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Even as the cannabis sector gets hammered, Mandesh Dosanjh’s strategy of doing one thing really well is paying off

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Pure Sunfarms CEO Mandesh Dosanjh in one of their greenhouses in Delta, B.C., on July 29, 2022.Jimmy Jeong/The Globe and Mail

In the spring of 2018, Mandesh Dosanjh’s phone started to ring. Recruiters were calling on behalf of cannabis companies, asking if he was interested in joining their executive ranks.

Dosanjh, then 37, was an obvious choice for anyone looking to make a profit in the country’s newest industry. An industrial engineer by training, Dosanjh had helped Loblaws bring Joe Fresh to Canada in 2006 and, later, led day-to-day operations at Vancouver-based Aritzia, where he helped build the Canadian retailer’s e-commerce platform. After moving back to Ontario, he joined the Liquor Control Board of Ontario as a senior vice-president and helped roll out the Ontario Cannabis Store, the province’s only legal online seller, in the year leading up to Canada’s legalization of recreational weed.

Dosanjh knew how to build a brand, and he understood Canada’s complex new cannabis regulations as well as anyone. There was only one problem: He wasn’t keen on jumping into a brand new—and very crowded—industry with an uncertain future. “What I saw in the cannabis space was everybody trying to be all things”—producers, retailers and scientists—at once, he says. “They wanted to put cannabis on the moon and send it every which way to each corner of the Earth.”

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He didn’t think that approach was going to work. Dosanjh believed young companies needed to focus on doing one thing exceptionally well. But that concentration is hard to maintain when an industry is on fire, as was the case for cannabis in the spring of 2018. “You’ve got to have discipline and rigour,” says Dosanjh. He didn’t see those qualities in companies racing to get in on the Canadian green rush.

Then, in mid-summer, he got another call, and this one was different. Michael DeGiglio, CEO of U.S.-based Village Farms International, was looking for someone to head up Pure Sunfarms, a joint venture started in June 2017 between Village Farms and Emerald Health Therapeutics, a Canadian medicinal cannabis grower.

The Pure Sunfarms team was already clearing out beefsteak tomato plants from a Village Farms greenhouse in Delta, B.C., and planting cannabis in their place. The company was a latecomer to Canada’s legal marijuana scene; Bill C-45, the Cannabis Act, had received Royal Assent in June and would come into force in October 2018, but Pure Sunfarms’ first retail cannabis sales were still more than a year away. That was fine with DeGiglio, who had no desire to be the first company selling recreational cannabis in Canada. He thought it was more important to develop a business model that could withstand the bumps sure to be ahead in the industry, and he believed Dosanjh, even though he’d never been a CEO, was the person to lead the way. “We didn’t feel you could just take somebody from the software industry or the wine industry and put them in cannabis. Mandesh had all the credentials,” says DeGiglio.

So far, he’s been right. The pair’s go-slow-and-grow strategy has paid off. In an industry where many businesses are going up in smoke, Pure Sunfarms stands out. The TSX Cannabis Index is down roughly 70% over the past year, and Canopy Growth—once the country’s highest-flying producer—has shed billions in market capitalization; the company lost $2.1 billion in the first quarter of fiscal 2023. Meanwhile, Pure Sunfarms posted revenue growth of 2,320% over the past three years. The company doesn’t release profit figures but says it has delivered 15 consecutive quarters of positive adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). In June, BMO analyst Tamy Chen gave Village Farms International, which now wholly owns Pure Sunfarms, an outperform rating—the only firm to earn the classification among the 10 cannabis companies she tracks.

Nawan Butt, portfolio manager at Purpose Investments, says other Canadian cannabis producers spread themselves too thin early on, flush with money in a fledgling industry. Pure Sunfarms went a different direction and kept a tight focus on being a low-cost, large-scale producer with a narrow product line and single brand, he says. “Broadly speaking, we think Pure Sunfarms is one of the only places in Canada that identified a strategy that could potentially work in a market that is destined to be an oligopoly. It stuck to that strategy—and made it work.”

Dosanjh wasn’t thrilled with the thought of moving to B.C. He and his wife were expecting their second child. They lived in Toronto’s Queen West neighbourhood, just a block away from his brother and not far from where he’d grown up. Dosanjh, whose parents immigrated to Canada in the late 1970s from Punjab via the United Kingdom, is close to his family. He’d even followed his older sibling into engineering at the University of Toronto. Growing up in the city, he’d been exposed to pot. Working in the industry was another thing entirely, however.

