Bruce Linton on Cannabis, Europe, and Entrepreneurship in 2020

Anyone entering the cannabis industry for the first time will quickly stumble upon a few key names. Celebrities like Snoop Dogg may indeed be the first to come to mind, but someone like Bruce Linton is certainly a close second.

Related: Europe Expected to Lead Global Cannabis Market by 2024

Being the co-founder of one of the largest cannabis companies in the world, Canopy Growth Ltd., Strain Insider enjoyed the unique opportunity to speak with Linton about all the moving parts of this fascinating industry, from the ideation phase behind Canopy in 2013 to moving into Europe and a few tips for ambitious entrepreneurs looking to make a switch.

This interview was conducted on the 28th of November, 2019, during Bryan, Garnier & Co.’s inaugural Cannabis Conference in London, England.

 

The Interview

Liam Kelly: I think the story of cannabis, and what it is now today, is also, in many ways, as much a story about Bruce Linton.

You have had a big voice in the space, you have changed a lot of things and have also been a great activist for the sector. But, I was curious if you felt that a cannabis entrepreneur has now become simply an entrepreneur.

Bruce Linton: I would almost amend the question. Meaning, I am entrepreneurial, period. I think to be entrepreneurial, means different things to different people. For me, it means you look at things and try to discharge bias and assess if there is an information disconnect here.

Do I know something about a technology that others don’t which I can make into something? Or, is there a past bias about a topic that changed and people are not aware of it yet?

LK: Do you think that’s a business opportunity?

BL: Absolutely. My favorite way to look at opportunities and the reason I’ve been able to shift from being in telecom/datacom to infrastructure to cannabis is to ask, ‘is there a macro public policy change?’

Because the thing that affects us the most on this planet which we never talk about is public policy. Sometimes we debate who provides the inputs for public policy. For instance, how influential are the banks or how influential are the oil companies or how influential are the pharmaceutical companies?

I love it when there’s a big public policy change because this means there is a whole new opportunity. In datacom, it used to be that if you were in England or if you were in Germany, you had a choice if you wanted to have a phone or a computer connection from one company called Deutsche Telekom. And if you didn’t like their service then you shouldn’t have a phone.

Then, in America, they turned it into a competitive platform because of a judge’s ruling. In California, they had PacBell. They said ‘if you like PacBell, good. If you don’t, well you’re not gonna communicate using any technology.’ Then they broke this up and everyone had to compete. I saw that and participated because all of a sudden that means you have people who have to make decisions and implement new things fast.

The reason I started in the cannabis space was that it was evident that Canada, to me, was going to create a medical platform that was actually going to be governed. This meant that the products were going to be tested and that you were not going to have pharmacies in the middle. It was going to be direct to consumers.

What the bureaucrats didn’t care about at all was what kind of cannabis you grew.

Rather, they were more interested in questions like, ‘did you lose any cannabis, did you send it to the wrong place, or did anybody in the business steal any cannabis?’ They were mostly worried about diversion, theft, and general incompetence.

It’s a bad headline when a cannabis company sends a whole bunch of cannabis to a house that didn’t order it.

So, I started the business because I thought I knew how to not be incompetent in ways that would embarrass bureaucrats.

LK: Key strategy, don’t embarrass bureaucrats.

BL: Exactly. Think about who the principal decision-maker in the process is and what are their considerations. In almost every geography on the planet, the regulator who is informed that they will be in charge of the cannabis policy doesn’t say ‘yippie.’

They say, ‘okay, I guess.’

In Canada, the problem was there was no one to even reference. They had to figure out themselves.

What I brought to the sector was the adaptation of technology to the production and governance of cannabis. This resulted in a highly scalable system that created a platform where you could get ingredients to do real science.

I started doing real science with really reliable ingredients. Now you have a dosing strategy, too. When that happens, you start getting outcomes that people say, ‘I knew that sh*t made me sleep,’ or ‘I knew that it was actually great for grandma so that she didn’t have anxiety.’

All of a sudden you close the loop for what people already knew, but you had to do all this work to create infrastructure and research.

I brought a reliable base platform, and then I went around and told everybody ‘here’s how I think the world is going to turn out.’ And because there wasn’t a good counter-argument to why I was wrong, and because I said it a lot, people started saying, ‘that guy has been right very often.’

