Chapter 5 The Founders
“We’d be selling marijuana for cash.”
Murray Goldman
The MMPRs created fortunes. They ended medicinal marijuana home-growing and the designated grower system and opened up the sole-sourced PPS licensed producer contract to other companies growing weed. Presumably, this would end Mexico’s concerns about imported illegal BC weed.
Trevor Fencott and Michael Haines had been partners since 2002 in Groove Games, which licensed video games for mobile content. They were coming off the successful sale of their company and casting about for something new. Haines, a soft-spoken married father of two, understood marketing and capital markets, and gradually understood that he had a gift for finance. As a teenager in east Toronto, he had had a close relationship with pot. But after university he stopped smoking and never gave it much thought, until his cottage neighbour, Gregory Herriott, a hemp pioneer and MMAR grower, started talking up the new MMPR system. By 2012, Haines, flush with cash after his success in the tech world, was intrigued. He knew marijuana would be stigmatized by Bay Street. He also knew there was already a healthy market for weed. Canadians loved to smoke. And he knew that starting a business that produced pot would require extensive capital and a capacity to read the government’s fine print. The system had come a long way from Allan Rock’s approval process for an individual’s medical licence. A pot company’s approval process, says Haines, was like casting about in the dark through a maze.
As for Trevor Fencott, he’d never tried weed. From Scarborough, he was a lawyer by training whose wife worked in pharma and was more familiar with cannabis than he was. He and Haines weren’t activists or farmers. They were businessmen who had just sold their company for $20 million. Haines pitched Fencott on setting up a medical marijuana company. There were other partners from Groove Games, but they didn’t like the idea. At first this was scary. But there was a flip side: if the partners they’d just made rich didn’t want to get into marijuana, maybe Fencott and Haines would have the market to themselves.
“The stigma knocked out most serious businessmen,” says Fencott. He told Haines the work was going to be dirty, dangerous, and difficult. Growing Health Canada–compliant weed at scale had never been done before, and Health Canada would be figuring out the parameters the companies would need to follow as the companies attempted to build their multimillion-dollar grows. Gertner’s public weed company had been a failure, and the people who really knew how to grow weed probably had police records, so they couldn’t join the legal system; farmers, experts in cucumbers and tomatoes, didn’t know the first thing about marijuana. Was growing pot the same thing as growing lettuce? From the lights to the vaults to the seeds to the security, nobody really knew. Plus, it wasn’t only Bay Street that wouldn’t fund these companies — no one would.
“If it was easy,” Haines told his partner, “everyone would be in.”
To submit a proposal to grow medicinal marijuana at the start of 2013 required 250 pages of paperwork, an extensive background check, a lease on a growing facility — which no landlord wanted to give — and standard operating procedures for a framework that had never been done, legally, with regard to pesticides, seeds, potency, and packaging, at scale. But Haines and Fencott could see the upside in the downsides. People have always loved weed. Gregory Herriott, sitting out on his dock in the setting sun, told Michael the horizon was wide open for how big this market could be. Haines and Fencott called their company Mettrum — a word Michael made up that could mean anything — and they say that finding an initial location to set up their grow was a quixotic task. “Damned near impossible,” says Haines.
In early 2013, Michael and Trevor visited Haliburton, a small town in northern Ontario that could no longer afford its hockey rink, and the guys set up a meet-and-greet to pitch their idea to their potential new neighbours. In their own eyes, they were heroes. They promised to save the rink and to build a yoga centre and to make a positive impact on community life, creating jobs and hiring local. Haliburton had seen most manufacturers close. A rail line now transporting nitroglycerin cut through downtown. Between wealth incubation and job creation, cannabis could signal a small town’s triumphant return.
There were three hundred people at the hockey rink when Fencott and Haines pitched their plan. The rink was quiet. Then it wasn’t.
“Who do these pot people think they are?”
And “Marijuana capitalists aren’t going to take over our town!”