No one knew anything about what weed consumers would be looking for when recreational cannabis sales opened up. Canadian users had never purchased the stuff legally before. There were no answers to vital questions like, How big is the market? Who are the consumers? What products do they want? In the grocery industry, data exists for nearly every scenario, says Dosanjh. When stores lower the price of ketchup by 10%, staff have a pretty good idea of what’ll happen with bun and mustard sales. Legal cannabis, by comparison, was a guessing game.

The Pure Sunfarms model as proposed by DeGiglio was an interesting one, Dosanjh thought. Cannabis grown in a greenhouse didn’t have a stellar reputation compared to buds from high-tech indoor facilities, where every variable is controlled. Greenhouses are subject to some of Mother Nature’s whims: The temperature and humidity outside can lead to inconsistent quality inside. But there were three huge advantages to DeGiglio’s plan for Pure Sunfarms. Greenhouses are affordable to operate and require far less energy compared to an indoor operation; Village Farms already owned three massive greenhouses in Delta, and they were staffed by expert growers who knew the climate, buildings and local suppliers; and DeGiglio was an established leader in the high-tech greenhouse business.

Florida-based DeGiglio had been a U.S. naval aviator. While still with the Navy, he founded Agro Dynamics in 1984 and brought new hydroponic greenhouse technologies to North America. Five years later, he started Village Farms International, focusing first on roses and then moving onto produce after a change in U.S. regulations opened the domestic flower market to imports. With profit margins shrinking for produce, one of the longest-operating greenhouse growers in North America had turned his attention to weed.

The move to cannabis “was fraught with risk,” Dosanjh says. “But I actually saw it as the biggest opportunity when you’ve got a guy like Mike DeGiglio, who’s had to recreate his business twice—fresh-cut flowers and produce—with big government changes.”

To his mind, the most important factor for any company in the early stages of this new industry was an ability to grow weed. “You have to own cultivation in the short and medium term,” he says. “Where it goes in 20, 30, 50 years, who knows? But, right now, to build a brand to be No. 1, you’re going to have to have cultivation.”

Pure Sunfarms’ headquarters are set in a sunlit, converted farmhouse, a mere 40-minute drive from downtown Vancouver. About 500 metres from the house and behind a secured gateway sits the first of three gleaming greenhouses, together taking up nearly 4.8 million square feet of space. Two of the greenhouses—at 1.1 million square feet each—underwent an $85-million conversion beginning in 2018 to optimize growing conditions for cannabis. One is now entirely dedicated to pot, and a second is partly operational and may fully open in 2023, depending on market demand.

Cannabis is a finicky plant compared to tomatoes. You can grow tomatoes in one massive space, acres and acres of them. Tomatoes used to arrive at the Village Farms greenhouse ready to thrive—pretty much add water, fertilizer and light, along with a diligent pest-control regimen, explains Rob Baldwin, vice-president of cultivation and greenhouse operations at Pure Sunfarms. Baldwin had been chief grower and manager of the tomato operation under Village Farms. At the company’s Christmas party in 2017, DeGiglio asked Baldwin if he knew anything about growing weed. “Yeah, I know a thing or two about it,” responded Baldwin, who’d studied horticulture after high school because he wanted to grow cannabis. But the illegal industry turned out not to be his thing, and he’d gone over to tomatoes until DeGiglio announced the switch.

In the beefsteak world, you can stick to one kind of plant for years—there isn’t high customer demand for change. In 17 years of growing tomatoes, Baldwin changed the variety only four times. Cannabis, though, needs much more babying. Pure Sunfarms needs to be constantly exploring different genetics, and Baldwin is growing around 100 kinds at any given time. The plants are separated into different rows based on genetics and different rooms based on age; the amount of daylight they require varies depending on how far along they are in development. And so, an expansive and expensive system of lights and blackout screens was added, along with sensors that hang from the ceiling to collect data on the plants as they develop.

To walk through the greenhouse is a journey through the lifecycle of a cannabis plant, with 2,800 mother plants being kept in the nursery. From these, Baldwin takes cuts that are replanted and replanted again as they grow. As the plants get taller and fatter, they’re moved from one room to the next. Outside each room, signs announce the age and genetics of the plants inside, along with instructions in English and Punjabi. Most of the greenhouse and production workforce are people who have immigrated to Canada from Punjab, like Dosanjh’s parents. (The company also employs about 40 temporary foreign workers from Mexico.)

In the 23 drying rooms, giant bouquets of leafy green goodness cover every inch of wall space, from ceiling to floor. When asked the value of the plants in one room, Dosanjh quickly does the math on his phone: 12,000 plants, worth a total of $3 million to $4 million. “Three, four years ago, we’d be thrown in jail if we had this much weed,” Dosanjh later points out. All in, the company has capacity to produce 112,500 kilograms of dried flower annually, and that will rise to 150,000 kilograms when the second greenhouse is fully operational.

