Taking the helm in January 2019, Simon unwound the Neufeld deals in South America and the Caribbean and increased Aphria’s Canadian market share while continuing to advance its low-cost indoor grow. Aphria had a market cap of $2.8 billion in December 2020. Tilray had a $2 billion market cap. In the merger that would fulfill Sébastien St-Louis’s prophecy and turn the weed world upside down, Kennedy exited and Simon became CEO of the new company. Now, with a combined market cap of close to $5 billion, Canadian brands in recreational and medical, operations in Europe and headquarters in New York, the new company, which would be called Tilray (shedding Aphria’s sketchy skin), would leap-frog Canopy. There was a new largest cannabis company in the country.
Sébastien St-Louis says he was ready for war.
Always haughty, he levelled up during Covid-19 and leaned on his dad; while Sébastien fought the competition, his father battled cancer. Jean St-Louis, Sébastien’s father, who he describes as a “warrior poet,” had been in the fight of his life against his failing health since 2017, but had broadened his worldview in the process. At first, Jean had no taste for his son’s line of work. Jean St-Louis had crusaded for French language schools in Sturgeon Falls, in northern Ontario, at seventeen years old taking his fight all the way to Pierre Trudeau. His dad, Sébastien told me, was stubborn and hard, but also composed music and wrote poetry. He was the ideal man in his young son’s eyes. At first, his father had negative opinions about marijuana, even though Sébastien didn’t touch the stuff until he was twenty-four. Sébastien says pot was everywhere when he was growing up, and he even considered selling it when he dropped out of high school at sixteen. That would have been 1999, two years before the MMAR laws were passed by Prime Minister Jean Chrétien. “I knew there was demand and talk of it going legal but, ultimately, I was late to the party,” he says.
Sébastien St-Louis wouldn’t begin to meet that demand until 2013, with his licensed medical producer Hydropothecary, which he later called Hexo. If Jean didn’t quite get what Sébastien was attempting at the beginning, eventually he began to grasp the scope of his son’s vision and came to admire the extent of his business dream. Once enthralled, he followed Sébastien’s company as one would follow a hockey team.
“With my father, I didn’t leave anything on the table,” St-Louis tells me, adding that it was cold comfort that they managed to spend emotional, vulnerable time together during the pandemic, breaking Covid protocol. In May 2020, while he was running the company without his brother-in-law Adam, laying off staff, closing facilities, and seeing his stock fall, Sébastien, alongside his mother, began to feel himself recharging. In his book, Billion Dollar Start-Up, authored with his brother-in-law and dedicated, in part, to his dad, Sébastien wrote, “He never did anything he did not want to do.” In the obituary later published in the Globe and Mail, Sébastien, interviewed by his uncle, says Jean taught him “to think, lead and, when necessary, fight.”
The fighting spirit, now aimed at Tilray, would infuse Sébastien’s new year.
At the end of 2020, the capacity of Aurora Sky, Terry Booth’s eight-hundred-thousand-square-foot greenhouse monstrosity at the Edmonton Airport, had been reduced by 70 percent, and nearly ten cannabis companies faced bankruptcy. St-Louis saw opportunity. Companies he couldn’t have touched in 2015 or 2019, he could now own. Looking across the country at his competitors reeling in a buyer’s market, he assumed any property could be his — “Everyone knows Hexo is the best operator,” he tells me. He turned down acquisition inquiries for his company as he began to feel more powerful in his leadership role. Sébastien never held the microphone in Canadian weed. There were no profiles on him in Report on Business. His brother-in-law had the better personal story to share on BNN. Sébastien St-Louis was a French-speaking high-school-dropout outsider who now could add survivor to the attributes that would prepare him for war. “The recognition was never there and still isn’t,” St-Louis tells me. “Bruce had the rock star thing going on, and I was never the most fun, but I’m not afraid of the spotlight, the big moment. It might be time for me.”
In January 2021, St-Louis received a call from bankers representing the Supreme Cannabis Company, now on its third CEO since they axed John Fowler in 2019. There was talk of the company being in play for $260 million, and St-Louis declined. Six months later, Canopy Growth picked up the property — for $435 million. St-Louis couldn’t reconcile the price tag on the acquisition. But he came to understand how Canopy borrowed $750 million of private equity to go shopping. Canopy was declaring that, even without Bruce Linton, they were still fighting to be the biggest bully on the block and would take on Tilray. Sébastien, who prides himself on being a quick learner, was taking notes. How would he respond? Canopy got a stock bump from their acquisition. Irwin Simon — now running the beefed-up Tilray — stepped into Bruce Linton’s shoes as a quote machine. St-Louis was going to be aggressive. “If you make no decisions,” he tells me, “you’re dead.”
