Brian Wagner started a company called NHP Consulting in 2004 to help supplement manufacturers navigate new federal regulations for natural health products. It was the right line of business to be in in 2014, when the federal government brought in a new medical marijuana regime focused on licensed producers. Mr. Wagner launched Cannabis Compliance Inc. (CCI), which quickly emerged as the dominant consulting company in the rapidly growing industry.
Earlier this week, Mr. Wagner announced that he was handing over the reins of CCI to Dale Hooper, a former executive with Rogers Communications, PepsiCo and Frito Lay Canada. Mr. Hooper will become CEO and president of CCI, while Mr. Wagner will take on the role of Chairman of the Board.
“It kind of feels like I’ve raised a daughter and I’m giving her off to marriage. My future son-in-law is a good person, so I’m not too worried,” Mr. Wagner told Cannabis Professional. “It’s nice to work on the business, not so much in the business.”
Cannabis Pro spoke to Mr. Wagner about CCI’s development and about industry trends. The interview has been condensed and edited for clarity.
Cannabis Pro: How has CCI changed since 2014?
Brian Wagner: We’ve grown from maybe 10 people to about 100 today. In the last year, we have hired about 50 people. These are full-time, salary-quality, professional people. It has been a huge change.
A lot of the work in the first couple of years was applications, hand holding, advocating for files. We have evolved as our client base has started to mature. Talking about edibles: how does an LP get into edibles? Or they want to export to Europe: how do they do that? How do they hire and train hundreds of employees?
You see the stock quotes, everyone is talking about consolidation and export, but behind the scenes, these are fragile companies who need a lot of help. We're trying to help our clients become better versions of themselves, and borrow lessons from other industries. Because at some point the industry is going to expect you to turn profit, become stable, and actually have a story that's more than, 'We're here.'
CP: CCI has helped hundreds of companies apply for licenses. What do you make of the narrative that Health Canada has issued enough licenses, and the market is becoming saturated with LPs?
BW: There are a lot of interests behind the oversupply narrative. It wouldn’t surprise me if the eventual industry winners haven’t even applied for a license yet. The first mover advantage that some of the LPs have, it could very well float the boats, but I think there’s a lot of serious competition coming in. The caliber of companies who are coming to us now are world-class. Look at all the major industries: pharmaceutical, big alcohol, big tobacco, big CPG and even media-focused companies who are amazing at marketing. They are all coming and looking at this opportunity, and saying, ‘oh we can do this so much better.’
I think there's some great M&A on the horizon. But when you think about it, it's a crop, it's a plant. I think you'll see a lot of these CPG companies just buying the cannabis material and then marketing brands and products. The challenge is the advertising and branding restrictions; that is certainly going to be a unique challenge for them.
CP: With all the greenhouse space being built, are you concerned about oversupply of actual cannabis?
BW: Cannabis is now being seen as a raw material to manufacture chemical isolates, as concentrates and edibles develop. And there’s international export opportunities. Canada is really the only legitimate country that can export quality product and meet GMP standards for the world. Who else is going to satisfy this? The United States cannot cross state boundaries with the product. Latin America, they are a decade behind on quality. So when you think about how much should we grow, I think the sky is the limit at this point. I wouldn’t discourage anyone form applying for a license."
CP: Where do micro-cultivators fit into the picture?
BW: You take a place like Colorado, there is some 5,000, 6,000, 7,000 cannabis growers, and they have all found a place. If you look at Canada, compared to a place like Colorado, could we not support many thousands of LPs? I think the answer is yes.
The dream of becoming a million square foot producer is becoming less and less common. But micro cultivation groups are really getting interested. We go across Canada and put on educational workshops – we've done them in three or four places in B.C., like Nelson B.C., the heartland of the grey market – and the interest is extremely high. The craft side is easy to scale, easy to start, it's easier to find capital, and they have a chance to tell their story easier. I think the industry may be underestimating the local advantage.
CP: You mention that it’s easy to find capital for micros. I’ve heard the opposite.
BW: For those who have been growing in the grey market for a while, I don’t think they’re short on cash. The challenge you have with the grey market growers is their financial institution or credit union might not touch them. But they’ve got friends and family, it’s a very well connected network of community growers, a lot of them know each other and band together.
CP: When do you expect health Canada to start issuing micro licenses?
BW: I would imagine that the first wave of micros is going to hit around the summertime and fall of 2019. I think the big wave of licenses won’t come until early 2020. Health Canada needs to learn how to deal with a different kind of stakeholder. But given how much hiring and training Health Canada is doing on their side, I think you’ll see that wave later in the fall this year.
CP: CCI has operations in a number of different countries. What do you make of the much-touted international cannabis opportunity?
BW: The world is changing, although countries are taking baby steps. There’s a lot of change happening in Latin America. You have some countries like Denmark, which is very similar to Canada, but if you go to Germany, there are only a handful of companies that could win the tender. Other markets like the Czech Republic will be import-only for a while. Some markets like Cyprus, only a couple cultivators will be licensed.
Europe is a massive opportunity. Having said that Europe is not cohesive. When the United States legalizes cannabis, it will be all at once. When you look at Europe, it's much more fragmented. Canadian LPs are hiring some good talent, and they’re wise to do that, but they won't see profit in Europe for many years. There's money to be made, but I mean Canada is an unfinished story as it is, and when you think about Europe, it's just an idea on a napkin at this point.
CP: What do you make of the excitement around CBD in the U.S. after the passage of the Farm Bill?
BW: CBD is now the new gateway drug to THC, I think it’s a soft play. But I don’t know if the U.S. will continue to sit back and watch as CBD products flood the market. I’m not convinced that the FDA is going to be OK with it being treated like it is today.
CP: You have a better view of the market than almost anyone else does. What are key issues that most people aren’t talking about?
BW: We are running out of people, and no one is really talking about it. When we’re trying to find head growers for our clients, we’ve run out of candidates in Canada. We have a massive database, but we’ve had to start looking in the U.S. There are a lot of jobs that people can be trained on, but when you look at the more specialized jobs in QA or even security, or anything on cultivation, there’s not enough qualified people in this country to fill all the LPs we need.
I also see a lack of informed decision making across the board. There’s a lot of hype and a lot of excitement, but there’s a lack of informed decision making. Consumers who trade stock, they don’t have the answers they need to make the right decisions; all they see is the press releases from licensed producers. The licensed producers desperately need more information. And looking at different levels of government, you’d be very surprised, the provinces do not talk to each other, and there’s a lot of information that’s not being shared between federal and provincial governments, and especially at the city level. Everyone is asking questions, and there doesn’t seem to be any answers around that are easy to find.