Nov. 5, 2020

Is legal marijuana a bubble?

Like any gold rush opportunity, legal marijuana will have fewer success stories than it will tales of failure. So how do we determine which entrepreneurs might come out on top?

That’s one of the questions we’re answering on this episode of Business Casual with Bruce Linton, ex-CEO of Canopy Growth Corporation and one of the most widely regarded cannabis entrepreneurs around.

If you’ve ever wanted to know more about the importance of marijuana regulation for consumers and entrepreneurs, decipher what makes a good or bad cannabis business opportunity, or—stick with us here—understand how the nascent marijuana industry isn’t all that different from Amazon...this episode is for you.

Plus, you’ll hear what Bruce considers the “single worst economic advantage provided to U.S. entrepreneurs in the last hundred years.”

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Kinsey Grant, Morning Brew business editor and podcast host [00:00:06] Hello, everybody, and welcome to Business Casual. It is your host, Kinsey Grant, and I'm gonna get my one pot joke out now. I'll be blunt. Time to play Sport-20 something. I don't know. Let's get into it. [sound of a ding]


Kinsey [00:00:18] In our last episode of Business Casual, we heard from Casa Verde's Karan Wadhera about what decriminalization—legalization—of marijuana here in the United States would mean for the business. You should, of course, listen, if you haven't already, but the TLDR is this: Essentially, it would be really good for some businesses and really bad for others. But either way, we'll likely see an explosion of money trading hands above board in the cannabis space. 


Kinsey [00:00:42] Today, we are talking about the entrepreneurs who might win big in the future of legal weed. And we're going straight to the entrepreneurial horse's mouth. I want to better understand the role of entrepreneurship in the cannabis space because we've seen countless marijuana startups start up in the last decade or so. But at the same time, enormous multinational corporations, including things like Molson Coors, and Anheuser-Busch, and Constellation Brands, have all thrown their hats in this cannabis ring. Some cannabis companies have done well. Others have been a big letdown, to put it mildly. 


Kinsey [00:01:13] So what role do entrepreneurs play in this burgeoning legal weed industry? And how do we figure out what the role will look like and how it will evolve in the coming years? We're going straight to an expert to get the answers. I am very excited to welcome my guest today, Bruce Linton, one of the most well-known and certainly widely regarded cannabis entrepreneurs around. Bruce is the founder and formerly chairman and CEO of Canopy Growth. You've been an adviser to tons of companies, cannabis and otherwise, you've got a lot of stuff going on at any given moment. Bruce, welcome to Business Casual. 


Bruce Linton, founder, former chairman and CEO of Canopy Growth [00:01:44] You would have won a T-shirt in my prior life, which was given out to those people who came up with an introductory line that had been not used before. 


Kinsey [00:01:53] Aah. 


Bruce Linton, founder, former chairman and CEO of Canopy Growth [00:01:53] And may I be blunt? May I be blunt? [Kinsey laughs] It was solid. That was a good piece of work. 


Kinsey [00:01:57] Well, thank you very much. I take a lot of pride in that—in my puns. Try to be as original as possible. And Bruce, I have to say, I, as a young reporter, covered the cannabis space pretty extensively, covered your work extensively. So it's really cool for me as a slightly less young reporter [chuckles] to now get the chance to speak face to face with you, I guess, face to video face. [laughs]


Bruce [00:02:17] Face to video face. Well, no, thank you for that. And now the reason I come to your program is I'm still involved in a number of companies, but I'm really interested in public policy. And so your opening position was, essentially, if people come to office who say we're not going to make any rules for cannabis or we're gonna make rules for cannabis, that's good. I disagree. I think that when you decriminalize, what it does is, yes, people will not go to jail, but it's the least useful way a government can get out of the way. 


Kinsey [00:02:46] OK. 


Bruce [00:02:46] And what they're saying is it costs us too much money to arrest people, but we don't actually want to make this so it's a useful sector. When I say useful sector, if it's decriminalized, what are the testing standards for something that's not criminal? Who's in charge of that? What is the maximum quantity? Maximum strength? So can some dummy make a single serving with a thousand milligrams in it. Sure, it's just decriminalized, do whatever you want. 


Kinsey [00:03:09] Right. 


Bruce [00:03:10] And so that is not good for entrepreneurs unless they're kind of like really irresponsible edge entrepreneurs. Because to be a successful entrepreneur, you need rules and then you need to think of a plan that fits inside those rules, that works better than [indistinct], is capitalize it better than [indistinct]. Move faster. 


