In a typical week, 3 Sixty Secure Corp. (SAFE.CN) hauls about $40 million worth of legal pot around the country in unmarked trucks and vans. The value of a single load can top $25 million.
With the black market thriving post-recreational legalization, criminals have yet to meaningfully interfere with the lawful shipments of cannabis criss-crossing between licensed producers, provincial distributors, testing labs and retailers.
The fact that machine gun-wielding bad guys have not pulled off an action movie-style heist on the highway should not be taken for granted, explains Thomas Gerstenecker. The founder and chief executive officer of the Ottawa Valley-based security firm moving cannabis for about 100 licensed producers and four provincial distributors is not taking any chances.
“I'm not fear-mongering. There have been instances where we believe criminals are keeping an eye on what’s going on. We’ve had instances of surveillance, which we counter-surveil,” the former elite soldier told Yahoo Finance Canada in an interview at his company’s secure compound in Smiths Falls, Ont.
Large quantities of cannabis on the move are a tempting target for criminals — a high-value product that’s easy to sell on a robust black market. Once the packaging is stripped away, dried cannabis looks pretty much the same regardless of its provenance. Many customers are used to buying it in ziplock bags.
Barrels of cannabis oil are among the most expensive items 3 Sixty ships. Considering that one 30 millilitre bottle can retail for upwards of $100, it’s easy to imagine how valuable a truck loaded with several pallets could be on the black market.
Movement of cannabis through the commercial supply chain is largely unregulated. Federal rules state, “A holder of a licence must take any steps that are necessary to ensure the safekeeping of cannabis when distributing it.” In Canada, there is no special transportation license. Armed guards and armoured trucks are not required by law. Licensed producers are free to use a U-Haul truck or the SUV they shuttle their kids to school in if they feel safe doing it.
“It’s not as strict as one would think,” Gerstenecker said. “It really comes down to the licensed producer moving it from point A to point B in a safe and secure manner, which one can interpret in many ways.”
The riskiest spots are on isolated rural roads where GPS and cell coverage can be patchy, especially at night, Gerstenecker said. 3 Sixty staggers its routes and does counter-surveillance to avoid potential threats. How that works in the field is a secret, for obvious reasons.
Military-grade marijuana security
The newly-minted cannabis sector is full of people leveraging experience from previous careers. For 51-year-old Gerstenecker, that’s 15 years with the United Nations in executive roles including Chief Security Advisor. Before that, he served with Joint Task Force 2, a special operations group within the Canadian Armed Forces.
He was in Kosovo in the aftermath of the 78-day NATO bombing campaign in 1999. He developed security protocols for arresting prominent war criminals linked to Pol Pot and the Cambodian genocide. Needless to day, his knack for keeping people and goods safe was refined in far more perilous places than Canada’s roadways — like a poppy field in war-torn Afghanistan.
“We had to ensure the safe movement of aid into a particular area. One of my roles was to meet with the local warlord to discuss how that could be done. After three hours, and a lot of raisins, pistachios and chi, we came to an agreement that our staff would not be impeded when we move through the territory,” he said.
Frustrated by a lack of discipline within the ranks of UN-contracted private security firms, Gerstenecker set out to build a company that was military-grade. The move into cannabis was actually inspired by a chat with a licensed producer who hadn’t even considered how to securely move his product.
3 Sixty markets itself as a one-stop security firm, offering an array of transport options from a 5-tonne truck with two armed guards, to lighter vehicles with unarmed personnel, as well as security consulting, facility guarding and even executive protection.
Growing in-step with the cannabis boom, 3 Sixty had 10 staff and two secure vehicles just 18 months ago. Today, the company has almost 700 staff, more than 150 vehicles, and seven secure facilities across Canada.
Canopy Growth Corp. (WEED.TO)(CGC) is their biggest cannabis customer under a long-term contact to protect its facilities across the country. At the cannabis giant’s massive headquarters a short drive down the road in Smiths Falls, it’s a 3 Sixty guard manning the gate.
