Up in Smoke

As marijuana lurches toward legalization, Big Weed takes aim at the little guys

Alberta Venture, April 2016

July 22, 2015, 4212 118 Avenue, Edmonton

Aaron Bott’s wife, Melissa, pulls their vehicle into the parking lot of Hemper-Fi, a hemp-product store of which Bott’s brother, Colin, is the operations manger. Suddenly, Bott tells her to stop. A van belonging to the Green Team, a police task force dedicated to busting illegal marijuana grow-ops, is parked in the lot. The Green Team has just raided Hemper-Fi and MACROS, the non-profit dispensary that buys marijuana from the underground market and distributes it to patients with a doctor’s note. Bott says MACROS has 1,200 members, people suffering from glaucoma, arthritis, epilepsy and cancer. While such dispensaries are illegal in Canada, there are about 175 of them (mostly in Vancouver) and Bott has run his, unimpeded by law enforcement, for 11 years.

But on this day, the Green Team arrests Bott, charging him with possession and intent to traffic. They tell him they’ve already arrested his brother, for housing an illegal entity, and his mother and stepfather, who have a grow-op in their home in Sturgeon River.

Three months later, while Bott awaits his court date, Justin Trudeau becomes Prime Minister and pledges to legalize marijuana. The next day, the share price of a company trading under the symbol “ACB” on the Canadian Securities Exchange triples, and soon the first shipments of pharmaceutical-grade medical cannabis leave its $12-million, 50,000-square-foot facility north of Cremona, in the Rocky Mountain foothills north of Cochrane.

MACROS, or the Mobile Access Compassionate Resources Organization Society, and ACB, or Aurora Cannabis, represent the past and the future of the business of bud. At one end is a small-scale marijuana devotee who sees himself as more of a medical practitioner than a businessman. At the other are investors who see a pile of money at the end of this rainbow. As new regulations and impending legalization heap uncertainty on the sector, the fractures between the two worlds are growing.

I don’t see the Aurora Cannabis facility as we approach, but when I see how big it is, I can’t believe I didn’t. The building appears from behind a wall of trees, first the frame of a hulking metal warehouse, then the towering barbed wire fence.

Inside is the unmistakable scent of marijuana. Dale Lesack leads me into a dressing room where we cover ourselves in white protective clothing, even wrapping our shoes in scrubs and putting a mask over our mouths to avoid contaminating any of the plants. “The distinct difference about us is that we were founded by growers first,” he says as he guides me through the maze of a facility, detailing how, in every way imaginable, this is not your average grow-op. “But all good businesses grow up.”

We swipe a scanner before entering and exiting every room and cameras hang from the ceilings like stalactites. This is how you prepare when Health Canada can, at any second, arrive unannounced for an audit. Lesack is the production facilitator but he’s also one of Aurora’s founders, and he narrates Aurora’s origin story through the course of the tour, as he leads me through a laboratory for extracting chemical compounds, a freezer room where tiny plant cuttings, “clones,” sit in plastic containers and, finally, the vegetative room – a hall filled with 1,800 marijuana plants beneath beaming lights, fed by a world-class irrigation system and cooled by an array of fans hanging on the walls. Each plant is marked with a barcode so every speck of product is catalogued and tracked. It looks like a High Times cover meets The Matrix.

Aurora Cannabis is the first company in Alberta with a licence from Health Canada to produce and sell medical marijuana, and one of just 27 in the country. It’s one of 12 that are publicly traded. After Canadian courts ruled in 2000 that patients should have access to the drug, Health Canada implemented its Marihuana Medical Access Regulations, or MMAR program, which allowed people to grow for personal use or for other registered patients. It heralded the era of medical marijuana in Canada.

But it became the kind of industry that attracts Bay Street financiers when, in 2013, the government replaced the MMAR program with the Marihuana for Medical Purposes Regulations (MMPR), which mandate that patients buy their cannabis from a licensed producer. A last-minute injunction meant that growers approved under the MMAR could continue to do so. But MMPR has still fundamentally shifted the model for cannabis production, transferring control from individual patients and producers to big business.

