Canopy Growth Corp CEO Bruce Linton Discusses Aurora Cannabis Inc (TSE:ACB)

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Canopy Growth Corp (TSE:WEED) (NYSE:CGC) (FRA:11L1) CEO Bruce Linton talks about Aurora Cannabis Inc (TSX:ACB) (OTCQB:ACBFF) (FRA:21P) ‘s acquisition strategy with James as well as takes some questions from viewers on Midas Letter LIVE!.

TRANSCRIPT:

James West: Okay. Now I’ve got a whole bunch of your press releases up that I wanted to ask you about, so let’s talk about Dr. Ware. What’s the accredited value of his participation?

Bruce Linton:  Early on many years ago we thought it would be a great idea to have Dr. Ware as a medical advisor and he thought it would be a not great idea.  We’ve always thought highly of him. Over time he interacted with us in Canopy Health. He and Mark Wayne who was the head of Canopy Health have had a long personal relationship, worked together on CCIC so they knew each other. I think as he got really engaged with the commercialization, it became really interesting to him.

This is the step, one step and now you’re at the finish line. He now will become at least for the next year and probably longer on a sabbatical basis or permanent the Chief Medical Officer, which means looking at which indications, the trial structures and really meshing together all of the elements that get you to the finish point of having drug identification number on products.

James West:  Okay so the idea of cannabis becoming an insured product with a drug identification number, what is the status of that? I ask that because we have a great number of veterans and other people who rely on cannabis medicine yet a lot of them are still not able to recover the cost or at least manage the cost through an insurance program.

Bruce Linton:   You know, so we’re working in programs that will get there if the results merit getting there. We think they will. But there’s no real shortcut. You have to show the ingredients are stabilized. You have to have a drug master file, you have to have to, have to, have to and each of these are steps and each of them are often almost entirely sequential. Some can be almost concurrently done.

The effect is it takes a bit of time but we’ve had the clock running for some time and once you knock one in, I think you’re going to find insurers extremely happy to pay because the relative cost of our solution and I’m not talking here’s a plant. I’m talking extracting combinations and delivery mechanisms so you can actually have a dosage control against an indications and get the responses that says this merits being covered and it’s repeatable.

But when you get there, our choice has way less downside we believe and way less cost to the insurer. Can you imagine they’re not going to be saying “yes we’d love to do that”. I don’t think you’re going to find stigma is nearly as big for insurers where dollar signs are better.

James West: Right.

Bruce Linton: I think this will go quite rapidly through the market once its there and you’re going to start looking at where are all the points it disrupts. When you start to be able to compare it on an absolute equivalent cost basis to the patients,  I think the medical market gets to be quite a bit different.

James West: Sure, you bet! That’s interesting. You were also talking about buying the rest of the companies that you didn’t own. The BC Tweed acquisition in particular, that was essentially a billion dollar acquisition in total? or the 374 million was the total acquisition value?

Bruce Linton:  It’s the total acquisition value for $374 million we essential bought a 1.5 million square foot licensed greenhouse in Canada. That’s not a bad deal. What it does is it gives us on a go forward basis we issued shares today so that when we’re reporting margin in the future a 100% of it will show up as our margin were previously we owned 66% of the resulting margin and they owned one third.

I bet when I come back in a year or two and people are actually counting things like top line, bottom line and contributive margin by operation level, it’ll be beneficial to have that one third folded back in and it’ll look like a relatively good deal in today’s stock.

James West: Yeah, that makes sense. The other thing that I saw that I really like was the Canopy Rivers, it was announced under Canopy Growth but Canopy Rivers has launched this “pitch-dig” which I first looked at and thought well that’s interesting Bruce is starting a game show for cannabis investors.

Bruce Linton: (Laughter) There will be some people you recognize.

James West: So, this is the interesting thing, I’m looking at it and I’m thinking this is actually very crafty because you’re getting people who have great ideas and maybe haven’t been heard from out there and they’re going to come see you first. Is that the thinking that went into that?