Kinsey [00:03:26] Yes. 


Bruce [00:03:27] And so I do not like just decriminalization. I like clarity. Like, let's decriminalize bandwidth. Let's decriminalize what side of the road you drive on. Doesn't work for anybody whose making cars unless you're making the repair shop that fixes the cars. Right, you get where I'm going? 


Kinsey [00:03:42] Yeah, yeah. 


Bruce [00:03:42] So I think this sector needs governments to step up and do their job, which is to regulate it in clear fashion. And when they do that, the result is the best of the best will come out. Intellectual property will be created because companies that are regulated have budgets. Budgets lead to research. Research leads to intellectual property. 


Kinsey [00:04:01] It's a matter of smart regulation. And I think you can make that argument with any [chuckles] industry in need of regulation. It's not just decriminalizing it blanket over everything. It's let's think about this in a more nuanced fashion. And certainly, Bruce, in [chuckles] just the introduction have gotten into so much that I want to talk about. You got right into the entrepreneurship stuff, so let's keep going with it. 


Kinsey [00:04:20] I think the regulation aspect to me is really, really interesting. I know that we have a lot of conversations about what legalization in the United States would look like state by state, certainly right now. But maybe what it would look like at the federal level. And it's hard to see; it's hard to understand what it might look like. And with your experience in Canada, what should it look like, I guess is the big question. Why do we need regulation and why is that regulation good for entrepreneurs and good for customers? 


Bruce [00:04:46] Well, if you think about a country, you know, the U.S. is a mixed bag right now. They have certain states that have certain criteria. Some countries have a criteria that nothing is legal, nothing is permitted. But really, both of those rules, or both those regulatory frameworks, say that we're gonna kind of ignore—as a government we're choosing to ignore a big piece of commerce, a very big piece of the pattern of the people who vote for you, their lifestyles. We're going to ignore it. And typically good government policy is not to ignore things. 


Bruce [00:05:20] And so if you actually want something to turn into a sector, the sector, to maximize the potential of the anything, you have to actually create, like, rules, like how much? Through what channel? What are the testing standards? Is there an age limit for access? Is that reasonable? I've had a number of people over the years really get pretty upset with me because they thought I invented THC. And I would say, listen, two things. One is, I didn't invent THC. Wish I had; would have been better. 


Bruce [00:05:52] Second is, you're advocating that the government ignore in Canada what was an 8 billion—in the U.S. could be 100 billion, 80 billion, pick a number—huge segment of market. You want to ignore it. And I can only assume the reason you're upset that it's going to be regulated is that one of your family members is involved as a criminal producing massive amounts of illegally sold pot. And you're worried that by me leading a legal regulated system, you're going to have less money in your family, which means you might get a less good Christmas or Hanukkah gift. And that's why you're upset with me. 


Kinsey [00:06:21] But that's not fair. 


Bruce [00:06:21] Because that's the only rational—but that's the only rational argument in being opposed to regulation of something that exists. It's not like we're inventing cannabis. 


Kinsey [00:06:28] But how come these people don't understand that even in incredibly highly regulated industries like, say, banking, there are crimes that happen within the sector. This is just a fact of life. 


Bruce [00:06:38] Well, it is. But one of the reasons I got into the cannabis space was prohibition and bias are really nasty things, unless you can see they're going to break open. And when they're going to break open, what's behind a multigenerational practice of bias and prohibition is a super-big pool of potential intellectual property commercialization value. 


Bruce [00:06:59] Entrepreneurs should always look—number one rule for me for an entrepreneur—unless you're a super-genius, and you invent something that never existed before because you're so smart. You figured out we need a Google version 2 that's totally different. Great. Good for you. I'm not that smart. What you should look for are, are there big cracks showing up in areas that are currently prohibited and behind a wall of bias? 


Bruce [00:07:20] So, for example, cannabis still has a bunch of balls of bias behind which will be all these flows of economic opportunity. Things that people call psychedelics. Wooo! Doesn't that sound crazy? Well, what they are is really neuromedicines, but because of the perceived bias against them, there's been an unwillingness to look at them for therapeutic treatments. And so I always keep looking and saying, what's the next area of public policy that's going to crack? You know what's going to happen out of COVID? There's going to be a screaming demand for three things. 


