Limitless: Cronos Group CEO Michael Gorenstein on the Cannabis Industry's Stratospheric Future
2018 was a banner year for the cannabis industry, particularly when Canada federally legalized adult (recreational) use, and even this early in 2019 many are looking forward to far greater leaps and bounds. Michael Gorenstein, CEO of The Cronos Group, one of Canada’s largest medical cannabis producers, has his eyes on global dominion. Cronos is currently the only company in the space to be operating on five continents, became the first cannabis business publicly traded on Nasdaq in early 2018, and is constantly acquiring partners across all stages of production. Yet despite his corporate savvy, what excites the youthful executive most about the future of the plant is discovering the various ways it can improve people’s lives. With the recent news that Big Tobacco manufacturer Altria will be investing $1.8 billion for a 45% stake in Cronos, it seems that Gorenstein’s team will be well placed this year to probe further into medical and scientific research than ever before. What may result is still to be determined, but when Honeysuckle sat down with Gorenstein at Marijuana Business Daily‘s Marijuana Business Conference, one thing was clear: The possibilities are endless.
HONEYSUCKLE MAGAZINE: I’d love to start with something I heard you say in a recent interview—cannabis is not a commodity. What exactly does that mean?MICHAEL GORENSTEIN: Usually when you think about what a commodity is, there are grades of it—you can say that everything’s the same. The fact that you’re already hearing people talk about differences and preferences about cannabis informs us that this is not thought of like silver or gold. Beyond that, I think there are more opportunities for differentiation in cannabis than really any other consumer product. With alcohol, you have taste, flavor, aroma, the story behind how it’s made… those are the areas you want to separate it into. With cannabis you have all of those, but you also have the psychoactive effects most people pick from, what’s the combination of cannabinoids and terpenes, what does that do to you? To me that’s more complex than any consumer-packaged goods being supplied today. Now, there are going to be parts that get commoditized—purified, CBD-based oil, yes, but the products downstream you make from it touch so many categories. There’s a topical, there’s a soft gel, and within each of those are different things. It’s like saying pharmaceuticals are commodities—what’s in the pill? They’re very different and that’s why everyone’s so excited here. You don’t see this kind of passion in a commodity-based industry; go to a copper-mining conference and I don’t think you’re going to see the same buzz… To be fair, I’ve never been to a copper-mining conference.Congratulations on Cronos becoming the very first cannabis company to be listed on Nasdaq—that’s huge.It’s exciting. Part of what we’re trying to accomplish as industry participants is changing public perception, moving this more to the mainstream. I think every company [in the industry] has played a huge role in that shift, and it was one thing we felt we could do to push things forward. It’s important to get more institutional involvement like that—it puts a stamp that says, “This is an industry and it’s okay.”What was your pivot to what you’re doing now? How was Cronos Group created?I grew up in Columbus, Ohio and moved to New York after school. Jason [Adler, on Cronos’s Board of Directors] and I both went to the University of Pennsylvania in Philadelphia and I worked in New York and moved to Canada. I worked at Sullivan & Cromwell as an attorney for four years, then went to venture investing. During that time, I had the idea to go look at cannabis. It’s exciting, a big opportunity, I wanted to do something I was passionate about, and the rest is history.Four years ago, we were one of the earliest investors in the space. If you’ve heard of Gotham Green Partners, the largest cannabis investors, I co-founded that with Jason. We started out looking everywhere, and it felt like a lot of U.S. companies offered short-term solutions. We had to figure out how we were going to move cash around and make sure it wasn’t leaving state lines. We thought about what we wanted to create, all the innovation and IP, and downstream it’s really tough to do in a federally legal environment, so we looked to Canada. We looked to investors—the predecessor company had some assets we wanted, but we needed to make a lot of changes, so we took some assets and put those together to form Cronos, and brought everyone up to Canada, and the fun continued to create what it is now.How did you amass your team?We looked in different industries. A lot of it was inner-network and expanding out. [David Hsu], our COO, had a common investment—he was a turnaround consultant with [investment holdings firm] Delloyd—so we knew him through that and recruited him first. Then he did the turnaround at Chobani and Eric Klein, a Chobani guy, met him somewhere around there. [William Hilson] was CFO in Canada, looking in biotech and getting into cannabis, so we connected with people along the way, and word kept spreading and we met in random places. Anna [Shlimak, Head of Investor Relations and Communications] and I met in Israel on birthright. Our general counsel was my boss at the law firm who was senior to me—I knew her from work.In its earliest days Cronos was well-known for its five-bedroom “company house” in Stayner, Ontario where the core executive staff lived and worked together. Prospective senior hires would be invited to spend a few nights to encourage team-building. So I have to ask—does that still happen?We have our own apartments now, but—we get made fun of for this—I live in that house and I also have an apartment that’s a block from our office. In our buildings, one of our in-house lawyers lives across the street; the building behind me houses our COO. We’re either up there at the house or clustered around. The question is whether we’re so close as a team, if we’re efficiency-driven or just so close to the Canadian winter that we don’t want to walk so much. There’s a house on the property that the horticulturalist lives in. It’s a cool experience that I think we’ll continue—it’s a rite of passage. We’ve made a point of it. We’re technically an agricultural operation, so we didn’t even need to change zoning. [Stayner’s nearby] a beach town called Wasaga Beach, so in the summer it’s beautiful. In the winter it’s visually very pretty but very cold. There’s the 280,000 square-foot facility. It’s good… it’s like having a retreat every week with your team, except the team has grown and we can’t all fit in the house.It speaks to the culture and dedication of the team. Keeping everyone close and focused on the tasks at hand.We’re kind of like a family. When you think about tolerating each other and getting along, between being friends and coworkers, the lines kind of blur. When there’s disagreement, there’s no passive aggression—we’re always together so it’s pretty tough to and we know each other so well that things come out. It becomes our circle of friends. And it helps because a lot of people aren’t from Toronto originally—we’re all sort of transplants. It wasn’t intentional at first but I’d say more than anything we’re very protective of the culture.How has legalization in Canada changed things for you?We’ve sort of been living in anticipation of this for so long that I don’t know if it’s a huge change, but it’s been amazing seeing it all come together. You always worry when you launch and make something about how it’s going to be received—but a lot of companies find that their products are being received too well, it’s moving way too fast, and there are shortages. We’re happy it’s rolled out. It’s a historic moment. It’s the beginning for us. This is our pilot market—when it gets legal in the U.S. and Europe—this will give good experience for when we move to other markets.What does 2019 look like for Cronos?2019 will be really exciting. 