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The essence of our business is really starting to work: Canopy Growth CEO

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David Klein, Canopy Growth CEO joins the Yahoo Finance Live panel to discuss the outlook of the cannabis industry and recent acquisitions.

Video Transcript

ZACK GUZMAN: Well, happy 4/20, ladies and gentlemen. And welcome in to Yahoo Finance's Business of Cannabis special. I'm Zack Guzman. I'm happy to be with you today. Whether you're new to cannabis or a long-time marijuana lover, we have an amazing show lined up today to walk through all the changes we're seeing hit the rapidly expanding cannabis space and the best ways to invest highlighted on today's show. We're going to be doing that with a stacked lineup featuring the top leaders in the space, as well as politicians pushing for some big changes, speaking to over $20 billion in marijuana market cap today, including the CEO of the largest Canadian company.

David Klein from Canopy Growth is going to be joining us, along with leaders from two leading US space companies. Curaleaf's Boris Jordan and Trulieve's Kim Rivers are going to discuss what marijuana reform means for their businesses and how legalization could impact profits. We're also going to be chatting with some of the most-- well, the most followed analysts on Wall Street. Vivien Azer is going to join us to share some of her stock picks later on in the show, including Trulieve and Green Thumb Industries, two names we've talked about a bit here on Yahoo Finance.

And to address the question we're all asking-- when big changes are going to be coming at the federal level-- we're chatting with two top congressmen at the forefront of that battle. Colorado's Ed Perlmutter and Oregon's Earl Blumenauer are going to give us their timelines on when they see landmark bills advancing in Congress. It's such a good lineup today. I'm stoked. Buckle up, ladies and gents, because we've got a lot coming your way.

And of course, as we've been discussing this year in 2020, even as we await federal changes, we've been seeing a number of states legalize at a rapid clip. In just the last few weeks, we've seen plans finalized in New Mexico, New Jersey and New York and Virginia, all moving forward to legalize marijuana, which means nearly half of the US population now lives in states where marijuana is legal.

And it's not just politicians making these decisions for themselves. In many cases, it was voter initiatives that sparked changes. In fact, Americans across the country now support legalizing marijuana by the highest margin ever, with 2/3 of Americans saying it should be legal, according to Gallup's latest poll. That's up from just 1/3 at the turn of the century. A new Pew Research poll went a step further, factoring in recreational and medical use to show that just 10% of Americans said marijuana shouldn't be-- shouldn't be legal, rather, for either issue there, whether it's recreational or medical. So about 90% on board, if you look at it that way, in some form of legalizing.

Of course, while it remains illegal at a federal level, all the states legalizing has led to some big growth in the businesses here in the US. The market as a whole now projected to top $41 billion by 2025, according to Cowen's estimates, or $80 billion, when you factor in the black market that's still operating here in the US, though that's quickly changing. As I said, more states legalizing, so that business coming on board, taxes being raised. We're going to dig into all of that.

But first, I want to start here with the focus on the way that one of Canada's largest cannabis companies, the largest there by market cap, has been planning to expand into the US, waiting, of course, on that trigger. A federal permissibility would be the trigger for their deal with US multi-state operator Acreage to jump into the US. They already have that deal ironed out. But it's going to take federal permissibility to actually make that deal come to fruition.

In the meantime, though, they've been spending money on shoring up their businesses north of the border there, including a more than $300 million deal to scoop up competitor Supreme Cannabis. And for more on how the company is eyeing their expansion to the US, we want to welcome back into the program Canopy Growth CEO David Klein joins us to kick things off.

Happy 4/20. David, good to be chatting with you here again. And interesting to see kind of your guys'-- your moves, I guess, ahead of what a lot of people are expecting to come this year. Your own expectations were for federal legalization, federal permissibility to come through this year. So talk to me about the logic there in focusing on Canada ahead of those events.

DAVID KLEIN: Yeah, look, Zack, as you know, we've been restructuring our business over the last year to be focused on the US, Canada, and Germany. We've shut down facilities. We've right-sized our business. And in recent quarters, we've begun growing market share in Canada. And so, the essence of our business is really starting to work for us.

And so, we saw an opportunity to buy a couple of really strong consumer preferred brands with the acquisition of Supreme. And we also did a smaller transaction with Ace Valley. Both of those give us a better brand positioning in the space, which helps us build out our financial statement and our balance sheet so that we're prepared to bring those brands, as well as the rest of our portfolio, to the US as soon as we can.