Since the federal election, officials have floated ideas for how to handle the distribution of cannabis. Ontario Premier Kathleen Wynne said selling it through the Liquor Control Board of Ontario “makes a lot of sense,” and in B.C., a public sector union and the liquor store association are lobbying for the business. Alberta has made no commitments. The Alberta Gaming and Liquor Commission told Alberta Venture it wasn’t in a position to speculate “as the issue is being discussed at the federal level.” The provincial government, waiting to see how the feds proceed, hasn’t taken a stance.

Health Canada said the aim of the MMPR program is to provide patients with high-quality cannabis produced under secure and sanitary conditions. But it’s done much more – it’s paved the way for a multi-billion-dollar industry that has a vested interest in pursuing full-blown legalization. The medical marijuana industry in Canada is currently worth about $80 million a year. Legalization of recreational use could bolster the cannabis market to $5 billion in just a few years – all of it to be taxed.

Aurora is Alberta’s preeminent cannabis company and its purpose-built facility is the first of its kind in Canada – most are repurposed old buildings. Alberta is the great unexplored frontier in the burgeoning market: Even with no known dispensaries and just one licensed producer, it has the fourth-highest number of patients with a licence to possess of any province. Public support for the legalization of recreational use in Alberta is at 60 per cent, behind only B.C. and Atlantic Canada. As Aurora enters the market, it’s made clear its ambition to snare as much of that market as possible.
But its story begins with a green-thumbed child from Calgary.

“Ever since I was six or seven, I’ve been involved with plants,” Chris Mayerson says. “I used to look forward to going to Co-op because there’d be these pop-up greenhouses in the spring. I loved going there, grabbing some seeds and making little greenhouses from Styrofoam egg cartons and saran wrap.”

When he was 18 he started his own concrete business. That’s how he met Dale Lesack, a master electrician and homebuilder in Calgary. Mayerson began growing marijuana for a friend suffering from fibromyalgia and PTSD when he was 26, after he heard about MMAR. When he started his grow-op, in a converted barn outside the city, he needed the electrical system to be up to code, and hired Lesack.

Over the years, Mayerson made notes on how to improve the MMAR program. He sent “very polite, respectful and constructive criticism and suggestions” to Health Canada’s general mailbox, not expecting a response. But in 2011, Health Canada invited him to participate in a forum about the move from the MMAR to the MMPR system, which is where he glimpsed the kind of industry that would be coming down the pipes.

The day after the forum, he called Lesack. “I said, ‘Here’s what’s happening – do you want to do this?’ ” Before they submitted their application, Lesack called his brother-in-law, Steve Dobler, the vice-president of Alberta’s largest permitting company, Superior Safety Codes. All he wanted was some basic advice. But as soon as Dobler saw it, he was taken aback. “I think you guys need to meet Terry,” he said.

“Terry” is Terry Booth, the CEO of Superior Safety, and he runs another company that audits commercial vehicle inspection stations for Alberta Transportation. He’s the perfect guy to take on Health Canada’s bureaucracy. He was startled when Dobler approached him; Dobler was the most conservative person he knew. But soon they visited Mayerson’s operation. Booth says Mayerson and Lesack didn’t have the business acumen – or the capital – to pull it off and that they needed him. He studied the regulations. He went to Vancouver and toured underground grow-ops. “I learned a hell of a lot about the industry and what its potential was,” he says.

He raised $2.5 million right out of the gate, mostly from friends and family. But as the industry transitioned into the MMPR, the investment community stopped funding companies that didn’t have a licence to sell. (Aurora had a licence to grow – the precursor to a licence to sell.) So Booth and Dobler put in more of their own money and “ransacked the Superior kitty.”

The facility was completed in 2014. Why Alberta? For some of the same reasons other industries – especially agriculture – settle here: free water, the lowest corporate tax rate in the country and farm credit programs.

Over the ensuing months, the board of directors swelled with people like Dr. Jason Dyck, the director of cardiovascular research at the University of Alberta, and Chuck Rifici, the former CEO and co-founder of Tweed Marijuana. (Tweed is now part of the holding company Canopy Growth Corporation.) Then, on November 27, Health Canada issued Aurora its licence to sell.

