Somewhat overlooked in the spate of media coverage and conversations about Canada’s nascent cannabis industry is the role and responsibility of corporate Canada.

As the country moves closer to legalizing the recreational use of cannabis products later this year, acquisitions, mergers and consolidations leading to massive valuations are an almost daily occurrence.

“It’s an exciting time, but it’s a nerve wracking time,” said Mitchell Osak, managing director of Grant Thornton’s strategic advisory services practice.

“All the rules have yet to be written. We don’t really know what’s going to happen.”

Osak was one of four panelists in a discussion titled Budding Boards and Good Governance, a look at the burgeoning and fast-growing industry through from a director’s perspective.

Hosted by the St. John’s Board of Trade and the Institute of Corporate Directors, and led by its president and CEO, Rahul Bhardwaj, other panelists included Canopy Growth CEO and chairman Bruce Linton; Peter Sloly, national security and justice leader with Deloitte; and Newfoundland and Labrador Liquor Corp. president and CEO Sharon Sparkes.

“When we talk about the lens that directors bring to issues, it’s around exercising their fiduciary duty to do what’s best for the corp. For most people that’s just maximizing shareholder value, but as we know there’s a lot more to it,” Bhardwaj said.

From the Institute of Corporate Directors’ perspective, directors need to be concerned with hindsight, oversight and foresight of the board.

In terms of hindsight, Sloly said there are lessons to be learned from the end of Prohibition.

“Despite the fact there have been stages of legalization and it has so far proven to be more productive and more healthy than previous, there is still a significant underground economy, organized crime involvement, public safety and public health issues.

“Having an understanding, through hindsight, of those issues will help you to understand what are some of the thinking and fears of Canadians and potentially some of the ongoing issues that will happen.”
Oversight, meanwhile, relates more to managing risk. From Osak’s perspective, that’s not limited to financial and legal concerns, but also the image and reputation of a company engaging in a new industry that not all Canadians are onside with.

He said companies should be aware of how industry news in one part of the country will affect perceptions in another, and be wary of alienating existing customers.

“Directors have to be very cognizant of that even if they’re not directly impacted or involved in the cannabis industry.”

From the licensed producers’ perspective, Linton said individuals considering joining a board of a company operating in the sector at this time need to evaluate the size of the company.
“Anybody who’s the mid-tier, I think are toast and the reason is they’re not big enough to do true medical and they’re not big enough to supply a material number of provinces, but they’re big enough that they have a management team and a high burn.”

He also suggested closely evaluating the composition of the board. In the case of Canopy, Linton is the chair of the board of directors, a move that flies in the face of tradition. From his perspective, it makes more sense to have someone familiar with and directly connected to the industry holding that position to help oversee the early days.

“A lot of the companies have brought in chairs for high credibility with no content or domain knowledge,” Linton told the attendees. “To me, a terrific disaster about to happen is when you have a management team running it and a board that isn’t as connected to it.”

Osak took it a step further and promoted the benefits of diversity within the board.
“You don’t want all financiers, you don’t want all men, you don’t want all public health individuals,” he said. “You want a great cross-section of different people because what we know from research out of Harvard and a variety of other places is that boards that are diverse tend to be more effective, better-performing boards.”

There was a consensus among the panelists that Canada, the first G20 country to move toward legalization, could become “ground zero” for similar movements.

“We are world leaders in business, we are world leaders in the new digital economy, we are world leaders in social justice,” Sloly stated. “There are many other places that could have started this ahead of us and could have set the wrong tone.”

Bhardwaj added afterward, “One of the points I wanted to reiterate is that Canadian companies are the most trusted in the world, so there’s something unique about that, so can we leverage that trust to actually become a market leader or is there something in the nature of this business going forward that’s going to put that trust into question? That’s something we’ll have to revisit in another couple of years as well.”