ZACK GUZMAN: Yeah, it fills out what we've been talking about in prior quarters, kind of the full set on the value side, the premium side, to give someone out there, the new cannabis consumer, options across how much they want to spend. But when it comes to form factor, you've also been kind of leading the charge. You were among the first there in terms of Canopy's efforts on the drinks front. You have plans to launch those in Illinois come summer. What are you seeing there in terms of how you're prepared to roll those out here in the US?

DAVID KLEIN: You know, we've been doing a lot of work to be able to affect those rollouts this year. I still am firmly of the belief that it's a great way for new consumers to enter the category, maybe some consumers that would be afraid to enter the category through inhalables. And so we see drinks and edibles and just, generally, something that's not an inhalable as a way to bring other people into the market.

We're seeing a lot of competition in the space, which is actually really exciting because I do think it's proving out the hypothesis. And we're going to be prepared to be there. And we've been working on our formulations in Canada to make sure that we have the perfect products to bring to our consumers in the US as soon as we can.

ZACK GUZMAN: And obviously, the Acreage deal gives you kind of, I guess, an expedited path to a lot of the states where Acreage is already operating right now. You can frame it as a positive in terms of other people pursuing drinks, proving your guys' case there as to why you invested so much. You can also look at it as perhaps a negative, as they're all going to be in the markets you're going to be chasing. But what leg up does Canopy have, given its background in investment from Constellation here? Of course, Corona maker-- people know that company well. What that maybe gives you as an advantage in rolling your own drinks out?

DAVID KLEIN: Yes, so first of all, I think that you have to win with the consumer, right? So you have to have a superior product. And we're confident in the formulations that we've already deployed in Canada. We then have the ability for Acreage to bring those products to the US. And they're in the process of doing that. And as you indicated, we would be in certain states in the summer.

On top of that, if you look a little further down the road, though, our ability to use our route to market capabilities, so whether it's distribution, calling on customers, using the alcohol distribution network, which we've started to explore with our brand, BioSteel, which is being sold through a network of beer distributors that Constellation uses, you can see how the synergies between Canopy and Acreage, and ultimately, Constellation and their partners, can really give us that leg up, again, upon permissibility in the US.

ZACK GUZMAN: I'm glad you mentioned BioFuel-- or BioSteel-- because that's a company in your company that we don't really talk about too much because it's kind of operating, doing its own thing. But you've also been pouring some money into some interesting celebrity and sports, athletes' endorsements, Patrick Mahomes being one of them, too, that we've talked about before. But I mean, what does that brand do for you long-term?

Because originally, it seemed like there was going to be a CBD focus there-- not so much maybe anymore. But where does that brand maybe fit into the portfolio, and how can it be one of those? We talk a lot about other people who aren't doing anything in CBD or marijuana, but potentially could when you think about large CPG names out there. So talk to me about how you see it fitting in with the rest of what Canopy's up to.

DAVID KLEIN: So what BioSteel brings to us is really the sports nutrition component of wellness, which we think plays nicely into the entire cannabis play. And so, we can see-- and we do have CBD product lines within BioSteel. Of course, we're going to lead with hydration, which is really BioSteel's claim to fame over the years. It's actually why we get so many celebrity partners, you know, professional athletes as partners because they've been using the product. It's a superior, better for you product in the marketplace.

And so, we're going to continue to ride what's been successful up to this point, which is really in the hydration space. But we already have added CBD product lines to the BioSteel product. And we'll continue to add CBD and other cannabinoid-related products into the BioSteel line as we go forward.

ZACK GUZMAN: Last question for me before we let you go, David. We've talked a lot about the timeline here. You've been progressive and moving it up and up every time we talk. But it seems like we've stalled out a little bit in terms of progress on the federal permissibility front, as you await that. So just, lastly, as you kind of see the progress being made here, I think you said somewhere last time we chatted, so what's it looking like now?

DAVID KLEIN: Yeah, so, you know, what I actually said last time, Zack, it would be like-- it would be 12 months, so it did give me a little bit into next year. But, you know, look, I still think there's so much momentum behind cannabis that it's going to get done. Now it's just a function of when. And, you know, when you see the House passing a Safe Banking bill with Republican support, in fact, significant Republican support, I think it speaks to the momentum that's building.

So now it's just a function of when we get to the legislative process. And clearly, the administration, and in particular, the Senate, have been consumed dealing with the pandemic and with restarting the economy. But we think cannabis is right behind that. And, you know, again, super excited about the momentum in the US and what that ultimately means for cannabis and for Canopy in our ability to step into that very attractive US market.

ZACK GUZMAN: All right, David Klein, CEO of Canopy Growth, appreciate you taking the time to chat with us and getting us started here on the Business Cannabis Special. Thanks again. Be well.