Bruce Linton: Sure, there’s a bit of that. We get a lot of traffic at Rivers, so I think there’s a bit of that. There’s also “put your money where your mouth is”. We actually do support small grow, craft grow. We can give them a vertically offtake that allows them to make a meaningful living off of very small production asset on an indoor basis that will mean there can be boutique growers.

The point of the exercise is if you’re boutique you can carve a million bucks up into a number of little pieces; how people get going, structure them into a supply chain, or offtake and you can actually run a business.  I think it’s kind of good for ideas but also good to say we support small growers.

James West: Sure, from that perspective is there any holes in the cannabis industry you see that you think somebody should do that, that would be a great opportunity? I would do that expect I’m running a six billion dollar company.

Bruce Linton: There’s a few that I can’t tell you about because we’re working on them because after you do a lot of scale production you start realizing there’s a big difference between 35,000 sq. ft. and 350 000 sq. ft. and 3.5 million sq. ft. in everything from how you propagate, to how you fertilize, to how you harvest, to how you package and so where there’s a few things that scale up we’re looking at.

I would say if you’re going to give somebody who’s an entrepreneur or small business person, you know I don’t think we can throw more money at vapes and lighting. there’s been tons thrown there but start looking at I’ll call it; each country wants to know chain of custody. if you’re a software person, I haven’t seen a unified method they’re going to globally use.

They could maybe take a page from, I’ll call it some block chain strategies because we’re hearing a lot of talk about, but I haven’t seen anything legitimately operating.

James West: So, you don’t have a block chain strategy yet?

Bruce Linton: No, you know at the end of the day if our traceability and chain of custody is working sufficiently well that it meets all regulatory requirements and it’s less costly than operating some other system, I’m going to stay with that one. But, it doesn’t mean that you can’t make one better and less costly.

You know I think there’s a lot of people fussing around with fertilizers and that’s not a bad space to work because we all use a lot of fertilizations for these things and I don’t know that anybody has absolutely crushed it and has the best.

We mix our own but we like better more stable ingredients, more soluble ingredients for sure.

James West: Do you actually spend a lot of time, I mean I’m sure you don’t personally but does your research division spend a lot of time experimenting with different nutrients, lights, CO2 beneficiation strategies?

Bruce Linton: Yes, since at least the last five years we have had an area which has had funding from various federal and provincial governments from five, six, seven universities, a couple of colleges and we have tested the hell out of everything from lights to fertilizers. Part of it is you have to run every play to the end because most often the claims made have every little scientific evidence. So, we have to make sure we agree, and for the most part we’ve tried to run our `business we’re we ask the plants.

James West: Ha-ha that’s good. You talk to the plants too, do you?

Bruce Linton: You can say they like this, and they can say they like that. Well, why don’t we run an AB every time?

James West: Interesting. Going back to your listing on the NYSE you’ve always stated very clearly that Canopy has no ambition for the United States because it’s federally illegal there. Now you’re a U.S publicly traded company and there are some initiatives in different levels of Congress and Senates making moves toward potentially de-prohibition at the federal level. Is there an ambition to go into the United States?

Bruce Linton: We have every intention of being in every market which is federally legal and being as dominant as we can be. I’m extremely excited about being in the U.S if and when it’s fully legal.

Our go-bag is about going there and not running away. When you do stuff that’s federally illegal usually your go bag is about getting away. So think of us as preparing a whole bunch of optionality. You know even we disclosed in the context of the B.C greenhouse. They have a greenhouse that’s in California that’s pretty ginormous.

James West: Really?

Bruce Linton:  It’s growing currently I guess some fairly happy tomatoes. But, if and when it was federally legal that would be something we have now established a cap on purchase price and being able to be in there instantly. But, I’m not in there doing anything except hoping their tomatoes are profitable in the current period and in the future when we want it it’s ready to go.

James West: Right.

