Curaleaf CEO: cannabis is one of the best-performing industries in the country right now

Curaleaf CEO Joe Lusardi breaks down the company's latest earnings report, along with his expectations for the cannabis industry amid the coronavirus.

Video Transcript

ZACK GUZMAN: On their own news-- and we got an update from the US' largest cannabis company yesterday reporting results for its first quarter. That would be Curaleaf. The company did post revenues-- total revenues of about $96.5 million-- up 28% quarter over quarter, though it has felt the impacts of the coronavirus lockdown in certain states. And it has actually benefited in other states as well. For more on the quarter and what the outlook for marijuana companies here in the US looks like, I want to bring on the CEO of Curaleaf. Joe Lusardi joins us once again. Joe, always good to chat with you.

I guess we'll start with the results of the first quarter. When you look at that, we did see some pretty impressive metrics there when you look at, you know, EBITDA-- you can look at it on that scale there and the way that you guys surpassed expectations. Net loss for the first quarter, $15.5 million compared to a net loss of $10.8 in the first quarter of 2019. But what was your takeaway in the way you were navigating the slowdown and grappling with the issues of coronavirus out there?

JOE LUSARDI: I think it was a very strong quarter. That top line grew almost 30%. EBITDA grew 45%-- so really strong growth numbers in spite of what's going on in the country. It's a testament to, frankly, our management team and all our employees in the field that managed to power through this crisis. We've been deemed essential across most of the country. And in fact, I would say the cannabis industry is probably one of the best-performing industries in the country right now. So I think in general, we feel good that we can continue to grow the business and operate safely.

ZACK GUZMAN: Yeah, and you talked about maintaining the growth rates in the second quarter as you move forward, though you did note, you know, slowdowns tied to the coronavirus-- you could look at sales impacted in Nevada and Las Vegas and The Strip there or Massachusetts, as you noted on the earnings call. But what's your take on how that might impact things as we move along here in the rest of the year?

JOE LUSARDI: To be honest, it's mostly timing. I mean, the man has been incredibly strong across the country. We're seeing more and more people come into the category turning to cannabis relief. So demand is up across the country. We have some headwinds in two states-- timing, really, in Nevada and Massachusetts. But I think we'll continue to grow all year, and cannabis continues to be validated as an essential service. I feel very good about the rest of 2020.

ZACK GUZMAN: Yeah, and just another metric that jumped out, to me at least, was gross margins. Those came in at about 43% when we look at what analysts were expecting. That was above Vivian Azer-- we like watching what she has here. But when you talk about the margins in sustaining that moving forward, I know you've always mentioned that the mix seems to matter when you think about medicinal marijuana and how that might be a little bit higher there. But we also talk about vapes and the problems that we hit last year in that. So how do you look at the changing mix in consumer preferences for actually consuming cannabis out there and the way that it might change over time as the industry develops?

JOE LUSARDI: The most important thing about our business is that we're still a developing company with a portfolio across the country. So each quarter, we'll grow into our shell and our margins will improve. So I'm confident that as we get scale, we'll even do better on the gross margins. But in terms of consumer preferences, we're seeing people in the category that are more interested in different form factors-- so edibles, topicals, vapes are all still in big demand, and those categories continue to grow.

The good news is those are high margin categories. So I think you're seeing more consumers come to cannabis. If you think about it, anxiety is at an all-time high. People can't sleep. So there are a lot of issues now that people are looking to cannabis for relief.

ZACK GUZMAN: Yeah, when you talk about operational leverage, we should note that you guys are still closing the Grassroots acquisition. That was a company you guys acquired for-- I mean, it was one of the largest deals in the marijuana space. It's not often we see deals approach nearly [AUDIO OUT] dollars in terms of the amount of money paid for a company. You said that would probably close by the end of Q2. When you look at that, how will that impact the way that Curaleaf operates here and the way that you guys have focused pretty aggressively on acquiring brands, especially ones that are consumer-facing and kind of the way that you're betting on that being an important factor as the industry develops, people become comfortable and are able to differentiate one marijuana business from the other? Why is that so important for you?

JOE LUSARDI: I think Grassroots is an incredible business, and we're excited about closing it here in the near future. And it really gives us access to a couple of important markets-- most notably Illinois and Pennsylvania, some of the fastest-growing markets in the country. Illinois just has an adult use program. That allows us to take the Select brand and to put it across 20 markets in the country.

So Select will be for sale in almost every major population center in the country-- from New York to Miami to Illinois to Philadelphia, Boston. And we're going to build the national brand around Select, and so that's why that platform is critical.

ZACK GUZMAN: Yeah, when you talk about why it matters on a state level approach here, navigating all this, it was interesting-- we've talked a lot about legislation and hopefully, if you are a marijuana investor, a lot of this legislation coming through that would make your job operating as a marijuana company in the US easier. And a key aspect of that in the HEROES Act that was recently introduced and passed the House from Democrats there when you think about stimulus, they snuck in the Safe Banking Act, which already passed the House. We discussed that last year-- that would allow companies like yours to shift away from strictly being a cash business here to access banking that other companies would normally get to access.

I mean, what are your expectations there on maybe that moving forward? We've seen the Senate not want to take up this bill before. When you're modeling your expectations for the rest of the year, are you now maybe thinking more about that actually getting passed and having access to banking that you didn't have before?

JOE LUSARDI: Interesting-- I mean, I wouldn't say cannabis is a bipartisan issue-- or a partisan issue. But we are seeing the Democrats take a lot of leadership in DC. And you're right-- the action is all in the Senate right now. There are some entrenched interests that I don't think want that to pass. And so we'll have to see what happens. We're certainly not modeling it into our business, but it would be helpful.

I think it's time for the Senate to recognize that, you know, cannabis is part of the mainstream of our country. It's essential. It's polling over 90% for medical. And so hopefully they'll hear that, or there could be consequences at the ballot box.

ZACK GUZMAN: Yeah. And then when we talk about consequences at the ballot box, obviously it's an election year. It's very hard to model a lot of things, especially with the coronavirus issues continuing to weigh on the overall economy. But when you do look at kind of the shift and the growth of the overall marijuana industry here in the US relative to what we're seeing from some of the largest Canadian LPs, it does seem like there's a pretty seismic shift happening right now for the business here. I mean, Curaleaf shares almost pretty much flat earlier today-- up for the year, which not a lot of companies can say. So are you sensing kind of a turning point right now in the overall industry and the way that the marijuana industry continues to grow?

JOE LUSARDI: Without a doubt. I mean, as I said, this is probably one of the best-performing industries in the country. Period. Cannabis is going to continue to grow. More consumers will come into the category. It's structurally different than Canada and, frankly, much better, because we control the whole supply chain. So I'm absolutely confident that US cannabis companies will get their day, and people are going to recognize the results as we keep putting up record growth every quarter.

ZACK GUZMAN: There you go-- the latest from Curaleaf CEO Joe Lusardi, appreciate you taking the time to chat with us.

JOE LUSARDI: Thanks, Zack.