Canopy Growth Corp. wants to remain the world’s largest legal pot producer, and to hear co-Chief Executive Bruce Linton tell it, has a detailed plan to stay there.
In a widely anticipated earnings report that first arrived late Thursday evening, Canopy reported that revenue ballooned by nearly 300% in the first quarter of legal recreational-weed sales in Canada. Shares of Canopy
rose 4.4% in Friday trading.
After the company’s conference call Friday morning, Linton hopped on the phone with MarketWatch and explained three priorities Canopy believes will help achieve its objective. To Linton, a combination of the right people, smart capital expenditures and the proper allocation of the company’s currently scarce supply of cannabis work together to make the business fly.
“Those three things go together — they have a synchronizing effect,” Linton said.
Canopy has added a significant amount to its employee base, reporting it has grown its workforce even more than revenue. While it had 700 employees last year, that total has increased 285% to 2,700 workers.
“You do what can be done, by a group of people,” Linton said. “We are constantly scanning for new personnel — working against evolving priorities. There is never a week that goes by that we don’t.”
The costs of staffers and their activities have grown substantially too. General and administrative costs ballooned to C$46.1 million ($36.4 million) from C$11.1 million in the year-ago quarter. Sales and marketing surged to C$44.9 million from C$9.4 million a year ago.
The second pillar in Canopy’s strategy is investments in infrastructure, typically referred to as capital expenditures. Canopy — which reports in International Financial Reporting Standards, or IFRS, instead of U.S. Generally Accepted Accounting Practices, or GAAP, rules — uses a comparable measure called property, plant and equipment. Canopy recorded purchases and deposits of property, plant and equipment of C$495.2 million up from C$86.1 million in the year-prior quarter.
“In Canada, we made significant investments on a theory of how things [in the cannabis market] would open up,” Linton said. “Now we’re doing the same thing on a global basis. It’s capital allocation against a not-entirely certain model.”
Linton points to investments in assets in South America as a prime example of the company positioning itself for the future in a market with more unknowns than knowns at this point.
For companies in the cannabis business, the marijuana itself is a scarce resource, and that means Canopy must allocate it appropriately. Recreational cannabis must be divvied up between the various provincial buyers while also ensuring that there is an adequate supply for medical patients in Canada. Canopy also exports pot and must retain adequate amounts for its research and development divisions, which needs pot for tasks like clinical trials and product development.
“The first to get [marijuana] is science,” Linton said in the earnings call. “The second is patient, third is export and fourth is recreational [cannabis].”
In the fiscal third quarter, Canopy said it sold 8,288 kilograms of pot into the recreational market and equivalents and 1,814 kilograms for medical purposes. In the year-ago quarter, Canopy sold no recreational pot and 2,330 kilograms of medical pot. The company said it sold 204 kilograms of medical pot in Germany in the third quarter.
The company does not say how much cannabis it uses for research and develop and other scientific activities.
Linton attempts to guide the company toward these priorities, along with co-CEO Mark Zekulin. Linton said that Zekulin runs the show, boasting two law degrees and one in math.
“In a very superficial way, I cause the work and Mark does the work,” Linton said, by way of explanation on how the duo splits of the top boss job. “I am actively involved across the top of everything.”
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Where he says Zekulin fits is handling everything related to operations and execution. Linton says Zekulin loves to put together structures, draw up organizational charts and figures out what drives the business, “key performance indicators” in business jargon.
One ritual that has served them well: Zekulin will call Linton on his commute into work — Linton says he wakes extremely early in the morning — and once again on his return home. In those daily meetings, the co-CEOs tackle whatever needs to happen with the company.
Canopy stock has gained 112% in the past year, as the S&P 500 index