With Bruce Linton’s firing, it’s now all too clear that the biggest companies in Canadian cannabis are run out of New York and the state of Washington.
An industry that this country seemed destined to lead when the federal Liberals legalized recreational cannabis last October is increasingly dominated by foreigners. The opportunity to create global cannabis champions, based in Canada, appears to be vanishing. There should be a conversation around that issue, in political and business circles, before the biggest head offices all disappear.
The trailblazing Mr. Linton, who created what’s now an $18-billion company out of an abandoned Hershey chocolate factory, lost his job because his visionary approach for Canopy Growth Corp. didn’t fit with the predictable, quarter-by-quarter profits demanded by Constellation Brands Inc. chief executive Bill Newlands, a booze-industry veteran and Harvard Business School grad.
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Canopy Growth’s Bruce Linton amassed more than $200-million during his time as company’s co-CEO
Constellation dropped $5-billion last August to gain effective control of Canopy. What Mr. Newlands wants, he gets.
Moving down a list of Canada’s largest cannabis companies, you find Nanaimo, B.C.-based Tilray is run by Seattle-based CEO Brendan Kennedy. Toronto’s Cronos Group Inc. is headed by New York-based Mike Gorenstein. And the interim CEO at Leamington, Ont.’s Aphria Inc. is Irwin Simon, another New Yorker, although he was born in Glace Bay, N.S. Of the 10 largest North American cannabis companies, only Aurora Cannabis Inc. in Edmonton and Gatineau-based Hexo Corp. have homegrown CEOs.
Mr. Linton’s departure is similar to what has played out at many startups that get sold to multinational companies. Mr. Linton said Wednesday in an interview with The Globe and Mail that he expected taking Constellation’s cash would likely mean the end of his six-year run at Canopy and its predecessor company. “I detach my personal desire from my desires for the company,” Mr. Linton said. “Even when we brought that $5-billion in, I knew, from that change of structure, there would likely be implications for management, but it was the right thing to do for the company.”
The cultural issue that Canadian leaders need to recognize is our entrepreneurs tend to sell successful startups at a relatively early stage, compared to jurisdictions such as the U.S. and Asia. It already happened in the beer and spirits industries, where leading domestic players such as Molson, Labatt and Seagram have long been controlled by foreigners. The trend, now happening even more rapidly in the cannabis sector, cuts into the potential future prosperity of this country.
According to all sorts of academic research – including a study last year from the Washington-based Brookings Institution and the Martin Prosperity Institute at the University of Toronto’s Rotman School of Business – scaling up successful domestic businesses is essential to creating wealth and producing the next generation of corporate leaders. Canadians need to do better at turning their own companies into global champions. Silicon Valley generates enormous wealth out of a vibrant tech community. Why can’t Leamington, Ont., or Nanaimo, B.C., aspire to do the same in cannabis?
Canadian cannabis companies were created by government policy. They sprang to life not only because pot was legalized, but because federal and provincial regulators granted the licences needed to grow and distribute their products – and local capital markets were receptive to financing them. There’s no obvious public good that would come from ensuring control of the sector remains in Canada, as there is with banks or telecom companies.
But CEOs, boards and domestic politicians should be asking if the country is best served by a laissez-faire approach to cannabis that created vibrant, valuable businesses following legalization in 2018, then quickly began handing over control of the sector.
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Andrew Willis