Bruce [00:07:50] One is, how can you keep the skies blue and the air a little cleaner? How do we stay on this better curve, which means they're going to want more electric cars, they're going to want to shorten supply chains. Don't bring everything from all over the world. Bring it from next door. 


Bruce [00:08:04] Second thing that's going to happen is companies are going to spend less on travel and living because we're doing this without going to New York. So next time I go to New York, I might have five things I do rather than going to see you, have lunch, and come home. And so travel and living budgets, I bet, get chopped to half or 25% of what they used to be. 


Bruce [00:08:21] And the third thing that's going to happen out of COVID is people have completely shifted their expectations of shopping, working, and everything. And it's a permanent shift. We have the highest rate of housing starts in many parts of the world right now because people are saying, I need to actually get a little space because I'm only going to go to the office once a quarter. 


Kinsey [00:08:37] Yes. 


Bruce [00:08:37] Like those are big macro shifts. If you can't monetize those as an entrepreneur, guess what? You might not be an entrepreneur. 


Kinsey [00:08:44] Maybe find another line of work. So with all of these paradigm-shifting examples that you're giving here with COVID, and I would argue even something like prohibition of cannabis and of legal adult use for recreational marijuana, where are those cracks? Where do you see the most opportunity in the space right now, in the cannabis space specifically? 


Bruce [00:09:02] So what you need to do is if you want to look and say, where am I going to be an entrepreneur? You need to lay out a global map and then it has to break down by state by state, at least in the U.S. And the reason I say that is, what is your interest? Are you driven by medical evolution, what I will call the third revolution of cannabis, which is when it starts to be turned into dosage insurance-covered products, which are either defined as how do you deal with being old for a longer time without taking pharmaceutical products which diminish your cognitive function. 


Bruce [00:09:35] So there's a whole cohort of opportunity there. Well, if you're gonna be interested in that, you should probably think about how can I do my research, maybe in Germany or the Czech Republic. Are you thinking about how I use this so that your dog—you live in New York. Good news is a lot of people in New York have dogs. They like the dog. After the dog's about 2 years old, dog starts getting a little wacky. You slam the door when you go to work and the dog starts chewing on everything you own. This anxiety makes you want to kill the dog, but you like the dog. So now you have a problem. 


Bruce [00:10:05] And so there's going to be a whole cohort of products which assist four-legged mammals in various indications, from anxiety to age-related mobility. That I would probably think about doing my work on testing in Chile, and thinking about how do I bring the products that I can confirm how they work in Chile to the markets that are legal. And if I was thinking about short term, what's the biggest effect at each state? It's when it goes from medical to rec. 


Bruce [00:10:33] So if you look, I'm involved with a company called Gage Cannabis. They're in Michigan. If you look, they started December 1st having adult access rec. If you look at the growth between January and August, it's about 500 and some percent. And it's because when you have to know a guy in a puffy coat to get recreational cannabis versus go to a store, the store does pretty well and the guy in the puffy coat does less well. 


Kinsey [00:10:56] Well, in some cases. I mean, we've seen examples since legalization in California, which is essentially the size of some small [chuckles] countries. And even in Canada too, that prices are higher for legal recreational cannabis and people are still turning to the black market, the illicit market, to get what they need, especially if they're not near a retail location, which I know was a huge issue in Canada. So what do we expect of this black market? Is it going to disappear? Do we just have to reach a certain maturation of the industry before it goes away? 


Bruce [00:11:28] The illicit market, to me, the pricing fixes itself pretty quickly. So if you look at the price per gram in geographies which have large scale, like Canada, you can now, if you're a medical patient, you can have a gram of cannabis grown, tested, and shipped to your house for about $3.25 U.S. per gram. The guy in the puffy coat—he's not charging you that. 


Kinsey [00:11:50] Right. 


Bruce [00:11:50] And if you go to a store, you can buy a gram of cannabis at a store with taxes in and you're paying $5 U.S. a gram. The reason the prices are higher in many U.S. states is it's still not at scale because there's this federal issue. There's these borders and boundaries. That's first factor. Second is, I don't know who wants to buy a gram of cannabis so they can roll the joint so they can inhale particulate and piss off their neighbors with the smell of smoke. 


Bruce [00:12:14] But I do know that there's a lot of people who are looking for more sophisticated products that are drinkable. Compete like, you know, you're at the age where you probably actually have your favorite White Claw, and that's terrific. I'm at an age going, OK, what's White Claw? [Kinsey laughs] But when I do think about what beverages is, you like it because it tastes OK and it has 100 calories or so. 


