What Mark Twain can teach us about the weed industry

Let’s talk about weed tech.
Let’s talk about weed tech.
Image: Reuters/Chris Wattie
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In June, California cannabis company Harborside Health ventured north and became the 66th US pot business to list its stock on the Canadian Securities Exchange.

The driving force behind the migration is simple: Marijuana sales are legal at the federal level in Canada, but remain illegal in the US. The federal ban means American cannabis businesses can’t list on US exchanges or raise capital from investors, as long as they sell in their home country.

Ironically, Canadian companies can list on big US exchanges like the NYSE and Nasdaq, because they’re selling a legal product north of the border. Right now, Canada sits atop the cannabis industry and boasts eight of the sector’s 10 biggest companies on the major exchanges by market capitalization.

It’s tempting to see in all this the beginnings of a Canadian cannabis empire—a massive industry projected to be worth $130 billion by 2029.

But there’s no reason to expect that to last. In fact, Canada should be worried.

The country has had the edge in global markets in the past—think BlackBerry’s early dominance of the smartphone space—only to see the advantage quickly slip away as access and technologies spread.

Can Canada retain its early cannabis lead? How can the industry best differentiate itself as legalization spreads cannabis, and cannabis investment, around the globe?

Having launched a Canadian business accelerator last fall focused solely on cannabis, I’ve had a unique view from the front lines. And it’s not all pretty.

Canada has the goods—for now

Canadian cannabis leads the world for a simple reason: its legislative head start. The country was first in the world to legalize medical marijuana in 2001, opening up opportunities for investment, technology research and large-scale production. Last fall, Canada became the first G7 economy to legalize recreational use.

Since then, the country has taken an early lead in figuring out how to cultivate and market cannabis for consumers. As other countries explore legalization, they are looking to Canada for insights and tools.

But Canada’s quasi-monopoly is rapidly coming to a close. Just look at the potential multibillion-dollar effects from last December’s US farm bill, which removed hemp from a list of federally controlled substances. Up until then, big multinational companies had been forced to hold back from experimenting with cannabidiol, or CBD—a non-psychoactive ingredient of marijuana that’s become trendy for its claimed health benefits.

Coca-Cola Co., Molson Coors Brewing Co., and Diageo PLC, the maker of Guinness, had in earlier months each entered talks with several Canadian cannabis producers to develop CBD-infused drinks. The new law, however, could make it legal for stateside producers of hemp-derived CBD to enter the fray, and for large US firms to develop products in-house. With every step toward liberalization, money and talent will flood back to the US. This is just the beginning.

Build for the long haul

How, if at all, can Canadian companies respond as their home-field advantage vanishes? Mark Twain is said to have offered this apt advice: “When everyone is looking for gold, it’s a good time to be in the pick and shovel business.”

In this case, the smart money isn’t in producing a commodity, but in developing and licensing technologies and services everyone will need to get that commodity to customers.

The real cash crop here isn’t weed, in other words; it’s data and intellectual property—the tech foundation of the future global cannabis industry.

Case in point: We evaluated investments in cannabis more than four years ago, and growers’ valuations were already sky-high and out of line with revenues. When we turned to the “picks and shovels” of the green rush, we saw a need for quality assurance. Especially in a new space, and one with a black-market past, consumers need a standard measure of safety and quality—an easy-to-understand seal of approval.

There are boundless opportunities to help producers grow better crops, process plants more effectively, and deliver products to processors, wholesalers, and consumers. Biotechnology can help companies develop new strains for medicine, or for fun.

Growers will have an appetite for improved hydroponics, HVAC and lighting systems, and software to control that hardware. Producers will need help developing dosage formats for both medical marijuana and for edible consumer products expected to be available in Canada by the end of this year.

Amazon CEO Jeff Bezos advises business leaders to think about what’s not going to change when weeding out ideas that won’t be sustainable. What products and services will customers always want or need? Anything that makes cannabis better, safer, cheaper, or easier to buy will be in high demand going forward, regardless of where cannabis is being grown or where consumers live.

Canadian businesses would be wise to use their head start to grow intellectual property, not just marijuana.

They are in a unique position to lay the technological building blocks of an entire industry by creating the processes and innovations that companies in the US and elsewhere will ultimately need to launch and scale.

Ontario-based Canopy Growth Corporation, for example, is the world’s largest cannabis company, with a market cap of $19 billion. While it has invested heavily in cannabis cultivation, it’s also building a portfolio of dozens of patents, with innovations in beverage production, medical treatments, plant genetics, large-scale processing, and more. If your company has intellectual property everybody needs, deep-pocketed new entrants to the industry will be your customers and partners, rather than competitors.

Creating lasting success in Canada also comes down to building an enduring cannabis brand—for individual companies and for the cannabis sector as a whole. Just as France is synonymous with exceptional wine and viticulture technology, so can Canadian companies use their current status to cement a reputation for cannabis expertise—for having the technology, the know-how and a track record that’s coveted the world over.

Canadian distiller Seagram’s dominated the liquor industry in the mid 1900s thanks in part to the advantage it gained during US Prohibition. But even after Prohibition ended, Seagram’s maintained an edge owing to their superior processes—namely their insistence on bottling their own whiskey for optimum quality control, rather than outsourcing to local blenders. Operating from a base in Canada with a modest domestic market, Seagram’s nonetheless earned a reputation for delivering consistent products to customers around the world.

By redoubling investment in the technologies of a brand new industry, Canada can position itself to keep riding the wave as legalization spreads around the globe.

But this only works if companies keep innovating and making names for themselves. As the cautionary tale of BlackBerry has taught us, a competitive global advantage can evaporate nearly overnight.