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Curaleaf CEO: 2021 momentum points to a 'longer term trend' for cannabis

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Curaleaf reported earnings that beat estimates. Curaleaf CEO Joseph Bayern joins Yahoo Finance Live to discuss.

Video Transcript

ZACK GUZMAN: Welcome back to "Yahoo Finance Live." Cannabis continues to be booming in the US despite an extended wait for reform in Congress. We got the update from America's largest cannabis company, Curaleaf, reporting a record quarter last night with revenue in the first quarter exceeding the high end of guidance to hit $260 million. That was up 170% year-over-year.

Profitability, as measured by adjusted EBITDA, also hitting a record $63 million, up 213% year-over-year. Curaleaf also guided ahead of revenue expectations for the current quarter. And joining us now for more on that is Curaleaf CEO Joe Bayern joining us once again. Joe, good to see you again today after the quarter in which you guys passed the annual run rate of $1 billion in annual cannabis sales-- it's a lot of weed. But talk to me about what growth you're seeing there across the product portfolio.

JOSEPH BAYERN: Yep. Thank you for having me. It's another very strong quarter for Curaleaf. We had record revenue and earnings, as you mentioned. And we're just seeing continued momentum in the marketplace. I think this is just part of the longer term trend of Americans moving in the favor of legalized cannabis and cannabis consumption. So we're very optimistic not only about the short-term, but we believe we're we're really poised to capitalize on the longer term trend of consumers coming into the category.

ZACK GUZMAN: Not only was there growth there on that front, but gross profit margin also reached 49%. And that was a year-over-year increase of 636 basis points. Do you see that in improving further here when you kind of look at the portfolio mix? Because for all of fiscal '20, it looked like 15% of sales came from new products there. Still, about 45, 55 mix between dry flour and your formulated products-- but talk to me about how that might change and what its impact might be on gross margins as you look forward.

JOSEPH BAYERN: Yeah, I think we'll continue to see expansion of our gross margins throughout the year as we continue to build scale across our portfolio. We are operating in a number of different markets. We do have the largest footprint in the US with 23 different states. And as we continue to build scale across those markets, we'll continue to get margin expansion.

And we'll continue to get margin expansion as we deliver new products into the marketplace through innovation by creating truly differentiated products that are backed by science, supported by our two key brands-- Curaleaf, which is focused on health and wellness, and Select, which is focused on the lifestyle aspects of cannabis consumption-- will help us drive higher gross margins. And the scaling of driving operations through our existing footprint will help us drive the bottom line. So we're really excited about our position in the US and our ability to drive organic growth, both top line and bottom line, by continuing to reap the benefits of the investment we've made over the last couple of years.

AKIKO FUJITA: Joe, let's expand on that expanding footprint, as you put it, in the US-- about 100 retail stores now, newer locations in places like Illinois and Pennsylvania. What kind of pickup have you seen in some of your newer markets. And from a larger perspective, where do you see the most strength?

JOSEPH BAYERN: Well, we really have strength across our entire portfolio. But I'd say we're uniquely poised in the Northeast to capitalize on some of the key moments or movements in the Northeast, especially around New Jersey and New York announcing that they are going to legalize adult use either in the last part of this year or early next year. So I think we're really well-positioned not only in our strong markets like New York, New Jersey, Connecticut, where we've had historical share advantage, but I think also in markets like Florida, which continue to expand and add new patients into the program.

We have a strong footprint in Florida. We've built out strong footprints in places like Illinois and Pennsylvania. We expect to see continued growth in those markets. And we are seeing a rebound on the West Coast. So again, we are the largest across the US. But we feel pretty comfortable that we're going to see more growth out of all of our markets this year as the continuing trend occurs, which is bringing more people into the cannabis space.

AKIKO FUJITA: On those two markets that you highlighted, New York and New Jersey, you've said that you think you can unlock value-- $5 billion and $2.1 billion respectively. How quickly you think you can get there?

JOSEPH BAYERN: I think it will ramp up relatively quickly, because I think the demand is already there. I think if you look at just consumption across the US and you look at the legal market, which is going to exceed $20 billion this year in legal sales, there's also an existing market of the illicit market of relatively $60 billion of sales.