Bruce Linton: As an example.

James West: That’s interesting. Let’s talk about Tweed Main Street finally. I know you’re going to head back to Ottawa tonight. Twee Main Street, you’ve got all these fantastic medical brands; there’s you know, obviously something for everyone there. What, there’s no real sign yet of the recreational sort of strategy and that’s something you’re hesitating to roll out until rec sets in?

Bruce Linton: I would say we need to look again at tweed.com or Tweed Main Street but particularly tweed.com. You’ll start seeing quite a bit more. So go to tweed.com and try that one out. Really Tweed is a narrative, a story. A brand can’t just be something you hire an agency to come up with and so Tweed has kind of built and lived you know, creating who we are, interacting with towns the way we do, trying to change the sector and the way we are. So you know Tweed.com will start giving you sort of a bit more how it feels to interact with Tweed when I would say,a little bit more focused `through spectrum on the patient and Tweed on the party.

James West: Interesting, so then…

Bruce Linton: You like these?

James West:Yeah, I love it, I love it.  You said when you were being interviewed by Jim Cramer.

Bruce Linton: Which was pretty cool. I like being here, it’s another Jim. It’s almost the same.

James West: Ha-Ha. Yeah I don’t have those (initiates noises). But I’m thinking of getting some shipped. But anyways, you said during that interview, you said that well you know we’re going to have to worry about this issue of whether or not we’re taking business away from the alcohol industry is something we won’t to have to worry about, until you said until September; which to me sounded like you had more information about the launch of the federal rules than everybody else.

Bruce Linton:  Well no but I do try to read them carefully. I presented to the Senate last Wednesday. I think the vote will occur and on schedule. I think it’ll probably be a 38, 24 kind of thing. I don’t think it’ll be a massive close thing.

Then by July 1 they’ll have taken the necessary steps so it’ll officially passed. They’ve signalled they need six to eight weeks following it being fully passed for the provinces to legally acquire the cannabis and stock the channel.

James West: Okay.

Bruce Linton:  So if you start on July 1 and you have six to eight weeks that means sometime in late August, early September the first sale should occur in the first provinces that are ready. We’ve been fortunate to be selected in every province that has made a selection and I think all those ones that have made announcements are very orderly and ready to go. They just need the green lights so we can actually transit cannabis from our facility to theirs.

James West: Wow. A couple of comments from the crowd.

Bruce Linton: Uh-oh.

James West: (Laughter) On youtube.  Wadinginweeds says ” in Bruce we trust”.

Bruce Linton: Ha-ha.

James West: You have some real supporters out there and you might be happy to know but maybe your wife won’t be that falonsnow says, “what a cutie patootie”.

Bruce Linton:   Ha-ha.

James West: Pretty sure she’s talking about you, not me.

Bruce Linton:  I’m glad you have the low resolution camera running today.

James West: Ha-ha-ha. But let’s see so filthykassie says, they miss the Tweed t-shirt.

Bruce Linton:  It’s around man. We have announced I think the Newfoundland retail stores, Manitoba, we’re in the lottery in Saskatchewan. We’ve put in a bid in Alberta. We’re working hard on New Brunswick; all the places that those stores exist. We’re going to have a great array of merch.

James West: Oh cool.

Bruce Linton:  You know everytime we bring out something else different, everybody still comes back and says, ” I got to have one of those Tweed shirts”. If they’re going to have an every second day shirt, they want the high one.

James West: Right.

Bruce Linton:   I love when you look at the collar in the back. When you get your Tweed shirt read the fine print. It says wash when dirty, hang to dry, if it shrinks give it to somebody smaller and call us for another one.

James West: (Laughs)

Bruce Linton:  So that’s kind the way it always has to be in that we want people to wear our shirts and they should know why they’re wearing them. We’ve tried to do good things in little towns. We’ve tried to play by the rules. We’ve tried to create a company that didn’t put a press release that we’re going to do work, we told you when we’re done the work.

