This country has too many pot producers, says the man who runs one of them.
Canopy CEO eyes long game with new vencap firm
TORONTO • The chief executive of Canada’s largest pot producer believes there are simply too many cannabis companies in the country right now, and that many are at risk of failing in the coming years if they aren’t run “like a business.”
“The challenge is finding companies that really want to be businesses. A company is just a corporation that has a stock you can buy, whereas a business makes decisions looking at the next decade or two,” said Bruce Linton, chairman and CEO of Canopy Growth Corp.
“It doesn’t get done in six months to a year. You’ve got to be working for five or six years, and then planning ahead for another four to five, to create the value we’re being attributed with today,” Linton told the Financial Post.
Linton’s comments come as he prepares to bring Canopy Rivers, which has effectively been functioning as a venture capital arm of Canopy Growth, public via a reverse takeover.
The investment platform has officially been up and running since April 2017 and will begin trading on the Toronto Venture Exchange some time this week.
“We’ve been investing in smaller companies for the last three years, but now we’re doing it under the banner of Canopy Rivers,” explained Linton, who is listed on the company’s website as Canopy Rivers’ chairman and acting CEO.
“There was this theme that kept coming up in the cannabis space — companies that either wanted our money and help, or that we wanted a small percentage of.
“And they were all somewhere along the mistake-making spectrum, but some of them had really good ideas, so we thought ‘OK, how about we have a dedicated company that really tries to figure out what might work, what might not work, and become early minority investors’.”
Canopy Growth will own 25 per cent of Rivers’ stock, but control almost 90 per cent of the votes because of a dual-class, multi-voting share structure.
Linton credits former portfolio manager Sean McNulty with having sparked the idea of setting up a dedicated venture capital firm that would play the role of a sieve of sorts to identify promising targets among the numerous cannabis startups that had emerged in Canada in the past three years.
“Sean was the first person I met in Toronto who took an immediate interest in being an institutional investor in cannabis. He put his own money in. I said to him — you’re the smartest dumb guy in this industry, why are you working for someone else, why don’t you do your own thing? That was three years ago.”
To date, Canopy Rivers’ portfolio includes investments in 11 companies that range from craft cannabis producers such as AgriPharm; to Civilized, a lifestyle cannabis brand that has operations in both New Brunswick and California; and Vert, a largescale greenhouse operator in Quebec that is the largest grower of pink tomatoes in Canada.
With just a month to go before recreational cannabis becomes legal in Canada, Rivers is about to begin trading amid soaring valuations in the sector.
British Columbia-based producer Tilray has seen its market value increase move than five-fold to approximately US$11 billion since it was publicly listed on the Nasdaq in mid-July.
On Monday, the stock price of yet another Canadian cannabis behemoth, Aurora, jumped on a report that the company was in “serious talks” with CocaCola Co. to develop cannabis drinks.
Canopy itself has a market cap of more than $14 billion, although Linton insists that he’s much less focused on market value than long-term growth.
“I think people who buy on the expectation that a company is going to soar in value are trading a stock, not investing in a stock. So sure, there are some fantastic in-out rapid trade opportunities — you’ll see a lot of press releases, but not a lot of product, and not a lot of real growth,” he said.
Real growth that he claims already exists in Canopy Rivers.
“Look, Rivers is already generating material cash flows and gains. I think people are actually going to invest in Rivers and trade on (other) stocks that are just a whole load of fluff.”
Linton also likened Canopy Rivers to an ETF of sorts.
“We own a diversified portfolio. I guess in a sense, buying Canopy Rivers stock, is kind of like buying an ETF, but it’s not intended to outperform an ETF because we’re trying to pick the best companies to make investments in.”