So the market is there, we just have to provide the opportunity for patients to buy in the legal framework and provide products that are competitive what they're buying on the illicit market. And so when you think about New Jersey and New York, it could ramp up to those numbers of $5 billion and $2 billion respectively over the next two or three years if the system is launched in a responsible way and a logical way.

And I think both in New York and New Jersey, we're looking at the right elements for that to occur, which is the right regulation, the right tax scheme supporting it, and, of course, being available to people-- providing availability through licensing throughout the state. So I think the structure is there, and I feel pretty optimistic that we're going to be able to ramp up to those numbers in a relatively short time frame.

ZACK GUZMAN: Joe, I mean, when we talk about competition too, it's interesting-- we're going to be talking with Truleaf later on in the show, and Kim Rivers, and that $2.1 billion deal to expand with Harvest-- it brings them from 6 to 11 states, including one of your own-- your backyard there in Massachusetts. I mean, as we've kind of seen these companies operating in kind of their own distinct regions, now it seems like the overlap's growing. So what does that competitive set and the increase in competition maybe due to Curaleaf's and the growth that you project?

JOSEPH BAYERN: Well, I think, first and foremost, that was not unexpected. As we continue to build $100-plus billion marketplace, we know there's going to be continued consolidation in the market. And there's going to be plenty of opportunity for people to participate in the industry. It doesn't really change the way we think about it.

We've been focused on building a national platform for our brands-- Curaleaf on the health and wellness side, and Select on the lifestyle side. And everything we've done for the last several years has been in preparation of building out that national foundation. So we'll continue to focus on not only building scale through operations of cultivation, looking at research and development to create differentiated products in the marketplace, and then, of course, building out a national distribution platform, which is close to 2,000 points of distribution for our brands across the US today.

That's what we're focused on. And as we continue to do that, we think will be able to build sustainable competitive advantage. And regardless of what's happening through consolidation in the industry around us, if we stay focused on building brands that people love and trust and products that meet the needs of our consumers better than our competitors, we're going to be successful.

ZACK GUZMAN: As Akiko pointed out, I mean, it's not as if you guys need federal changes right now with New Jersey and New York coming online and these other states that legalized themselves. But it does seem like lately, investors are losing a bit of steam as the wait for federal reform takes longer and longer. You look at MSOS, the US multistate operators ETF almost break-even now on the year-- Curaleaf stock up by about 8% over the same time period.

But when you look at the timeline now as a company, if competition is not the biggest risk, what about this, I guess, shifting of timelines when we think about progress being stalled in the Senate for reforms at the federal level? What's the timeline looking there since we know that it would be pretty key to your guys' bottom line when it comes to taxes and everything else there? So how are you seeing that shape up now?

JOSEPH BAYERN: Yeah, it's hard to predict what the timeline might look like. Obviously, there's a lot of momentum in Washington around getting a bill on the floor. We're very supportive of that. We believe that it hopefully will be released over the next couple of weeks.

But as you said, we're preparing for continued growth in our business, either with or without national legalization. We would love to see some of the aspects of the bill get passed, especially around safe banking, because I think that is the least controversial issue. And it's got the highest level of support.

But my understanding is the bill proposed by Senator Schumer is going to be pretty comprehensive in nature and will be encompassing. So we're looking forward to what that might look like. But regardless of that, we're focused on really three strategic pillars, which is we continue to invest in our existing infrastructure which is a state by state model and drive scale across the US.

We are looking at building capabilities across our organization to prepare for the eventual nationality of cannabis in the US. So we're building centers of expertise across the US that we can scale up on a national level. And we recently announced that we've now started looking at other markets like Europe as potential areas of growth in the future.

So our three focus areas are staying consistent and remain unchanged. And we're looking forward to national legalization. But if that doesn't occur, we feel pretty comfortable that we're going to be able to sustain our growth, and more importantly, just capitalize on the longer term trend of US consumers moving in favor of legalizing cannabis.