The Money: Serruya Brothers, Private Equity
By Joe Castaldo
Michael Serruya has never used cannabis. “But I am anxiously awaiting October 17,” says the managing director of Serruya Private Equity, referring to the date on which Canadians can legally consume the plant. “I think there are a lot of people like me out there.” It’s more than an idle observation: He’s deeply invested in the cannabis sector.
Michael and his brothers, Aaron and Simon, are perhaps best known to most as the trio behind Yogen Früz, founded in 1986. Today, their stable of brands also includes Yogurty’s, Pinkberry and Swensen’s ice cream. Despite their sweet tooth, their investments through Serruya Private Equity have ranged from telecom to real estate over the years, but they have also invested in around two-dozen cannabis-related firms since 2013. They’re now planning a chain of retail dispensaries and developing edibles and marijuana-infused beverages.
The Serruyas are betting their three decades in food retail will allow them to emerge as significant players in the cannabis industry. The family declined to put a dollar value on their cannabis investments, but the sector represents a large portion of their portfolio. “By our standards, it’s very significant,” Michael says.
The Serruyas got their start in the sector through a seed investment in a Leamington, Ont., flower farm that was in the process of converting to a licensed producer under the federal government’s medical marijuana program. That company, Aphria Inc., is now one of the country’s largest producers with a market cap of roughly $4 billion. They’re also the largest shareholders in Liberty Health Sciences Inc., a medicinal marijuana company based in Florida. Another holding, a California maker of edibles called Plus Products Inc., filed a preliminary prospectus in August to trade on the Canadian Securities Exchange. “We believe the U.S. is five or six years behind where Canada is today,” Michael says, adding he believes federal legalization is inevitable at this point given that so many states have already moved forward.
For now, though, much of the Serruyas’ attention remains at home. They have applied for retail licences in Alberta and plan to do the same in Ontario and British Columbia once the process is opened. They’ve already developed two different retail brands: One Plant, with the “Let’s be buds” slogan, is positioned as a higher-end label, while Purpl Flowr is designed to be a mid-market dispensary. Store renderings for both brands show bright, open concept layouts not unlike an Apple outlet, with display cases for cannabis strains, accessories and a clothing line. The stores will eventually be stocked with the Serruyas’ own line of edibles, including cookies, chocolates and gummies, which are in various stages of development. “We have an incredible ice cream,” Aaron says with a smirk. “Let’s leave it at that.”
The concept as depicted in the renderings, which show ample product branding, likely won’t comply with Canada’s strict approach to packaging, but the Serruyas believe governments will eventually loosen those restrictions. “We’re trying to stay ahead all the time to understand what the second and third innings will look like,” Michael says.
The Serruyas have identified around two-dozen properties in Ontario that could serve as retail locations. By April 2019, the date by which the provincial government has pegged for private sales, the Serruyas hope to have opened at least 10 stores followed by an aggressive rollout. The government has yet to outline private retail regulations, including how many outlets a single owner can operate. But the Serruyas are wagering Ontario will follow Alberta’s model, and the cap will be somewhere between 75 and 100 stores per operator. “We want to get to the max,” Michael says.
The cannabis business is a multi-generational family affair for the Serruyas. A fourth brother, Jack, is a director at Serruya Private Equity, and Michael and Aaron’s sons — Aaron, Samuel and Sammy — are driving the dispensary and edibles strategy. But Michael has made multiple trips to the U.S. states where cannabis sales are legal, spending hours hanging out in dispensaries to observe customers and staff, and glean which products are selling. (The family has also planted other observers in stores to count foot traffic.) “There are some insane, ridiculous numbers coming out of some of these dispensaries,” Michael says.
The older Aaron, meanwhile, can talk with ease about microdosing, dabbing and the high quality of California cannabis. If he gets a headache, he rubs some cannabidiol cream on his head. Even his mother, he notes, now uses CBD cream to help with a sore shoulder. “A friend of mine sent me an article recently that said there’s more money in cannabis than there is in ice cream,” he says. “It seems like a good time to transition.”
The Visionary: Bruce Linton, Canopy Growth
By Geoff Zochodne
A day after his company announced the biggest deal in the history of the cannabis industry, an audience with Bruce Linton had become a hot ticket. Originally, though, he was just supposed to give an early-morning PowerPoint presentation. “I thought, ‘How the hell am I actually going to get anybody to attend?’” he said to his audience. “And so then I orchestrated to get $5 billion invested. Because I didn’t want to be here by myself.”
The chairman and co-CEO of cannabis producer Canopy Growth Corp. looked and sounded confident that August morning, as he sat in front of a full room at the Metro Toronto Convention Centre. His good mood was just- ified. Linton and Smiths Falls, Ont.-based Canopy had announced a day earlier that U.S. alcoholic beverage giant Constellation Brands Inc. would be boosting its stake in Canopy to around 38%. As Linton had noted, this worked out to an investment of about another $5 billion. The terms of the deal are such that Constellation, a Fortune 500 company, could increase its stake even further and become majority owner of Canopy.
