Canopy Growth Corp CEO (CGC) Bruce Linton on Bedrocan Acquisition and why the Liberals Won’t Decriminalize Marijuana
Canopy Growth Corp (CVE:CGC) (OTCMKTS:TWMJF) (FRA:11L1) and Tweed Founder and CEO Bruce Linton discusses why he doesn’t think Justin Trudeau and the newly elected Liberal Party will decriminalize marijuana, and how Tweed’s acquisition of Bedrocan highlights his companies growing customer base on both the retail medical marijuana side and on the clinical medical cannabis side under MMPR.
[four_fifth_last padding=”0 0 0 20px”]Listen to the interview with Bruce Linton:
Full Transcript of Interview:
James West: So, do you think that the Liberal victory paves the way towards decriminalization completely and legalization of recreational marijuana?
Bruce Linton: Sorry, I don’t think it will decriminalize it at all. I think what it will do is create a platform which takes the current lawful provision of marijuana on a medical basis and extends that platform to provide it to venues which will be permitted to distribute it. As it’s no more lawful to have a bottle with distilled spirit in the front seat of your car, or to make distilled spirits out of your own home, or to not pay taxes on things, this will be very similar to how prohibition of adult access to marijuana will transform in Canada. And we already have established a very practical way for the production to occur, which begins at the head end of the supply chain, so that the whole supply chain can now work, because they know where you produce it.
So it’s pretty unexciting when you start using the word supply chain.
James West: My eyes just glazed over.
Bruce Linton: But it’s going to be a process. If you don’t have a supply chain, then you have no possibility of a controlled taxation system. And if I said ‘James, congratulations! You are now the Prime Minister. You have won a majority where no one said you could, you promised you’re going to legalize it.’ Are you going to leave that to your last act in office, or are you going to try to get it done early so you can get it right, so you can get the tax revenues coming off, so you can point to the airport that you built because of your move to legalize in your final third year term?
James West: I would say B.
Bruce Linton: Yeah. You’re going to want to get this going, you’re going to want to get it right, and you’re going to want to get the goodies coming off of it so you can build stuff. And just look at Colorado and all the jurisdictions that overlaid recreational access to medical? They keep pointing out, oh my God, what are we going to do with all the tax revenues? And that’s probably not accidental, because if you’re in favour of not paying taxes, you prefer others to pay them, and here’s a method for those people who are not consuming the marijuana but benefitting from the new airport or the new road or the new bridge or whatever.
James West: Okay. So how does this – you know, I turned around and suddenly you had become Canopy Growth Corp. and you’d acquired Bedrocan and you’ve got now, combined, four licenses.
Bruce Linton: Yeah, man.
James West: Is there a division in your strategy where Tweed is sort of pointing towards the retail medical marijuana user, and Bedrocan is more pointed towards the clinical users? Or is that even a differentiation?
Bruce Linton: No. So like obviously the reason I moved on acquiring Bedrocan is, I thought that we had created the – I don’t know, the most accessible brand to people who wanted to know more, who wanted to feel comfortable asking about it, who just knew that there were no – this was all on the table. And that conversation is really the Tweed conversation. And once we had that, I have a variety of people from all spheres who are entertaining you to feeding you, who want to be partnered with Tweed. And I also want to do clinical trials. I want to make sure that we’re creating a data-centric model that enables practitioners of medicine to have a very good reason and range of prescriptions. So it’s very hard, like, if you’ve got a concert with a guitar on the back supporting your brand at about midnight, and your pharma rep’s calling on a doctor at about 9:00 a.m., and it’s the same brand. So the two of them have very nice, distinct positions, and it’s almost like I have, I think, the two most opposite and well-positioned brands.
James West: I would agree with that, actually.
Bruce Linton: And so that’s why I was willing to pay a premium at the prior price of our stock, which now appears to be a discount, to get Bedrocan, because if you’re someone else in the sector, you have to compare how you fit with one or the other. And I think over time, there’s going to be both. And if you’re going to have both, you want to have a strong horse in each race.
James West: That’s a good point. So then, where do you see – what’s your strategy independent of whether Justin Trudeau or Stephen Harper is elected? What is the game plan before this whole election came along?
Bruce Linton: Well, we’ve taken 18 months to see I don’t know, 8,000, 9,000, 10,000 physicians, people in their office, we’ve got a continuing medical education course, certified that you as the first entity in Canada to have it such, that if you’re a physician and attend a course with us on marijuana prescription and prescribing practices and applications, you can get points towards your continuing education as a physician. We’ve done tons of outreach with things like The Better by Tweed which are clicks to bricks, where people can come in. there’s no product present, but there’s experts present to explain everything from how do you get it, to how do you grind it, and all of these combination of things cause the market which is medical, to continue to accelerate, and the proportion of physicians and patients who perceive us as their best choice to choose that.