Kinsey [00:12:36] Yeah. 


Bruce [00:12:37] The cannabis beverages that are hitting the market have zero calories. They have the same onset, in effect, as having a White Claw. No calories. Not dehydrating. It's not powered by alcohol, so it's not a depressant molecule. So guess what happens? You don't get weepy if you have five White Claws. No, that's never happened to anybody. [Kinsey laughs] And you don't get fatter and you don't get dehydrated, hung over. 


Bruce [00:13:01] And so I think this illicit market is not going to make those beverages as sophisticated and well and available. So what starts to happen is that. Then you say in medical, well, I don't feel very well, so I smoked two joints. Well, that's OK. But what if you could actually say I used this transdermal patch. It releases into my bloodstream this number of milligrams per hour over five days. And what it does is it makes me not nauseous during my period of treatment for oncology. 


Bruce [00:13:30] That is very different than the stories that it started off, where you'd make grandma or mom or dad brownies so they wouldn't be nauseous. Well, guess what? When you're nauseous, having to eat something—that's not a great start. And so I think the illicit market's diminishing rapidly. In Canada, it was a different kind of supply chain, where there was a lot bigger, sort of more organized suppliers. Cannabis is a bulky thing to ship around. So if you don't grow and make cannabis as a criminal enterprise in a legal supply chain, there's lots of other stuff to do that's less volume, higher profit. You've really seen a dramatic shift to the legal supply chain in Canada, especially with your point of when stores are available. 


Kinsey [00:14:10] Right. Do you think that these two factors, though, have anything to do with how cannabis entrepreneurial pursuits can scale? You think about the level of sophistication that an aboveboard kind of company needs to compete with in black market. To offer products that they simply cannot in the black market or in the illicit market. And then when you think about what it takes to actually grow these plants. This is an agricultural product. Does this impact scale in any way? Is that a concern for companies—that you can only grow so big because it's hard to grow a cannabis company? 


Bruce [00:14:39] Yeah, you raise a good point. And I think you're correct. So what entrepreneurs have to do is say, how do I shift my time and capital to the place of greatest return? And the opportunity being the grower is diminishing, unless you're someone who's specialized in how do I grow it perfectly, how to make it always purple, whatever your attribute is. But there's a great window right now in almost all geographies where you're almost—I would almost call it like a contract manufacturer or a very light infrastructure. 


Bruce [00:15:08] So you're never growing? No. Never extracting? No, other people do that. That'll be a supply chain to you. And what you have are these pieces of equipment that make things into formats, whether it's vapes or cookies or beverages. And your specialty is formulation and branding. And when you get that right, what you do over time is you just become branding and you outsource your production and stay focused on formulation in that. 


Bruce [00:15:32] And so, as an entrepreneur, what you have to keep looking at is where in that whole supply chain is the best deal with the least invested capital that I can turn up with the most [indistinct]. And do I have the attributes that I can either be a formulator, I can think of a product category, CPG, or I'm really good at branding and marketing. And so there's tons and tons of those opportunities. I spoke to somebody yesterday in California that went to a place that used to be a processor of agro products so they'd be ready to go to a bakery. Now, it's a bakery making outsource all kinds of cannabis products. 


Kinsey [00:16:07] OK. So it sounds like this is all essentially a matter of reading the room and [chuckles] understanding the context in which you want to operate. We're going to talk more about that in just a second. But really quickly, we're taking a short break to hear from our sponsor. —


Kinsey [00:16:21] And now back to the conversation with Bruce Linton. Bruce, we are talking about reading the room, understanding the frameworks and the regulatory contexts before you decide to pour your life savings into a business or an entrepreneurial pursuit. I have to wonder if this has always been the case in the cannabis industry. 


Kinsey [00:16:37] For several of the last, I don't know, five or so years, we had a couple of really, really great years for cannabis stocks, for companies that had listed shares on exchanges, whether that's New York Stock Exchange or elsewhere. They did really well, went way up, and then all of a sudden everybody kind of stopped and said, wait, the fundamentals don't look great for these companies. 


Kinsey [00:16:56] And we experienced this huge downturn in terms of these shares, share prices. And I wonder if maybe this was a failure to read the room. If we just needed access to capital as these growing companies, that maybe didn't have the regulatory frameworks in place to actually bring money through the door, but wanted to tap into capital markets in a way that could allow them to grow fast and grow really big. 


