Canopy Growth poised to become big winner across North America: CEO

Canopy Growth CEO David Klein joins the Yahoo Finance Live panel to discuss the cannabis company’s most recent earnings results and his outlook on federal weed legalization in the U.S.

Video transcript

ZACK GUZMAN: Welcome back in to Yahoo Finance Live. Right now I want to check out one of the companies we profile a bit here on the show, just due to its sheer size in the cannabis space. That would be Canopy Growth. One of the largest cannabis companies out there reporting earnings in their latest quarter.

Net revenue coming in a little bit weaker than estimates at about 148.4 million Canadian there, below the estimate of 153.1 million. Adjusted EBITLAKA-- adjusted EBITDA loss, rather, coming in around the 94 million Canadian level versus the estimates around 61.2 million. But still, the company on track to post positive adjusted EBITDA by the back half of fiscal 2022.

And for more on that and the quarter, I want to bring on the CEO of Canopy Growth. David Klein joining us once again. And David, I mean, we talked about some of the issues up there in Canada when it comes to kind of sector-wide COVID protocols. Talk to me about the latest results here in the quarter, what you made of them, and what you're seeing there in terms of the profitability goal for 2022.

DAVID KLEIN: Yeah, Zack. Really, despite the headwinds that we had from COVID-- and for those of you who aren't aware, parts of Canada were quite shut down over the period that covered our fourth quarter. But despite those headwinds, we still finished the year up 37% in total revenue. We also completed a transition year-- a transformation year, really, for us-- that I think will go a long way toward positioning us to be one of the big winners across North American cannabis-- of course, as the US market moves towards permissibility.

ZACK GUZMAN: When it comes to the non-cannabis revenues too, that came in at 2.9 million Canadian. That was below the estimate that some people had by moderating sales there at This Works, kind of a CBD-focused consumer brand you guys got there. You also have Martha Stewart's brand. Talk to me about what you're seeing in the CBD space in terms of demand and how it's shaking out amongst all, I guess, the brand portfolios that you guys have there at Canopy.

DAVID KLEIN: Yeah, look, we're really excited about how the portfolio is actually working. And I'll give you an example of, say, Quatreau, which is our CBD drink. We saw consumer need for a beverage that would help people focus more and maybe take a little bit of the stress off. I personally used it like late in the afternoon while I'm trying to wrap up work.

We saw that need state. We developed outstanding products that taste great. And they're super effective in terms of achieving that level of calm. We launched them in Canada, got really good consumer feedback in Canada, and then we just recently brought them to the US. But almost the more exciting part is we brought them to the US by using Constellation Brands, a distribution partner for wines and spirits, in Southern Glaser Wines and Spirits, who are now going to take our Quatreau brand into bricks and mortar in the US. I think that's an example of how we're seeing that ecosystem play. And by the way, the CBD products are doing very well in the marketplace.

ZACK GUZMAN: And you can do that because it's CBD, not THC, right now at least. You know, you have the THC up there in Canada in your drinks. And you talked about a 35% dollar share of the total beverage category. Talk to me about the growth there and what you expect to see or want to see maybe as that grows. What are the goals that you have at Canopy to really dominate the beverage space, since we know you've been pouring a lot of effort and money into it?

DAVID KLEIN: Yeah, so you're going to see our innovation engine start to work. As I said, last year was a bit of a transition year for us. And we have some pretty interesting innovation. We just brought out a Tweed iced tea. That will be hitting the Canadian market.

But more importantly, we're continuing that innovation so that we can bring it into the US at the right time. And in fact, we're still on track to have Acreage bring our THC drinks into the US market over the next several months.

ZACK GUZMAN: How does that fit into maybe the competition that we've seen from other brands in the alcohol space? You know, we've talked a lot about your Constellation connection there as a potential competitive advantage. But it seems like there are a bit of established alcohol brands here now experimenting by adding THC just to their drinks. Talk to me about the regulatory aspect of that, because before it didn't necessarily seem like that would be kosher. But if it, does that maybe damage somewhat of the lead that you might have had in the beverage space as you expand in the US?

DAVID KLEIN: Boy, I don't think so, because I think ultimately what you have to do is win the consumer over. And you have to deliver when you're in their hands. And what our innovation capabilities do is allow us to have those best-in-class drinks.

And then we can still rely on Constellation's route to market, whether getting into retail or just using their distribution network, whether it's their beer network or their wine and spirits network, to get the product out there in the hands of consumers. We're really early on in this whole process of the cannabis market or CBD market opening up in the US. You know, people ask me where are we in the process. And I would say that, you know, we're just getting started. If we're trying to climb to the top of Everest, over the last year we just really got ourselves to base camp. And then I think it's pretty exciting from here.

ZACK GUZMAN: When it comes to what else-- I mean, if you're that excited about the beverage side-- obviously still sitting in the latest quarter here. About $1.7 billion US in cash is you have to work with. It seems like you're satisfied with what you have there on the beverage front. But when it comes to other areas that you could expand-- we've talked about M&A in the past. Seemed like you might have some room, some targets there in terms of what you'd want to do. But what else do you think you might want to go out there and get to kind of put the pieces together ahead of maybe some regulatory changes happening here in the US? What gaps need filling at Canopy?

DAVID KLEIN: I think we're-- I think we're strong in beverages. Were the number one flower brand in Canada, both number one in value and number one in premium. And we're looking forward to being able to bring that to the US.

We have just launched-- we've just launched an edibles line in Canada under our Twd. brand name that's doing quite well in the marketplace. And we did-- we did two acquisitions, or we're in the process of-- we completed one. We're in the process of the second.

The first was Ace Valley, which really helps us in vapes in Canada. But again, we think that's something we can bring to the US over time. The second is Supreme, which we're still waiting for regulatory and shareholder approval on. But Supreme has outstanding premium flower brands in Canada, and we see the ability to bring that to the US.

So I think we've built our portfolio, or the portfolio that we're super happy with in Canada. I think that $1.7 billion US-- that's sitting there solely focused on opening the US market. And we'll do what we can prior to permissibility, but we'll be prepared to move very quickly post-permissibility.

ZACK GUZMAN: Yeah. And I always ask you-- always love asking you-- I mean, we keep seeing this kick down the road. But when it comes to the regulation changes there, you guys are also doing your work with the other cannabis companies to kind of press the issue and get it changed. But what are you seeing there in terms of progress? Because sector-wide, I mean, shares today at Canopy are down sector-wide. There has been a little bit of, I guess, a loss of momentum here as it's taken longer. What are you seeing on that front?

DAVID KLEIN: You know, I just continue to be optimistic, Zack. And I'm always going to get the date wrong if I'm going to pick a date. But you see things like a couple of Republican members of the House, Dave Joyce and Don Young, bringing legislation forward to deschedule cannabis a couple of weeks ago. So now you've got members of both parties really working toward legalizing cannabis.

So we're no longer talking about, should we legalize it? We're talking about, what does legalization look like? And we know we're waiting for the bill that Senators Booker, Wyden, and Schumer are expected to drop in over the next couple of weeks. And then, you know, lastly, we're seeing that continued groundswell.

The United States Cannabis Council did a poll a few weeks ago. And they looked at conservative leaning states like Utah, Arizona and West Virginia, and they found that 70% of the people polled in those markets are in favor of federal legalization. So I'll be wrong with the date, but it's coming. And it's coming soon.

ZACK GUZMAN: All right. David Klein, the CEO of Canopy Growth. Appreciate you coming on here to chat. You're never wrong when you come here to chat with us. It's always a good decision. Appreciate you taking the time. Be well.