The investment was the biggest yet in the cannabis sector, according to the two companies, and it followed an earlier investment by Constellation that had teed Canopy up to become a top player. Moreover, it sparked speculation that other big-name consumer companies may want to get into cannabis. Global giant Diageo PLC is one reported possibility.
The Constellation deal also puts Linton at the forefront of a part of the industry that isn’t even legal yet in this country. Of course, recreational cannabis isn’t quite yet legal either, though Canada will shortly become the first G7 country to take such a plunge. No wonder that audience with him in August was a full house. As he sat back, Linton weighed in on a wide variety of cannabis-related topics, as the blunt-talking exec has become a sort of spokesperson for his entire industry. “What I’ve learned is that if you’re not fairly specific and clear in your own head, and fairly specific and clear in how you express where you want to go, the best outcome could be random luck, because you’re easily misinterpreted,” Linton says.
After the Q&A in August, Linton allowed a scrum of media and conference attendees to form around him and lob questions for a length of time that would give any PR person nightmares. Selfies were taken. A green-and-white “Toronto Marijuana Leafs” jersey was produced and handed to Linton. The scene was a bit different than the one where Linton began his business career. According to his company bio, he started out at Ottawa-based firm Newbridge Networks Corp., which was gobbled up by French phone company Alcatel 18 years ago. But Linton has not strayed too far from those roots. He also co-chairs Martello Technologies Group Inc. alongside Terry Matthews, the billionaire founder of Newbridge. “To me, it’s something that means quite a bit,” says Linton of working with a former boss and mentor.
From Newbridge, Linton worked in leadership positions at webHancer Corp. and CrossKeys Systems Corp., before co-founding the company that would grow to be Canopy. His technology background might have shone through a bit in August, when he predicted there would be “Google-like” company in the cannabis industry. “Canopy is a tech company that produces and converts and commercializes marijuana,” he says. “Everything in tech is about how we go from creating one idea to one million units the fastest.”
Meanwhile, when acting as a de facto cannabis industry spokesperson, Linton tends to give a good quote. After the latest Constellation transaction was announced, and Canopy’s stock price took flight, Linton assured BNN that his lifestyle would not be in for any major changes. This, of course, was despite Linton owning approximately 2.8 million shares of Canopy, which are now worth more than $190 million, according to recent Bloomberg data. “I don’t think I need anything,” Linton told the business television network. “I got this suit at Winners. It looks okay on TV.”
Canopy still has some big plans, including one to tap the emerging medical marijuana market in Latin America. Linton has suggested Canopy could go even further with the added capital from Constellation. “This is really rocket fuel,” he says. “We’re going to be expanding production, we’re going to be doing more research, we’re going to develop more intellectual property, we’re going to create more leading brands, we’re going to have more products, and we’re going to be way more global.”
The Innovator: Brendan Kennedy, Tilray
By Rosalind Stefanac
Innovation is par for the course when you’re a company of firsts in an emerging market, and medical cannabis producer Tilray Inc. has been setting the bar high for what’s possible for what seems like ages in an industry that’s only just begun. “There’s a reason we’re in so many countries and why, when a country like the U.K. legalizes medical cannabis, Tilray products are the first they choose,” says CEO Brendan Kennedy, who joined the company’s Canadian subsidiary as CEO in 2013. “I think we are the gold standard.”
Among its many firsts, this Nanaimo, B.C.-based company — which was born out of a Seattle-based private-equity firm founded by Kennedy called Privateer Holdings — in October 2017 was the first Canadian producer licensed to export medical marijuana outside of Canada. Today, its products are available in 11 countries across five continents. “What differentiates us from competitors is the fact we’re recognized as being a scientifically rigorous pharmaceutical brand that is approved by governments and regulators across the world,” says Kennedy, noting that Tilray was also the first cannabis company to be approved by Health Canada in a clinical trial.
A recent collaboration with pharmaceutical manufacturer Sandoz Canada will extend Tilray’s reach even further. “By being the first to partner [with a pharma company] we get to collaborate on the development of new products,” Kennedy says. “Partnering with a pharmaceutical brand that physicians and pharmacists are familiar with also inspires confidence with the mainstream medical community here and globally.”
Most of Tilray’s products outside of Canada are already distributed through pharmacies so its supply chain is identical to drug company supply chains around the world. The company will also ship its first product to a pharmacy chain in Canada within the next six months.