“Would you take on nearly a billion dollars of private equity debt to make your own purchase?” I ask him. “We never had institutions behind us,” he answers, “but if you take five billion and blow through three billion [an allusion to Canopy], you have trouble.” But was the trouble worth it?
Didn’t Hexo have to grow? “I’m not afraid to be defiant,” he says. “Maybe it’s the French revolutionary in my genes.”
Sébastien St-Louis plotted to put Hexo in Tilray’s shoes. He was negotiating with Zenabis Global, a company in British Columbia founded by Monty Sikka that, when it listed on the TSX in January 2019, had a market cap close to $1 billion. Zenabis, like Tilray, was representative of the industry. It had lost nearly 70 percent of its value by the time Hexo began kicking its tires for a deal. Sikka invested more than $400 million into the Zenabis indoor grow in Delta, BC — and was floundering. St-Louis, thinking of his hub-and-spoke model, and perhaps of what Canopy got from Supreme, saw Zenabis as ripe for the picking. Since Canadian companies were moving into the States and Europe, the Zenabis education centre in England and production facility in Malta were valuable. Plus, their BC greenhouse could still pump out premium weed. This was what Canopy got from Supreme: a fancy cannabis product that connoisseurs would consume. The goal at Zenabis was to make a premium strain of pot above 30 percent THC. And so Zenabis could help with Canadian market share while also adding flavour to St-Louis’s international pitch for more money on Bay Street. While Hexo increased product categories and sales in Canada, it needed capital infusions to continue to grow. Hexo, led by Jean St-Louis’s boy, wasn’t backing down from Canopy or Tilray. Sébastien was still hungry for his recognition and success.
During a lull between Covid’s third and fourth waves, in the fall of 2021, St-Louis tells me all of these things, taking his time over a plate of french fries. He says that earlier that year when Sundial came after Zenabis in a hostile takeover, he played white knight and swooped in for the largest acquisition in his company’s history — paying $235 million for a funded capacity of 110,000 kilograms of marijuana, with facilities in New Brunswick and Nova Scotia, in addition to their flagship greenhouse in BC. St-Louis was feeling talkative and proud; he showed up for lunch alone, with no media attendant or assistant, as if wondering why more people hadn’t been beating down his door. He tells me that Zenabis added market share and revenue to Hexo’s bottom line and his stock jumped 20 percent after the deal, but quickly levelled off, peaking around nine dollars per share. The pandemic, along with quitting drinking, seeing original founders get axed, and saying goodbye to his father, had St-Louis emboldened, taking chances. Chief executive officers were exiting marijuana. Covid-19 reinforced his mantra: no fear.
“I told my people, ‘If you get Covid, I’ll get Covid right next to you.’ Leadership isn’t sitting in an office in an ivory tower.” St-Louis was still young in 2021 — thirty-eight years old — and he had grown up in his office. He tells me that he was able to fix Zenabis and bridge the culture gap between C-suite and grower at the company because, he believes, his French Canadian background helped him live in two worlds. As the child of teachers, he held resentment for the stuffed shirts and Deloitte, and he says he never was condescending to the farmers; he wore a chip on his shoulder under the black Under Armour T-shirts he wore when he sized up financiers. He didn’t flinch, he says, back when the value proposition for a medical marijuana company grew to $100 million from $10 million back in 2013. St-Louis was outside Bay Street when he started and stayed there, preferring rural Quebec to Toronto. If he had started out with the connections of Irwin Simon, Brendan Kennedy, or Bruce Linton, “nobody would have heard of any of them,” he says.
As CEO, St-Louis spent time in the greenhouse, worked in defoliation, got his hands dirty, and kept his common touch. It differentiated him. “Management you can’t see on a spreadsheet,” he says. “If you’re a CEO on Bay Street all friggin’ day, you have no clue how your business runs.”
