Cannabis: 'The pendulum has swung toward legalization,' Curaleaf CEO says

Curaleaf CEO Joe Bayern joins Yahoo Finance Live to explain the momentum for the cannabis company as it maneuvers a deal with Tryke for dispensary distributions.

Video transcript

ZACK GUZMAN: Welcome back. We are watching shares of the largest US cannabis company, Curaleaf, after they reported earnings under a bit of pressure, as has been the case for the broader year and when it comes to the industry as a whole, as a longer wait has started to rack up here in terms of when we will ever see federal laws changed, potentially even taxes changing or being able to access the financial sector. The wait there has grown longer.

And for more on all of that and the latest results we got from Curaleaf here, happy to welcome back in the CEO of Curaleaf, Joe Bayern joins us once again. And Joe, when we look at maybe, I guess, the latest quarter, right, you guys are still in line with where your guidance was for the full year, though coming in a bit on the lower end when you look at the $1.2 to $1.3 billion guidance. Talk to me about what you saw in the quarter when it comes to sales still racking up. You guys had a pretty impressive growth clip year over year. But what are you seeing, I guess, in terms of where the market's at right now?

JOE BAYERN: Yeah, I think the third quarter hit a little bit of headwinds, which is probably not specific to the Curaleaf company or the industry, cannabis industry itself, in that, you know, consumers were going out and splitting their share of wallet across other purchases, such as experiential purchases, going out to dinners, going back to the movies, going out to nightclubs. So that put a little bit of pressure on the cannabis sector. And of course, they're facing inflationary headwinds as well.

So I think there was a slight slowdown in the industry going-- coming out of the summer, going into the third quarter. But we expect that to resume to normal spending going into the fourth quarter of '21 and '22. I think broadly, though, you know, it continues to show that there's momentum behind the cannabis industry. We continue to have strong year over year growth rates. And we expect, you know, good growth going into 2022. So it doesn't deter us from our long-term optimism about the cannabis industry.

ZACK GUZMAN: The long-term optimism is still there, too, when you look at the latest acquisition, you guys acquiring Tryke, the total consideration of $286 million. They're an operator there in Arizona, Nevada, Utah. They have a pretty big footprint. So talk to me about why you wanted to make the move on them and what it does for Curaleaf.

JOE BAYERN: Yeah, for us, it's just another step in the direction of building on a national platform for our brands. We are long-term growth strategy focused. We're thinking about how we create a national platform for our brands and our products. And this is just another step in the direction of building that out. It gives us really strong capacity in a couple of key markets for us. Slightly different in each market, but Arizona helps us already bolster our leading position there.

In Nevada, it helps us think about going deeper from a vertical integration standpoint, building more capacity and giving us a larger retail footprint. And of course, in Utah, it gets us vertically integrated. We have a great dispensary in Utah, but now we're going to have cultivation as well. And we vertically integrated into that business. And again, as I said, it's just the next step in helping us build out our national platform.

KARINA MITCHELL: And Joe, I want to follow on from something Zack said, which was the wait for legalization. It seems like it's neverending. But what about further regulation? If it does happen, this draft bill, the State's Reform Act, which proposes making marijuana a regulated substance like alcohol and then charging a 3.75% tax, what does that do to this industry at this point?

JOE BAYERN: Yeah, I think that, you know, there's no doubt that the next big catalyst for our industry is going to be some kind of national legislation around cannabis. And I think there are a number of bills out there being discussed. What gives us optimism is now not only are the Democrats talking about legislation, but the Republicans are talking about it as well. So I think, you know, we're, again, very optimistic that we'll see some form of legislation over the next 12 months.

But it's not if. It's when. I mean, there's no doubt that momentum is moving in our favor, and the pendulum has swung towards legalization. I think the latest poll that I've seen is 68% of Americans are in favor of legalizing cannabis. And it's time for legislators to catch up with the sentiment of the American consumer.

So we believe that the Republican bill introduced by Nancy Mace is a balanced approach to legalization. It handles Safe Banking, which is certainly the least controversial and most supported part of all the legislations out there. And as importantly, it moves jurisdiction into the alcohol-- similar to alcohol into the TTP, where it's going to be regulated similar to other consumer products in the marketplace, rather than the FDA, which we think is an important step as well. So, again, we're very optimistic about some movement and legislation over the next 12 months.

ZACK GUZMAN: Yeah, you know, Ed Perlmutter has come on the show a bunch of times here, really working hard to get the Safe Banking Act passed through the House. The Senate's been the issue here, but that potentially. He seems pretty optimistic. God bless him. I lost track of how many times he's tried to get that passed. We'll see what happens. But I mean, when I look at Curaleaf shares here, off 25% year to date in the broader market, as I said, it's been a tough year the longer that way it's gone on. I mean, even growth has moderated a bit.

I mean, when you look at maybe what happened to the Canadian LPs here as they kind of ran out of runway I think a little bit-- some of the steam's come out of them, too-- why is the US investing picture different than what's happened up there with our neighbors to the north in Canada when it comes to, you know, it's been a tough back half of 2021, but the optimism is still around some of these changes coming through? What does that change? What does that trigger for a company like Curaleaf?

JOE BAYERN: Yeah, listen, we believe that the stock values don't represent the value of the company, that the fundamentals of the company are strong. We continue to grow our top line and our bottom line every quarter. We're building substantial businesses in the US, which is going to be the largest market in the world. So we're very excited about what's happening within the business. We don't think that the stock value reflects what's actually happening.

And as you said, one of the key catalysts to unlocking that value is going to be Safe Banking. It's the ability to bring investors, institutional investors, into our sector, people with slightly longer term prospects of how the industry will evolve and are investing, rather than trying to trade on the stock values in the US cannabis sector. We believe that's going to be a key catalyst for us, is getting long-term institutional investors into the marketplace so that we can continue to build out a very robust industry, which we believe, you know, could reach $100 billion in its maturity.

ZACK GUZMAN: The CEO of the largest cannabis company in the US there at Curaleaf. Joe Bayern, appreciate you taking the time to chat with us once again. Be well.