Canopy Growth Corp (TSE:WEED) (OTCMKTS:TWMJF) (FRA:11L1) CEO Bruce Linton weighs in on the mainstream media’s inane fear mongering on recreational marijuana legalization in Canada, dismisses dispensary operators who have nonetheless been empowered by the discovery of pesticides in ACMPR growers’ product, and thinks “hanging is too good” for ACMPR operators who break the rules governing pesticide use.

Transcript:

James West: Hey Bruce, thanks for joining us again today.

Bruce Linton: No problem.

James West: Hey Bruce, one thing that just happened, that’s the government’s pot czar reportedly has backtracked a little bit on his commitment to the timeline for the legalization of marijuana. Wiped out a whole bunch of shareholder value on the cannabis sector. Do you think that what he said should actually be interpreted as backtracking, or is he just being a little cautious?

Bruce Linton: I found it – I’m still waiting for a senior government official who’s elected for a first time to say, you know what, we’ve decided to charge in with no plan and just see what the hell happens.

So I don’t know that I’ve ever heard – what people are looking for are tea leaves to point in different directions, and what I heard was a guy saying, “I’m out talking to Canadians and I probably heard them say make sure you’re sure.” And what I think he said is, “We’re going to be sure we’re sure.” He didn’t say we’re going slower, he didn’t say we don’t have a plan, he said “We’re going to be sure we’re sure, and we’re not going to rush in.”

It’s hilarious that a comment of ‘we’re not going to rush in’ from an official that never says we’re going to rush in, would translate into ‘oh my god, they’re not doing it on any schedule.’ Hard to win an election if you don’t make this thing happen and happen in a reasonably good and quick way; imagine running as a Liberal saying, just give us another term, we’ll try and do that legalization thing.

James West: Right. Don’t see that happening.

Bruce Linton: Not feeling it.

James West: No. okay, so do you think that we’re still on course for seeing marijuana on the shelves by, at some point, late 2018, 2019?

Bruce Linton: Oh, I think we’re – so I think what’s going to happen is, Parliament will receive legislation, I think they’ll receive it in the next four to six weeks. And as you know, you need to have three readings and then it needs to go to the Senate, and then the Senate needs to accept it and work through it, and we know that the Senate is no longer entirely controlled by one party, and the independents seem to be a reasonable lot.

And then if I’m in charge, I don’t think I’m trying to say I’m turning it all on on a certain date in 2018, but rather I’ve got multiple channels that I’m opening up, and I bet the regs will permit ongoing direct distribution to medical patients. I suspect a good plan would be to allow people who wanted to register as you can buy distilled spirits now from, say, the LCBO and buy it online and have it shipped to you exactly the same courier as delivers our cannabis, that that would be in there, so you can get far-reaching coverage and data, and that the provinces then can roll out whatever they’re going to roll out, whichever provinces are going to do it.

And I bet it’ll say that pharmacies can carry it. So I think you’re going to see four or five or six channels to the end client or patient for LPs, which I think translates to some reasonable tension in terms of margin. Because if one channel is unreasonable, I suspect we wouldn’t put as much effort to that channel.

James West: Right. Okay, it has also been suggested to me, and in the press again, the mainstream press, that the opposition to a recreational marijuana regime in the United States as a result of Jeff Sessions becoming Attorney General, is negative for Canada’s own recreational ambitions, and I found that difficult to swallow. What’s your take on that?

Bruce Linton: Why, are you in British Columbia today?

James West: No, I’m in Ontario.

Bruce Linton: Okay. Well if you’re in British Columbia, drive due south and tell me what you discover at the first state you encounter. Oh my gosh! That state has recreational marijuana. So think that there’s enough fish to fry in what’s going on in America for the crew, that I really don’t think it’s – I don’t think it’s going to come up as a priority.

But listen, we’re in a sector that has so much interest, enthusiasm and speculation that I don’t know, they could put Snoop Dogg in as the next guy to replace Sessions and there might be still question about whether or not that’d be a good thing for cannabis, because people like to speculate. I don’t see any merit in connecting Sessions to a controlled or stop release of cannabis in Canada under adult access.

James West: Mm-hmm. All right. So then, I was in the Eaton Centre the other day, and I’ve been dying to share this story with you. These two girls came up to me, they were in green Maple Leafs jerseys, and they handed me this card which was offering to deliver cannabis to me at my home with the simple dial of a phone call. It took me about five seconds to realize that this is obviously non-ACMPR-compliant mobile dispensary stuff at work, but the one thing that I’ve noticed is that despite all of the raids against dispensaries, I’ve been following their progress through courts and the judges refuse to convict these people.