Consider this: I started talking about beverages as a product five years ago, and I was told that that was a dumb thing. No one drinks cannabis beverages. At that time, though, I said they shouldn’t be drinking cannabis beverages because they suck.

The beverages I’m describing do not exist yet because we still have to figure out how to do it.

They are going to be clear, they are going to have no carbohydrates, no calories. They are going to have a very light dosage, they are not going metabolize and go through your gut. They are going to have a different track, so you get a consistent hit every time. You can sip it and have an onset that is rapid because of the route of access and we are going to brand them; it is going to be called the ‘Tweed and Tonic’.

And regulators who govern us are going to love them because nobody likes selling tobacco products. They never feel good about how to let you use them in a public space. Right now, everywhere in the world, they make you go further and further away from buildings to smoke.

Beverages are the socially normal way. I don’t know if you watched his presentation this morning, but Nikolaas Faes talked about the impact on alcohol.


It’s only starting because the alcohol gets consumed in all these pubs. Cannabis has to be consumed at your home.

Wait until some of these places, like in Canada, start having a coffee shop in the morning, but at lunch, they change the glasses to ones with ice cubes in them. Then, in the afternoon, it becomes a cannabis hangout cafe.

That’s when you’re gonna say, ‘holy sh*t.’

This is what it’s actually about. It’s way easier with the liquid than it is with a vape pen. People do not ask, ‘hey, you want to share my vape?’ No way, it’s like sharing chapstick. The whole thing is just much easier socially. There is no friction.

I believe the only reason people learned how to do pottery is that they needed somewhere to store their wine.

There is no reason, otherwise, you would actually stick your hands in mud, and make stuff out of it before you had even invented soap. They probably said something like, ‘if I can make that, then I can actually put wine in there. I really like having wine around.’

It is so long socially normal to consume intoxicants in a liquid form factor. Why fight normalcy? Just adapt to it.

LK: On another note, you mentioned the work of Nikolaas Faes, and, after speaking with him earlier, I found out that there aren’t many research analysts covering cannabis at the moment.

BL: And most of them have so recently graduated that they have not seen enough. Nikolaas, though, has been through many cycles of luxury goods, alcohol, the decline of alcohol, the change of formats and so forth. It used to be that you just had vodka, and then all these different flavors started popping up.

Nikolaas has seen the ups and downs and can contextualize everything he sees. He does not see it as a, ‘oh my God, it’s cannabis.’ He sees it as another consumer package good possibility with medical implications, which has to be explored.

A lot of the young, junior analysts say, ‘it’s cannabis and it’s inherently good and it’s gonna take over the world.’

LK: Right, we need a few more details.

BL: Exactly, and these things all have cycles. So, if you get a chance to drag on him, he’s got way more going on than anybody else who is an analyst.

LK: You say you are bringing this base platform to cannabis and not embarrassing bureaucrats.

BL: I wanted to create a framework where everybody can be successful in their own interests. You need to think, ‘how many interests are here? How is the framework I’m building, allowing the most people to feel success in this framework?’

Sounds boring, right? But that’s the reality.

For instance, when I am in Bonn speaking with the guys from the Bundesopiumstelle, where they govern cannabis policy, I am treating it like my conversations with Health Canada.

It is easy to go from one regulator whose trust you have won, and then go to the next one. Then the second regulator might say, ‘you can be the first company from North America to send us cannabis. Because you understand our framework of consideration and concern.’

LK: You are referring to shipping cannabis from Canopy to Bonn.

BL: Yes. It was a big deal, two almost three years ago, to get that approved. They didn’t approve of it because they felt we had a nice building or a nice look. It was because we understood how to make their considerations measured and met.

I would say what Canopy brought under my direction was that we said ‘this is not a one-size-fits-all.’

How are we using regulation to give a bureaucrat comfort, a patient product, create a reliable platform to get clinical trials, and then turn things into a repeatable product? This way the people who are actually having a party don’t get a highly variable outcome.

LK: Those are, indeed, all very different ends.

BL: Yes, definitely.

LK: I did want to touch on one more thing quickly. This is not necessarily the whole history of Canopy, but, in 2013, when you guys were basically forming, what was the ideation phase like before it happened?

I imagine it was a bit different than you, Chuck Rifici and Mark Zekulin all sitting down and saying, ‘ok, let’s start one of the biggest cannabis companies in the world.’

