Last year, Canopy Growth signed a deal with Martha Stewart to make her an adviser to the cannabis company, helping it develop a line of CBD-based products. Now the company is getting ready to start releasing the results of that collaboration over the next few months, and over the time in between there was something that surprised Canopy CEO David Klein.
“I didn’t realize how hands-on Martha Stewart is,” he says. “Our team has meetings with Martha about products, and we have CBD edibles coming in the next few months to the U.S. She’s tasting all of it.”
That partnership with Stewart is a not-so subtle clue into Canopy’s plan to become a card-carrying member of the consumer packaged goods (CPG) corporate club. Like Unilever or Mondelez, except instead of soap and crackers, it’s, y’know, with weed.
When Klein was named Canopy Growth’s top exec last December, that strategy became abundantly clear. He moved into the CEO seat after serving as chief financial officer of Constellation Brands, owner of Corona beer, Kim Crawford wine, and Svedka vodka, which owns a 37% stake in Canopy. His primary assignment was to transform Canopy from what the company calls a “Canadian medical cannabis company” to a “global CPG company.”
And it plans to do so by focusing on recreational and wellness product and brand rollouts, such as Martha Stewart’s impending edibles.
Klein sees this transition into CPG-dom as fundamental to Canopy’s future success. The Canopy brand is key, not necessarily for the consumers who will be interacting with its individual brands such as Houseplant, Tweed, Deep Space, and Tokyo Smoke, but for helping it gain access to major retailers, especially through its connection with Constellation. It will also better allow the company to use its science and research division to help all of its individual brands.
“One of our differentiators has to be knowing the consumer better than anyone, and we’re going to be applying our science to do that,” says Klein. “We’ve been doing it in all kinds of pharma pursuits, but we have human affect scientists [who] tell us that when you try a product, what it does physiologically, how you feel, that’s their job to optimize for that. So my view is, if we know what that consumer wants, we can use our human affects guys to help us figure out how to get that experience for the consumer, then package it underneath our brands and bring it to our consumers in a safe and effective way.”
He envisions an innovation engine that acts as a test and research lab for all of Canopy’s brands, a common attribute of any CPG giant.
“We need insights that can create a brand differentiation over time that, quite frankly, I don’t think anyone in cannabis offers right now,” says Klein. “Almost every CPG company offers that, so how do we go from here to there? We almost know what the road map is—it’s already been written. We just have to not keep staring at the dispensary shelves and doing what we’ve always done, and ask what is the customer going to want and how do I take my business in that direction?”
One thing people like is celebrity, and Canopy has worked over the years to build up an impressive number of hands-on partners. Stewart was introduced to Canopy by her pal Snoop, who had partnered with Canopy on his Leafs by Snoop brand. There’s also Seth Rogen and Evan Goldberg’s Houseplant brand, which launched in March 2019. And late last year, Drake became a 60% owner of Canopy subsidiary More Life Growth Co.
Klein says the celebrity partnerships are successful because they go far beyond a hold-product-and-smile transactional relationship.
“If they’re excited about the product, interested in the product, and they’re willing to put in a bit of sweat equity, it usually goes really well,” says Klein. “If they’re not, it shows very clearly, and consumers know it.”
On his most recent earnings call with analysts, Klein called this fiscal year one of transition, while looking to expect more legalization in the U.S. over the next few years. The company reported a $1.3 billion loss, as well as a 13% drop in sales from the third quarter.
“No investor likes to hear the words ‘transition year,’ but we’re polishing the thing up and cleaning up some of the vestiges of the startup to compete as a CPG company across North America,” says Klein. “In the U.S., 57% of the population says they’re interested in CBD, so how do we break through to them? The number-one driver of sales growth is going to be distribution. You need to be out and on the shelf. Relationships with people like Martha, or even going back to the corporate brand, having Canopy’s name alongside Constellation allows us to get to the gatekeeper at major convenience stores, big-box retailers, and even some of the smaller mom-and-pop shops. You have a calling card when you can walk in with a Martha Stewart label on it.”