Now if you do that really well, you have your base business locked up, and the other one is an overlay on things like Lift Cannabis on Friday announced that we won the only prize we really wanted to win, and we thank them for the other ones, but the one we really wanted to win was Best Customer Service. And the reason I wanted that one is, if I was doing a horrible job and I just said ‘James, I’m sorry’, as sweet as peaches a thousand times a week, you’re still going to think I suck. And what you really want to have is, winning the Customer Service Award, which means having the culmination of good product, good pricing, good delivery, good customer experience in terms of the branding, and the positive wrapper of the people and the processes to get you registered and ordered efficiently on a website that transacts well for you.
And so to me, the only award that actually states you are kind of doing a good job, is that one. So we had a plan to win it, we won it, and now I don’t ever want to give it up. So those are the things that you do; it doesn’t matter who governs it, people make the decision with their wallet.
James West: Right. Okay, so how has your business ramped in the last 18 months? Are you putting out volumetrically greater tonnages of medical marijuana? Is the market uptake happening?
Bruce Linton: Yeah. So you know, it would appear that if one quarter grow by somewhere between 30 and 40 percent, we’re probably sleeping. That’s one quarter to the next, not quarter-over-quarter on a fiscal year basis, that’s sequential quarters. And so what I find is that there is an opportunity to do an outstanding job, which causes your clients to become customer ambassadors in the very early stage of the game, and we are doing, I think, quite well on both acquiring people’s trust so that they become a customer or a patient, but also retaining it, so that they don’t choose to go elsewhere. You don’t want to have a process which results in a whole bunch of people walking in the front of the bus and walking out the back, so I think we’re doing the things necessary that we’re growing our market share and we’re growing our business, and people are happy in the way we do it. Because it’s not just about today only, a one day going out of business sale. That’s the mode where you run funny furniture shops, not how you run a proper business in our sector.
James West: Yeah. Okay. So has your licensed sales permit volume increased accordingly?
Bruce Linton: Oh yeah. We made an announcement about three or four weeks ago that all of our expenditure and effort to have the 350,000 or 7-acre, picture it as you will, greenhouse, fully securitized and approved by Health Canada, that got done. The acquisition of Bedrocan gives us 55,000 square feet, and after we acquired them, effectively it appears that we now have about a 4,000 kilogram per year annualized license, and our facility in Smiths Falls is just producing more and better every harvest cycle, and we’re over 100 growth cycles now.
James West: Wow, I still have to get out there with a crew and film it!
Bruce Linton: Yeah. A year ago at this time, we were saying we sure hope those strains work, because we really hadn’t produced very much out of that facility. And we went for a big platform, but we were pretty damn late getting construction done, and once we got a little bit more focused on the place, I’d say year-over-year, the only thing that hasn’t changed around the place, gosh, I don’t know. Maybe the name of the road in front of it is still called Hershey Drive. That’s about it.
James West: Okay. So is there, would you say that you could see profitability on the horizon?
Bruce Linton: You know, profitability is a weird word. I think it cash flow positive on a simple basis, because you know, you get EBITDA and all this bullshit, I just look at it and say if in fact you’re generating free cash flow from operations before taxes and all that stuff, that’s relevant, and because we’ve done all the construction and sunk all those costs, we’re in the mode in November where we’re not building anything right now. We’ve built out about 500,000 square feet of space, and it’s producing, and so I think free cash flow is a function of patients. You know, you get around 10,000, 11,000 patients and that starts happening, and we announced that we’re through 6,000. The rate at which you add them is amazingly accelerating when you start to do a lot of stuff right.
James West: So which company would you say is your biggest threat outside of yourself?
Bruce Linton: Guys making opiates, because they like selling them. There’s a lot of pharma product which we displace, and they don’t want to see that happen. I don’t perceive us necessarily, currently, the sector has to float up, and we’re not trying to push anybody down so we can win; we’ve got to convert people who are using sleeping pills or opioids or other pharmaceutical products to trying, using and benefitting from our product. We take a market share, two little weaklings stealing each other’s snacks isn’t exactly what you want; you want us to get strong because we build a market.
James West: Right. Okay, so would you say that the 60 to 90 illegal, non-MMPR dispensaries operating in BC are taking market share from you?
Bruce Linton: I think they’re actually doing more than that, but continue. No, because honestly, from Day One, we have had pharma reps – you know where they educate people? It starts at the Canada/US border down around, say, Buffalo-Sarnia area, and works its way up through to Montreal. And where we’ve gained since they won is, I don’t know if it’s big news to you, James, but apparently there’s been some long history in British Columbia of marijuana being produced and sold. I never thought that was a primary market from Day One, and if your goal was to convert them, that almost seems like an evangelical mission. What I wanted to do was aim in the market where you have Baby Boomers, 12 to 13 million people in total, high (inaudible) income, the capacity to pay, fixed address, disproportionately elderly or older generation than other provinces – that seemed like a heck of a corridor to focus on. And so our focus corridor has been, if you can drive a truck on the 401, that’s where we want to be.
James West: Wow. Bruce, thanks very much.
Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.
Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.
Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.