BL: Actually, I read an article and I started the business that day.

And then I went around asking people, ‘would you like to join me?’ The first four people said ‘no, you have lost your mind.’

LK: What was your idea specifically?

BL: I said, ‘I’m starting a marijuana company because I read a newspaper article that said that the police chiefs of Canada were very unhappy with the current regulatory framework in Canada.’

At that time, it was impossible with the medical system to know now who was a criminal and who had a right to produce cannabis. They were allowing people to produce it in their home, and because it is medicine, you did not have to inform the police that you had a right to do so.

So, somebody reports and says, ‘I smell weed growing over there,’ then they kick the door down on a patient. Then there were a whole bunch of incarnations of that, which allowed the state to designate citizens as growers. It was out of control from the police perspective.

As I read the article, I found about the circumstances and, at that time, we had a right-wing leader. It’s super simple in politics: If you’re a right-wing leader and the police chiefs are quoted in the paper saying they do not like the rules, you are going to change them because old people with grey hair like the police to be happy.

Stephen Harper was the prime minister of Canada from 2006 to 2015.

(Source: Toronto Sun)

Upon that deep analysis, I said the prime minister was going to make new rules. But what would they be? And over the course of the day, I dug online and called a couple of people I knew working with Health Canada. I asked them, ‘what’s going on? What do you see with this?’

Then I thought, ‘they need somebody who’s not gonna lose cannabis.’ They are going to have a platform, they are going to license people to be reliable and responsible. And I thought, ‘I am going to do that.’

I then called one of my mentors who said, ‘you have a very good reputation in tech. If you start doing this, it is actually going to be very damaging for your reputation.’ Okay, that is good input.

I called a few more people. I called my brother. They all said something pretty similar, that this was going to be a very bad idea.

LK: What was the typical critique?

BL: A, that it’s pot. My mentor said, ‘you should not do pot.’

Other people added that criminals are the principal source of production and selling in Canada. Bikers, mainly. Critics of my idea said that the bikers are not going to like you very much. ‘They might kill you,’ was a comment by one of the people.

Thus, over the course of the day, I learned stuff about what was going on and I pictured it. Ultimately, the generous society has not had an input. They are living on a bias and prohibitionist sort of perspective. This was a good time to invest because I had an information advantage.

Chuck’s wife was also working for me at that time, and so I mentioned to Chuck that I had this cannabis idea that I was trying to start and he was also looking for a job.

At the same time, I had this theory that I should start 10 businesses in one year because if I start 10 of them at least one of them would be good. I said, ‘I am going to be chairman of all of them, I am going to be a capital source, and I am going to be in charge of marketing and money.’

But then I realized, like those working with artificial intelligence, a lot of people and engineers only work if there is good data. And in this sector, there was no good data.

What I ended up finding was that people were not making decisions because they were looking for data. I would say things like, ‘look guys, I am sorry, I have to fire you. We have to do things with the money we raised.’ Those things have to be decisions and those decisions have to be logical, but there’s no data.

You have to think about this and just make a decision.

I am good at that. I will make decisions all day long, and as long as I was 51 percent of the time correct, we win. That is kind of how we got going.

Mark joined when I was trying to start the fourth company while I was fixated on the whole problem of parking.

Where are the empty parking spots? Why do meters not allow you to use this device? Why do they not allow you to top up the meter? This is mostly a North American problem. I worked on some ideas on how to completely modify everything about parking. I was talking to Mark saying, ‘you got to do this, you are an engineer and a lawyer. We are going to transform parking.’

We talked about pot after three meetings. He was like, ‘you have mental issues about parking. You are more bothered about parking than anyone else. I want to work on the pot thing.’

Mark’s dad is also a doctor, and Mark went to a computer science school, a law school and then another law school. Cambridge being his last.  And I asked him, ‘what is your dad’s opinion of marijuana?’ and he goes, ‘I don’t know, probably not positive.’

I told him that he needed to talk to his dad. If his dad was going to be sh*tty about this, he couldn’t come work for us because it wasn’t going to be great. So, he talks to his dad, who then says, ‘as long as it is legal and proper, I’m ok.’

Now, fast forward five or six years. His dad retires from being a doctor, full-time. He becomes a pot doctor. Literally, his full-time retirement job is pot doctor.

But that’s how it came to be.