Bruce [00:17:20] Yeah, I would say porridge too hot. Porridge too cold. Porridge just right kind of happened. And when I say that, what caused these things to run up? Well, because it was a federally illegal activity in the U.S., it meant most of the institutional investors didn't invest, so it was all retail buyers. And so they buy on news. 


Bruce [00:17:38] Second thing that started to happen is people went, well, so maybe the company I started [indistinct], it became a billion dollar company and people said, oh, my God, it's the only one and it's too valuable. My answer to you all, what do you think the size of the market is in Canada? 8 billion minimum. It's called 80 billion in the U.S. Let's call it globally, I don't know, 300 billion? 


Bruce [00:18:00] So if the biggest company dominantly leading the sector is worth 1 billion of a $300 billion currently available market—which is just the illegal stuff, that's not doing the stuff for grandma's not anxious anymore, anything for your dog. That's just you being able to roll a joint. So maybe it's double that. Maybe it's triple that. 


Bruce [00:18:18] So if a company that's dominant at the time might have 25 to 40% market shares worth 1 billion, how could that be too high? Well, when do you gain access to that rest of that world market or when do the governments there quit ignoring and start regulating? And so there's a bit of a gap between—the market's humongous. If you do not believe there's a lot of people consuming cannabis, we should have a chat. 


[00:18:41] [laughs] I believe that. I believe it. 


Bruce [00:18:43] But, so the company or companies that dominate by intellectual property, market share, and novel products, medical and rec, should be worth tens and tens of billions. Then there'll be a massive gap between them and the next ones, because to do that research, to protect that stuff, hugely costly. And so I do think that, for a while, everybody was just being stirred together and saying, well, I'm just buying the portfolio. And I think that's a very dangerous thing to do. 


Bruce [00:19:12] Definitely, things get hot and cold, you know, and you see that in every sector. I don't care if you're buying—like tech stocks right now. Apple hit a trillion dollar value. I don't care that that is a fairly large number. And is that worth it? Well, I don't know. It goes up. It goes down. 


Kinsey [00:19:29] But Apple has a proven record of profitability. A lot of these cannabis companies—that was the big question. There is an expectation of profitability that wasn't being met. And I do wonder—I know that you've gone on the record talking about this before—the influx of capital that came from more traditional sectors, investors from more traditional sectors, whether that's alcohol or what have you, had this expectation of profitability by a certain time that a lot of these cannabis companies simply couldn't meet. 


Kinsey [00:19:54] Whether that was because of regulatory headaches or any other industry headwinds remains to be seen, I think. But, do you think that that is essentially part of what caused this run up and then the popping of this bubble? 


Bruce [00:20:07] Maybe. I think I would liken it more to Amazon. Amazon went a long, long time — 


Kinsey [00:20:16] Yeah. 


Bruce [00:20:16] Sometimes making a profit and a lot of times not, and then telling you, we're not going to do a profit now. You know why? Because we're investing internally. Well, they did really stupid things. Rather than being profitable selling three books, they built something like Amazon Web Services. What a dumb, dumb move. Oh, wait. The whole world's depending on it. 


Kinsey [00:20:31] Yeah. 


Bruce [00:20:31] So I think part of this notion—like I could have had a profitable business in the third year. You know what would have happened? Nothing interesting. Nothing creative. Nothing substantial. Because to become profitable means that I'm not going to invest in the future. Now, do all your investments for the future work out? Can't tell; it's not the future yet. But I would say it's more Amazon-like, where if you don't create it, what is going to be the strategy? Everybody's profitable. All we make are pre-rolled joints. 


Bruce [00:21:01] I think that is a very—and underwhelming potential of the segment. And so I think part of the big disconnect was investors are told, oh, you should invest in profitable companies, but then they love Amazon. And I think they missed the potential of the scale of profitability. Now, what we should do is isolate each country. So you shouldn't say the company is profitable, but you should be able to be profitable. 


Bruce [00:21:25] I would say if you're running one in Canada, you should show how you're profitable, isolating Canada, in the current year. And the rest of your expenditure, like if you're spending money to grow Germany or spending money on research and development for doggies, that should be backed out. But the country of Canada as an operating platform in an instance, you want to start to show that at a certain stage of maturity, which would be now, you can be profitable in that country. And if you want to dominate the world, you still have to spend money because maybe what you need for Germany is a more medically sophisticated offering than what you need for Canada. 


