Preparing for a Sea Change in Canada

Five Questions with Neil Closner, CEO of MedReleaf

by Matt Lamers

MedReleaf is locked, loaded and ready to grow.

The Ontario company is flush with money as it prepares for the anticipated rollout of Canada’s recreational marijuana market next summer and the major changes sweeping through the nation’s cannabis industry.

MedReleaf – based in the city of Markham – recently raised 100 million Canadian dollars ($79.5 million) through an initial public offering and a secondary offering of its shares.

The company is taking steps to put the money to productive use. MedReleaf, for starters, plans to expand its local production capacity more than fivefold to meet demand for both the medical and adult-use markets. It also plans to expand internationally.

In an interview with Marijuana Business Magazine, CEO Neil Closner discussed consolidation within Canada’s cannabis industry, how he is positioning MedReleaf to capitalize on the medical and adult-use sectors, and whether the recent flood of capital raises among MJ companies is sustainable.

Do you foresee industry consolidation, with smaller growers getting purchased by more established companies?

If they struggle, then there will be an opportunity for consolidation and for assets that will be on the market. This is not an easy industry. It’s not easy to service patients, to grow high-quality product. It’s a difficult business.

But there’s no doubt that some of them will figure this out. Some of them will be formidable competitors. Given that there’s likely going to be dozens if not hundreds of new license holders, there’s no doubt that some will stumble.

How do you balance the opportunity between medical and rec from a business standpoint?

The question really is about how we balance inventory and product availability. That’s the question all producers are going to have to wrestle with to one degree or another.

We recently went public and raised CA$100 million. Those dollars are now being allocated to build out capacity.

We’re hoping to have substantially more capacity coming a year from now. We’re hoping that will enable us to serve both markets. It will all depend on how quickly the adult-use market ramps up in terms of our ability, as well as our industry overall, to satisfy that demand.

Right now we are very committed to the medical market. Any excess capacity we do have, as long as it doesn’t come at the expense of serving our medical patients, we’ll find a way to allocate to the adult-use market.

Capital raises in Canada rose about 1,700% in the first half of 2017. Is that sustainable?

As the business evolves and grows and as certain companies emerge as leaders, they might need to raise hundreds of millions of dollars to continue to grow – whether that’s here in Canada or even internationally.

I think the concern and the question is the number of companies that have been able to raise substantial dollars, meaning CA$10 million, CA$20 million, CA$30 million. Is that sustainable? I think that’s the big question. My personal opinion is that’s not sustainable.

Can you offer advice for young companies?

We’re building a business, and we’re helping to build an industry at the same time. That’s really hard to do successfully. You need to find good people. Without that, any company will fail.

Specifically in this space, there are a lot of complexities – dealing with regulators, dealing with growing live plants, dealing with production process issues. You really need to trust and rely on your people. Otherwise you get tripped up. So anyone starting out should make sure they have the right complements of skills and staff.

The provinces are working on regulatory structures for the rec industry. Do you have a preference in terms of taxes and distribution?

We would like to see a federal excise tax on the product rather than a sales tax, because that will help alleviate a lot of the challenges, especially in Canada, that we see with the sale of contraband tobacco.

From a retail standpoint, we have a number of thoughts on that both from MedReleaf and the industry overall. We’d really like to see that producers will not be prevented from operating in the retail space on our own directly with the patient. Having that direct relationship with our patients has been invaluable.

At a physical retail level, we’d like to be able to be participants in that. Our preference is not for a government, province-by-province monopoly on retail. That seems to be the way some of the provinces will go. We just don’t think government should be in the business of retailing products.

Leave a Reply

Your email address will not be published. Required fields are marked *