LK: In an article by The Ottawa Business Journal in October this year, you were cited as saying, ‘the worst thing you can have is a bragging right to say I got a big, huge venture capitalist putting money into me. I would have sooner gone to the mob than that,

I thought that was an interesting point because so many early startups are so eager to get the large investment and the big title.

BL: Then the VCs keep pushing more money. And then the company gets big and fat, and it makes no sense. And then they try to take the company public and hand it to the stupid shareholders.

Examples like WeWork almost did that. For sure, Uber did that. I would argue that Uber actually has no durable differentiation.

There was a period of time in Toronto where Uber was banned and had a technical problem which meant that it was not working for about three weeks. Everybody switched to Lyft right away.

The VCs push money in and they just take over. I would sooner have people getting family office money. Just chunks of direct drive capital from people who actually don’t come in to tell you how to run the business. Instead, they wait for your call to see how it is going.

We have no venture capitalists in my two software companies, for instance.

And it’s not that they’re bad people; it’s just a bad model. They say things like, ‘our fund is coming to a conclusion, we have to sell you.’ Or something like, “well, you were in our prior fund and we cannot fund you anymore, because we cannot mix the funds.’

They have a lot of weird rules.

LK: There is a current downtrend in a lot of the major cannabis stocks. People have pointed to a lack of retail stores, too much supply, and a handful of other issues. I was curious about what you thought was going on.

BL: Is anybody out there explaining how the next three to five years of cannabis will look? When will clinical trials be reading data?

What base research is occurring that you might be able to use to think about cannabis as not being separate from other medicines? This could be something like people playing around by adding melatonin with cannabinoids.

What about alkaloids? Because you do need pain killers. If you are ever getting spinal surgery, you would like to have pain killers. You do not wish to just use some weed.

There are a whole bunch of future outcomes that are near enough term that people could be describing them so that folks do not just think this is about a joint sold in a dispensary.

That is problem one. Sell the future.

Problem two is, everybody is rushed to do the dumb thing which is talking about their earnings per share.

Amazon felt no obligations to talk about what their earnings per share and aim at earnings per share for about 12 years. And they are doing ok now. Amazon is not a bad company.

I am not sure why everybody says that I have to look like a tobacco company, or a liquor company, or a pharmacy; all of which have almost no growth and high earnings per share. Conversely, cannabis companies have the potential for massive growth, and in the future, humongous earnings per share.

It feels like if you shift the measure by which you are being assessed too soon, then you do not look very valuable and your stock price goes down. Instead, why not talk about adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA)?

These are more like tech growth companies. If you think about the growth curve of your tech coverage; cannabis is more similar to that than a beer coverage company.

You give everybody equity, and if it goes out fast enough, then all of a sudden it looks terrible because in one quarter you spend almost a quarter billion dollars on the accounting costs for stock-based compensation.

This usually means you joined them at a dollar. We worked together really hard and now it is ten dollars.

The difference between one dollar and ten dollars is your game. But in accounting speak it says, ‘oh my God, that is terrible. The company could have made nine dollars more selling the stock, and therefore they have a loss of nine times the number of stocks.’

It’s completely stupid.

There is this shift trying to talk about profitability and earnings per share rather than, I don’t know, intellectual property. How many patents did you file last quarter versus how many pennies did you put out per share? If you do what the capital markets tell you to do, you never win.

You have to say, ‘this is what am I doing, and how do I explain it to the capital markets?’

LK: It would be a shame if I did not talk to you a little bit about Europe insofar as Canopy has orchestrated a lot of moves into the continent. How did you feel about that, what was appropriate, and what were the hurdles?

BL: I was the most excited about the European scope and opportunity, immediately after the Canadian focus piece.

There are populations ready to adopt better outcomes. Which means, like in Germany, there is a very open reception to turning this into an actual medical product, not just a medical ingredient.

One of the things we did was buy was a company called C3, a division of Bionorica. Now, if you look at Bionorica, they are a humongous company which is taking plants and turning the medical products. They are very good at that.

Europe is phenomenal, and it is starting to be the whole continent. Two weeks ago I was in Greece where I was pushing the government really hard on setting up a recreational program immediately.

LK: It is a great place to grow, too. The climate is perfect.

BL: Right. Plus if you have a recreational program, nobody can import it to your country. You would have to produce domestically for parties, which means people have to invest capital in your country for production. It would end up being $1.5 to $2.5 billion of foreign direct investment.