Bruce [00:22:00] And I think shareholders should have the choice to invest in those that have a plan for the future versus saying, oh, I just buy the profitable ones. Well, call me in three years if they're still interesting. 


Kinsey [00:22:09] I suppose a lot of it depends on your investment thesis. If [chuckles] you don't want to invest in boring companies, maybe don't invest [chuckles] in a cannabis stock. 


Bruce [00:22:16] Buy a bank. 


Kinsey [00:22:17] Yeah. But I also have to point out that Amazon was operating unprofitably with a legal business operation. [chuckles] It was legal to send books to people. They weren't waiting for somebody to come in to D.C. and say, hey, yeah, this is all cool. Now go right ahead. They had a little, maybe, more cushion, and the timeline was a little more obvious. Whereas with cannabis, that timeline is not obvious. It's not very clear when this is all going to be A-OK. Go right ahead. All 50 states in the U.S. 


Bruce [00:22:46] Yeah, but I would say it's weird. I was more like Amazon, where I was doing everything legal. And I was able therefore to attract big capital and I didn't feel compelled to become profitable. I felt compelled to create a super-durable 100-year winner. If you're in a U.S. state or several states, many of those companies are profitable now. And part of the reason they're profitable is they have to be because they don't have access to a lot of the financial instruments I did. 


Bruce [00:23:14] Being on the New York Stock Exchange helps the conversation when you're trying to make big investors in Europe join. So a lot of them are profitable because they have to be. But does that mean they are protecting their future? Not as much. If you looked at it Curaleaf or if you looked at GTI, you know, a lot of these guys are dropping big numbers. Gage—they probably need to be profitable in Q1 simply because of the absence of federal regulation. 


Kinsey [00:23:40] So how did this misalignment of expectations come to exist, though, that you're trying to build a 100-year company, but your investors and [chuckles] people who are investing in other hypothetical companies—they're coming in with a different expectation? 


Bruce [00:23:54] Yeah, you know, I think there's a lot of conversations around the space. It's less noisy now, but there was a period of time, like, I would say a year and a half ago, what COVID is to today's news cycle, cannabis was to that. Like it was a global constant conversation. I don't care if you're talking like the Malaysian government's handling of how they were going to do it, to Thailand, Australia, England, to France, and Canada, the U.S. Cannabis was as covered, maybe in a different way. It wasn't measured by cases per minute, but that noise and conversation led to everybody wanting to participate. 


Bruce [00:24:32] And then there was only one stock market on the planet you could actually buy stock through—Canada. That's pretty weird. And so what started to happen is this global demand for equities got funneled through a single stock market in a country that you would never have bought a stock before. And so, even when I looked at my share registry, I'm like, are you telling me we have all these shareholders from Sweden? I might have blondish hair, but I have no Swedish roots. Everybody found us. 


Kinsey [00:24:57] Yeah. 


Bruce [00:24:57] And so I think it was a really weird combination of things, where all of this news drove all this interest through a very thin pipe, which was called buying stocks on a Canadian exchange. 


Kinsey [00:25:07] Would you have preferred to grow in a slower fashion? 


Bruce [00:25:11] No. Blitz scaling is the best, because what happens is if you see something—like when prohibition ends, there's a window of opportunity to grab all the intellectual property market share—first mover advantage and best mover advantage. And so I think that's a critical window. That if you're not—like, if you were describing it as a car. It's like finding out that the car does 183 miles per hour, and you only want to go that speed. And you know what you do when you're going 183 miles an hour in a car? You don't use the rearview mirror. You never look back—because you'll drive into something. 


Bruce [00:25:43] And so as an entrepreneur, if you find driving 183 miles per hour without looking behind you stressful, don't do it. That is not stressful. You know what stressful is as an entrepreneur? When the car is sitting still, it's almost out of gas. And you know you're gonna have to fire everybody. When the phone's not ringing, when there's no action—entrepreneurs should always find it super-stressful when things are not happening. 


Kinsey [00:26:05] Nothing is going on. 


Bruce [00:26:08] Because what happens next is everybody loses payroll privileges. 


Kinsey [00:26:11] Do you see that happening with these companies right now? I mean, to borrow your metaphor with the car going 183 miles an hour, it's difficult to speed like that in the U.S., where you have a stop sign every other state line. [chuckles] It's not exactly the big dramatic and influential end to prohibition that happened in Canada. In the U.S., it's kind of trickling out of the spigot, I would say. 


Bruce [00:26:37] Yeah, it's probably going to be documented as the single worst economic advantage provided to U.S. entrepreneurs in the last hundred years. 


