The Business of Cannabis: Hexo Corp

Screen Shot 2019-06-26 at 10.32.46 AM.png
_MG_4714 (1).jpg

By Jason Gorber

As part of our Business Talks with Canada’s top cannabis CEOs, we had the pleasure of speaking with:

Sebastien St. Louis

CEO/Co-Founder, Hexo Corp.

Gatineau, Quebec

What does your company do? We are a cannabis technology company working on bringing branded cannabis experiences to people all over the globe. We are planning to be one of the top three global cannabis companies over the next 10 years.

How have you seen the industry change over the last several years? It’s been really exciting! We landed a deal with Molson-Coors to build cannabis beverages, and we’re excited to launch those this coming October, pending the regulatory changes in Canada. The whole industry is moving towards advanced products. Flower will remain an important part of the industry, but, as we’ve seen [with] the numbers in smaller test markets, we’ve noticed that the clients are gravitating towards smokeless and [the] consistency of the experience that’s provided by brands.

What would you like to see change further, and how are you contributing to that change? We’ve really started to build an absolute world-class team of people on the innovation, design, and engineering side. I want to see that change accelerate. We now have over 20 scientists on staff. I want to accelerate that to a team of over 100 people in the next 12 months, and I think that will help accelerate our knowledge of cannabis. I’d love to be able to get the concrete claims where we can prove to patients factually, in double-blind controlled tests, that yes, such and such product from Hexo will help improve your sleep experience from x to y, and here’s how it does it. I think that is on the near horizon, and I’m quite excited about that.

What do you see then as the major challenges or roadblocks to the success? One of the biggest advantages that Hexo and other licensed producers can bring over the black market is quality control, consistency of products, clear labelling, and the absence of any substances other than cannabis. We’re in a state of constant flux where the regulations change almost on a monthly basis. There’s always a push-pull between the perception of wanting to do the right thing from a regulatory perspective in terms of putting restrictions on how this product can be distributed, but the push is the legal cannabis industry grow[ing] and [being] allowed to market to consenting adults everywhere and allowed to get interesting smokeless products. The paradox is [legalization] actually shrinks the bad health outcomes, shrinks the black-market, shrinks criminality, and we actually have seen youth use reduce. The challenge is in hitting that sweet spot.

What do you see as the biggest misconception of your industry? There’s still a fair amount of stigma around the product itself. We’ve had a huge turnaround in terms of positivity and just generally people supporting the product. The biggest misconception is around the safety of the product, where cannabis is certainly not completely benign, but when you compare it to other products that are not benign, whether it’s tobacco or alcohol, even sugar – cannabis is regulated like nuclear waste! Whether it’s statistical, anecdotal, there’s nothing in our research that indicates that it’s that dangerous. That doesn’t mean that we don’t have to be responsible in the way we distribute it. In fact, we have evidence that it’s a bad idea for children to consume cannabis, so we have to keep it out of their hands. But we have solid evidence that it is reasonably safe when consumed in normal amounts by adults.

Where do you see the industry in five years? Six years ago, there was no cannabis industry. Today, we’re lining ourselves up to be a top three company by market share in this country. In five years, we think there’s going to be three global cannabis players that will control about 70 percent of the market and certainly intend to be one of those. Those companies will look like technology companies, they’ll look like consumer packaged goods companies. I think, in five years, we will have cannabis in the U.S. in a fully legal fashion, and I think Hexo will participate there. This is going to be a 100 billion plus dollar industry in five years, going on eventually 300 billion beyond that.

Cannabis will be bigger than alcohol, I believe.

Obviously, you’ve grown to a very large company, but are you seeing the benefits of being that key player? In other words, by playing by the rules, are you actually seeing benefits, or would it have been easier in some ways for you to have not quite played by the rules and been in the same position? I don’t think that’s a real choice. You’ve seen some licensed producers actually bend the rules and sometimes break them, and, in the short term, that can look like it’s advantageous. In the long term, it always blows up in your face. We made a promise to our shareholders, to our partners, to governance, that we don’t break the law at any level of government. I could bend the rules and go into the U.S. tomorrow morning, but I would be breaking federal law. Good governance will fundamentally allow us to get better shareholders, lower cost of capital, get better partners, such as being able to land Molson-Coors, for example. I think that doing the right thing in the long run always, always pays off dividends.