In conversations with Aurora’s staff, one word continuously resurfaces: culture. But Aurora isn’t aligned with only the stereotypical cannabis culture – the dreadlocked slugabeds and Phish fans who kick footbags at outdoor festivals. Nor have they gone to the dark side of soulless corporate peddling. The culture they refer to is the fusion of the two.

But it hasn’t emerged seamlessly. There are those who want to make the business of cannabis an actual business, one in which you can buy shares and a handful of people can get rich. Then there are those who pine for the days where it was a mere cottage industry, where the anti-capitalist ethos that permeated its rise in popular consciousness is still intact. (Though it was never just a cottage industry – plenty of people got rich in the black market.) They see cannabis as a sacred medicine, not a product.

Aaron Bott sits firmly in the latter camp. He believes that the licensed producer model can’t treat patients with the attention he provided through MACROS. He says many of MACROS’s 1,200 members are now without medicine. “Watching the industry grow over 12 years, I think they still don’t respect the patients,” he says. At the same time, ironically, the plant’s medicinal value has become all but irrefutable. Even the College of Physicians and Surgeons of Alberta, once the klaxon of opposition, has softened. (The CPSA told Alberta Venture it didn’t have any medical experts who could comment.) Some patients need to ingest cannabis, and producers can’t, by law, offer much in the way of edibles or derivatives, like oils or lotions. Many patients say they’ve bought from licensed producers but the product doesn’t help. So they go to dispensaries for different products and advice, and risk losing their licence to possess.

Bott bristles at the name Aurora. His resentment is directed at Rifici and his ties to Canopy. With a market cap around $280 million, Canopy is Canada’s largest cannabis company, and it has called for the federal government to shut dispensaries down. Bott says without the dispensaries, the industry wouldn’t be where it is today. “That’s the big rift in the cannabis industry,” he says. While patients flock to dispensaries, Big Weed profits from their closure. “It’s profit over patients,” he adds. As he prepares his plea bargain, he and Melissa have had to go on welfare. It’s a blunt juxtaposition between the industry’s ascendance and the snuffing of the plant’s biggest champions.

It’s why most producers work so hard to not alienate that culture – they need social licence. Some play to tried-and-true cultural references, such as Marley Natural. Some, like Tweed, hire Snoop Dogg. Some­ ­sponsor 420 events. And some stumble upon the right people.

In the summer of 2014, Joel Fuzat was flying to Edmonton from Vancouver. He was a former graphic designer, now studying Chinese medicine, but he’d also been a cannabis-farm ­manager in Humboldt County, California, the biggest pot-producing region on the continent.

He was seated next to a man reading about cannabis in the U.S. Pharmacopeia. “That’s no lightweight document,” Fuzat says. “You don’t read that for fun.” He asked the man, who looked like a straight-up businessman, “Why are you reading that?”

It was Booth. He turned the conversation around on Fuzat – what did he know about cannabis? By the end of the flight, impressed by Fuzat’s precocity and prowess, Booth offered him a job. “I thought he was crazy,” Fuzat says. “I thought he had way too much too drink on the plane.”

Booth followed Fuzat out of the airport, peppering him with questions like a hanger-on to a movie star, and Aurora soon paid for him to visit the facility in Cremona. It was like nothing he’d ever seen, even in Humboldt. He was hired as the facility director (and as Aurora’s sixth employee. It now has more than 50). Fuzat guided Aurora in a direction that was closer to the culture from which he came. He sourced a major nutrient supplier, wrote press releases, arranged meetings with scientists and wrote papers for publication. And, in September 2015, Aurora brought on another member who’d reinforce that cultural connection.

In 2010, Neil Belot was working on Bay Street when, one morning, he awoke to a tingling sensation in his feet. Soon it spread to his knees and his bladder went numb. Doctors found a lesion forming in the centre of his spinal column, and he was diagnosed with transverse myelitis – there’s only one instance per five million people per year.

Doctors told him he had a “very low chance of ever recovering any mobility.” They wheeled him out of the hospital and he bought a cane. He was 30 years old.