Fencott and Haines knew starting a marijuana company would be hard. People loved weed. But they hated it, too. Emotions were huge. Standing outside the arena after the town hall, they were heckled and booed. “What about the children?” screamed one concerned mom. Fencott’s wife, who he’d brought along to witness his moment of glory, buried her face in her scarf. For Fencott, marijuana began as an unlikely economic opportunity and morphed into something personal. He never got high in university and didn’t smoke weed at law school, but like for a lot of the first-generation cannabis executives, having to defend his product before hostile crowds day after day buttressed his beliefs.
Across from the arena, not five feet away from an elementary school, in a bit of real estate irony, sat an LCBO — the provincially owned liquor store.
Fencott and Haines got into their cars. “See you later, losers,” called out another Haliburton local.
The Toronto Sun even caught wind of the debacle. “What are they smoking?” read the next day’s headline beside a photograph of Bobby Orr, who had apparently once called Haliburton home. Orr was surrounded by marijuana leaves. Pot wasn’t just a joke. It was a scourge.
The Canadian medical marijuana program — the MMPR, the only federal medical marijuana program in North America — was groundbreaking, destigmatizing, restrictive, and opaque. Patients needed cannabis “scripts” from their doctors to consume the substance. These weren’t prescriptions, exactly, because the Canadian Medical Association wouldn’t back cannabis as medicine. A costly ruling for patients, this meant that medical marijuana, unlike other prescription medicines, would be taxed and not covered by insurance companies. Basically, the scripts were doctor’s notes, like the kind a kid would bring into fourth grade for missing school.
Health Canada’s request for proposals would be open to new manufacturers from the private sector. Businesses would produce and distribute and profit from medical marijuana under a regulated Health Canada system. The business would be difficult, as Fencott and Haines were discovering, but certain entrepreneurs — heavily capitalized risk-takers who didn’t care what people thought — took note.
“How often does a government deregulate an industry, once a decade?” asks Stephen Arbib, a serial tech entrepreneur who submitted a proposal to Health Canada for a company he called MedReleaf. Prior to the passage of the MMPR laws, Arbib published a Canadian newspaper on Jewish culture and Israeli life. Through that outlet he had become aware of Tikun Olam, a pioneering Israeli company in cannabis research. In Israel, Tikun Olam produced medical marijuana for the government, whose patients included members and former members of the military — that is, nearly 100 percent of the adult Israeli population, as every Israeli is mandated by law to do military service. Arbib knew that partnering with the Israelis would give him a huge advantage over any Canadian company looking to enter the cannabis industry without help. Not only were the Canadian regulations on growing, distributing, and securing the cannabis plants severe and expensive, but the intellectual property regarding growing techniques was new and complex; outside of PPS, which most regulators, patients, and growers agreed wasn’t successful, no Canadian company had produced regulated, dose-controlled, pharmaceutical-grade cannabis at scale. Tikun Olam had done this for decades, and, importantly, knew how to handle security, which was one of the government’s biggest concerns (remember, the first legal Canadian grow op was started in a mine under a lake).
Arbib, a clean-shaven teetotaler, had a background in aviation and government procurement. In 2012, he raised $2.4 million to complete his government application, purchase a facility, and recruit a skeletal team. Tikun Olam was the first company to isolate the THC from CBD in cannabis molecules and so had valuable intellectual property, including proprietary plant genetics and seeds. Arbib inherited all these, along with facility infrastructure.
It was difficult for fledgling legal medical marijuana companies to honour the rule of the law and not lean on the black market. Since cannabis had always been illegal, anyone with marijuana experience would have been either a designated grower or a drug dealer. But the designated grower profession was being wiped away. Could you trust a designated grower to drive your multimillion-dollar facility, under prying government eyes?
Tikun Olam gave MedReleaf another initial advantage over its rivals: the model of a lucrative government insurance sales program. In Israel, soldiers didn’t have to pay for their Tikun Olam bud. Insurance covered it. The MedReleaf payment program imported this idea into Canadian law. Canadian veterans, and veterans only, would have their MedReleaf medical marijuana covered by insurance premiums. The program didn’t work the same way for patients with, say, cancer, MS, epilepsy (like Terry Parker), or AIDS (like Jim Wakeford).
