Canopy's Bruce Linton: The Black Market Is Our Biggest Cannabis Competitor

April 23, 2019

By Chloe Aiello

Bruce Linton, CEO of the world's biggest cannabis company, doesn't look back very often. On the rare occasion he does, he might catch a glimpse of scores of other cannabis companies nipping at the heels of Canadian cannabis giant Canopy Growth.

Perhaps his nonchalance has to do with Canopy's ($CGC) $16.5 billion market cap, or perhaps it has to do with the aggressive trail the company has blazed, meant to ensure dominance in not only Canadian cannabis, but industries in as many as 15 countries worldwide, and soon in the U.S. Or perhaps it's because, as Linton sees it, Canopy's biggest competitor doesn't have a name or even a CEO.

"Anybody who plays in the regulated space isn't competition really in that they're trying to do things by the book. Our biggest competition is the absence of good public policy, it's the illicit market," Linton told Cheddar on Tuesday. "There's still a lot, lot, lot more illicit cannabis sold than regulated, and public policy is slow to move."

In fact, in states like Massachusetts and California, black market sale of marijuana remain high, in part because of the spotty rollout of legal retail outlets and in part because of high local taxes. The same is true in Canada, where by some estimates, the black market accounts for over two-thirds of sales.

Canopy and other Canadian marijuana companies have been anxious to ensure their place in the U.S. cannabis industry, which is already projected to outshine Canada's, as soon as it is federally legal ー or in Linton's words "federally permissible." Since major exchanges like the New York Stock Exchange and the Toronto Stock Exchange prohibit involvement with federally illegal industries, publicly traded Canadian operators looking to get in on U.S. cannabis could risk having their shares delisted.

But Canopy has found a workaround to this quandary with the $3.4 billion acquisition of U.S. cannabis company Acreage Holdings it announced last week. The terms of the deal dictate that Canopy will give Acreage $300 million upfront for the rights to acquire the company later.

"Basically what we are doing is buying the right to buy them in the future at an exchange ratio. So the objective of both companies is to make as much growth as possible, and therefore they would happily receive our knowledge, our earnings, our intellectual property, our brands, but we can't actually review their budgets or run them," Linton said.

The so-called "triggering" event for Canopy's acquisition of Acreage would be federal legalization, or as Linton said, even federal permission to legalize on a state-by-state basis ー like the sort proposed in the STATES ACT. A bipartisan group of senators, representatives, and presidential candidate Sen. Elizabeth Warren (D-Mass.)introduced the STATES Act to Congress earlier in the month.

Linton said the STATES Act "may or may not cause a triggering event," but that he is optimistic.

"It would be a bit of a patchwork, but I think with our scale and experience and with all the money from Constellation and the investment in advanced beverages and advanced vapes, I think that kind of combination with the states' rights, Canopy and Acreage's 20 state already footprint, it's a really compelling combination," he said, referencing Constellation Brands' $4 billion investment in Canopy last August.

And if Canopy never gets the permission it needs, Linton said he may very well pull the trigger anyway. Canopy's not losing the deal.

"I think its a very unlikely scenario, but we built in a provision where we can simply trigger it. And it would have some cascading consequences, but we wouldn't lose the deal," Linton said.

For full interview click here.