Today, I am excited to be joined by Joe Lusardi, President & CEO of Curaleaf (OTCPK:CURLF), a vertically integrated multi-state cannabis operator in the U.S. Prior to joining Curaleaf, Joe was principal and founder of Massapoag Advisors and had senior roles at Liberty Mutual and Fidelity Investments.
- 1:45 – How Joe got started in the cannabis sector. In 2009 when Maine passed medical marijuana law, Joe opened the first vertical cannabis business on the East Coast in 2011. Growth trajectory of the industry first attracted him to the space.
- 2:45 – Vertical integration is key part of Curaleaf’s business – they want to control the whole supply chain to control the quality of product and thereby the pricing to enjoy the margin across the supply chain. As an MSO, thesis is scale will become very important. Once acquisitions with Select and Grassroots are complete they’ll operate across 19 states; with scale they can be more efficient and develop brands that consumers recognize.
- 4:40 – The depth and detail in Curaleaf’s recent earnings call – unique in the industry and a deliberate point of differentiation. Guiding for $1 billion+ for 2020. Big markets in Florida, Massachusetts and New Jersey that continue to grow quarter over quarter. Grew top line 35% quarter over quarter and continue to drive growth.
- 6:40 – Recent big acquisitions of Grassroots in July, which is the largest private vertically-integrated MSO as well as Select, the leading cannabis wholesale brand in the U.S. Energy will be behind building brands. These deals mean any further acquisitions will slow down to focus on running the integrated businesses.
- 9:10 – Revenue and profit aren’t mutually exclusive. As Curaleaf builds scale they’ll continue to drive profitability. Building and growing demands SG&A to get the business going, but once they’ve scaled expect to see terrific margins. Patience is in order, but not for long. Some losses are attributable to stock based compensation and other non-cash charges which investors know how to put in their proper place. If top line continues to grow, profitability will come and it will come quickly.
- 11:25 – FDA letter that Curaleaf received a couple months ago and has since completely addressed. Dealing with ever-evolving regulations. CBD and THC markets are nascent industries, have to be compliant and flexible. Curaleaf continues to add talent to that area. Strong demand in CBD market – we’ll continue to see traction but companies will have to adapt.
- 13:14 – In Curaleaf’s home state of Massachusetts, the cannabis commission unanimously approved Curaleaf’s ownership approval. Curaleaf has a sizable cultivation operation there and intends to open 3 adult use stores, and already has 2 medical stores there. Newly formed commission has met to grant approval for adult use license. There was no process when Curaleaf went public in the fall of last year, sp currently working with the commission for retroactive approval and moving forward with licenses. Looking forward to firing on all cylinders in 2020.
- 14:15 – How much the US going legal affects Curaleaf. Keeping a close eye on the federal regulation and spending a lot of time in DC to educate legislators. Working within the confines of state regulated programs – hopeful for federal resolution. More than 90% of Americans support medical use, more than 60% support adult use so momentum is building. We still need more US quality research to convince certain factions. The DoJ deciding to review new applications for this research is an important development.
- 17:05 – Curaleaf recently joined forces with the Veterans Cannabis Project. Federal law makes it illegal for Veteran Health Administration physicians to recommend cannabis as a treatment to the 20 million US veterans, but it’s clear that cannabis can help treat PTSD and be a great resource for veterans, especially as an alternative to opioids.
- 18:30 – Where Joe sees the sector heading and where it is presently. This is a $100 billion+ industry and only $11 billion was taxed in the past year. Lots of momentum ahead, we’re in an emerging market which means lots of volatility. Growth comes in fits and starts but thesis remains intact.
- 20:05 – Highly encouraged by changing landscape with regard to capital coming into the sector. More traditional forms of capital, much like Curaleaf’s recent deal with Freehold Properties, is starting to happen. Pharma, alcohol and tobacco sectors are all paying attention to the sector, but they won’t come in droves until federal laws are changed.