“During a gold rush, there’s a lot of money to be made supplying the picks and shovels,” said Paul Pedersen.
The 2006 Saint Mary’s University business graduate is talking about the stampede to produce and sell cannabis when it becomes legal two weeks from now. In just the last six months, $2.4 billion has been raised in Canada and Pedersen estimates that in the past five years, the market capitalization of cannabis companies has zoomed from zero to $60 billion.
Booze companies, such as Constellation Brands which owns Corona beer, recently bought a $5 billion controlling interest in Canada’s biggest marijuana company, Canopy Growth. Vancouver-based Pedersen suggests it’s a hedge against declining sales once some consumers move over to pot, as U.S. states that have legalized, such as Colorado, have seen.
Pedersen teamed up with Tiffany Walsh to found a company called Highlanders Cannabis, and they recently bought a vacant pharmaceutical plant in Sydney Mines. Walsh, who grew up in Cape Breton, is, like Pederson, another 2006 B.Comm. grad from SMU, and her corporate law practice in Vancouver deals exclusively with marijuana companies. Walsh’s dad found a 46,000-square-foot factory, which was built in 2007 and then housed two failed pharmaceutical companies. She said she and Pedersen “got it for a steal.”
Acquiring the facility is part of the partners’ pick-and-shovel approach to a revolution that is going to make some people very rich (including them, perhaps) — a vision they shared during a guest appearance in Ellen Farrell’s Entrepreneurship class at their alma mater on Tuesday.
“Everyone is focusing on how to grow or sell it. But we expect consumers in the future won’t be smoking cannabis,” predicted Pedersen. “We think that the mass market appeal will be through infused products.”
Instead of joining the “green” rush to grow or supply recreational cannabis, the couple sent Health Canada a 750-page application for a processing licence. Approval could take up to three years but they’re high on a vision of the future that includes extracting compounds and distilling oils that can be sold to manufacturers to infuse face creams, shampoo, cookies, and even Coca-Cola. Expect to see marijuana-infused everything on the shelves in a year or two. “Personal lubricant products are very hot in Vancouver right now,” said Walsh with a wink.
Some Highlanders’ oils will isolate cannabidiol (CBD), a cannabinoid which does not contain the buzz-inducing ingredient for which marijuana is best known. Other oils will isolate THC, the psychoactive ingredient that adults will soon legally be allowed to smoke, although Pedersen predicted fortunes won’t to be made until after October 2019. That’s the date when Ottawa legalizes the sale of cannabis in food or edibles.
Pedersen wasn’t just blowing smoke. He’s got the technology. He founded Nextleaf Solutions Ltd. in 2015, a cannabis extraction company that’s the first in Canada to receive a U.S. patent for a process that produces a refined oil from the plant. “It will be a game changer for the edibles market,” said Walsh. “Through the extraction process, using even low-grade marijuana, all the tastes and smells are removed so the distillate can be used to infuse any food or beverage.”
Nextleaf employs a team of 10 chemists and engineers for research and development; the company will be listed on the Canadian stock exchange later this year. One of the products they are working on is a capsule that could provide a “fast onset” or release of THC that would reduce the wait time to get high.
Prior to Nextleaf, Pedersen was an early investor in B.C.’s Canna Farms, a medical cannabis producer which has now branched out into the recreational market. It was acquired by this summer by VIVO Cannabis Inc. (formerly ABcann Global Corporation) for $133 million in cash and shares. Pedersen and Walsh are currently invested in another “pick and shovel” company — this time in the software sector — called Ample Organics. Pedersen told the Entrepreneurship class it was started by “the Canadian version of Mark Zuckerberg,” a high school student in Toronto. Pedersen says 70 per cent of cannabis growers now use Ample Organics’ software system to keep records and track their growth and inventory.
Pedersen thinks a company like Nextleaf, focused on developing Intellectual Property around the extraction of cannabis oils, is well-positioned to make money in a disruptive new industry. He says Canadian cannabis companies are making so much money right now they could potentially take over American suppliers that can’t grow as rapidly because of the federal prohibition on grass south of the border. Ironically, weed might be one commodity Canada can export and eventually win a dominant share of the U.S. market that is not now covered by the shiny new trade deal.
Pedersen sees opportunities for Human Resources firms and educational institutions to find and train workers and quality assurance people. For every dollar a consumer spends buying cannabis, Pedersen predicts the pick-and-shovel companies can make five. Recent estimates of how much marijuana will be sold in Canada range all the way from $8 to $12 billion a year. Nobody knows.
What Pedersen and Walsh say they do know (and claim they learned as undergrads at Saint Mary’s University) is “not to follow the puck, but skate to where the puck is going.”