It’s this kind of global thinking at the helm that has set Tilray apart from the get-go. “This isn’t an industry you can study behind a desk or outsource to other people,” says Kennedy, who spent his first year in the industry back in 2010 conducting “boots on the ground” research. At times, that entailed travelling the world to talk to everyone from growers and processors to patients and politicians. “I started in Oregon and went right on through to the dirt roads of B.C. and coffee shops of Amsterdam,” he says. “I had to form my opinions first-hand.”
This hands-on approach to research has certainly paid off. Under Kennedy’s leadership, Tilray was the first pure-play marijuana company to go public on the Nasdaq, a tactic others are sure to follow, and continues to expand its cultivation facilities in Canada and Portugal. It has also secured distribution deals with five provinces and two territories for several of its brands. “We are very excited with these contracts and expect to see additional agreements coming,” he says.
With the impending legalization of recreational cannabis in Canada, Kennedy anticipates another enormous marketplace for Tilray to grow. This past April, the supplier announced the creation of High Park Co., a wholly owned subsidiary based in Toronto that will produce and distribute a broad base of adult-use products in Canada. “There’s this misconception that cannabis legalization is specific to North America and other niche areas, but that couldn’t be further from the truth,” he says. “We’re in the midst of a global paradigm shift where a multi-billion-dollar illicit industry will be transitioning to a legal one.”
Canada may be one of the first countries to legalize recreational cannabis, but other countries are looking at adopting a similar regulatory framework. Kennedy says that trend gives companies such as his a tremendous opportunity to build global, adult-use brands. “There is no road map for building an industry from scratch, but we really are trying to do it right from a scientific and business perspective.”
The Lawyer: Trina Fraser, Brazeau Seller Law
By Rosalind Stefanac
Early on, if someone had told contract lawyer Trina Fraser she’d be dedicating her career to the business of commercializing cannabis, she would have thought it unfathomable. “It didn’t enter my consciousness that I would be doing this, because I didn’t realize medical cannabis was even available,” she says.
But in 2013, while trying to help a family member access cannabidiol (CBD) oil for a severe form of epilepsy, Fraser’s advocacy side kicked in. “When I saw all the roadblocks preventing patients from accessing the medicines that would actually help them, I had to jump in and say, ‘That’s not right’,” she says.
Today, as one of the most prominent cannabis legal experts, Fraser says the cannabis business makes up 90% of her practice. As well as acting for licensed producers of medical cannabis, she advises industry players, including clinics, software/application providers, capital investors and those seeking entry to the consumer market. (Many of her clients are looking to be involved in both.) “There is no shortage of potential clients,” says the Ottawa native who is a co-partner at Brazeau Seller Law (BSL) and head of the firm’s CannaLaw Group. “I get multiple emails and phone calls [from prospects] every single day.”
Five years ago, BSL was among the first law firms to take on entrepreneurs and investors interested in the medical cannabis market when no one else would have them. It was a unique opportunity to be at the forefront of an emerging industry, Fraser says, and her firm’s partners were fortunately unconcerned by the stigma that prevented many established companies from participating. Yet even at that point, she never anticipated consumer legalization would be just around the corner. “Now the industry at large is getting seduced by the fact we are making law in uncharted territory and there are a ton of legal and financial firms looking at the opportunities.”
The craze is not just limited to those law and finance firms either. The looming deadline for legalizing consumer cannabis in October is causing a frenzy of new industry players of late. “In the last six months to a year, alcohol, tobacco and pharma companies are seeing the writing on the wall and recognizing they need to get in here too,” Fraser says. “This industry is not going away and the fact it’s grown to this behemoth even before recreational legalization is mind boggling.”
If Fraser sounds excited, she is. “I literally spend hours every day reading up on legislation and keeping track of what’s going on in the world at large in this area.” Her enthusiasm and knowledge has attracted 8,500 Twitter followers and she is regularly called on for speaking engagements, media comment and expert opinion, such as giving evidence to the House of Commons Standing Committee on Health on Bill C45 when the cannabis act was being studied in 2017. “It’s an adrenaline rush to check my Twitter feed to see what deals were announced or who got licensed today.”
Indeed, Fraser, who also serves on the board of directors for Canadians for Fair Access to Medical Marijuana and provides legal advice to the Cannabis Council of Canada, is sometimes criticized for pushing the cannabis agenda a little too vehemently. But this mother of two says she would never promote policies or regulations that come at the expense of her children and the world they live in. “I believe legalization will benefit my children, because I can have a fact-based discussion with them about risks and good choices,” she says. “I’d much rather have a legalized cannabis store in my neighborhood than an illegal one.”
In the future, Fraser hopes to be remembered for having a “principled and balanced approach” to the business of cannabis. That means continuing to advocate for a system that makes cannabis accessible to the people who need it and ensuring there is space for a variety of players. “This is a diverse industry and Canada is being looked at as a world leader with a high-quality product and robust regulatory framework,” she says. “I don’t want the industry taken over by big operators at the expense of smaller ones who have unique products.” FPM