Lorne Gertner understands the power of a label. “As things become commoditized, then brands and design becomes important,” he says.
Gertner first witnessed this effect in the apparel space with Mister Leonard, a company started by his father in the 1950s. “I was part of the women’s clothing business becoming a fashion business,” he recalls. “We were creating brands—that’s how you make margin.” An architect by training, he also saw the building industry turn into a “design-based development business,” he says. “When you come down to it, one condo is the same as another condo is the same as another condo, just as a pant is a pant is a pant.”
These days Gertner, who gives few interviews, is the CEO of Hill and Gertner Capital Corp., a Toronto-based merchant bank with holdings that range from architecture firm Quadrangle to retail display manufacturer Seven Continents. Through the firm and on his own, Gertner also has a variety of interests in another budding industry: cannabis.
“I believe in the efficacy of the plant,” Gertner says. “I’ve watched and had a lot of contact with people who have lived a better life because of cannabis, whether it’s because they had cancer, or Crohn’s, or a lot of different things.” He’s bringing the same brand and design focus to pot that he’s seen work in those other commoditized industries. “I looked at the cannabis business as in some ways the exact same—as a dirty, smelly business,” he explains. “And I thought, Here’s an opportunity to bring design and creativity to this industry.”
Gertner’s first involvement in the (“legal,” he jokes) Canadian marijuana market came after a 2000 Ontario Court of Appeals ruling that the government’s pot prohibitions were unconstitutional because they did not include a carve-out for medical use. With some partners, he started Cannasat Therapeutics in 2004. The company developed alternative delivery systems for cannabis—vape pens, patches, listerine strips, and gums—and acquired a stake in Prairie Plant Systems, which had won the single-source Health Canada contract to supply the substance. The publicly-traded Cannasat was also trying to conduct clinical trials for cannabinoid-based pharmaceuticals, an idea that proved to be ahead of its time. “There was no money for research, and the money needed for research was just ridiculous,” Gertner recalls. “And because it was a Schedule I drug, it was hard to be able to do those [trials].” Cannasat later sold its Prairie stake, and Gertner and his partners eventually merged, then sold the company. (It’s now Sunovision CNS Development Canada).
Gertner got back into the cannabis business in 2014 with PharmaCan (now Cronos Group), a holding company that acquires or buys minority positions in licensed Canadian marijuana producers. He left the board in October 2016, but remains “a significant shareholder.” He’s also an investment partner at Green Acre Capital, a cannabis-related private fund; holds director seats at the TSX-V listed food firm Hempco Food & Fibre and the medical marijuana producer Emblem Corp.; and is part of Nesta Brand Co., an operation involving former Tweed Marijuana Inc. CEO Chuck Rifici that aims to “license international cannabis brands for distribution in Canada.”
Gertner’s most active involvement with the cannabis business today is Tokyo Smoke a retail operation and brand which he started with son Alan, a former Google employee, in 2015. The company has a downtown Toronto coffee shop and store, where it sells pot paraphernalia and accessories, though not marijuana itself. Alan is the face of the brand, writing about his corporate-to-cannabis move and talking up the potential of the pot industry.
With legislation to legalize recreational marijuana use in the works, producers and supplementary businesses are preparing for a new era in the pot market. Here’s how Lorne Gertner, described as the “godfather of the Canadian cannabis industry” on the websites of multiple pot companies he’s involved in, sees Canada’s cannabis industry developing.
From your vantage point as someone who’s been involved with this for a long time, what do you think we’re going to see in terms of the actual sale of marijuana—who will get to do that? Do you anticipate there will be province-by-province differences, as with alcohol?
I do. Canada is a very provincial country, much more than in some ways the United States. Historically, the provinces have decided what’s good for them. We were dry and not shopping on Sundays long after the world had changed. So I think it’s just our nature as Canadians to be incredibly conservative, and I think that’s a really good thing in this industry.
There’s what I’ll call ‘weak pot,’ and ‘strong pot.’ Weak pot is recreational, and strong pot’s a medicine. I think it’s really important that we have a distinction between the two, and that we handle each one appropriately. If we’re talking weak cannabis, and it’s five per cent THC or 10 per cent THC, I can see that ultimately being like tobacco. I think that you’re going to see tobacco companies come out really quickly with a cannabis-flavoured tobacco. And then I think you’ll see what I’ll call a tobacco spliff mix, so it’ll be a lot of weak cannabis mixed in with tobacco. I could see that being sold in convenience stores, just like tobacco. [When you] buy tobacco you show your license and it’s very controlled and all of that.When it comes to strong cannabis, you’re going to see that in pharmacies.
What is the brand problem that pot has right now?