There’s a graveyard filled with executives who couldn’t see how their businesses ran. Cannabis was no exception. For Terry Booth, too large a gap formed between him and his investor relations team. He had also invited Nelson Peltz into his home. Bruce Linton was a celebrity. He ceded control for money, and his ego made him not meet the Constellation bosses on their terms. Linton spent too much too quickly, so it was no surprise he found himself beaten up by Constellation’s board, which he himself had brought into his mix. If you buy companies and don’t know how anything works, St-Louis says, you’ll be caught flat-footed when costs soar and integration becomes four people for each job, with the C-suite taking bonuses and everyone else getting canned and Canadian properties being foreclosed. It had been that way since Brent Zettl opened a greenhouse beneath a lake. Aurora wanted Zettl’s company. Booth spent $1 billion, and his hostile takeover cost Jay Wilgar his deal. But what did CanniMed do for Aurora and the people who worked there? Layoffs, closures, and bad weed thrown in the trash.
St-Louis wanted to learn from what came before him. There had to be a reason that he was the only Canadian founder left. Every cannabis executive wanted to be Elon or Bezos. Hexo, says St-Louis in 2021, is Amazon.
Walk down Queen Street West in Toronto or West Fourth in Vancouver today and there are more pot shops than convenience stores or craft breweries. It’s gotten to the point where a plant store on Queen Street West in Toronto — a store that sells flowers, not actual weed — has a sign out front saying “I can’t believe it’s not a weed store!” There are seven pot shops on the north side of Queen between Ossington Avenue and Gladstone. All of the stores are clean. All of the budtenders are friendly. Lorne Gertner’s dream of cannabis retail has happened. But due to terrible margins, the existence of too many shops, and the still-mighty presence of black market weed, many of the retailers — except chains like Gertner’s old Tokyo Smoke, retailers with deep pockets — will be closed unless something changes soon.
Darren Karasiuk, the original numbers man from Deloitte, again capitalized first. In August 2020, six months after Terry Booth’s ouster at Aurora, Karasiuk also left the company. He had an idea both to deal with the pot surplus and to combat the deluge of stores. In May 2019, he had joined the board of Alcanna and steered Aurora to purchase 20 percent of the company. Terry Booth hated the deal, but Darren didn’t care and Terry, his capital diminished, couldn’t fire him. Two years later, Darren was the CEO of Alcanna’s cannabis division. It was Karasiuk who found the solution to glutted retail. He pivoted the Alcanna cannabis division into a novel concept: Value Buds. Darren, who could read the tea leaves more clearly than seemingly anyone, believed the future of cannabis retail wasn’t Domino’s Pizza. It was Costco.
Canada, thanks to the outdoor grows and increasing efficiencies and number of licensed producers, had too much weed in the pandemic. Big bags of pot, that’s what consumers wanted. Not expensive drinks with low THC, CBD oils, or gimmicky marijuana lubes. The 20 percent of people who bought 80 percent of the pot weren’t coming into stores to snap a picture for Instagram. Beverages, once the hope of Cannabis 2.0, accounted for less than 3 percent of legal cannabis sales.
When Nova Cannabis opened Value Buds in 2020, sales climbed 800 percent. The product flying off shelves, says Sébastien St-Louis, was Hexo’s Original Stash. The market was dictating to the cannabis licensed producers. It was Winners, not Gucci, where the consumer wanted to shop. St-Louis thought that with Original Stash selling and his acquisition of Zenabis complete, he could hit consumers’ tastes whether they shopped high or low. He drew inspiration from his partner Molson, who purchased Creemore Springs for $25 million in 2005 to get into the craft beer category. Sébastien made cheap weed in Quebec; now he could also make the good stuff in BC.
Craft and bulk, plus he had Alison Gordon’s 48North, so he could also serve women with a female-focused cannabis brand. St-Louis says that the success of Value Buds played into his Zenabis deal. St-Louis could feel himself growing during the pandemic. He shaved his head. He lifted weights. “Earlier, I couldn’t swallow Zenabis. I wasn’t strong enough, but I got strong enough,” he says.
He loved describing the Zenabis deal. “They poured $400 million into their indoor grow, a thousand dollars per square foot, and we picked up the whole company for $160 million,” he says, and adds that he revamped the entire Zenabis facility within the first thirty days of his acquisition. He says the company had been so short on cash that they had to cut corners, and there were safety risks alongside deteriorating cannabis quality. “I needed more capacity so it was ‘build or acquire,’ and we knew Zenabis was so screwed up from capital markets that it was an incredible value.”
One company was going to control 40 percent of the Canadian market, St-Louis believed, and that would translate into sales all over the world. “It’s about winning. We’re going to make the whole industry look like a joke,” Sébastien tells me, and it sounds pretty good to my ears.
