Weed legalization: 'We need the federal government to catch up,' Canopy CEO says

Canopy Growth CEO David Klein joins Yahoo Finance Live to discuss entering the U.S. market, competition in the cannabis industry, federal reform and legalization, and supply chain issues.

Video transcript

- Canopy Growth is looking to fast track its entry into the US cannabis market by creating a new holding company to house its US cannabis investments. Canopy Growth CEO David Klein joins us now. David, welcome to you on this Friday morning. I was talking to an executive at Constellation Brands, an investor in your company. They said from their perspective, this is a win-win-win. Why is this a win for you?

DAVID KLEIN: This is a win for us because it allows us to put together three really strong cannabis companies in the US under this Canopy USA umbrella and begin to address the $50 billion opportunity that is the US cannabis market.

- And David, it's been tricky because of the interdiction on a federal level against marijuana in the United States versus what we have seen in Canada. You guys have-- not just you, but many of the cannabis companies have done-- had to do some real gymnastics to get around all of that. Tell us on a concrete level what this means for you, how this enables you to access that opportunity you're talking about.

DAVID KLEIN: Yeah, I think the important point is that we are putting together a strong branded opportunities to address the US market. And we need to do so in a way that allows us to ensure that we are keeping our investors, like Constellation, safe from any potential risks that they may have. And so we think that allows us the ability to-- the flexibility to actually be more aggressive as we address the US market and in the structure that we've outlined creates that security for investors like Constellation.

- David, it's been a while since we talked to some of the team at Canopy. We were familiar with prior management, very much ran Canopy like it was the Wild West. But you are the former CFO of Constellation Brands. Talk to us about the financial discipline you and any new executives your team have put into the company.

DAVID KLEIN: Yeah, so we talk about ourselves as pioneers because there are challenges that present themselves on a day in and day out basis in this really tricky market. But we think it's really important to focus on execution, which is why we love this Canopy USA structure, because it allows businesses that we already have an interest in, like Acreage and Jetty, to begin working together to extract cost synergies across the business, to extract revenue opportunities across the business as the US market opens.

And then clearly as we apply that to Canada, the Canadian market continues to evolve. We continue to have to differentiate ourselves versus a growing competitive set. And I think that is just execution on a day in and day out basis. And it's really not about-- it's not about driving the story of cannabis anymore. It's about executing the business of cannabis.

- Do you believe that we will see passage of the Marijuana Banking Bill and other legislation that allows for the cannabis industry and for your company to experience the growth that it's anticipating in tapping into this market in the US?

DAVID KLEIN: Look, there are five more states that have cannabis on the ballot for legalizing adult recreational use this fall. And already 2/3 of Americans live in a state or a locale where cannabis is legal in some form. We need the federal government to catch up. And there's just a lot of momentum building there. We've seen bills in Congress, both houses of Congress both parties, and then a bit of a breakthrough a few weeks ago when the administration announced the beginning of their support for what we believe will ultimately be full federal permissibility.

- David, in Canada, where there is more broad legalization and permissibility, the market hasn't quite turned out to be as profitable as you and your peers might have hoped for. How do you think the US should maybe take some lessons away? Or what would you hope for if and when we do get full legalization that is different from the Canadian model?

DAVID KLEIN: Well, I think one of the things we can do in the US currently is we can talk to our consumers and we can educate our consumers. And we can talk about what cannabis is. And it's a legitimate and important consumer product. And I think being able to just connect with our consumers a little differently in the US market would be a differentiator versus Canada.

But as it relates to Canada, we still think the market opportunity in Canada is an outstanding opportunity. Here it's a $7 billion industry versus the $50 billion industry in the US. But that is a very large market. And we're still in the early days of the market really shaking itself out to be the market that we know that will become.

- Respective of the quiet period that you are in right now ahead of earnings, I got to wonder naturally for the larger space how the cannabis industry as a whole is managing through a higher operational expense environment and what that potentially means for just having the financial cash flow in order to weather, navigate, even through some of the transitions that you're seeing here.

DAVID KLEIN: Yeah, clearly, every company is fighting the battle, for us with cost inflation and supply chain disruption. For us, we've been able to manage through it nicely across our businesses. We've had we've had some supply shortages in our stores and vaporizer business. But for the most part, we've been able to manage through with good planning and focus on execution. But we're in the same boat, I think, that every other industry is in.

- All right, we'll leave it there. Canopy Growth CEO David Klein, good to see you. We'll talk to you soon.

DAVID KLEIN: Thank you.