VIDEO: Canopy Growth Corp (TSE:WEED) Canada’s First Legal Cannabis Export to US

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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.

Canopy Growth Corp (TSE:WEED) (NYSE:CGC) (FRA:11L1) CEO Bruce Linton shares details of Canada’s first legal cannabis export to the United States. Canopy is part of an ongoing project with US partners to provide a stable cannabis supply for research and testing. Linton notes that while Canopy has lost money on this venture, it creates new intellectual property for the company, establishes the company as regulatory compliant, and provides export opportunities down the road. He compares this US deal with Canopy’s first export to Germany, which also lost money; however, Germany now makes up approximately 10 percent of the company’s business. Linton also addresses Canopy’s retail presence, revealing retail stores will open in Newfoundland first and that Canopy has prime locations planned for Toronto.

Transcript

Fraser Toms:  Hey, welcome to Midas Letter Live. I’ve got a hot potato here: Bruce Linton is the CEO of Canopy Growth Corp., as well as Canopy Rivers, and you are –

Bruce Linton: Co-Chairman of Martello.

Fraser Toms:  That’s right.

Bruce Linton: Yeah, I gave up that CEO job in December; you know, it was, I thought maybe three was too much.

Fraser Toms:  So I just wanted to – time management, have you ever done, like did you take a course, how to handle being a CEO of two publicly traded companies, or how does that work?

Bruce Linton: No, so what happens is actually, there are several benefits of getting older, and one of them is, you start to recognize what you’re good at and what you’re bad at. So I think both places allow me to have a lot of time to spend with the money and the markets and marketing, because they have really great people running them. And everybody says that, but it’s actually usually not true that the founder can go off and do a whole bunch of stuff and the place runs better when he’s away.

And so when we look inside of, you know, the team under Mark Zekulin and the crew that are running that, and if you look at Sean, Peter and Eddie and the guys over at Rivers, you know, John and Aaron at Martello, I don’t think it would improve if I was in the shop; it improves when I’m out of the shop, making sure people know they exist, working on transactions, negotiating deals, and making sure you’re in deal flow globally. Because the prospects for every one of those businesses is not in Canada; they’re outside of the world and leveraging Canada. So I think, you know, if I’m off in the Netherlands for a meeting, it actually comes up for all three topics, and you know, you can see me turn up maybe in Brazil, and all three topics.

And so it kind of gets good leverage on airplane travel.

Fraser Toms:  All right, well, super elite member, or however that goes.

Bruce Linton: Yeah, yeah, man.

Fraser Toms:  Speaking of deal flow, the first legal cannabis export to the US – that press release came out. Can you sort of expand on that?

Bruce Linton: Sure. So it’s been about two and a half years we began interacting with counter parties in the US, and we haven’t yet announced who they are, but we will. To think about how do we actually do research so that if you were wishing to be a good Federal government, you could actually have a stabilized supply of certain products for which you could actually seek outcomes, and then you could make your regulatory environment for the Federal level perhaps use some of that. And in the course, we get new intellectual property, because we’re not in the business of handing off IP; we’re in the business of co-generating and commercializing it.

And so, two and a half years or so of that – and we didn’t put a press release out saying we have the right to export; we might have put that out six months ago, a year ago. But you have to both have the right, have the right product, and then have the approval of Health Canada to do it. So that got through. I will say that if we just did that order and we said how much did we make, you would show a bunch of brackets and red outcomes, but I don’t think you should look that way; you should look at it and say, How much relevance will this be one, three and five years from now? And I think it’ll be a big deal.

Fraser Toms:  That seems complicated to me, and I’m wondering, like, the conversations you might have had, or people on your team, like with the FDA or –

Bruce Linton: DEA.

Fraser Toms:  DEA? Okay.

Bruce Linton: So I think we actually probably lost more on our first export to Germany, because you’ll recall we were the very first company out of Canada, second in the world, to send to Germany. Last quarter, it was 10 percent of our business. But we had a whole team, including getting standards built, just for Germany, and spent a year and a half getting that set up.

So you know, you’ve got to look at complicated as an advantage, and persistence as the only pattern of behaviour that gets you where you want.

