Acreage Holdings is in a unique situation for a publicly traded company. In June, shareholders voted to enter an arranged marriage of sorts (contractually an “Arrangement Agreement”) to a much richer Canadian bride, Canopy Growth. The engagement may become the longest in history, because the wedding cannot occur until cannabis is federally legal in the United States. While the lovebirds wait for larger forces to decide their fate, the company waltzed away, albeit with everyone’s approval, with a dowry of hundreds of millions of dollars to spend on itself. Even better, the groom also can legally utilize all the bride’s assets (brands, resources, intellectual property) for free with the understanding the assets will be used to benefit Acreage and its shareholders.
An even wealthier patriarch—Constellation Brands—sits over the couple’s shoulders, determined to control whatever chaos erupts in order to ensure the marriage happens as planned. No wonder Acreage Chief Executive Officer Kevin Murphy, who founded the company, raised it, and betrothed it to Canopy, is so at ease. Despite the ups and downs of the market (cannabis stocks in particular); despite all the regulatory hurdles and delays that test the patience of compliance managers, shareholders, and market analysts; despite all the unknowns that come with operating a cannabis business, Acreage is putting into place a strategy to increase its footprint in the twenty states in which the company currently operates.
Connecticut-born Murphy, 57, is a former Wall Street money manager. Eight years ago, he used his own money to underwrite the start of his cannabis career in one of the country’s small but venerable weed markets. “It was in 2011 when I was introduced to cannabis through a very dear friend of mine who had made an initial investment in Maine, which was the first state on the East Coast to embrace medical cannabis,” he said.
Murphy was an athlete, a linebacker at College of the Holy Cross who spent a season in the United States Football League before starting his career in finance. Like many investors in cannabis, he did not use weed personally but quickly realized the industry presented irresistible opportunities far beyond making money. “I was interested in the economics of the business, but equally as important I learned about the medicinal value of the plant and was convinced at that time that we could supply clean, predictable medicine to people in need,” he said. “From my vantage point, that was one of the major push points in getting involved. From there, learning from the experience, as a private investor I increased my footprint to include New England. From Maine I moved to Connecticut, Massachusetts, and New Hampshire, and for the first three years in existence it was my family’s capital I put at risk.”
The investment was significant—in the tens of millions of dollars, according to Murphy—but he said the calculation was not terribly difficult to make. “One of the ways I got comfortable and I got my wife comfortable with making the investment was realizing that while the perception of risk was exceedingly high, the reality of risk was exceptionally low,” he said. “And I say that only to the extent ‘Who has more to risk in this equation?’ I’m an investor with millions of dollars at risk, but how about the law firm that represented me? They had a lot more to lose. And what about the governor and the General Assembly of Maine? They took a big risk instituting a medical cannabis program. So, my attitude was that I had a lot less to lose than everyone else, and I was willing to risk that capital because I believed the return was going to be extraordinary.
“The simple math is if you can grow something for $400 a pound and sell it for $400 an ounce—well, I wasn’t a math major in college, but it seemed like a pretty good equation to me.”
In 2014, Murphy created an investment group called High Street Capital Partners as a more formalized offering for outside parties. “I invited a handful of investors to come along with me to establish our footprint,” he said. “I had seen what I believed to be an extraordinary opportunity, and I guess the old business pitch held: Do what everyone else is not doing, and do it right. I thought that was particularly applicable to cannabis. It was an exciting opportunity to take part in what I would call the prohibition era of cannabis.”
In 2018, High Street morphed into its current form. “After becoming familiarized with the market, we transitioned the business from an investment group into an operating holding company called Acreage Holdings. We surrounded it with more topflight executives and employees and eventually with a world-class board of directors, which now includes [former U.S. House of Representatives Speaker] John Boehner and [former Massachusetts Governor] Bill Weld. It’s been an extraordinary journey.”
