Weed kings: How the Tragically Hip became marijuana millionaires

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Rob Baker, lead guitarist for the Tragically Hip, is chatting about the surging market for cannabis-company stocks.

It's high dough – some might say too high. The short-term gains make things all the more interesting for Mr. Baker, king of the northern power chord, and now a stakeholder in the weed sector.

But he's more focused on the long-term prospects for Canada's new recreational cannabis industry, and two companies in particular: Newstrike Resources Ltd., a consumer-focused producer in which he and his band mates have a significant ownership stake, and CanniMed Therapeutics Inc., a medical-marijuana grower and distributor that has launched a friendly bid for Newstrike. He's a firm supporter of the transaction, which is not yet a sure thing.

Lately, weed stocks have soared to ear-popping heights as new investors have piled in.

"No one's really earning any money and there are crazy valuations on companies. I watch the stock price with great interest and amusement, and I do figuring in my head. But my wife and I, we buy into these things because they are things we believe in. We're not into day trading and trying to make a quick buck," said Mr. Baker, whose Kingston-based band did its last concert in 2016, a little more than a year before the death of lead singer, Gord Downie.

"I really think that this is a good deal, because I think it builds a strong base."

A quick buck is exactly what The Tragically Hip and its management have earned with their 5.4 per cent stake in Newstrike. Though the company has yet to generate any revenue, it nevertheless had a market capitalization of more than $1.1-billion earlier this week.

The sector is incredibly volatile – Newstrike's shares dropped 27 per cent on Wednesday and another 14 per cent on Thursday, pulling the company's value back down to $721-million. Even so, that means the Hip's interest is worth about $39-million.

The band aims to lend its unique rock vibe – one that, for many fans, evokes summers in Canadian Shield cottage country – to the marijuana brand.

How that plays out in practice is still being worked out, although Mr. Baker, 55, is adamant the band will not morph into the "Joe Camel" of the weed industry.

The Hip signed on with Newstrike in early 2017. They join other ganja-friendly artists in partnering with marijuana ventures, such as rapper Snoop Dogg and the family of reggae legend Bob Marley. Interestingly, Mr. Baker's interest comes several years after he gave up smoking weed himself. "I felt like I hit my lifetime quota," he said.

He sees the entry into the fast-expanding marijuana business as an extension of the band's branding, which already includes some wine labels. Some ideas being kicked around include using song titles on weed brands or other products, such as vaporizer pens.

"There's responsible use. We sell wine. There is Tragically Hip wine. And friends get together and have a meal and you share a bottle of wine and it's a social time. It's something relaxing and enjoying your life with friends. Music is really no different. It's a social event. It's a social emollient, a social lubricant. That's how I see it fitting in," he said. "It's not like we're going out on a crazy limb. It's something that has been part of our world for a long time."

For CanniMed, the country's oldest medical-marijuana company, it's very serious business indeed. It wants Newstrike and its consumer brand, Up Cannabis, as a launch pad for what is expected to be a multibillion-dollar recreational pot industry as legalization takes effect in Canada later this year.

For months, the world of weed stocks has been as freewheeling as that of rock 'n' roll, with companies able to raise hundreds of millions of dollars by selling stock. In the past few days alone, Newstrike shares have whipsawed – surging more than 30 per cent on Tuesday and losing all that and more over the next two sessions. Some investors worry that CanniMed's all-share bid may no longer make sense. At times, Newstrike has been worth more than twice the value of the company planning to take it over.

Further complicating the plans of Mr. Baker and Jay Wilgar, Newstrike's chief executive officer: The much larger Aurora Cannabis Inc. launched an unsolicited bid for CanniMed that is conditional on it abandoning the Newstrike deal. The battle has generated some harsh words back and forth, as befits a hostile-takeover battle.

Mr. Wilgar acknowledges that he's fielded some questions from investors worried about the fate of the takeover as shareholders prepare to vote on the deal on Jan. 17.

"I've had a very few number of phone calls about it," he said. "We don't make serious, long-term business decisions based on two or three days of activity. We can't operate that way. It would be irresponsible for us to do that. We certainly believe what we're doing is creating a lot of value here over the long term."

The cut and thrust of corporate deal-making seems worlds away from Canada's adoration for the Tragically Hip, which for many provided a soundtrack for their youth starting in the 1980s. It became a national outpouring in 2016, when the band, which also includes guitarist Paul Langlois, bassist Gord Sinclair and drummer Johnny Fay, embarked on its farewell tour following Mr. Downie's diagnosis of glioblastoma, a form of brain cancer. He died on Oct. 17, 2017.

So how does a Canadian Music Hall of Fame inductee such as Mr. Baker become a cannabis capitalist? Indeed, he is also an investor in other producers, including Canopy Growth Corp. and Aphria Inc.

He witnessed his father, a judge, incarcerate people for drug offences in the 1960s and 70s, before undergoing a philosophical shift on the bench in the eighties, deciding that all drugs should be legalized as a way to shut down the black market. It became a topic of conversation among the band members.

"It's the kind of thing that the guys in the band discussed many times, often over a joint. It just seemed a natural thing to get into this. We all knew legalization was coming. Not only was it inevitable, but it's desirable, and it seemed like we should find someone to pair up with," he said during an interview at a cannabis conference in Toronto this week.

"We weren't just looking to slap our name on something and make a quick buck. We were looking to get into something that we could be into for a long time. I'm semi-retired now. I need things to keep me busy."