Belot started medicating with cannabis. He’d run into some of the problems that Bott mentioned: though he seemed eligible to possess marijuana under the MMAR, he couldn’t get a doctor to prescribe it. But the cannabis helped too much to quit. “It doesn’t take the pain away – it takes you away from the pain,” he says. Soon he was working a couple days a week and he found a pro-cannabis doctor. “Eventually I said, ‘This is a miracle.’”

Belot felt he had a second shot at life. He reached out to different licensed producers, and was invited to apply for the inaugural role of executive director of the Canadian Medical Cannabis Industry Association, which he was offered and accepted.

Eventually, he left to take on the role of chief brand officer at Aurora. The company’s attitude towards patients sealed the deal – Aurora supports the patients’ right to grow their own medicine. “There are dispensaries that have been around for 20 years,” he says. “Aurora recognizes the massive debt of gratitude that we owe to those pioneers from the early cannabis community. [They] allow us to exist.”

Fuzat agrees. “The MMPR didn’t come out of Health Canada’s own volition,” he says. “It came out of people going to jail over and over again for something they believed in. It came to those people hiring lawyers, doing research and speaking to judges again and again, convincing them through a preponderance of evidence that this is real.”

The company believes this conciliatory attitude is part of its competitive advantage. Booth says he has the opportunity to make Aurora the best, if not the biggest, cannabis company in the world. “I don’t worry at all about market share,” he says. “We’re going to get it.” He says Aurora is working on a deal that will catapult it to number one in Canada and that in 10 years Aurora will either be one of the biggest players in the industry or will belong to one of the biggest. “But we’ll do a lot of gobbling before we get gobbled up,” he says. And Health Canada wants consolidation – a surplus of small companies would be a regulatory nightmare.

“When you mention Tweed, the [industry] guys in Vancouver and Victoria treat it like it’s the Antichrist,” Booth says. “When you speak of Aurora, they say, ‘Yeah, those are the good guys.’”

Marc Emery doesn’t call Aurora “the good guys.” In fact, the “Prince of Pot,” who’s been jailed a handful of times and whose cannabis-reform activism has made him the most visible marijuana activist in the country, has never heard of Aurora. But he agrees that Canopy is reviled by the people it should be courting. “When you get one business encouraging the federal government to go in and bust people, nobody in our industry is going to like that,” he says.

But Canopy’s folly doesn’t guarantee Aurora’s riches. Emery says Aurora’s claim to higher-quality product is redundant; most producers manufacture cannabis of similar quality. They have to. And the company’s connection to the scientific community is “all hype,” he says. “There are experts available for all these licensed producers and none of them are particularly unique.”

But that’s not even the tip of the iceberg. Emery says that once recreational use is legalized, Canadians will grow pot outdoors on their millions of acres of arable land. When anyone can grow it, the price will plummet to the point where farmers can enjoy a healthy margin and licensed producers won’t be able to compete. “It’s going to wipe out every other business growing indoors in facilities. That’s the big surprise coming up,” Emery says. “None of this indoor gardening, legal and illegal, is sustainable.” He laughs off a cannabis monopoly – let alone one that belongs to Aurora.

But he still implies Aurora could take the lead, saying companies with high production efficiency and low overhead will lead the market of the future. And though it’s illegal for cannabis companies to advertise in traditional venues, Emery encourages Aurora to focus on getting ­doctors to recommend their product. “And they need to influence people like me,” he says.

Yet no one – not Terry Booth, not Marc Emery and not Aaron Bott – can predict the shape of the market. In the face of this uncertainty, Aurora seems like it could rise to the top and be the high roller in a high-stakes industry. It has the lowest per-gram production costs in the country. It’s developed proprietary technology, including one that delivers THC, the chemical responsible for the plant’s psychological effects, through what’s essentially an asthma inhaler. It has only been selling for a few months, but is gaining clients faster than it had expected. And it’s equipped to navigate the contours between the culture of yesteryear and the markets of tomorrow.

The arrival of a full-fledged cannabis market has been a long time coming. And as the industry expands brisker than anyone could have imagined a decade ago, maybe it doesn’t seem so strange that, with our trademark entrepreneurial spirit – and rich agricultural record – an Alberta company could lead the way.

Reprinted with permission from Alberta Venture.