I let Sébastien pick up our lunch.
Chapter 21 Last Dance with Mary Jane
“The largest bribe I’ve said no to was $40 million.”
Sébastien St-Louis
It was in this headspace that Sébastien St-Louis made the last deal of his cannabis life.
Though he insists his deal was already months in the works before Aphria-Tilray, St-Louis bought Redecan at the end of August 2021, for nearly $1 billion. The deal closed at $925 million, with $525 million in stock and $400 million in cash, and suddenly St-Louis wasn’t only the world’s longest-serving marijuana CEO. He also might have been — might have been — the best. He tells me, “I don’t see Redecan as a billion-dollar acquisition. I see Redecan as holding IP that nobody can touch.”
Despite the lofty valuations all around them, Redecan, the seven-year-old licensed cannabis producer, never went public. The company, which grew its cannabis in the Niagara escarpment, had massive market share and was known for its technology around a very particular brand of pre-rolls, toothpick-sized spears more similar to a Virginia Slim than anything resembling a Bob Marley joint. It was founded by the Thrower family of farmers. It was financed by the Montours, an Indigenous family with generational business roots and some ongoing lawsuits over taxation. The Montours were owners of the fourth largest cigarette manufacturer in the world. The company had a shrouded legacy.
Operating on its own jurisdiction — Indigenous land — for the purposes of tax laws, Redecan was long thought to be a no-go for acquisition because, given its ties, the company existed outside of the legal industry regulations. While the other legal companies decried their taxation — which could eat up either one dollar per gram or ten percent of a product’s value — Redecan played by different rules. While Bruce Linton and Terry Booth made it a point to kick the tires of every operator for possible acquisition, both men told me Redecan — and only Redecan — was never in play. Intentionally, the company stayed out of the spotlight. It sold millions of identical pre-rolls and had technology from its cigarette manufacturing, which approached widgetizing the valuable pre-roll sector of the cannabis industry.
The plan for Redecan was in play, St-Louis says, before the Zenabis deal.
Redecan, believed Sébastien, was the final piece of the puzzle that would turn him into Bruce.
It was the second day of our October 2021 interviews and we were huddled on a black leather couch in Hexo’s boardroom, facing each other, our knees touching. We were eating steamies, little French hotdogs, on a snowy afternoon in Gatineau, Quebec.
St-Louis tells me he’s mapped out his plan. “If weed’s going to be a $300 billion business and retail manufacturers take a $100 billion slice of it, if you can have thirty percent global market share — and that’s what we’re playing for — you’re a $30 billion company,” he says. “Now put a four times sales multiple on that and Hexo has a $120 billion market cap. That was at the front end of Zenabis. That’s where I want to take this. That’s what we’re playing for.”
Hearing Sébastien talk like this over hot dogs, even after spending so much time with Terry Booth and Bruce Linton, I was still blown away. Even over tequila shots and edibles, the numbers never got that high. A market cap of $120 billion, in weed? But Sébastien passionately told his story and I think that’s why he wanted to do these interviews. He wanted to tell somebody, like there was a story in his brain that he wanted to get off his chest. No one was saying how smart he was.
And there was something else bugging him, that he made references to during our two days together before coming out with it right at the end of our last session. It’s no secret that cannabis, once legal, had a difficult time completely shedding its criminal connections. St-Louis, however, made the most radical claims I’d ever heard.
“The largest bribe I’ve said no to was $40 million,” he tells me, and he says that other CEOs in cannabis have accepted that kind of money. They’ve done that, he says, mostly to get something done that would go against the interest of their shareholders — while pocketing cash themselves. A cannabis executive could be bribed to purchase an asset, or to ignore a potential deal, or perhaps to make a sweetheart arrangement with a rival company. The numbers were high and the industry was new, and since pot growers had once been illegal, there was an element to the industry that made it different from selling raincoats or shoes.
Of course, you hear stories like this not only in cannabis, but all over the business world. Yet legal cannabis, like the smell of a joint on a blazer, has never been able to shake its illegal past. And all of the founders had their stories of dangerous criminal incidents. Terry Booth told his partners, when they were going into dispensaries in 2012, “If a gun flashes, hit the ground.” Tom Flow travelled with a notorious crowd before MedReleaf. The Ascent Industries CEO, Blair Jordan, told me he couldn’t stand by a window at his office in Maple Ridge, because he was afraid of drive-bys.