A key lesson Dosanjh learned from working in the grocery, fashion and alcohol businesses is that branding matters. People are “constantly making decisions on what coffee to buy, what car to buy, what bottle of wine will go with dinner, what cool restaurant to go to,” he says. They tend to prefer well-known brands they trust, the kind of items they’re proud to offer to guests, he adds. In most industries, producers can foster that desire through advertising. But advertising is off-limits to cannabis producers.

Dosanjh felt that, in lieu of advertising, Pure Sunfarms could rely on one piece of lore that pretty much every Canadian of pot-smoking age knows—the country’s best bud comes from British Columbia. B.C. bud was an iconic brand long before legalization, thanks to the province’s rich soil and heavy rainfall, and it has developed a worldwide reputation as potent and wonderful.

The Pure Sunfarms team seized on that legacy as part of its own story: The company grows B.C. bud, tended by expert greenhouse growers and “legacy farmers” (the post-legalization term for people who used to have illegal grow-ops). “Nobody can replicate that story the way we can, given our history and 30 years of greenhouse growing,” says Dosanjh.

Today, Pure Sunfarms employs almost 800 people, including 460 contracted greenhouse and production team members. They’ve kept their focus on cultivation, with dried flower accounting for more than 70% of sales in Canada. And it has consistently produced the top-selling strain of dried flower in Canada. Its Pink Kush strain alone has close to 4% of market share, more than double the second-best-selling flower in the country. In July, the company made a rare move to expand its brand portfolio into a lower price tier with the launch of the Original Fraser Valley Weed Co.

Analysts point to Pure Sunfarms’ capital discipline as another factor in its success. The company didn’t pursue major acquisitions in the first two years or substantially broaden its product line. It made only two major moves: In November 2020, Village Farms bought out Emerald Health’s share of Pure Sunfarms, making the cannabis producer a wholly owned subsidiary. One year later, Village Farms acquired Quebec-based ROSE LifeScience, a vertically integrated branded cannabis producer. This gives Pure Sunfarms a stronghold in Quebec, home to 15% of Canadian retail cannabis sales, which reached a record $376 million in May 2022.

But there are big challenges ahead. Canadian cannabis companies are dogged by regulatory requirements, including an excise tax of $1 per gram for the wholesale price of flower, regardless of price. The tax has become increasingly problematic in a world where cannabis prices are falling, weed being the rare product bucking inflation trends, due in large part to a glut of product on the market. Compared to other leaders in the Canadian cannabis space, Dosanjh has been less heavy-handed in his criticism of the excise tax. He says his dispassionate attitude about the tax reflects his realism; he doesn’t expect governments to reduce taxes easily. Instead, he’s focused his efforts on lobbying for changes that would cut back on operational inefficiencies: eliminating the need for child-resistant packaging on flower, increasing the limit of THC in edibles (Canada’s limit is 10 mg, one-tenth of what’s allowed in several U.S. states) and getting rid of provincial excise stamps for cannabis products. Right now, every province requires an excise stamp, which adds another level of bureaucracy when shipping out pallets stacked with bags of cannabis. Dosanjh has also not been shy about calling out improprieties in the industry. In 2021, BNN Bloomberg reported that Pure Sunfarms submitted a complaint to Health Canada’s Cannabis Compliance Directorate, fingering a competitor for inaccurately labelling the potency level on products.

The big question now for the CEO of Canada’s fastest growing cannabis company is the same one it’s always been: What’s going to happen next? Many analysts are looking at international markets, saying Pure Sunfarms has potential to disrupt the industry if recreational cannabis markets open up outside of the country. So far, Pure Sunfarms’ forays outside of Canada have been in the medical realm, with shipments already delivered to Australia and expected to go to Israel and Germany in the future. In March 2022, the company received a European Union GMP certification, giving it a green light to export cannabis to Europe. Currently, the German government is considering legalizing recreational cannabis, a move that would make it the world’s largest potential market for legal cannabis and may put pressure on other European countries to follow suit. And if more U.S. states open their doors to recreational cannabis, Village Farms could be a major player, with its multiple greenhouses in Texas and expertise from Pure Sunfarms.

It’s hard to predict the future, especially in an industry where a three-year business plan doesn’t mean “a whole heck of a lot,” says Dosanjh. But he’s certain about one thing: There’s still tremendous change to come in Canadian cannabis. “I know that’s about to happen, and it’s not going to surprise me. But I feel comforted in what we’re building and how we’re doing it.”

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