Fraser Toms:  So the German deal obviously played well to making the US one work?

Bruce Linton: Well, I just think it’s sort of a pattern. Do you meet the standards? Do you have any activities which are not legal? I mean Federally. Do you have certification of your product in terms of GMP1, GMP2, GAP. So once you start checking all those items, I’d say the world is pretty receptive to a company like that, and I think you’re seeing it in the context where we go.

Fraser Toms:  Totally. Let’s see here – there’s a supply agreement with Organigram I saw pop up.

Bruce Linton: Yeah, so we have stores, right? So, across the country, in four provinces, we have quite a few stores. And the first ones that will be opening for this new wave will be in Newfoundland, and so our intention with stores is to have a selection and let people come in and get great education, make informed decisions, and pick a variety of products, because we think, you know, it’s going to be like the coin toss. I’m going to have some of that Tweed stuff and something else. So it’s good to have it on the shelves, and Newfoundland will be the first place. Manitoba, Saskatchewan, Alberta, and you know, we’re still working through whatever it is that’s going to go on in the province of Ontario.

But I think that program actually is a bit bigger than us. I suspect it’s more about liquor than it is cannabis, and so it’s going to be a bit of texture in how we get that done. But we think is, you know, we have four LP licenses in the province. We have nine in the country. And so it’s a question about who gets what, where, and you know, if it was always laid out crisp and easy, I suspect there would be no companies that started in Canada; it would have just been big guys come in. And so it’s not new to our world.

Fraser Toms:  Right. Well, speaking of stores, you know, I was mentioning to you off-camera about walking around Toronto and noticing Hyde and a little bit of a presence as I walk to work and so on.

Bruce Linton: I think we’ve locked up, after a couple years of analysis and with Tokyo Smoke, Hiku and us, I think we locked up most of the very best locations. Now the question is, who gets them under what terms? How do we work through that? But we have a pretty good negotiating position in that, great locations; we’ve trained about 650 retail staff across the country who don’t necessarily work even for us, on our certified south pace training so they’re actually knowledgeable cannabis vendors. We have a pretty good, comprehensive winning record of applying for licenses, right? Manitoba, Saskatchewan, Alberta and Newfoundland. There’s kind of one company that came out in all those pretty well, which was us. And so we think we can probably work with whoever wants to win in Ontario, and the question is going to be who, what terms, which locations, how many locations, and that’s kind of, you want to make sure you have an advantage. And I think we have a bunch to negotiate from our side.

Fraser Toms:  Well, we’re getting super close to the 17th. I just wanted to know, maybe just first, what it means to you? It’s been kind of a long time coming.

Bruce Linton: Yeah, for me it’s actually, it means, you know, there are a lot of people who persisted way before we had the opportunity.  There were a lot of people who were impatient and maybe got prison time. There wer ea lot of doctors who took a risk and wrote early scripts, and there were laywers who did pro bono work. And so I think the 17th is a lot more about what led to the change, than it is about a company in the context of this wave. Obiovusly for us it’s a huge thing, but you don’t want to be selfish in your perspective; you should really recognize this didn’t happen beuse of us. We were a contributor, but there’s a lot before us. So we’ve tried to ensure everybody in our company looks at a bit longer view and looks back to sort of 2001 and events before that.

Fraser Toms:  Well, beyond the 17th, you know, looking at Canopy as sort of the recognized leader of the industry – at least that’s how most people view it –

Bruce Linton: I think that’s a correct view.

Fraser Toms:  Yeah.

Bruce Linton: It’s not incorrect.

Fraser Toms:  No. I mean, Tilray had two minutes of maybe a higher market cap.

