannabis usage went up during the pandemic.
In May, for US$40 million, Aurora acquired Reliva, an American CBD company led by CEO Miguel Martin, a former Altria executive. It says everything about the Canadian market that a month after buying Reliva for U.S. distribution, Aurora fired seven hundred people in Canada and shut down Terry Booth’s production facilities in Ontario, Saskatchewan, Alberta, and Quebec.
I checked in with Booth, who says he was riding out the pandemic with his wife and small kids in Edmonton. “I got up to two-twenty during Covid. The fattest I’ve ever been in my life,” Terry says. “I’m not moving off the couch. Honey, pass me my phone — can you grab me a beer?”
On September 8, 2020, Aurora named Miguel Martin as its new CEO. Martin lived in Virginia, so now Aurora and Canopy both had American CEOs. Tilray’s CEO lived in Seattle. Aphria’s CEO lived in New York. At Aurora, they never arranged a conversation between Booth and Miguel Martin, who began his job by firing almost one thousand Canadians.
Chapter 20 Merge or Die
“Get rid of your fucking potheads!”
Cole Cacciavillani
Tilray was American Brendan Kennedy’s Canadian juggernaut from the medical marijuana days. After its IPO in September 2018, it spent a few crazy hours trading at $300 per share. In a world of crazy drug money stories, Tilray’s stock price is the craziest, the apex of a market out of control. Largely fuelled by retail investors, Tilray would cost short sellers roughly $600 million on a single day, September 19, 2018, Kennedy told CNBC, when retail investors rallied behind his shares on Robinhood — as they would later do for GameStop and Aurora. Cannabis stocks were considered “meme stocks” (youth-led block investments that could move the markets without traditional, institutional alignment) before GameStop went viral. This notion of the stoned nerd army taking on the hedge funds was manifest in Tilray: retail investors got high and bought marijuana and stock in companies that sold weed.
Kennedy, a Seattle-based venture capitalist, was ready, initially, for the ride. A Blessed 13 company, Tilray listed on the Toronto Stock Exchange and was worth, in 2018, more than $26 billion (a comical valuation that could never last). By offering limited numbers of shares and by graduating from the TSX to become the first weed brand listed on the Nasdaq, Tilray was an outlier, which had nothing to do with the quality or quantity of its cannabis. In a world of contradictions, Tilray, the juggernaut, wholesaled most of the cannabis it sold. Their biggest supplier? Aphria. Cole Cacciavillani says Tilray’s engineers inspected his grows from the earliest days of both companies’ being among the Blessed 13.
“I told those guys, ‘Get rid of your fucking potheads!’ They can grow good weed, but you need sustainable production, and you get that through science, through calcium levels and nitrogen, not pink shirts and fucking reggae music,” says Cacciavillani, who nonetheless enjoyed the early close relationship between the two companies. He says back in the day, the early companies had no problem sharing information. Especially when other farmers marvelled at what Cacciavillani had built. “Tilray never could believe me because while they were growing grams with costs as high as four dollars per gram, I could do it at fifty cents, even as low as twenty cents per gram. Of course Brendan and his boys always saw the value there.”
Unlike most licensed producers, Tilray had no identity. The company was an empty vessel that could be moulded into anything. And so, after locking up a joint venture worth $100 million with Anheuser-Busch, the company and Kennedy became industry outliers in a frenzied field, steady operators with a venture capital background in a world of promotion and hype. By wearing a suit, not erecting fake walls to hide plants, or acquiring untested properties overseas, Tilray’s prominence, among investors, grew.
However, after legalization, and by Christmas 2020, Tilray, like everyone else, had sunk like a stone. Trading around seven dollars, it had been stripped of its halo and seen its stock carry that foul cannabis stink.
Tilray lost 96.4 percent of its value. Still, the company had assets, including a Canadian medical marijuana business and a production facility in Portugal. It also owned a CBD business called Manitoba Harvest that operated in the U.S. After seven long years in the business — especially the last two — Tilray’s operators were rumoured to want out. The Aphria leadership, now led by sharp-tongued Irwin Simon, wanted out, too. Simon is a Glace Bay, Nova Scotia, son of a grocery man who cut his teeth on organic foods at Hain Celestial, which he ran for twenty-seven years. At Hain, Simon saw sales peak at $2.89 billion in 2016, selling consumer packaged goods and partnering with Heinz. In 2018, Simon left Hain under a cloud of a Security and Exchange Commission investigation and was semi-retired — like Vic before him — when the Aphria board gave him a call.