Kinsey [00:26:47] That's a bold claim. 


Bruce [00:26:48] Right now, the absence of regulation are giving advantage to New Zealanders, Australians, Canadians, Germans, British, Columbians. Everywhere there are rules and regulations that exist at a federal level and you can use normal banking things has an advantage to some extent. Not market size, but I'm talking about how do you get going creating differentiated products? And because this absence of regulation, it's tying American entrepreneurs' hands behind their back. 


Kinsey [00:27:18] It's interesting, Bruce, in so much of what you've been saying in this interview, I've been making comparisons mentally to the tech industry with cannabis and tech. And you mentioned a third revolution and entrepreneurs driven by mission and by wanting to help people and to offer new ways to solve old problems. But then, when you say, you have to embrace regulation, it's interesting. Where do you see the overlap between tech and cannabis? Like what have you borrowed from Silicon Valley? 


Bruce [00:27:45] So most regulators view the grower of cannabis job as one thing. Don't lose it. I need to know that you grew it. It wasn't adulterated, and that you had chain of custody—control of it. 


Kinsey [00:27:57] OK. 


Bruce [00:27:58] Well, if you think about it, what's tech? If you decide to send me an email and I lose a few of the packets, and all of a sudden the email reads something differently or voices like hello over, hello out. You know, people expect standardized platforms that basically enable all of tech to work. Cannabis is going to rely on tech to scale. The way you're not going to lose it and not adulterate and keep track of it isn't a bunch of pieces of paper. And so the scalability of cannabis and the scalability of tech depend on agreed standards, rules, and regulations. 


Kinsey [00:28:31] And the block chain? [chuckles] 


Bruce [00:28:33] Well, but everybody says, well, you know, then we're all the same. I said, so that explains why Apple is not succeeding, because they use the same bandwidth and regulatory frameworks for things as other people. You need to have standards and rules and then you need to find ways to build value on top of those. 


Kinsey [00:28:47] OK, we're going to take a short break to hear from our partner, and we will be right back. —


Kinsey [00:28:52] And now back to the conversation with Bruce Linton. Bruce, I want to take a moment here to turn to the future. We've talked about what has happened in Canada and what has happened with state-by-state regulation in the U.S., and what it's all meant for entrepreneurs. Where do you see this business going in the next decade, realistically? 


Bruce [00:29:10] Sort of turns upside down. A decade from now, people are talking about cannabinoids, what we call rare ones now. Not very much volume of them inside the plant. That we've isolated 40 of them, and in concentration or combination or with other things, change your endocannabinoid system. So the reason cannabis works on you is you have an endocannabinoid system. It's like a bunch of buttons they can push. 


Bruce [00:29:34] We're talking about how, in a curative state for tumor shrinking, they're working at a stem cell and they do this. And then we're talking about like, can you believe that that chemical was available as a sleep aid before now and that there are whole segments that you go, wow, that's weird, because that one that you have to take more and more of it and you get like sleep hangovers, where if you just use these combination of cannabinoids, it doesn't affect your REM or deep sleep. You actually do really well. 


Bruce [00:30:03] And so that people are talking about outcomes that result from the science that's been invested, and they talk about the sectors that have been disrupted. And they will include those ones I described and I'm sorry, if you're making clear alcohol or light beer, yesterday was a better day than 10 years from now, and the reason is, we've covered it. [Kinsey indistinct comment] But like, if you can make something that has the same onset as an ounce of vodka or gin. 


Bruce [00:30:31] And no drug interaction, which means the people who are on other pharmaceutical pills, who typically are the people with thicker wallets and more expensive purses, also [indistinct] those pills, can buy your drinks and have fun. And they're not depressive. That they make them upbeat and they tailor them and they start to be more like, giddy. So you feel like 15, 20 years younger, you're laughing more rather than all the serious weights that are on your shoulders as you get older, and the kids misbehave, and the financial considerations, and blah, blah, blah. That they'll be jettisoning booze. Because alcohol is not the most brilliant molecule, it's just the best one available. 


