MORE HIGHS THAN LOWS
Big banks and institutional money may have been slow to warm to cannabis companies, but the prospect of getting rich off a once illicit substance was too much for the public to resist. The past year saw cannabis stocks turn into one of the biggest retail investing manias since the dot-com boom. While there were ups and downs, nothing could have prepared investors for the final act, the stunning rise of Tilray Inc., which saw its shares soar 17 times in value in the two months following its July IPO — much of it in a dramatic few days in September.
Chuck Rifici, CEO of Auxly Cannabis, and co-founder of Canopy I knew the industry would get this large eventually, but I remember talking to our first investors, pitching them back in 2013, and I said you know, within five years, there would be a billion dollar cannabis company. I never thought there would be a dozen of them, that we would see a few $10 billion companies. The industry has grown at least three times faster than I expected.
Bruce Linton We became the first publicly traded legal marijuana company ever (in 2014). And that was kinda neat. And people got too excited — we came out and the stock went up. And then there was about eight to 10 months where I got emails from investors saying, ‘Look, you are an idiot, the company is not properly run, you should be profitable, not using shareholders money. Why did I invest in this company?’ Aaron Salz, consultant, Stoic Advisory I’m surprised at how quickly this became a mainstream investment and how fast the investment banks and investors and mainstream financial media like CNBC have jumped on this. I can’t believe how quickly this has become so massive and mainstream. Every day it is shocking me. Steve Ottaway The volatility has been stunning at times in the space. The market goes through these various swings. And when we see these run-ups, a lot of the time it’s on the basis that there’s something coming, about to happen. That can drive the market. Or, you just have the market suddenly deciding it’s overvalued. On each one of these times, I’ve often sat back and thought ‘OK, well, the market seems to be dead.’ And then all of a sudden, it’s not. Just to give a more poignant example In mid-August, all the stocks were dropping. And it looked
really nasty. And we’re kind of staring at our screens going, ‘All right, this is not good.’ And then Constellation hit.
Chuck Rifici Well, I saw (Tilray) as a supply-demand issue on a stock level. There’s only three main companies listed on the big U.S. exchanges, and because Privateer (Privateer Holdings, a U.S. private equity firm) owns so much of the stock, there was very little float, so it was almost a perfect storm of having a run up. So I feel — I’m shocked, actually. I was surprised by the fact that there was so much volume. That’s not just retail investors, that’s institutional capital, that despite the valuations feel that they need, that they must have, in my view, have exposure to the cannabis industry. Aaron Salz I mean (Tilray) was the second-most traded stock in the entire world by dollar volume. The only company that traded more in dollar volume was Amazon. To me it was not a good thing, I was not happy that day — I think it was all the wrong attention on the industry. Jodie Emery This is the white-washing and corporatization of cannabis. I call it the grass ceiling.These people are not in the business of pot, they are in the business of stock. I call it the Great Liberal Legalization Pot Stock Scam. It’s deeply distressing to see all these big businessmen, former politicians, former law enforcement, premiers, prime ministers, making tons of millions of dollars on pot stock. Chuck Rifici I very publicly sold all of my Canopy stock in 2015. I sold it for about $5 — that’s not public info but I’ve told enough people. I did very well, it’s just that you hate when, you know, you’re the one who sold. And certainly, you know, every time it doubles, I’m probably not productive that day.
Oct. 17 will be a historic day, but the story of legalization is not over yet. Regulations around edibles and other cannabis products still need to be ironed out. Companies will have to execute on their grand plans to meet the country’s demand for marijuana. And the public will have to decide if the experiment has been worth it. One thing all those involved in the sector agree on — the months ahead will be full of surprises.
Tony Dean When I was 17 years old growing up in Birmingham in the U.K., there was a lot of cannabis around, as there is today. I saw a newspaper headline one day that said something like ‘Canada to legalize cannabis.’ That was in 1971 or ’72. And that’s the first time that I saw a reference to cannabis being legalized in Canada and I said to my friends at the time, ‘Ah, that’s never gonna happen.’
Bill Blair We will have the day in which the law comes into effect. But I’d remind everybody this is still part of a process. And it’ ll take some time for the provinces to open their retail outlets. That’s fine. They’re doing it carefully and cautiously. It’ ll take time for some of the municipalities to put their regulatory frameworks in place. I know some of the employers, even the police, are making determinations about the usage among their own people. That’s part of the process. We’re working through this together.
Aaron Salz I think the next 12 months are going to be marked by delays, production overruns and budgetary challenges, and so to me, that’s normal course, but I’m wondering how does the public interpret that, and how negatively do they interpret that? Most investors expect that recreational is going to just cause hockeystick growth in revenue and massive cash flows but if you look at the nuts and bolts of what the prices they are getting, it’s not going to be like that, at least not in the first year.
Bruce Linton I have no real competition except public perception, public policy and the illicit market. Those are my three competitors. If you have an unstable political environment, public policy and public perception can be played one way or another. So these things sometimes create anxiety for me.
Chuck Rifici I think the biggest challenge will be the prohibited advertising space. I would say the rank and file licensed producer has no idea what they are walking into. It is very much, almost a cut and paste of the Tobacco Act, like it’s 90 per cent tobacco advertising controls versus alcohol.
Vic Neufeld We are all going to have short-term supply chain issues. I’ve been communicating this for several months now leading up to Oct. 17.
Cam Battley Legalization in Canada is a victory for activists and advocates. They fought and they sacrificed for decades to first force the Supreme Court to force the federal government to cre- ate a medical access system. That was a critical step in reducing the stigma. I’m a suit, I didn’t come into the sector with a full appreciation of how right the activists were in what they did for cannabis. We owe them a lot. We need to make sure there’s a role for them in the legitimate industry.
Bill Blair I’ ll tell you what a number of people said to me ‘You spent so much of your life in the enforcement of the law, this is such a change for you.’ And I said, ‘No it’s not.’ In fact, what I spent most of my life doing, I was in the public safety business — in the business of keeping communities safe, fighting organized crime and protecting kids. This was entirely consistent for me. Done right, this can actually create a safer environment and that’s the job, that’s always been the job for me. Chuck Rifici It does feel so surreal. I think it’s going to be a real stark moment when you see people smoking joints where you see people smoking a cigarette. And instantly, you’re going to get people saying, ‘Wow, it’s here.’ It’s going to create a very visual image for Canadians that will remove the taboo.