So I’m curious as to at what point do we sort of make a movement to integrate the dispensaries into the ACMPR as opposed to create this us-versus-them mentality, which is currently what is in existence?

Bruce Linton: So where does their product come, and what criteria does it meet? None. Would they be interested in actually following a system? Probably not. So I think what you’re going to find is that the regs that are – the Parliamentary output of this vote would make very clear what exists, what’s lawful. And it would be just like trying to hand out a brochure trying to say ‘anytime you want moonshine, call this number instead of getting what the LCBO has’. I don’t hear a screaming need or want for that.

Now, dispensaries as a point of sale, I have no issue with. What I have an issue with is that we have a very specific, broad-ranging obligation how we produce cannabis, and if that production model feeds into the input so that everything going in is from a source of supply that’s actually governed and pays taxes and does all those things that we do, terrific. It’s not about dispensaries, it’s about, that’s just distribution.

James West: Right. Okay. On the other side of that fence, the emergence of the pesticide crisis through the discovery of the use of myclobutanil in two ACMPR growers has fed the dispensary side’s ammunition in saying well, ACMPR marijuana is not that different from our marijuana.

Bruce Linton: They’re correct. So the people who break the rules in the ACMPR use the stuff in certainly way less proportions than I would suggest probably all the stuff you’re buying from dispensaries. But that is the people who break the rules. And when they break the rules, they get slapped, and the effect is, they get purchased. And then confident operators who don’t break the rules come in and take over. And the ride’s over.

So they’re right: Nova, myclobutanil, whatever you want, is for sure everywhere, if you want to find it in the stuff which has no measures. But the ACMPR actually measures it, and so if it’s there, you get in trouble. And I’ll tell you, Canopy’s preference would be that you get in a lot of trouble. And I hope that as they go through this, Health Canada increases the rigor and demands of testing, that we will, as we plan, publish the results of testing, because this is the supply chain going against Prohibition, and it better be safe and secure. So for sure, they should – if I was running a dispensary, I would rejoice in it for a brief time to say lookit, they’re almost as bad as us. Terrific argument.

James West: Right. Okay, so from your perspective, then, there’s no long-term damage to the confidence that Canadian ACMPR patients should have towards the ACMPR growers outside of those that were found to be using myclobutanil?

Bruce Linton: Long term, no. for sure there’s a short term hit. But long term, I think every system of supply this organized, over time, has events which will cause it to get better. And I am sure that the effects of the people sneaking in and trying to play around with the rules are going to tighten the rules, and tighten the management of the rules. It will just make it ever more clear that there’s an ever-bigger distinction between no rules and really good rules.

James West: Right. So in your view, the way the system unfolded by recalling the marijuana and everything, would you say that’s evidence of the system working perfectly?

Bruce Linton: Yeah, well, I would say it’s evidence of the system working and getting better. But you know, people who take shortcuts in a system which is to be medical and trusted, really aren’t being responsible to anybody, and I don’t mean for their shareholders; anybody. It’s just ridiculous that people would cut a corner when you know that the corner’s going to catch you. I don’t know, there’s been a few Western movies that said hanging might be too good for that one. It is kind of where I stand on it.

James West: Okay. And so finally, I’m curious to know and I’m sure a lot of your investors would love to hear: how is the integration with all of the recent acquisitions going, in terms of onboarding those patients onto your system?

Bruce Linton: So we’ve gotten reasonably capable at a couple of things. When you can do a million dollars in sales in a day and not increase the number of people that you need in order to transact that volume, it means you actually have scalable systems. And so we’ve communicated to the Mettrum people that, the morning of February 1st, we came in, took over, and we had QA, QC and production systems that really are much more reflective of what we’ve learned by building out Tweed and Tweed Farms, that they will take a period of about two months to have effect in terms of volume of product.

We will be releasing all kinds of product that we can from the Mettrum cycle that they have, and what we want to do over time is make sure that we cross and make available products from three producers: Tweed, Bedrocan and Mettrum, to each of the patients in each of the groups. And so people understand the path we’re on, which I would say is a big function in them being willing to kind of go through it with us. And we’re fortunate that, frankly, the number of options out there and the volume of product available to each of those options is restricted, so from a ‘do you jump ship’, some will, but I don’t think there’s that many great ships going by. And what we’ve got is a pretty strong inventory when you look at the financial statements and positioning of Tweed, and that incorporates Bedrocan; there’s quite a lot of volume of inventory that we’ve built, and I think can make it a lot easier for the patients.

James West: Bruce, we appreciate your insight as per usual. Thank you very much for your time today.

Bruce Linton: Hey thanks, James.