Kinsey [00:31:05] Right. But that was the expectation of something like a Constellation Brands, right, to invest in Canopy, was we know our sales are slowing. We know Millennials are drinking less. What's going to be the next big thing in their bet is cannabis. [chuckles]


Bruce [00:31:18] Cannabis. And, you know, I still fundamentally believe it's going to be the elegant development of beverages. Because the infrastructure of socialization often involves a glass, a cube of ice, and something liquid. And so I think, you know, going to a bar that serves nothing but gummy bears will seem a bit odd. And I think that people—I believe fundamentally the only reason we learned how to make pottery, you know, sticking your hands in the clay mud, was so they'd have somewhere to put the wine. Like this whole notion of beverages and intoxication has driven a lot of our evolutionary effort. 


Kinsey [00:31:53] Yeah, yeah. 


Bruce [00:31:54] And I believe that cannabis beverages, if you just look, I don't care if you currently love the ones that are available. I think some of them are fantastic. But if you look at the merit of the molecule, the derivative side effects from drug on drug to weight gain, I don't know why it's not going to be a very revolutionary, big shake-up thing. 


Kinsey [00:32:14] As this market grows, do you think that prices will come down? I was in the grocery store yesterday and I saw a CBD drink that was like $6.99 for a can. 


Bruce [00:32:26] Insane. 


Kinsey [00:32:26] It's crazy. Who's gonna buy that?


Bruce [00:32:27] It's crazy. So, you know what? If you plant a field of hemp and pull the CBD out of the field, if your cost per milligram even is a penny, you're doing it all wrong. And so in that drink, what do they have, 10 milligrams, 20 milligrams? Ten cents, five cents, 20 cents of active ingredient. 


Kinsey [00:32:47] Are you buying the good marketing and the beautiful font and that you can't find it anywhere else? 


Bruce [00:32:52] No, right now you're being jammed. [Kinsey chuckles] You're just being jammed. Like the cost of the inputs—so if hemp and CBD come that cheap, eventually cannabis will be grown in a field. It'll be harvested, and the cost of a milligram of THC will be less than a penny, or a penny. Call it a penny. Make it easy. You can make a good drink with two and a half milligrams. So you have two and a half cents of active ingredient. 


Bruce [00:33:18] That should be—like that's a lot of margin for other stuff. So there's going to become a squeeze, but it doesn't mean people won't make a lot of money. What it means is the farmers will be not growing corn all the time. They might be growing hemp and wheat. And the combines might be refitted, and that becomes a commodity input. But I don't notice like a massive difference in the price of a can of Coca-Cola if the price of, say, sugar changed. 


Bruce [00:33:44] So think of it as it just changes its format. And the big deal, I think, for all margin in cannabis is when you quit measuring it in grams—the weight—and start measuring in milligrams, all the profits will reside in the products measured in milligrams. 


Kinsey [00:34:00] OK. 


Bruce [00:34:00] Because you take them out and then you just mix them together with a bit of bubbly water and some neat flavoring, some technology, and all of a sudden you have a margin model. 


Kinsey [00:34:06] OK. That makes perfect sense to me. [chuckles] 


Bruce [00:34:09] Yeah. 


Kinsey [00:34:09] Now we just gotta wait for it to happen. [laughs]


Bruce [00:34:11] Well, but you'll see it. These are the sorts of things—scarcity to novelty to commonplace will happen very quickly, I bet, by next summer, in a lot of geographies, there'll be cannabis beverages that are priced the same as buying a large can of, say, import beer. 


Kinsey [00:34:29] OK. 


Bruce [00:34:30] And if that's the case, beer fridges won't be beer fridges. They'll be cannabis beverage fridges. 


Kinsey [00:34:36] All right. Sometimes it takes the big picture thoughts and the big picture predictions, certainly. And Bruce, I'm definitely going to bring you back in next summer. [chuckles] We're going to see if these cannabis drink fridges are replacing all of the beer fridges in my bodega under my apartment. I cannot thank you enough for coming on Business Casual and being so transparent and open and willing to talk about almost anything. Thank you, Bruce, so much. I really appreciate it. 


Bruce [00:35:02] You guys did a great job. And I got to say, one of the best setup, organized podcast interviews that I've had since COVID, so congrats on doing it. 


Kinsey [00:35:10] Well, thank you very much. [chuckles] I appreciate that. All credit goes to producer Marilyn. [chuckles]


Kinsey [00:35:22] Thank you so much for listening to this episode of Business Casual. Bruce was certainly one of the most exciting and eccentric guests we have had in a while. And frankly, I want more. So who do you want to hear on Business Casual? Follow us on Twitter and let us know. 


Kinsey [00:35:36] We are @bizcasualpod. That's @bizcasualpod. And I'll see you next time. [sound of a ding]