The journey is far from over. Inverting a normal business strategy in which a company develops strategies but journeys toward an unknown future, Acreage Holdings, Canopy Growth, and Constellation Brands have laid out the future of the three entities ahead of time and now must execute the plan.
Expanding the footprint
Across the country, Acreage is working overtime to maintain its position as “one of the largest vertically integrated, multi-state operators of cannabis licenses and assets in the U.S.” In August, the company announced the rollout of its “House of Brands” strategy to introduce a variety of consumer products into new markets.
“The Botanist, a wellness brand devoted to unlocking the benefits of the full cannabis plant, expects to launch in Iowa this month with its first product, a line of high-CBD tinctures for Iowa’s medical market,” read the announcement. “Natural Wonder, developed by Acreage’s Form Factory division, is a convenient and discreet micro-dose sublingual breath spray, available on select dispensary shelves in Oregon. Live Resin Project is expected to launch in California later this month, bringing to market new live resin products in a variety of raw concentrates and easy-to-use vape cartridges.”
Murphy sees product and brand diversity as key to Acreage’s prosperity. “Long term, I think you’re going to see very strong international brands, very strong country-specific brands, and some strong regional brands, very much like most [consumer packaged goods] categories,” he said. “I also think you’re going to see brands that win in the adult-use market and other brands that win in the medical market. From our vantage point, we’d like to take the brands we’ve made internally and couple those with [Canopy Growth’s] brands, but we’re also looking to others that have brands of their own, and this is where we can help from a social and economic standpoint.
“If you’re a young or old entrepreneur with a wonderful brand and a great way to deliver cannabis, we need to know about it,” he continued. “We can help support you in the twenty states we’re currently in and give you the outputs to go and build a national brand. We believe that in this country and internationally, people want different products. They want choice, and it’s our goal to give them that choice from not only our own brands and Canopy’s brands, but also from the brands of others. That is going to be a critical mission going forward.”
Does the promised assistance run the gamut from production and marketing to distribution? “All the above,” Murphy said. “We are working with a very sophisticated copacker and a very sophisticated CPG company, where they can take conceptually what someone would like to do and essentially create those products and distribute them in the states in which we operate.
“It’s very difficult to create a brand in mass scale if you don’t have wide distribution not only nationally, but internationally. It would be impossible to create a Coca-Cola brand if you’re just in New Jersey,” he added. “That’s why we are striving to increase our footprint as best we can. Brands will start to resonate well when there is more social consumption. A watch can be many things, right? It can be a status symbol, a timepiece, a collectible, an heirloom; it can be so many different things. I think brands represent the same type of thing, and I think [cannabis brands are] going to really resonate with people when there’s more social consumption of products with fast onset and a predictable outcome.”
To support its goals, Acreage has been hiring new people, including recent additions with deep experience in operations and retail technology, among other skill sets, suggesting a focus on tangible growth. “We believe the transition of this industry has gone from basically a cottage industry into more of a small business industry—and really now, today, into a CPG business,” Murphy said. “We are looking to surround our organization with people who are passionate about what they want to do career-wise, but we’re also looking for a high-caliber capability. We have a very clear focus going forward to hire on a diversified basis.
“The success of Acreage has everything to do with the partners we are surrounded with at the executive level and at the employee level.”
“We have very important roles state by state, which include a general manager for each state—really, the CEO or president of that state—a role that is responsible for all things that take place in that state, and some of our best [general managers] are women,” he added. “They are extraordinary.”
Murphy said he’s “passionate” about increasing small-business opportunities in the industry, not only for social equity applicants but also for mom-and-pops, the middle-class businesses any mature industry needs to be truly sustainable. “It takes an extraordinary amount of resources and money to get ahead in this business,” he said. “We were lucky enough to have the capital to create the organization we have today, but what if we took some of the money and some of the profitability of our business and worked with minority groups who now have an opportunity to benefit not only from our capital, but also from the experience we have gained from the successes we’ve had and also the mistakes we’ve made, so they don’t have to make them again?
