A Canadian marijuana growth strategy: Q&A with Canopy CEO Bruce Linton

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By Omar Sacirbey

Canada’s biggest medical marijuana producer, Canopy Growth in Smith Falls, Ontario, serves more than one third of the nation’s MMJ patients and generated 203 million Canadian dollars ($160 million) in revenue last year.

But the company also lost CA$16.7 million.

How? An aggressive expansion plan.

Canopy owns the Tweed, Mettrum and Bedrocan cannabis cultivation companies and operates grow sites on the eastern and western sides of Canada.

In the east, Canopy currently operates four cultivation sites in Ontario and intends to open one more in the province.

The company is also awaiting inspection of a Quebec grow site that’s seeking a license and is renovating a building in New Brunswick that Canopy hopes to get licensed for cultivation.

In the west, Canopy is pursuing a license in Edmonton, Alberta, and trying to expand a license in Saskatchewan.

CEO Bruce Linton talked with Marijuana Business Daily about Canopy’s aggressive expansion plans, how to keep the company’s market share and what the nation’s recreational marijuana landscape may look like once Canada’s adult-use industry is up and running, tentatively by July 1, 2018.

What’s your production capacity now?

The licensing regime keeps changing the meter of production.

What we had been licensed to produce was about 31,000 kilograms of a combination of dried cannabis flower and oils.

That number is a small portion of our current capable output. We probably have somewhere in the neighborhood of more than 10,000 square feet of vault space.

Depending on the format of the product, you’re looking at $650 million to $750 million worth of inventory.

What would you like your production capacity to be by July 1, 2018?

To have the breadth of offering we’d want, we probably need to be looking at triple of where we currently are, which is 31,000 kilograms of licensed output.

From a building perspective, we’ve got construction going on everywhere with the intent of multiplying our own current production.

By having more points of production it’s easier to add at each location than it is to try and make one new mega-one. We’re just constantly making them all bigger.

What kinds of products are you hoping to produce?

By the end of 2018, I expect there will be a process which will have allowed two, three, four new products that are currently not permissible for sale by the licensed producers.

That may involve concentrates, vaping, liquid infusions or ingestibles. What that does is give people another reason to return and try … (It also) will cause a lot more people to migrate from the black market and or from alcohol.

Does Canopy Growth expect to keep delivering cannabis by mail?

Under adult access, I expect to be part of the supply chain to the end customer for quite some time. Because that’s something we can do, and the provinces may or may not be ready. We can supplement whatever infrastructure they have.

We deliver to patients, and I expect to deliver to (adult-use) customers who register on our site and use the same courier.

Do you have a preferred distribution model?

More channels are better for us.

It means more coverage and less pressure where one distribution channel squishes you. We are comfortable with all of them as long as they’re done correctly.

I think distribution is going to be a layering-in thing, and people will be talking about this for the next two or three years as distribution evolves.

It’s going to be really clear that in most provinces the government recognizes this is a taxable intoxicant, which they don’t want to miss. So I don’t know that they’re going to let the private sector have a big role in it.

The good news is that everyone wants to do it, so I don’t think there’s going to be a deficit of options.

How will you maintain your market share when recreational cannabis launches?

On medical, a lot of it comes down to educating physicians and doing a good job of supplying the patients so they tell others. That, we’ve got running nicely.

On adult use, it’s going to come down to brand, products and expectation. Tweed is a pretty strong leader as far as brand creation, with brands that help women with their sexual experiences and with our Snoop Dogg brands.

And you don’t do that overnight. You do that by building credibility over a number of years.

What will the Canadian landscape for licensed recreational producers look like five years from now?

You’ll probably have two or three substantial companies and a diverse number of smaller ones.

The toughest spot is the guy in the middle who doesn’t have the scale to cover the whole country and also isn’t boutique.

Being in the middle is just the wrong size. The small and the big will do fine.

Do you expect Canopy to make some acquisitions in the coming couple of years?

Acquisitions really aren’t necessary now.

There are a lot of smaller (grows), places that are 42,000 square feet that really don’t fit with our operating model. We’re really good with places that are a minimum of 125,000 square feet.

Our capability is making things operate on a very large scale. And the people who run the smaller ones have a different skill than us.

This interview has been edited for length and clarity.

Omar Sacirbey can be reached at omars@mjbizdaily.com