And then you can tax the facilities where they produce the party, and maybe take 25 percent of the collected taxes to put it to medical research for cannabis. You will end up with medical products, not just a plant.

LK: How do you feel about the tender process happening in places like Italy and German? There are a lot of domestic growers that might feel excluded from these economies because there are large, established Canadian companies growing on local lots of land.

BL: I think that that happens in a lot of sectors. There are a lot of Canadians that wish they made airplanes, but we don’t. Airbus owns our airplane company. What you might find is that many countries develop an expertise. I wish we could make champagne in Canada, but we can’t.

There is a generated expertise and competency that has a place of origin and it is called ‘Canada.’

We’re not great at everything else, but we have a couple of things. We have a history with blackberries, which worked out okay for a while. One of the other things that Canada developed a world-leading competence in is the governed production of cannabis.

We should be unapologetic and exercise our expertise. There are a lot of things we are very good customers of. We don’t make BMWs, for example. They seem to be made by a German company. We don’t actually have a car company that is headquartered in Canada. We buy cars from companies that are headquartered in America, Japan, and Germany.

So, these things happen all the time. I don’t think it needs to be different for cannabis. And I know that’s not like a Kumbaya kind of approach, but the reality is, there’s a lot of BMWs in Canada and they are not made by a Canadian company.

LK: Since leaving Canopy, it looks like you’ve been pretty active on —

BL: I don’t say I left. Since being terminated, I began trying to understand what was going on globally.

LK: Just for the record, what would you prefer your title to be?

BL: I was the founder of Canopy and I am now the terminated CEO. You can’t terminate as a founder.

In any case, what I wanted to achieve was to participate in things that gave me a similar set of inputs that I had at Canopy: animals, global —

LK: Animals?

BL: Dogs, cats, pigs, cows, horses. I wanted to see what cannabinoids could do for them. I also wanted to see what was happening globally. I wanted to have companies that were pursuing patents, meaning companies that are very active in science.

You could argue that, probably, my reaction to being fired was not one of total surprise, but alarm. This made me go and do things very actively. I had to get busy, I didn’t want to be lazy.

And the next thing I know, I got really busy. I spent July, August, and September assessing everything and saying ‘yes’ to speaking. This is why three out of the four weeks I am in the UK, Greece, and places like that, speaking. And then I get to December 16, and things get back to being a bit more normal.

LK: And December 16 is an interesting date because it is one day before the rollout of beverages, edibles and other cannabis derivatives in Canada.

BL: In some provinces, like Ontario, it goes from the producer to centralized warehouses to the stores, which means you probably won’t see them anywhere in 2019. But in Newfoundland, it goes directly from the producer to the store. And I know it sounds weird, but I don’t mind flying to Newfoundland, buying some product, and bringing it back.

People say, ‘you are insane.’ But a lot of people line up to get a new iPhone. I’m not doing that.

And on top of that, I think because the sector is going through some downturn, I can actually speak positively on what could happen without as much of a perceived bias.

So, on Monday I was on Barron’s, CNBC, and The Wall Street Journal just a saying, ‘guys, like, this is a cycle up, and a cycle down.’

There are no fewer people who want to see this turned into a product than before. It is a huge percentage. It should be said too that it is a $350 billion annual macro trade just to get rid of the illicit market. It doubles when you start making useful products.

This is like a $700 billion to maybe $900 billion annual value market for doing useful things. That’s not reflected in the current valuation of the leading companies.

LK: Last question: for young entrepreneurs who are thinking of entering the cannabis industry, what kind of advice would you give to them?

BL: If you really want to be involved with cannabis, you should find a very small jurisdiction where you can create a small business. Something like a small grow, you work in it, and if you don’t build the overheads up to be a huge company, you’ll have a nice profitable business.

Otherwise, continue to study science, and determine where you fit in, from extraction, genetic evolution, and so on.

This plant has a lot of potential to become a bio react where it becomes really good at growing rare cannabinoids. It has an extraction capability that needs to be able to take each of the ingredients and isolate them. Then what would you make for them?

I would say the best use of science is yet to even begin in the cannabis space.

Strain Insider would like to thank Bruce Linton for taking the time to speak with us at the inaugural Cannabis Conference hosted by Bryan, Garnier & Co.

 

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