“We’re currently working with some very high-profile folks who grew up disadvantaged but are now inspirational to the people in their community,” he continued. “We’re going to be a part of that movement going forward, and we couldn’t be more excited and more pleased to participate in that way.”
Murphy is not unaware Acreage has been soundly criticized for tapping not just any Republican for a board of directors’ seat, but John Boehner, who was not exactly a FOP (friend of pot) while serving as House Speaker. He is, however, decidedly unapologetic about putting together what is arguably the highest-profile board of directors in the industry. “People historically have given me a bit of a hard time by saying we have these high-profile politicians and the like on our board,” he said. “But let me tell you, these folks can help us help people, because they, too, have a voice, and they, too, have shown the courage to change their views. They are not only helping our organizations, but also helping the organization of everyone else in this business.”
Having effectively set up Acreage for success, Murphy returned to the subject of giving back. “We have such a wonderful opportunity to better the lives of so many people,” he said. “And to think there are so many people in this country still incarcerated for low-level amounts of cannabis possession. To me, it’s sickening, and we are going to work hard to address that at not only a state level, but also the federal level.”
Q2 earnings and beyond
When market analysts look at the cannabis space these days, Acreage is mentioned in the context of the Canopy Growth deal, which also inevitably pulls Constellation into the conversation. Canopy, which earlier this year was the number one cannabis company in the world, was downgraded following its less-than-stellar Q2 report, a situation that brings with it a slew of disparaging comments about the wisdom of the Acreage deal. The naysaying is based on speculation about what may happen in the future, but none of that has shaken Constellation’s faith in its multi-billion-dollar investment in Canopy. During an investor conference call in August, Constellation Executive Chairman Rob Sands expressed his support for Canopy’s growth potential, remarking, “Over the past year, we’ve come to better understand the cannabis market, the tremendous growth opportunity it presents, and Canopy’s market-leading capabilities in this space.” The company’s investment in Canopy also is prominently presented in its investor deck, implying Constellation has no intention of backing away.
That Constellation was so unhesitant in its decision to terminate Canopy’s then-CEO Bruce Linton in July indicates how seriously the beverage behemoth takes Canopy’s future, which represents its stake in the cannabis industry. Murphy’s name was one of the first to surface among speculation about Linton’s replacement.
“I am frankly humbled and flattered that my name was mentioned among the candidates to take that job as the CEO of that organization,” Murphy said. “I can tell you, and I admit humbly, that I believe I’d be a great candidate. But there are several other extraordinary people out here that I think could do the job equally as well as myself, and maybe better. And maybe [the board will decide] to take someone from the CPG world with vast experience in that aspect of business. I’m in touch with a number of folks who I think would be excellent candidates for that job.
“I am of the belief that Constellation and Canopy will choose the exact right person for that job,” he continued. “They are taking their time to do it, and I know for sure they will make the right choice. Again, I’m flattered and humbled that I was part of the conversation, but they will make the right choice and I will be fully supportive of it whether it’s me or somebody else.”
One almost gets the sense Murphy feels as though, having delivered the groom to his betrothed’s door, his mission at Acreage has been accomplished and that other, perhaps greater challenges await him. He didn’t come out and say as much, but he did speak somewhat wistfully about his role at Acreage and about the help he has received throughout his career.
“Acreage Holdings essentially has nothing to do with Kevin Murphy anymore,” he said. “Yes, I am the founder of the organization and ran it for years, but the success of Acreage has everything to do with the partners we are surrounded with at the executive level and at the employee level. And also, Canopy is now further involved with Constellation, so whether it was the insurance company that helped me as a partner in the money-management firm I started or whether it was my coaches in college and professional football, they were like partners, they were the people who helped me achieve what I wanted to achieve. There are certain things I think I do exceedingly well and there are things that are just not in my lane, and I’m fortunate to be able to surround myself with people that are better equipped to do the things I can’t do in the organization. So, it has been an enormous privilege and honor to be a part of this organization.”
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