Veterans would be marijuana’s most valuable patients. They would be consistent clients, and since they weren’t paying, they wouldn’t care how much their medical cannabis cost. This meant the MedReleaf team had leniency with its price structure. There was no ceiling on the price of a gram. “MedReleaf was and may still be the only profitable cannabis company in Canada,” says Arbib, who, given his background, is extremely knowledgeable in how to get things done — especially around governments in a challenging regulatory environment. “We took the science of cannabis seriously, but we weren’t shy about hiring people from the black market. We paired scientists with the most talented growers we could find.”
In addition to his Israeli partners, Arbib had another advantage over his competition: Tom Flow, a friend since third grade who was obsessed with marijuana. Flow had become enamoured with weed when he was fifteen years old and turned his closet into a grow op. He wasn’t interested in making volcanoes explode for his science fair project. He experimented with growing weed like a stoner Mr. Green Thumb: the lights, the soil, the seeds, the growing cycle. In order to be taken more seriously, some medical marijuana entrepreneurs flaunted to investors the fact that they didn’t smoke weed. They, like their investors, were above the culture they intended to serve. Tom Flow and MedReleaf didn’t think that way. By the time Arbib asked him to lunch to discuss his new company, Flow was already an entrepreneur who’d managed a tech company with one hundred employees. Flow was a businessman, sure. But he was also a pothead, and strains of pot, to him, were as distinct and specific as designer shoes. “Super Skunk, Northern Lights #5 — I was fanatic about strains,” Flow says.
While his buddy Arbib, already a self-made millionaire by the time they went into business, was the last person you’d expect to start a marijuana company, Flow was exactly who you would expect to work full-time growing weed. Flow studied High Times as a boy the way other kids read Sports Illustrated and had been operating a vast network of quasi-legal grow ops around Ontario since 2007. Flow just never got caught. “I was on the black market side, moving high volumes all over the place,” he says of the seventeen expansive marijuana-growing facilities he owned. These places did have licences to grow medical marijuana. But Flow would combine individual licences together in order to maximize their output capacity. When his licences limited how many plants they could grow, Flow figured out how to grow plants the size of elm trees.
He won’t tell me how much he earned from his business, so I ask him what kind of car he drove. “Oh,” he says, “I had lots of cars.”
Arbib was offering Flow a chance to take his know-how and apply it to the legal system. As they did for Lorne Gertner, success and the MMPR laws afforded Tom Flow a chance to live out his cannabis dreams. Flow sold off his grey market assets, imported his genetics to MedReleaf, and crossed sides along with the underground team he’d assembled. “The most exciting part was being that researcher/innovator, that scientist, designing the facilities, construction — every little piece,” says Flow of the do-it-yourself model of creating high-quality cannabis-growing facilities at scale. From the water to the nutrients to the lights, the MedReleaf production facilities ran like a high-tech assembly line. Adding Tom Flow to the Tikun Olam playbook, plus obtaining the lion’s share of veteran prescriptions, gave MedReleaf an early advantage in the nascent industry.
However, there was another entrepreneur, also obsessed with weed, with an inside track: Marc Wayne, who partnered with a Dutch company named Bedrocan.
Importing five hundred kilos of marijuana from the Dutch government requires a skill set of the sort they don’t teach in school. Marc Wayne is a Queen’s University grad in biological sciences. He became interested in pot while running an IT business. Wayne, who wears a goatee, is perceptive and daring. He and his partner, Mark Ware, are another foundational piece of the legal Canadian weed industry.
It started for Wayne with those Dutch kilos. In 2007, he was recruited by his university buddy Ware to join the Canadian Consortium for the Investigation of Cannabinoids (CCIC), which had begun with a $400,000 Health Canada grant. Cannabis had always appealed to Wayne, both as a consumer and as someone who witnessed first-hand what the plant could do. When he was a teenager, his mother contracted AIDS (he believes it was from a tainted blood transfusion), and together they consumed licensed marijuana from the government, which formed some of the happiest memories of his childhood. Life was better for them both on weed.