There’s no language. There’s a lot of language in the pot community that doesn’t make any sense to people. What’s an OG Kush? Why is the best strain right now called Girl Scout Cookie? The language came from the plants, so ‘kush’ was a type of plant, ‘OG’ was a type of strain. The way that one was able to brand a strain was by winning a cup, say the Emerald Cup or the High Times Cup. If you were Girl Scout Cookie and you won that cup, everybody wanted your cannabis. So all of a sudden you’ve got all these funny names. We need to create a language. Fundamentally there are sort of four different types of cannabis. There’s a sativa, which is sort of an upper; there’s an indigo, which is a downer; there’s a CBD, which is a medicine; and then there’s CBD-THC pill. So we said, ‘If a sativa is an upper, maybe we should relate the language to reflect that.’ So we created ‘Tokyo Smoke Go,’ which is a sativa, and we said, ‘Tokyo Smoke Go is an espresso in coffee,’ and ‘Tokyo Smoke Go are suits you wear to work.’ We tried to create what one would call an ‘emotive brand,’ a brand that gets its language from the emotions you feel.
We think that’s going to be important in what I’ll call ‘second-wave cannabis.’ In coffee, first-wave was diner coffee. It was all about strong, black coffee. Second-wave is Starbucks. They took something that was selling for a buck and personalized it, and all of a sudden you’re selling it for six bucks. Is there more coffee in [one than the other]? No. But they managed to create a language: a frappucino. Third-wave is Blue Bottle, StumpTown, it’s an artisanal process. We’re in first-wave cannabis right now—it’s either strong, or it’s not. We’re going into second-wave cannabis now, where there’s an opportunity to create a Starbucks, to create a language that is not only local but national and global.
What about the social license or stigma? When a Blue Bottle cafe opens up or starts selling its product, it doesn’t have to overcome some sort of societal proscription.
If you can take the fear and the stigma out of the language, then you overcome that. We don’t sell cannabis in our stores [but] we sell pipes and rolling papers. And it always amazes me at how women come in with their strollers and babies into our head shop. Most people go to a head shop like this [hiding his face with his hand]. I drop myself off a block away, and when I go into the place, I’m not using my credit card, I’m looking down, I don’t want anyone to see me.
If you make something beautiful, then people want to have that experience. When you think of a coffee shop when it comes to cannabis, you think of Amsterdam—pretty dirty, pretty bohemian, a lot of smoke, all that kind of stuff. That adds to the stigma. We’re not a stoner brand, and we’re not about getting stoned. We’re about having an elevated experience, and maybe that elevated experience has a joint along with it or has a beer along with it.
Over the last couple of years, a large number of dispensaries have opened up across Canada. There seemed to be this idea that because the Liberals had said they were going to legalize marijuana, it was fine now to be out in the open about it. Now police are shutting them down by the dozens. Do you think the presence of these operations has hurt what you’re trying to do?
I think that they’ve hurt what I’m trying to do in a major way, because they did it in an unregulated way, with no thoughtfulness [and] no conscience. That personally bothers me, but [it also bothers me] financially. What they’re doing is blatantly illegal. They’re not testing their product, and they’re selling it to people under 21 years of age.
There are four Ms that matter in cannabis: mold, mildew, mites, and money. You’re guaranteed to have the first three and you have to have a lot of money to get rid of them. So the majority of the cannabis that got smoked by my generation had a lot mold, mites, and mildew. You used to smoke a joint, cough your brains out and you’d think, ‘That’s really good cannabis.’ It wasn’t—that was the mold and mites you were swallowing. Today, if you smoke organic cannabis, you never cough. So I think [the illegal dispensaries] hurt us from that aspect.
I think they hurt us in a serious, serious way on the edible side. That was a travesty that could set us back five years. You could buy a cookie called ‘Da Bomb,’ that had 750 milligrams of THC in it [actually shatter, a THC concentrate]. That’s criminal. Fifty milligrams of THC is a lot—that probably would be the maximum in a medicine, and yet there were cookies that had 10 times that amount. I don’t think you’re going to see edibles as part of this first wave of legislation, and that’s unfortunate.
Is your involvement with the different holding companies and Tokyo Smoke all part of getting ready for that day when recreational use is finally legal?
It’s being ready when the market evolves into it. Let’s say that the government lives up to what they’re saying: [On] Thursday they give us a hint of what this legislation is going to look like, and let’s assume that they get it done by the end of 2018. That’s the framework, not the reality. The reality is, in my opinion, at least a year from that. It’s going to take people some time to digest [the legislation] and put in systems to do all of that. That’s going to be the first phase, which will be mainly about [cannabis] flower. The second phase will be much more about alternative delivery systems, and that that could be [an additional] year away from the first legislation. So maybe five years from now, we’ll see a market where there will be the kind of access that we see now, meaning that there’ll be storefronts and a multitude of products. But I see that as five to 10 years away.
In January 2012 the federal Liberal party put marijuana legalization on their platform. Elections Canada finance records show you’ve given $4,439.01 to the party since then. Are those two things related?
Not related. I’ve been supporting all of the political parties pretty much equally since I’ve been in business [which has been since] probably 1987. I’m assuming what you saw was a personal donation. We give through a number of different entities, and we give equally to all of the different political parties.