Bruce Linton: Yeah, but you know, that was a very interesting thing, where a market cap is one thing, but you should also look at tangible assets. And like, I like Brendan and how they run the place – for the most part, I think they’re pretty well behaved, but you know, if you have no shares in your float and you have tension on people wanting to buy it, I think we’ve observed what happens. Like, a few million or a couple million shares trading in total float that turns into an 8 or 10 million share trade volume per day means it’s a pretty fast game of hot potato. I’m not sure what kind of regulators were overviewing this, and why they didn’t start with a mandatory larger and sustainable float, or why they’re not insisting upon lockups being taken off in the normal course trade pattern. Because I find banks don’t price things at $17 or $17.50 because they think they’re worth $300. They price them at $17.50 because they think it’s worth $19. And they want their clients to make some money, but not all the money. So I don’t think when they priced it, they were wrong; it’s just the torque that happens when you don’t have any volume.

Fraser Toms:  Speaking of banks, and the 17th, I just wanted to ask you a little bit about potential shareholders and values moving forward. Will institutions that are maybe conservative have an easier time investing into the space? What could you say to somebody who might be thinking about investing and they’re looking at Canopy and they’re thinking, well, you know, can they get value if I jump in now?

Bruce Linton: Yeah, so I’d say the world is just beginning to look. You’ll notice in our shareholder base, it’s crept up to, you know, the mid-low 20s in terms of percentage of ownership by institutions, and that’s happened after the last couple of months. And if you think Canada is the only market in the world, and the only thing that’s ever going to happen on this topic, you will not make any gain. But if you think Canada’s Exhibit A, and the companies which are the most efficient in that market create intellectual property in that market, create credibility in that market with balance sheets that can actually execute, then there are a lot more people that are going to be governed by medical cannabis over the next one or two years than exist in Canada, by a multiple of 10 or 20.

And so I really think the global investors are now looking at this and saying, Is this global? Is this the best platform, is this the best company? And maybe that’s why we’ve seen our institutional shareholders go up.

Fraser Toms:  Right, okay. So you know, moving forward, we’ve asked you this before: I guess 2019 it’s execution, sales?

Bruce Linton: Yeah. Well, Canada it’s just execute; make sure you roll out the new products, make sure the retail works in all the places you have it, make sure in the places that it’s run by others that, you know, that we have the right set of products and the right sales team. But the rest of the world is, you know, it’s execute. Because there’s a window of credibility in which you can leverage their concerns as a regulator environment, into wanting the security of the best company. And so what you want to make do is show up and bring that expertise, retract the regulators into Canada so they can see how Canada see Canopy, and you know, it’s remarkable. When you go to see an operation in Jamaica, it’s not a lot different in its SOPs and controls than it is in Canada.

And when you look at what we have to do in other European jurisdictions, very similar. And so that should give us a big advantage, and now we just have to get in there, do it.

Fraser Toms:  So and just finally, like, I’ve heard you say before that, you know, part of your philosophy is that you just go. You don’t wait, right? So being decisive, I think, is probably – would you credit that to, you know, being the level of success that Canopy’s gotten to?

Bruce Linton: To an extent, right? Like, you can see what’s going to happen, and then you have to make it happen, right? There’s a combination of the counter-party being receptive, but not moving at a pace you might want, and then going in and working and making it happen. So you know, I think you’re seeing those efforts. People would have said, what a crazy thing to spend all that time and money to get Germany turned up; we spent a year or two working through our place, being all the standards necessary, not being the first export, but you know, then you look at the quarter and say, well, it was 10 percent or more. You have to do those things.

So I would think that our approach has been, figure out what’s going to happen and then make it happen, the sooner the better. And you know, we don’t look for 100 percent information to make a decision; 51 percent decision-making is actually a very good model. Now, you might have to make a lot of decisions, because if you’ve got 51 percent of the necessary information and you make a decision, it might be wrong sometimes. But then you know more; maybe you’re at 57 percent, you make another decision.

And so I think you can’t be, you can’t be uncomfortable being wrong. For sure, Canopy has made more wrong decisions than likely anyone in the sector combined, or everyone, but you need to make decisions. Indecision is an outcome that you don’t like. And so we’re pretty active on working through things and try it, go; if it doesn’t work, do it again.

Fraser Toms:  Awesome. Well, I hope you make the decision to come back soon, because we love having you here.

Bruce Linton: Hey, man; every time you guys call, I come. There’s no Skype, I just show up. Thank you.

Fraser Toms:  Awesome, thank you.

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.

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