2018, if you think about what we’ve been doing, we’re opening up the recreational market and continuing international expansion, and in 2019, the infrastructure has been put in place, so now we’ll start layering that up with innovative products. You’ll start seeing where the future goes—all the different facilities we’ve built, the ideas we’ve had, sciences we’ve been working on—we’ll deliver those products and get them to the market. If today’s theme was getting your foot in and expanding and going to facilities, 2019 it’s about what products we’re making and what’s going to happen in the future. We think there’s a lot of opportunity in anything outside of flower and being able to deliver unique cannabinoids—maybe not in 2019, but with Ginkgo [Bioworks], we’re creating rare cannabinoids with CBD, such as appetite-suppressing products instead of appetite-increasing products, which we’re really excited about. We’re working on vaporizers, that can be put in any form of edible to multiply them.And you are expanding rapidly. You’re on five continents now.Yeah—we’re in Asia (Israel), Europe (Germany, Poland), South America (Colombia), Australia, North America (Canada)… it’s been a fast ride.How has the response been in different markets?One thing you find when you leave North America—here it’s really a consumer product and medical is a step to get there. In Europe, it’s more pharmaceutical. We’re distributing in pharmacies—we are GMP [Good Manufacturing Practices] certified with German health authorities. The reception’s very different. You wouldn’t see a conference like MJBizCon. Our German partners are here, a 183-year-old pharma company. They’re interested in pharmaceutical packaging… It’s the other side of cannabis. There’s kind of three channels. You’ve got pharmaceuticals—traditional like GW Pharma—you’ve got recreational, most of what you’re seeing here, and this new channel somewhere in the middle, with nutraceutical in CPG [Consumer Packaged Goods]. We think CBG and CBC will follow as the next big cannabinoids in this space.I think the perception [of cannabis in Europe] is different. It’s well-received among that community, but there’s not a recreational impact yet. It’s very different to see how it’s marketed—it’s not what you’d expect. There are no dispensaries; the only place you can get it is CVS. If you want our product in Germany, you have to go to a pharmacy, and it’s reimbursed by health insurance so you’re not paying out of pocket. Germany, Poland, Italy—you’re seeing movement there now. You’re seeing a lot of cultivation there, but the market’s still early. What they’re embracing isn’t necessarily cannabis, it’s the fact that you can bring jobs.You don’t go there and think about what the consumer reception will be; you go there and see the partners we have there are Dole and Frito-Lay. The idea is they see another product which there’s demand for, and they want to figure out how to grow it to scale. People specialize. There’s consumer branding, there’s production, research… in Israel the passion is basically research-driven. Technion University [the Israel Institute of Technology] launched a study. The universities are more active than cannabis companies. It’s just different in each country.Do you work closely with any sort of development in Israel?What we’re doing with Technion is that we work with skincare. The kibbutz is a production operation. One of the reasons we want an operation there is that having a physical presence where we have that much R&D helps to keep your finger on the pulse of what’s going on with innovation and sourcing new companies or start-ups that can help us get to where we want to go. I’m very involved in the R&D side.It’s fascinating to be involved with something that has this many possibilities and immediate applications that people really want or need badly on the medical side, and there’s been very little research done to date, so it opens up—it’s like being a kid in a candy store but in a much nerdier way. If you look at our team, it’s like the UN but with scientists instead of countries—horticulturalists, botanists, agronomists, formulation chemists, organic chemists, biologists… Half the time I’m just listening. We’re bringing so much together even on the marketing side. People are asking how we market these as consumer goods, food and beverages versus alcohol and tobacco and cosmetics. People come from almost any industry or media and the skill set applies, and we have this blank canvas where you can paint any picture you want to.We’re interested in R&D at Honeysuckle because we learned that Dr. Raphael Mechoulam, who discovered THC cannabinoids, said that humanity wasn’t ready for what the plant can do.That’s one of the things we’re working on—the plant’s a guide for us, but it goes beyond that. That’s a lot of the work we’re doing with Ginkgo; the plant is a blueprint that will tell us where we can go, and the question is, how do you replicate these products? I don’t think humanity isn’t ready. I think humanity has to discover some of the best ways to deliver this. You do have to balance all the excitement with being responsible about how you consume and distribute products. Responsibility is something you can’t lose sight of. You have to check all the boxes.It seems like most good things fall into the hands of bad people, at least throughout history. So what about things like Big Pharma, Big Tobacco, Big Alcohol taking over and polluting?There are segments where it’ll make sense for them to come in, but even among those there are good actors and bad actors. You have alignments and you have to look at the company—you could look across any industry and there are always good and bad actors. It’s about making sure your values are always aligned.I’d say that pharma overall has done a lot of good. There are a lot of people whose lives have been saved by pharma companies. You go to a bar and certainly some alcohol is marketed responsibly. It’s important to not abuse it and think about how you’re doing it. That’s something that we as an industry [have to account for]. It’s not just about growth, it’s about responsibility.
