Canopy Growth joining Shopify in filling the void left by city’s tech erosion

Something profoundly important is taking place in the region’s economic engine — and the shape of it could be discerned this week.

The Ottawa area is finally acquiring the flagship corporations that have been so lacking since the disappearance of Nortel Networks to bankruptcy, and the exit of Cognos and Newbridge Networks to acquisitions.

On Tuesday, emerging e-commerce giant Shopify posted its first US$1 billion in annual revenues, while on Thursday, Canopy Growth showed why it is on track to become the region’s next $1 billion-a-year company.

These firms came from nowhere — Shopify began operations in 2006 above an Elgin Street coffee shop while Canopy Growth started its journey in 2013 in a former chocolate factory in Smiths Falls. Neither company specializes in what you might call the region’s traditional expertise of telecommunications technology and heavy-duty, enterprise software.

Yet both operations are succeeding because they’ve been building on ground prepared by others. At Shopify, former chief financial officer Russ Jones played a key role in guiding the company through the inevitable hiccups of early hyper-growth. Jones had seen this movie before as a manager at Newbridge Networks during that company’s transition from startup to multinational in the late 1980s and 1990s.

Canopy Growth drew early advice from its corporate secretary, Debbie Weinstein, a prominent Ottawa lawyer who has helped to jump-start a considerable cross-section of the city’s tech startups. More importantly, Canopy Growth’s founder and CEO Bruce Linton learned valuable lessons during his earlier entrepreneurial stints at software companies such as webHancer and CrossKeys.

One such insight was the importance of data and customer information. He built Canopy Growth from the bottom up as a technology firm — everything from cultivation to fulfilling customers’ orders is stitched together with a state-ofthe-art communications network run by some of Ottawa’s top engineers. It’s telling that Linton also consulted experts from Amazon before settling on a design for Canopy Growth’s own fulfilment centre.

Given the history of tech champions in the Ottawa area — so many promising firms have disappeared into the underbellies of multinationals headquartered elsewhere, or simply imploded — it’s reasonable to ask if Shopify and Canopy Growth have staying power.

The answer, of course, is simply unknowable. There are too many potentially lethal competitors out there, and it’s possible the founders could orchestrate catastrophic mergers or pursue new markets that prove to be dead ends.

Nevertheless, the companies have certain intrinsic advantages over Ottawa’s earlier generation of high-tech stars.

Think of it this way. When Terry Matthews’ Newbridge Networks launched its remarkable journey in 1986 as a supplier of voice-anddata networks, it was faced with the consistently difficult job of selling more gear every financial quarter. This was heavy-duty technology with long sales cycles and complicated installations.

In sharp contrast, Shopify has developed an ecosystem in which it generates revenues two ways — one, by selling subscriptions for the use of its e-commerce platform; and two, by charging for software applications such as payment systems and shipping. With hundreds of thousands of online merchants on the Shopify system, not only are business risks spread around, but the company can count on a steady stream of revenues every financial period with relatively little heavy lifting. If its clients sell more through their websites, Shopify earns more automatically.

Shopify’s co-founder and CEO Tobi Lütke had the comparative luxury of time in building his operation. Shopify spent the years between 2006 and 2012 gradually building out its networks, acquiring customers, testing its concepts and developing themes. It took six years for the company to achieve US$26 million in (inflation adjusted) revenues, but just the following six years to hit $1 billion, illustrating the power of its e-commerce software.

Canopy Growth’s time frame has been far more compressed. In 2015, when the Liberals unexpectedly won a federal election and promised to legalize recreational marijuana, Canopy Growth was generating revenues of less than $13 million annually derived from the sale of medical marijuana.

Fast forward to 2018. The Smiths Falls firm last year invested half a billion dollars to vastly expand its facilities and conduct a hiring spree. As of this week, the company employs 3,000 — including 2,500 in Canada. Nearly 1,100 work at the Smiths Falls headquarters and another 175 in Kanata. The company’s global workforce has doubled since last June.

Canopy Growth has no choice but to keep expanding if it wants to retain its current lead in the global market. Internationally, more and more countries are permitting medical marijuana. It may be just a matter of time before Europe and the U.S. legalize recreational pot as well. When, if, they do, Linton’s strategy is to be ready with the right products.

There are risks galore in this hell-bent strategy but the bigger risk might well be to do too little. The cannabis industry is expected to grow extremely rapidly for a few years, then level off as the market finally becomes well-served. The time to make a play for market share is now.

Following the sale of 37 per cent of its equity to Constellation Brands, the U.S. beer, wine and liquor company, Canopy Growth has nearly $5 billion with which to invest in its transformation from a straightforward marijuana company into a multi-faceted operation known for selling brand name cannabinoid-based products capable of challenging parts of the drug industry.

That’s another thing Lütke and Linton have in common. They take the long view. In Linton’s case, he urged analysts on Friday to view his company from the perspective of five to seven quarters in the future. The things he’s spending money on now — a bottling facility in Smiths Falls, a hemp factory in New York State, R&D and expedited hiring — are expected to pay off in new revenues nearly two years down the road. And in 2021, Canopy Growth expects to crash through the US$1 billion sales barrier. That would mean eight years from zero to a billion, compared to 10 years for Newbridge and 12 for Shopify.

If Linton actually delivers — a big if, given all the competitive and regulatory risks — he will, along with Lütke, offer the region’s entrepreneurs another example of what’s possible. There’s no understating the value of that after so many years without.