“I didn’t need a study to know that cannabis was a life-changing drug,” says Wayne, who nevertheless, with the CCIC, was tasked with providing evidence of just that.
Eventually, Valeant Pharmaceuticals, which made a synthetic marijuana product known as Cesamet, hired Wayne to speak with pain physicians across the country, attempting to sway them away from prescribing opioids and toward synthetic medicinal marijuana. Wayne was a true believer and thus a natural salesman, and Cesamet’s sales increased enough for Valeant to invest more than $1 million into the CCIC. Wayne beat the drum that other cannabis companies would follow: his roadshows across the country introduced a generation of pain physicians to medicinal marijuana.
Wayne also met regularly with Health Canada. Meanwhile, Ware, his CCIC partner — who, incidentally, had a smoking room connected to his lab at the University of Montreal — was trying to deduce how the plant affected the body’s endocannabinoid system. Endocannabinoids are neurotransmitters that have a structural similarity to molecules in the cannabis plant; they help us regulate appetite, pleasure, and pain.
Medical pot was legal, but it still prompted sharp reactions. Health Canada, with a Supreme Court ruling, had decided that pot was medicine. The Canadian Medical Association, the largest association of this country’s physicians, said it was not. A grey market was baked into the system from day one. Still, the CCIC went about its daily business, with Wayne raising money and selling Cesamet while Ware conducted his research. Ever since the Le Dain Commission, Canadian politicians had stopped just short of authorizing science to look for proof that cannabis had health benefits and was no more harmful than alcohol or cigarettes. But the CCIC was a consequence of the growing acceptance of Canadian pot.
In late 2011, Wayne read a report from Health Canada suggesting that the legal medical marijuana system would be privatized. It was accepted as fact that licensed designated growers in Ontario and BC were flooding the U.S. and Mexico with black market weed, and regulators had heard enough complaints about the PPS product to know there needed to be another way. In December 2012, the system was being re-evaluated, but Canadian medical marijuana patients still needed the weed they were legally entitled to. Conveniently, through his work with the CCIC, Wayne had a connection with executives at Bedrocan, a leading Dutch medical marijuana company renowned for its pharmaceutical standards. (Besides PPS, the only authorized growers in the world were Bedrocan in the Netherlands, Tikun Olam in Israel, and researchers at the University of Mississippi.) So as the Canadian market underwent its first overhaul, Health Canada approved Wayne to import those five hundred kilos of Dutch weed.
“Health Canada was going to be changing the regulations because of the abuse of the personal designated growers in BC. They wanted a commercial system — and needed advice,” says Wayne.
Fencott and Haines were still searching for a building for Mettrum while Wayne worked with Health Canada on the new regulations and shook hands with the Bedrocan team for licensing rights to import Dutch genetics into Canada. Meanwhile, Wayne’s stepfather, Murray Goldman, built up the budding cannabis tycoon’s war chest. Goldman, a legendary Canadian developer who also once ran the brewery industry in Israel, staked Wayne with $16 million to begin. “While all the other companies were out begging for money, we immediately had product,” Goldman, ninety-one, tells me. “We’d be selling marijuana for cash.”
PPS, which changed its name to CanniMed, received the first Canadian medical production licence under the MMPRs. Peace Naturals, which Gertner helped fund, received the second. Fencott and Haines at Mettrum got the third. Bedrocan came fourth, and a company called Tweed, started by Chuck Rifici, who was deeply embedded in Ottawa, and the wide-eyed entrepreneur Bruce Linton, received licence number five in the country.
Competition, at the start, was fierce. Lorne Gertner says still no one would invest in any of the pot companies. It was difficult to get physicians to move beyond the stigma of marijuana and for licensed patients to differentiate among brands. With the established medical community not buying into cannabis, the new pot companies deployed their own strategies and their own sales agents to meet with doctors, following the path Marc Wayne had set. Slowly, these new companies began to set the parameters of the new legal medical cannabis world.