James West: Sure

Bruce Linton:  And so we’ve really been genuine in being disciplined in actually delivering what we said we’d do. We think we have quite a lot ahead to do and I don’t think there’s any absence motivation; just sleep.

James West:  Yeah. I can hear it in your voice. You sound like you’ve been travelling forever.

Bruce Linton: Again this year. You know what’s happening is execute what’s ahead of us in Canada. We had our global management meeting on Friday and we know what we have to do in Canada, we just have to do it. Then in medical we have to build more, make it bigger, stronger, smarter, more protected, more complete. Then internationally we have to push the pace and the agenda so we don’t end up some place we’d be disappointed because we causally allowed it to occur.

James West: There’s a gentlemen here, stevenco, it says ” Hi Bruce, I’m currently an AI Research/Data Scientist” and he’s wondering if you have any intention of entering that space using the customer metrics derived from cannabis sales.

Bruce Linton:  So we have looked at you know quite a bit of data from our patients because we ask our patients stuff. We surveyed I think the most recent one was 6 or 7 thousand patients and we asked some very open ended questions like,” Why do you buy cannabis? What ailment are you trying to resolve? How frequently do you consume it? How do you consume it? What effect, what duration effect?”

When you start overlaying that with the visibility we have on what strains they bought then you can start to look at the underlying profiles to determine, this is hitting the target for the most people and let’s start to do an AB analysis for weed and extraction includes or excludes certain of those cannabinoids.

James West: Right.

Bruce Linton: That data that he’s talking about, we’re tweaking, playing around the edge it does lead to what you want to use as your medical first steps because if you go into a two-b trial, two-a trial you don’t want to miss. You want to make sure you’re on it. I’d say we’re doing that. Weirdly where we use more AI has been, we have macroscale heating and cooling systems, a whole bunch of lighting system, what you need to be able to make sure all that infrastructure goes on and off without elevating humidity or temperature.

A lot of those systems are controlled by AI and you know when we take people on tours of our place, the sort of nerd in me is disappointed because they always get excited about the plants, the lights and the fans but really it’s the backplane of IT and AI that’s probably made us accelerate more than anyone because for the most part we’re governed everywhere we go on not losing cannabis which means you need to have a chain of custody and method of data and then as you want to improve every cycle of every cycle you have to gather all the inputs and outputs and outcomes. So it’s kind of like grade nine science right; thesis and you do that little thing but we do that all day long and everything.

James West: Right. There’s another question here, Nick Lockwood  “are you worried about Aurora?” (Laughter)

Bruce Linton:  Umm. Listen probably four or five years ago I concluded there was almost nothing to learn by looking behind us so functionally you might as well remove that feature and get rid of the rearview mirror because if you don’t know what you want to do and you reflect on others actions to determine yours, that makes you a follower.

Never really been good at that and I think the organization we’ve built tends to have an orientation to winning rather than keeping their J-O-B. So, I think Aurora’s doing the right thing. Their stock is highly valued for their output.

They should use their stock to buy everything because it’s almost at no value are you overpaying if what you buy actually gives you an underlying business that wouldn’t otherwise have been there. So I don’t think they’re doing the wrong thing. I just like where we are.

James West: Wow, interesting. Bruce I’ve taken a half hour of your time. The questions are just piling in here at a rate so fast that I can’t even read them. Let’s take a break there and come back when you’re in town next. Thanks once again and thank you on behalf of all these people watching online right now.

Bruce Linton:  Thank you and sorry I was late. I always try to respect you because you’ve been here early.

James West: (Laughter) That’s right. I show up everyday pretty early.

Bruce Linton:  You were in my lobby how many years ago telling me about this crazy business idea, I said that doesn’t sound like a business idea that sounds like an expenditure idea. But I think you’ve turned it into something. Good for you.

James West: It’s getting there. Thanks very much. We’ll leave it there and come back to you soon. Thanks for joining us everybody.

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