Canopy Growth CEO on Q3 earnings and the company's path to profitability

David Klein, CEO of Canopy Growth, joined Yahoo Finance Live to discuss third-quarter earnings and the company's path to profitability.

Video Transcript

ADAM SHAPIRO: Welcome back to Yahoo Finance, and we've been talking a lot about marijuana stocks. To let us know how one company is doing, we invite into the stream Zack Guzman, who anchors our midday coverage. But also a special guest, Zack.

ZACK GUZMAN: Yeah. Thanks, Adam. I appreciate it. I'm here joined with Canopy Growth CEO David Klein back with us on Yahoo Finance. David, thanks again for coming back. I guess we'll just start with the numbers you guys reported earlier this morning. An impressive quarter-- net revenue up 23% over last year's quarter, topping 152 million Canadian. Importantly, the adjusted EBITDA loss came in better than expected as well, narrowing for the third straight quarter.

But importantly-- just got to point this out-- you guys matched up what you told us here on Yahoo Finance Live back in January that you expect federal permissibilities to perhaps come through due to marijuana reform here now at a federal level in 2021. That was a big update here, and you also guided to potentially seeing adjusted EBITDA profitability in the back half of your next fiscal year. So a lot here hinging on those two updates. And clearly, shares-- investors reporting that, up more than 10% in today's session.

But talk to me about how much that forward guidance hinges on the laws changing and what you see playing out there this year.

DAVID KLEIN: Yeah, so the interesting point is that the forward guidance really doesn't include anything related to US permissibility. That would be upside to our profit projections and our revenue growth projections. So we're really banking on continuing to perform well in Canada, continuing to do well in our German market, where we have the number one share, and continuing to drive the US CBD market in addition to our US business for BioSteel in particular.

ZACK GUZMAN: Wow. OK, so that's on top of it. It was interesting to see, you know, earlier this week, you guys joined Acreage, of course, the US operator. You're poised to take over Curaleaf, Cresco Labs, a smattering of other US operators here joining to create the US Cannabis Council, a nonprofit to push for that unity around advancing the goal of cannabis reform. That seemed big because a lot of people have been pointing out that maybe the US operators would try and block Canadian companies such as yourself to maybe stop entering the US market. So how significant is that in maybe seeing unity on that front? And maybe how does it extend the percentage chance that you do see those laws changing here this year?

DAVID KLEIN: Yeah, look, I think our experience in other areas, like looking at alcohol, for example-- you really need a united front from an industry standpoint if you're going to have a real effective lobbying presence. And so it doesn't mean that you always agree with your partners on the various councils, but I think it's important to create that unified front. And so that's what the United States Cannabis Council is really all about.

And you know, in terms of the view maybe of competitiveness between the MSOs and the Canadian LPs, I think, you know, the ultimate winner in this space is going to be the company that can create real value by creating differentiated products that your consumers love, right? And so it's going to be one particular thing like access to capital, because we have that, but I suppose everyone does at this point.

It's going to include things like can you build brands? Can you innovate? Do you understand your consumer? Can you build basic CPG-like supply chain efficiency in an environment that will allow for or require interstate commerce? I think it's bringing all those things together are really important for Canopy to be successful in the US, but also, you know, I think will make all of the players, whether they're the MSOs or the LPs stronger.

ZACK GUZMAN: Yeah, and you talk about distinctions here in Canopy's stance as a company versus maybe some of the other cannabis companies out there. They got two things when you came on board. One would be, you know, your attention to efficiency, as you're talking about. And we've seen that over the last three quarters with a drop and narrowing of that adjusted EBITDA loss. So I mean, a lot of congratulations due there. And tough choices were made.

But when you look at maybe the other thing that they get in terms of CPG attacking, creating brands in that space, you guys are doing a little bit of a different thing with building out your cannabis beverages. You gave investors the update on that front but still waiting to see those come through here in the US this summer. So what's the update in terms of what you're hearing from consumers around that and share that you're gaining in Canada?

DAVID KLEIN: Yeah, so you know, we're really looking forward to Acreage's launch of our brands into the US. Our brands continue to do well in Canada. We're somewhat slowed, I would say, by the equivalency standard in Canada, which really dramatically limits the number of cans an individual can take out of a retail shop-- in some instances, allowing an individual to take four or five cans home. So it really is slowing the growth of that space. We think that that regulation will get changed over the next several months, which will help us in Canada. But you know, I think the real excitement is going to come when we can have those drinks in the US market itself.

ZACK GUZMAN: Yeah, and a lot of people hoping that the Constellation Brands backing there would carry over, obviously a big alcohol giant there. But they've poured billions in you guys, too. And I've joked around with you that maybe Canopy Growth had turned into Constellation Growth because not just you being there, but also, you know, the rest of the board presence as well. But I'd be curious how much maybe M&A might change depending on whether or not we get legalization because it would seem that they could maybe up their stake in you guys if that switches over.

Or alternatively, I know you guys have the Acreage deal in place, but you can also up your stake as you have been doing in TerrAscend, that other US operator you're working with. So how does maybe M&A shift if we do get federal permissibility as you see later on this year?

DAVID KLEIN: Yeah. You know, I think that's really perceptive, because when Constellation invested in Canopy, the point was to create those differentiation points around making this more of a consumer-focused company. So that was one use of the funds. The other use of the funds was to have a bit of a war chest to be able to fill out white spaces in Canopy's portfolio, whether it be in the US or in Canada or in Germany.

And so, you know, we'll continue to think about our business that way. And you know, one of the reasons why we want to get to the place where where we no longer posting that EBITDA loss is we want to conserve our capital so that we can use it to fill out gaps in our portfolio. And you know, we'll be as aggressive as we can, either through Acreage or some other format as we get to a permissibility event in the US.

ZACK GUZMAN: All right. Canopy Growth CEO David Klein. I'd be remiss if I also didn't congratulate you on the improved backdrop there-- I like the products you added. Appreciate you coming out here to chat with us. David Klein, as always. Adam, I'll send it back to you.