The company’s team of drivers can handle up to $250 million worth of cannabis per month. That may sound like a lot until you consider the same product can be moved five times between producers, testing facilities and distribution centres, before reaching consumers at retail.
Like a military operation, deliveries are closely monitored by personnel at 3 Sixty’s operations centre. Route details are issued to drivers at the absolute last minute and kept flexible at a moment’s notice in case of a threat. The secure 26-foot trucks and Sprinter vans are unmarked, varied in colour, temperature controlled, and tracked with GPS and geo-fencing. No stop or diversion goes unnoticed, and a secure chain of photos and signatures is maintained to ensure integrity.
However, it’s not bad guys outside the company that pose the biggest risk.
“On average, heists are inside jobs at the end of the day,” Gerstenecker said. “We take hiring extremely seriously. They go through tests and extensive background checks. A poor hire could result in the theft of a significant amount of our shipments.”
‘I told one guy it’s a load of bagels’
Jordan Chevalier joined 3 Sixty last August, starting out as a driver before moving to an office role. The former heavy equipment operator said the pungent smell of cannabis can escape the vehicle and draw attention, but he’s only been questioned once about his cargo.
“I told one guy it’s a load of bagels,” he said. “I like the danger aspect. The fear of the unknown gets your heart going a little bit.”
Chevalier is trained to continuously scan for potential threats, analyzing people and vehicles for anything out of the ordinary. He even finds himself doing it behind the wheel in his off-hours. He said the intensive training, and the elite military background of several 3 Sixty higher-ups, inspires confidence in the field. He’s seen other drivers appear less prepared.
“I’ve pulled up to a site before where we come geared up, and a guy beside us jumps out of a minivan and throws a box of cannabis over his shoulder,” he said.
On an overcast August afternoon, Gerstenecker strolled past his growing fleet of vehicles in Smiths Falls. He paused to lament an imperfect company logo on the side an armoured vehicle for halting currency and precious metals. Extensive tattoos peek out from under the sleeve of his grey business suit as he gestured towards the truck.
Executives with this much ink are a rarity, but the contrast is sort of fitting for 3 Sixty. Its rapid expansion is a direct product of the go-go cannabis industry that emerged in the wake of recreational legalization. It’s the source of 60 per cent of the company’s revenue today. The rest comes from the comparably dull business of moving currency and precious metals. Gerstenecker wants investors to see the stable revenue from the latter as a hedge against swings in the notoriously volatile cannabis sector.
“On the one hand, we are not a traditional low-growth security company,” he said. “We’re also not a volatile cannabis company.”
Last month, it revealed U.S. expansion plans through a contract with a B.C.-based producer. The company will provide security services to 1933 Industries Inc. (TGIF.CN) and other cannabis dispensaries in the Nevada. Gerstenecker is also gearing up for expansion into Florida, Ohio, New Jersey, and later New York, Missouri and other key states. In Canada, 3 Sixty announced a deal to acquire the country’s third-largest currency transport company in April.
3 Sixty reported second quarter financial results before the opening bell on Tuesday. Like many in the cannabis space, it has yet to turn a profit amid heavy investment to drive growth.
Revenue in the three-month period ended June 30 climbed to $7.55 million, a 119 per cent increase over the previous quarter. Net income was negative $3.6 million. The company reported an adjusted EBITDA loss of $1.6 million.
“We in management expect that within the fourth quarter a level of profitability will be attained leading up into Q1 2020,” Gerstenecker told analysts on a conference call Tuesday morning. “We have a target of $4 million of annualized cost savings, $2 million of which we have already identified and will be realized by the end of August.”
Shares listed on the Canadian Securities Exchange have been in consistent decline since the company went public through a reverse takeover in early 2019.
Gerstenecker hopes investors will feel confident about going along for the ride knowing he is at the wheel.
“There are shareholders that believe in the company, and I want to make sure we execute on what we say. There is a lot of emphasis on getting our story out to the markets and investors.” he said. “On the market side, we’ve got a lot of work to do.”