Bruce Linton, founder and CEO of Canopy Growth Corp., gives a keynote address in Toronto on June 8, 2018.Christopher Katsarov/Globe and Mail
Part of cannabis and investing
Bruce Linton couldn’t have dreamt of a better time to take another cannabis company public.
On Thursday, the co-chief executive of industry giant Canopy Growth Corp. listed shares of its sister firm Canopy Rivers Inc. on the TSX Venture Exchange amid a trading frenzy in pot stocks that has lifted valuations across the space for weeks. Mr. Linton, who’s also the acting CEO of Rivers, is hoping fans of Growth, whose Canadian shares are up 110 per cent since mid-August, will flood into Rivers.
By the end of trading Thursday, the stock – which had earlier been halted – shot up 150 per cent, or $5.75 to $8.75, with more than 18 million shares trading hands.
He says he hears a lot of pitches from marijuana upstarts all over the world. Three-fourths of them are looking for some money and a little help, but want to keep control of their businesses. But Growth, a cultivator and retailer worth $14.5-billion, doesn’t want to own small portions of these startups. That’s where Toronto-based Rivers comes in: It’s a company that invests in other companies in the cannabis industry and taps the expertise of Growth in production, plant genetics, retailing and branding to “help make them great,” Mr. Linton says. In return, Growth gets access to product it can sell through its craft channel and the right to do a deal with the portfolio company in the future.
Bruce Linton is best known as the CEO of Canopy Growth, but he's doing more than just leading one of the largest marijuana growers in the world. He's also acting CEO of Canopy Rivers, a company that invests in other companies in the cannabis sector and taps the expertise of Canopy Growth in production, plant genetics, retailing and branding to “help make them great,” says Linton.
“Growth isn’t in the business of playing minority interests. It would just rip you apart to keep track of everything,” Mr. Linton said in a recent phone interview.
“We see so many minority things that we have to play them, we got to see them, we got to try them. I really wanted to be able to bring money and how not to blow it, the lessons learned. That’s Rivers.”
Growth owns 25 per cent of Rivers, but controls almost 90 per cent of the votes through a dual-class share structure that would thwart hostile takeover bids from succeeding.
Rivers makes investments through a mix of equity, debt, royalty, joint ventures and income-sharing structures. The royalty, for example, includes a per-gram fee with a minimum yearly payment for a handful of cannabis growers in its portfolio, generating cash flows. By not putting all of its eggs in one basket, Rivers says it reduces the risk that lower yields, crop failures, delays or recalls could have on its potential returns. In addition, it also owns a stake in a media company called Civilized.
Investors, however, are putting their faith in Mr. Linton and the rest of the Rivers team to pick the right assets and the best way to play them. How good they are at that is largely up in the air. The Rivers platform is less than two years old and pot stocks across the board have been flying high. Not to mention investors have to swallow the potential conflicts of interest that exist with the companies being so cozy and sharing staff – although this shouldn’t come as much of a surprise since it has been disclosed.
In July, Rivers closed a financing that saw it raise $104-million, which is a lot more than the $60-million it initially set out to raise in May. It sold subscription receipts at $3.50 apiece that will convert into shares of the public company. The raise was co-led by CIBC Capital Markets, GMP Securities LP and Eight Capital.
Devin Schilling, an analyst at PI Financial, initiated coverage of Rivers on Wednesday with a 12-month price target of $10 a share.
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