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Cannabis: Inconsistent U.S. regulation is ‘Prohibition 2.0’, Green Thumb CEO says

Green Thumb Industries Founder and CEO Ben Kovler breaks down the cannabis company's second-quarter earnings beat while diving into the outlook of marijuana legalization and marijuana conviction turnovers in the U.S.

Video transcript


- Now legal for recreational use in 19 states and medical in 38. What is the state of the cannabis industry today coming out of COVID? Green Thumb Industries is one of the largest multistate operators currently in 15 of those states with 77 retail locations. Their CEO Ben Kovler joining us now after reporting earnings.

Ben, good to see you. Analysts had a very gloomy outlook for this quarter for the entire industry. What's your read of the quarter?


BEN KOVLER: We think it was solid results. Our eighth consecutive quarter of positive net income and growth 5% quarter over quarter and 15% year over year. We think the US cannabis consumer remains strong. And we see lots of growth as we look out over the medium and long term.

The current US industry size is about $26 billion. And we see it easily doubling and tripling over the medium term as new states turn on. We just saw New Jersey turn on last quarter, and that's off to a great start. But up and coming soon here in 2022 is Connecticut, Rhode Island, and then places like Virginia and New York next.

BRIAN CHEUNG: Hey, Ben. Brian Cheung here. So on that point, what is the strategy in those new markets? What have you already deployed in New Jersey that you plan on copy and pasting in those other states? You have brick-and-mortar stores called Rise. I mean, how aggressive do you want to get in terms of opening up stores in those new markets?

BEN KOVLER: Yeah, we understand the regulatory structure within each state where we open stores called Rise, and we bring a portfolio of branded product. We think of this as prohibition 2.0, and brands distributed at scale is how to win. And that's why Rhythm is one of the nation's largest brands out there. We sell high-quality indoor flower that the consumer really wants.

And even in these tough times, we know that the demand for high-quality flower for consumers to find their well-being through this flower is very strong. So our strategy is to build indoor facilities in order to cultivate this product and get it to first, usually, medical patients as in the case currently in New York or Virginia and then to the recreational 21 and over that will be Connecticut, Rhode Island, New Jersey.

- Of course, keeping the share prices down for essentially all weed stocks is the lack of legislative optimism. Your stock down 68% over the last year. We did finally see Chuck Schumer roll out the Democrats plan in the Senate. We've seen Safe Banking passed the House 19 times, just kidding. I think it's six or seven.

But what's your read of that Senate Bill? And when do you think federal legalization becomes a reality?

BEN KOVLER: It's very frustrating what's happening in DC because it doesn't align with what the American consumers want or what's happening. But we built a business to thrive regardless of federal change. So we have a very strong balance sheet that produces cash flow that supports the growth going forward.

We're hopeful. We're working in DC. We're having a lot of conversations though it is quite frustrating as common sense does not seem to lead. You have to remember there are 40,000 Americans sitting in jail right now for nonviolent cannabis offenses that makes no sense. So we would implore Senator Booker, Senator Schumer, President Biden to take the necessary actions to get the people out of jail.

BRIAN CHEUNG: Ben, when we talk about just kind of the strategy here, again, with the expansion. I was just out in Oregon recently. One of the early states to move. You go down any block, you're going to see three or four different dispensaries.

The differentiating factor might be the flower itself, but you have to get them into the door. So from a marketing strategy, especially when your stock is this battered, how aggressive do you want to be on that because it is expensive?

BEN KOVLER: Yeah, our balance sheet is well funded. So we're not actively spending the equity. We think the equity presents a great opportunity for those that are looking at a medium and long-term opportunity on this massive growth industry. And the rest of the country has learned from Oregon, Colorado, and places in California. And so you're not likely to see three stores on the corner or on the street in Chicago or in Boston or in any other place like that.

So we have a first mover advantage into a market that has huge consumer demand where people will recognize brands just as they do in every single other consumer product. And that's an edge for us.

- And so circling back to the legislative-- the legislation in DC. Again, let's just suggest, probably, the federal legalization doesn't happen any time soon. How crucial is Safe Banking for MSOs like yourself and some type of reform on what we know is 280e? What is your effective tax rate?

BEN KOVLER: Oh, Yeah. We pay high taxes. We paid over $60 million with two tax payments last quarter. Safe Banking is important to lower the cost of capital to allow new entrants into the industry.

America is a land of opportunity, and right now, there's only a very few amount of operators that have access to capital. Green Thumb's balance sheet is strong. Our cost of capital is low. Lowest among any of the marijuana operators Canada or the US. So we are OK.

However, safe Banking which would lead to listing on the New York Stock Exchange or the NASDAQ, which would allow American investors on places like Robinhood and other online platforms to buy the stock, would lower the cost of capital, propel the growth in the industry, and enable more cannabis for more Americans.

BRIAN CHEUNG: And then Ben lastly here. A little bit of a turn, but obviously, a lot of attention on the news this morning out of Russia with Brittany Griner being sentenced to nine years there. A very closely watched global story there. Obviously, cannabis a big part of that. That's why she's in the situation, to begin with. Just wonder if you have any thoughts about those headlines.

BEN KOVLER: Yeah, it's tragic. It makes no sense for us. And here we are in America again, for Britney, this is not a good situation. I watched it today. It's emotional.

That's a sad situation.

But I just have to also mention there are 40,000 Americans that sit-in jail here for cannabis that's under our control. President Biden and others that we can take action today to create that sort of freedom here. But I think everybody can work together, and we'll see what happens in Russia, and we're praying for Britney.

- Are you disappointed in President Biden on cannabis?

BEN KOVLER: 100% Yes. There were campaign promises both from the President and the Vise President that have not come through. It's been almost two years, and there's been no action.

BRIAN CHEUNG: Salient points there. An ongoing story as well. Ben Kovler of Green Thumb. Thanks so much for taking the time. Appreciate it.