"The pessimist complains about the wind. The optimist expects it to change. The leader adjusts the sails.” John Maxwell
“Adjusting the sails” of one of the largest Canadian cannabis companies in the world is not an easy task. Meet the man who accepted the challenge and who’s trying to realize Canopy Growth’s (CSE:WEED) (NASDAQ:CGC) vision and drive corporate growth: David Klein.
This year, at the upcoming Benzinga Cannabis Capital Conference, to be held on April 20 and April 21 at the Fontainebleau Miami Beach Hotel in Florida, Klein will deliver the keynote speech and share his vision and valuable insights into this flourishing industry.
From Beverages To Marijuana
Before joining Canopy in 2020, Klein sharpened his leadership skills for 14 years at beverage giant Constellation Brands (NYSE:STZ), as executive vice president and chief financial officer. Klein holds a bachelor’s degree in Economics from the State University of New York (SUNY) at Geneseo and an MBA from SUNY at Buffalo.
At Constellation, his first role was vice president of business development, which he undertook in 2004. He also held roles as CFO, Constellation Europe; SVP, Treasurer & Controller and CFO, Beer Division.
While CFO at Constellation, Klein was in charge of the company’s corporate strategy and venture organization. While handling those duties, he played an important part in the company’s first big CPG investment in the cannabis space when Constellation first invested in Canopy in 2017.
Constellation As Value Driver For Canopy
What’s interesting is that Constellation’s involvement in Canopy is considered one of the cannabis company’s biggest value drivers by Cantor Fitzgerald's leading analyst Pablo Zuanic.
According to Zuanic, it makes more sense for Constellation Brands to buy all the Canopy Growth “float” than wait to use the warrants.
“According to Bloomberg, Constellation Brands and Monster Beverages (NASDAQ:MNST) are in 'merger discussions'...we assume the much bigger scale of that combined company could make it easier to acquire Canopy Growth eventually,“ Zuanic said in a recent analyst note.
The leading alcohol company recognized Canopy’s potential in 2017 when it bought a 9.9% stake in it. Since then, Constellation increased its stake several times over to reach 38.6%. It has invested more than $4 billion.
‘Adjusting The Sails’ Or Preparing For The U.S.
On several occasions, Klein expressed his optimism about possible federal cannabis legalization in the U.S. Not only that, the company’s strategic moves over the last couple of years seem to be moving in that direction.
"A lot of momentum [is] building for cannabis legislation to make its way through the process this year," Klein told Cheddar News in February 2021.
In April 2019, Canopy announced it will acquire one of the biggest multi-state marijuana operators, Acreage Holdings (OTCQX:ACRDF), for an upfront payment of $300 million, or $2.55 per Acreage subordinate voting share. The total value of the deal was estimated at $3.4 billion at the time. The agreement, however, depends on cannabis legalization.
Needless to say, Canopy is not wasting time waiting for things to happen. To better establish itself in the country, become familiar to U.S. consumers and to be prepared for that major industry development, Canopy also licensed its brands to Acreage.
It also struck a similar deal with another important industry player – TerrAscend (OTCQX:TRSSF).
The company also runs several consumer packaged goods and CBD brands, such as vape accessory company Storz & Bickel, sports drink maker BioSteel, and skincare company This Works. In September 2020, Canopy introduced a new line of hemp-derived wellness supplements in collaboration with domestic diva Martha Stewart and Marquee Brands.
Initially, Martha Stewart's CBD product line included gummies, Citrus Medley and Berry Medley as well as softgels and oil drops. It has expanded over the years with its most recent addition of Tropical Medley CBD Wellness Gummies.
The products were developed by Stewart in partnership with Canopy Growth’s scientific team. The collaboration was initiated in February 2019 when Stewart took an advisory role at Canopy Growth. She joined the company as part of the collaboration between Canopy and Sequential Brands Group, Inc.
"Our U.S. CBD business is gaining momentum on the back of highly successful Martha Stewart CBD product launches," Klein said during a call with analysts.
But Klein and Canopy didn’t stop there. In October last year, the company acquired the right to buy Wana Brands, the number one cannabis edibles brand in the U.S. by market share, upon federal cannabis legalization. Canopy signed definitive agreements for this arrangement with Mountain High Products, LLC, Wana Wellness, LLC and The Cima Group, LLC (collectively Wana).
Under the deal, Canopy had to provide an upfront payment of $297.5 million in cash as part of the acquisition compensation.
‘Disconnect’ In Earnings
In its most recent financial report for Q3 fiscal 2022 ended December 31, 2021, Canopy revealed a decline of 8% sequentially in net revenue to CA$141 million (US$111.12 million). Total global cannabis net revenue of $83 million in Q3 FY2022, represented a decline of 20% over Q3 FY2021. Total net loss for the period amounted to $115 million.
Nevertheless, despite struggling to turn a profit in the last couple of years, not everything in its earnings report is black and white.
Commenting on its earnings, Klein told Business Insider that investors should keep in mind the crucial element of Canopy’s growth strategy: its ability to operate across the U.S. upon federal legalization. And, since the Acreage, TerrAscend and Wanna deals haven’t closed yet, they don’t appear on the company’s balance sheet.
"So you see the cash outflow, but you don't see the fact that Wana, and Acreage, and TerrAscend are very fast-growing and profitable businesses," Klein said. "So I think it's a bit of a disconnect."
During a call post-earnings, Klein revealed that he is still confident about seeing marijuana legalization on the federal level, and with it, Canopy’s profits exploding. "Who knows when we are going to hit a permissibility event," he said on the call with investors and analysts. "In my view, a question of when not if."
A Full-Fledged CPG Business
In addition to its focus on the U.S., Canopy is expanding its outreach across Canada, through various acquisitions it made last year, such as Supreme Cannabis Company for CA$435 million ($345.7 million) and the cannabis brand Ace Valley.
In January 2021, Canopy also launched a new line of CBD-infused beverages. Dubbed Quatreau, the sparkling waters represent the company’s first incursion into the CBD beverages market in Canada.
Just like Martha Stewart's CBD line, Quatreau's launch revealed the company’s ambitions to move beyond cannabis. Klein wants to make it a full-fledged CPG (consumer packaged goods) business, focused on cannabis and hemp.
“Part of the whole CPG journey is understanding what the consumer is looking for, and understand how we normalize the category so that we can bring in non-traditional cannabis users into the space, and think about Quatreau with CBD as this being a wellness drink, and Quatreau with CBD and THC as a tool for relaxation,” Klein told Benzinga.
In fact, he added, in just a few weeks since its launch, Martha Stewart's line really helped normalize CBD drinks in the U.S., driving considerable new customer and retailer interest.
“Quatreau is just another step on that journey to normalize products with multiple cannabinoids,” Klein concluded. “We plan to do this by over-delivering on expectations: over-delivering on taste, over-delivering on effect…”
About Benzinga Cannabis Capital Conference
The event will feature traditional keynotes, panel discussions, fireside chats, networking, company presentations as well as investor and celebrity appearances, all of which will take place at Miami Beach's Fountainebleau Hotel.
"We've seen cannabis businesses raise tens of millions of dollars at our events, and this year's meeting will be even larger, with a record level of investment capital and top-notch operators," said Jason Raznick, Benzinga's founder and CEO.
Renowned for being the premier gathering of cannabis entrepreneurs and investors in North America, April's Cannabis Capital Conference, April 20-21, returns with an extraordinary edition, recharged with an impressive list of speakers. Check out the full lineup here.
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