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Canopy Growth CEO on state legalizations: this ‘will create more dialogue’ on the federal level

Canopy Growth reported second quarter earnings that beat expectations. Canopy Growth CEO David Klein joins Yahoo Finance Live to discuss.

Video Transcript

ZACK GUZMAN: There's no shortage of movers to highlight today. But right now, I want to turn our attention to the largest cannabis company here in Canopy Growth. That company hitting a new 52-week high after they reported its latest quarter results.

And on that front, the company hit record net revenues of $135.3 million Canadian in the second quarter, as they continue to see a boost in Canadian recreational cannabis revenue. Also reported an adjusted EBITDA loss that was only $85.7 million in Q2. I say only, 'cause it compares to a loss of more than $150 million in Q2, or in the relative quarter in terms of comps there.

I want to turn our attention to, though, to the man who delivered those results. Canopy Growth CEO David Klein joins us now. And David, I mean, when we look at it, it's tough to tease out which investors are more focused in on, whether it's the net revenue side or the shrinking loss side. But you guys identified key parts of the business that could deliver even more in terms of shrinking those losses down, potentially up to $200 million Canadian. So talk to me about where those are and where you see the business moving forward.

DAVID KLEIN: Yeah, look, I think what we're really seeing is a lot of momentum building behind our business, whether it's in improving revenue, improving market share in Canada, or it's in our path to profitability, or it's within our path into the US. So, specifically, on the reductions that we talked about today, it's really about refining our processes.

If you think about our space, right, we operate in an industry that's pretty nascent from a legal standpoint. And so, literally every time we go through a harvest, we get better at the products we produce. We see new stores opening across Canada. We see consumer preferences shifting quickly. And we've just-- we're just adapting our business in a way that will help us to be more profitable to kind of use a little bit of agility to take advantage of the changes in the marketplace.

ZACK GUZMAN: Yeah, and also over the weekend, obviously, we got the official results from the election here as the nation moved forward with President-elect Joe Biden. On that front, I've asked you about legalization many times here. And we're still waiting to see what happens in the Senate. But clearly, there does seem to be a push since we looked at those five states that had cannabis legalization on their ballot, all five approving those changes.

Before, you said it looked like 2022 in terms of when you might see national legalization here on the cannabis front. How does the results that we got out of this election cycle maybe change that prognosis? Maybe potentially even move it up a bit.

DAVID KLEIN: Yeah, look, I prefer to under promise and over deliver, not that I have anything to do with delivering permissibility. But, you know, I think, for me, the best thing coming out of the election for the cannabis industry was the passing of those ballot initiatives.

Because you think about states like Mississippi and South Dakota. Those are more conservative states. And they still move forward to bring about some form of legalization, which I actually think will create more dialogue with the senators from those states to really move things forward. And that's-- as we all know, that's where the holdup will be in the Senate.

AKIKO FUJITA: I mean, David, having said that, there is a contrarian argument to be made here that because there was a clean sweep on these initiatives at the state level, you can't expect a whole lot on the federal level, especially with the divided government. How do you see that breaking down? I mean, ultimately, is it still really on the state side, on the local side? And is that a positive or negative for you?

DAVID KLEIN: Yeah, look, so I'll take that in two bites. I think the first thing is, if they're doing business at the local level, and you're doing business in what you think is a legal industry, you shouldn't be confused because the federal government still calls cannabis illegal in the US. And even though they're not out arresting people, they certainly could.

And so, if you're a constituent in one of those states, you certainly want to talk to your senator about, you know, give me a little bit of air cover. Allow me to use the banking system. Allow us to continue to drive job creation and excise-- excise tax creation, right, for our state and for the federal government, right? So I think there's a good argument to be had that says that, you know, the federal government should act.

From our perspective, we have an arrangement with Acreage, which is a US multi-state operator, which allows us literally within 60 days of a permissibility event to take control of that company. And so, for us, as long as Acreage continues to perform well and bring our brands like our drinks to the US market, which they're going to do next year, we feel that we're well positioned with either outcome.

ZACK GUZMAN: Yeah, you guys aren't waiting for that either to move forward on those beverage plans, too. Because we talk about-- I mean, you told us last time you came on, looking at the summer of next year to get those THC infused beverages in states like California and Illinois.

And really, I mean, that seems to be a differentiating factor. When you look at Canopy Growth, I'd be remiss to not notice Aurora Cannabis, your Canadian competitor, also up by about 20% today after they reported, too.

But it does seem like that's a key differentiator for you strategically to really be focusing on those beverages, particularly in the US here. So at what point do you start looking at Canopy maybe more as a cannabis beverage company rather than just relying on Canadian bud, which still makes up the bulk of your guys' revenue?

DAVID KLEIN: Yeah, look, I think over time, you know, I've said I want Canopy to be a cannabis-focused CPG company. And I think that does drive us more to these cannabis 2.0 sorts of products, like drinks and [INAUDIBLE], maybe as a real growth path going forward.

That said, as you point out, a preponderance of the businesses is in flower. And we're doing things every day to improve the quality and ultimate performance with the consumer of our product offerings. And we think that will connect our brands together and continue to drive that authentic-- that feeling of authenticity with our consumers.

ZACK GUZMAN: Yeah, real quickly, before we let you go, I mean, what seems to be the biggest headwind that you might be worried about in maybe putting too much of an emphasis on the beverage front? What could hold you guys up as you look to roll those out?

DAVID KLEIN: Well, look, the biggest issue in Canada is a concept called equivalency where I think the regs were kind of written improperly. And, you know, in some instances, you can buy four cans before you kind of max out. We're working with the regulatory agencies in Canada to get that fixed over the next several months.

And clearly, that's not an issue that exists in the US. So we need to be able to get enough product into consumers' hands. And then I think we need to do some things to pull in non-traditional cannabis consumers 'cause that's where I think the market is here.

ZACK GUZMAN: Well, for the time being, investors continue to ride that wave that we are seeing play out here on the cannabis front. CEO David Klein at Canopy Growth, appreciate you taking the time to join us once again.

DAVID KLEIN: Yeah, appreciate it. Thanks, guys.